The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that the purchase of the licensed software would not amount to royalty and under the Income Tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and USA.
The assessee claimed a deduction of expenditure incurred on the purchase of licensed software. The department rejected the claim by holding that the purchase of licensed software by the assessee is akin to royalty and the assessee was duty bound to deduct tax at source. Since the assessee has failed to deduct tax at source, expenditure was disallowed in the hands of the assessee.
On appeal, the CIT(A) had placed reliance on the ratio laid down by Pune Bench of Tribunal in the case of Cummins Inc (supra) and Mumbai Bench of Tribunal in DDIT Vs. Reliance Infocom and held against the assessee.
The assessee, approached the Tribunal relying on the latest decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. DDIT wherein the Tribunal held that above payments are not subject to TDS.
“The issue was considered at length and it was held that where the software is purchased across the counter as shrink proof software, then it is not akin to royalty both under the Income Tax Act or the DTAA. The Tribunal held that since the definition of ‘royalty’ has not been amended under DTAA, then the said definition would be paramount and would have to be applied for deciding the issue. It also held that amendment to section 9(1)(vi) of the Act by insertion of Explanations 4 to 6 would not change the scenario and make the assessee liable for deduction of tax at source in the relevant year,” the Tribunal said.
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