TDS not applicable on Computer Software affixed onto Hardware, sold as an Integrated Unit: ITAT [Read Order]

TDS - computer software - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that TDS not applicable on computer software affixed onto hardware, sold as an integrated unit.

The assessee, M/s Autodesk Asia Pvt. Ltd. is a Singapore-based company. It was submitted that the assessee is engaged in the business of distribution of Computer Software and providing ancillary services to its Indian distributors/customers. In certain cases assessee also sold hardware to Indian parties. It is submitted that the sale of software/hardware was made outside India, and the sale proceeds of the sale/ancillary services from the Indian distributors/customers were received by the assessee outside India.

For a year under consideration, the assessee filed a return of Income declaring Nil taxable income. The return was selected for scrutiny. The AO observed that the assessee received Rs.232,34,01,380/- as consideration towards the distribution of computer software/hardware and ancillary services to Indian distributors or customers. The AO while passing the Draft Assessment order held that the consideration so received amounts to Royalty under section 9(1)(vi) of the Act and Art 12 of India- Singapore DTAA.

The AO also proposed to tax the consideration received from Indian distributors/customers for the sale of hardware as royalty on the basis that hardware and software are inseparable and that the software cannot function in the obscene of hardware.

The coram of Accountant Member, Chandra Poojari and Judicial Member Beena Pillai noted that the case of the assessee is covered under the second category of cases which deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users; and the fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/ equipment.

Therefore, the tribunal held that the purchase of software in the present facts does not amount to giving rise to any taxable income in India as a result of which provisions of section 195 of the Act are not attractive. The assessee does not have any obligation to deduct tax at the source. Therefore, provisions of section 9(1)(vi) along with Explanation 2 are not applicable to present assessees.

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