Tribunal Rules Imported Software Payments as Goods, Not Royalties; Section 195 Inapplicable Without Permanent Establishment.

The Tribunal concluded that payments for imported software do not constitute royalty under section 9(1)(vi) of the Act, as they are characterized as purchase and sale of goods. With no permanent establishment in India, no income accrues in India, rendering section 195 inapplicable. The Tribunal set aside the order under section 201(1) and interest under section 201(1A), allowing the appeals.

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Issues:
- Whether the payments made for the purchase of software from outside India constitute royaltyRs.
- Whether the payments for the import of software amount to payment of royalty chargeable under section 9(1)(vi) of the ActRs.
- Whether the provision of section 195 is applicable to the payment for the import of softwareRs.

Analysis:

Issue 1:
The appeals were filed against the order under section 201(1) for failure to deduct tax as required under section 195 of the Act. The Assessing Officer considered the payments for imported software as royalty payments, while the appellant argued that the incomes represented by these payments should be considered as 'business profits' of the non-resident taxable only under the respective Double Taxation Avoidance Agreement (DTAA) if there was a permanent establishment in India. The appellant contended that since there was no permanent establishment in India, the payments should not be chargeable to tax in India and thus outside the purview of tax deduction under section 195.

Issue 2:
The Commissioner of Income-tax (Appeals) confirmed that the payments made for the purchase of software from outside India constituted royalty. The appellant argued that software should be treated as goods under various sales tax enactments and referenced a case where it was held that software standardized and marketed for certain classes of clients would constitute goods. The Tribunal, considering various decisions and the Supreme Court's ruling, held that the payments for importing software did not amount to payment of royalty under section 9(1)(vi) of the Act. The Tribunal concluded that the payments were for the purchase and sale of goods, not for acquiring any copyright, and no income was deemed to accrue or arise in India.

Issue 3:
The Tribunal held that the payments for the import of software did not amount to payment of royalty chargeable under section 9(1)(vi) of the Act. The Tribunal determined that the payments partook the character of purchase and sale of goods, and since the payee had no permanent establishment in India, no income was deemed to accrue or arise in India. Consequently, the provision of section 195 was deemed not applicable to such payments, and the appellant could not be held liable under section 201 of the Act. The Tribunal set aside the order under section 201(1) and the charging of interest under section 201(1A) of the Act, thereby allowing all the appeals.

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