Common-support expenses and software purchases were treated as business payments, not royalty, under accepted tax principles.

Payments under a genuine common-support arrangement with a holding company were treated as allowable business deductions because the turnover-based allocation of shared expenses had already been accepted and the deputation and reimbursed expenses were supported by material and shown to be business-related. Software purchases from resident entities were held not to be royalty, because the supply was for a copyrighted article rather than a transfer of copyright rights; section 40(a)(ia) disallowance therefore did not apply on that basis. The assessee retained the relief granted by the first appellate authority.

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Issues: (i) Whether service charges paid to the holding company for common support services and reimbursement-related expenditures were allowable business deductions; (ii) Whether payments for purchase of software from resident entities constituted royalty so as to attract disallowance under section 40(a)(ia).

Issue (i): Whether service charges paid to the holding company for common support services and reimbursement-related expenditures were allowable business deductions.

Analysis: The Tribunal followed its earlier decisions in the assessee's own case and held that the support services arrangement was genuine and that allocation of common expenses on the basis of turnover had already been accepted as reasonable. It also found that deputation charges and other reimbursed expenses were supported by additional material and were not covered by the common-services agreement, but were incurred for business purposes.

Conclusion: The disallowances of service charges, deputation charges and other reimbursed expenses were deleted and the claim was allowed in favour of the assessee.

Issue (ii): Whether payments for purchase of software from resident entities constituted royalty so as to attract disallowance under section 40(a)(ia).

Analysis: The Tribunal preferred the view that supply of software amounted to purchase of a copyrighted article and not transfer of copyright rights. Relying on the favourable High Court view, it held that payment for software purchase was not royalty within section 9(1)(vi), and therefore the assessee was under no obligation to deduct tax on that basis for the purpose of section 40(a)(ia).

Conclusion: The addition made by treating the software payments as royalty was deleted in favour of the assessee.

Final Conclusion: The appeal failed in full and the assessee retained all relief granted by the first appellate authority.

Ratio Decidendi: Payments incurred under a genuine business arrangement for support services, deputation-related expenses and software purchase are allowable where they are shown to be for business purposes, and software supply constitutes a copyrighted article rather than royalty unless copyright rights are transferred.

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