Tribunal Rules in Favor of Assessee Over Software License Purchase Disallowance

The Tribunal ruled in favor of the assessee, overturning the disallowance of software license purchase treated as royalty under section 9(1)(vi) for non-deduction of TDS. The Tribunal emphasized that the purchase of copyrighted articles did not fall under section 9(1)(vi) as there was no evidence of additional payments beyond the purchase price. Additionally, the issue of disallowance of employees' PF contribution for late payment was remitted back to the AO for further examination, with instructions to allow the deduction if payments were made before the due date of filing the return.

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Issues:
1. Disallowance of software license purchase treated as royalty under section 9(1)(vi) for non-deduction of TDS.
2. Disallowance of employees' PF contribution for late payment.

Analysis:

Issue 1: Disallowance of software license purchase treated as royalty under section 9(1)(vi) for non-deduction of TDS:
The assessee, engaged in software development and export, purchased software licenses which the Assessing Officer treated as royalty under section 9(1)(vi) due to non-deduction of TDS. The CIT(A) upheld this disallowance. However, the assessee argued that the software purchase was akin to goods under Sales Tax/VAT Act, not royalty. Citing relevant case law, the assessee contended that section 9(1)(vi) does not apply to outright purchase and sale of a product. The Tribunal agreed, emphasizing that the purchase of copyrighted articles did not fall under section 9(1)(vi) as there was no evidence of additional payments beyond the purchase price. Consequently, the disallowance was overturned.

Issue 2: Disallowance of employees' PF contribution for late payment:
The CIT(A) directed the AO to allow deduction under section 36(1)(va) for employees' PF contribution if paid within the grace period allowed by the PF Act. The assessee argued that the Finance Act, 2003 amendment allowed PF contributions as expenditure if paid before the due date for filing income tax return. Citing relevant case law, the assessee contended that payments made before the due date of filing the return cannot be disallowed. The Tribunal remitted this issue back to the AO for examination, instructing to allow the deduction if payments were made before the due date of filing the return. The appeal was partly allowed on this ground.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, overturning the disallowance of software license purchase treated as royalty and remitting the employees' PF contribution issue back to the AO for further examination.

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