TaxTMI 
TaxTMI 
2016 (7) TMI 1432
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....unds of appeal the assessee has raised following grounds :- 'Ground - Applicable rate of tax The DDIT (IT)-2(1), Mumbai ["AO"] erred in law and on facts in rejecting the Appellant's claim for the benefit of the non-discrimination clause of the India-Korea Double Taxation Avoidance Agreement ("DTAA") and taxing the Appellant's income @ 40% (plus surcharge and education cess) instead of at the rate applicable to a resident taxpayer. The Appellant therefore, prays that the benefit of the Article 25 of the DTAA be granted and that its income be taxed @ 30% instead of 40% (plus surcharge and education cess). Ground II- Non-deduction of taxes on software chares The AO erred in law and on facts in disallowing software charges paid....
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.... that, the assessee has made payment towards software charges to "Comas Inc", a Korean entity without deduction of tax at source. "Comas Inc", is an IT solution provider to Banks and offers solutions in the areas of banking, electronic trading, internet banking, cash and treasury management. It has provided a software option called "Exit Signon" wherein swift messages containing terrorist names are automatically deflected to another queue for the officer to further check about the genuineness of the transaction. The Bank has been provided with Log in and password to access the software loaded on servers in Korea. The AO held that the relevant transaction related to a transfer of license to "use" of the software and not sale and accordingly,....
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....oftware including granting of license irrespective of medium through which such right is transferred has also been included in the ambit of "Royalty". Thus, at the time of making of such payment there was no such provision under the Act and therefore the assessee could not have withheld the tax. In support of this contention that no liability can be fasten on the assessee to deduct tax at source on the basis of subsequent amendment made in the Act, he relied upon the following decisions: (a) Channel Guide India Ltd. v. Asstt. CIT [2013] 139 ITD 49/25 taxmann.com 25 (Mum.) (b) New Bombay Park Hotel (P.) Ltd. v. ITO (International Taxation) [2014] 61 SOT 105/[2013] 39 taxmann.com 120 (Mum. - Trib.); (c) Dy. CIT v. iGate Computer Systems Lt....
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....ion 4 to section 9(1)(vi) the payment on account of computer software including granting of license which has been brought in the statute by the Finance Act, 2012 with retrospective effect from 1.6.1976 brings such type of payment within the scope and ambit of enlarged definition of "Royalty". Admittedly, at the time of payment to "M/s. Comas Inc" for the software charges in May 2008 by the assessee there was no such provision under the Act that transfer of any right for use or right to use the computer software included granting of license irrespective of medium through which such right is transferred was not there in the statute. The case of the assessee has been that it has only purchased software for its banking business and license was....
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.... been upheld by the ITAT Mumbai Bench in the case of Channel Guide India Ltd. (supra) and catena of other decisions as cited by ld. Counsel, wherein it has been held that, assessee cannot held to be liable for deducting TDS in view of the retrospective amendment which has come at a much later date. Thus, we hold that the assessee was not obliged to deduct TDS at the time of making the payment and the law which has come into statute after four years from the date of payment cannot be held to be applied retrospectively at best for deduction of TDS. Thus, we hold that disallowance u/s. 40(a)(i) for non-deduction of TDS cannot be upheld. So far as the reliance placed by the ld. DR in the decision of Hon'ble Karnataka High Court in the case ....