TaxTMI 
TaxTMI 
2021 (3) TMI 687
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....the case are as follow: The assessee is a private limited company. It provides contract software development and support services and information technology (IT) enabled services including data analysis, compilation and transmission of customized software to overseas affiliates. The assessments were completed by making disallowance of software expenses paid to nonresidents by invoking the provisions of section 40(a)(ia) of the I.T.Act. 3. Based on the disallowance u/s 40(a)(ia) of the I.T.Act, in assessments completed, proceedings u/s 201(1) of the I.T.Act was initiated. The assessee was show caused why it should not be treated as an assessee in default for non-deduction of tax at source u/s 195 of the I.T.Act. The assessee filed deta....
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....h payment under the provisions of the Act (and the provisions of relevant DTAA if more beneficial to the assessee). 3. As per the provisions of section 5 of the Act, in case of non-residents, amounts includible in their total income i.e. taxable income would be all income from whatever sources derived which- a. is received or is deemed to be received in India in such year by or on behalf of such person, or b. accrues or arises or deemed to accrue or arise to him in India during such year. 4. As per section 9(1)(vi) of the Act, income deemed to accrue or arise in India includes income by way of royalty payable by a person who is a resident in India. 5. As per Explanation 2 to section 9(1)....
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....ive licence permitting user for in-house purpose would be covered by this expression. The Company submits that any and every licence is not contemplated by the term "license" which appears in the royalty definition. It should take colour from the preceding expression 'transfer of rights in respect of copyright'. 9. In the instant case, we submit that Appellant has been granted the user licence to use the software (and not the copyright in the software) for its internal business purposes. The Appellant has got the license to use. the software and such license does not grant the Company right to make copies of such software even for its internal purposes. Thus, we submit that what is transferred is a copyrighted arti....
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....of the Indian Copyright Act, 1957 (CA) but is a licence which imposes restrictions or conditions for the use of the computer software 13. Accordingly, the Supreme Court has also observed that based on the definition of 'royalty' contained in Article 12 of the DTAAs, the distribution agreements/ End-User License Agreements do not create any interest or right in such distributors /end users, which would amount to the use of or right to use any copyright. The Apex Court also noted that the definition under the Act is wider as compared to the definition in DTAA in at least the following three aspects: - Consideration includes lumpsum consideration which would not amount to income of the recipient chargeable under the h....
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....not a license in terms of section 30 of the Indian Copyright Act, 1957 (CA) but is a licence which imposes restrictions or conditions for the use of the computer software. The Hon'ble Supreme Court has also observed that based on the definition of 'royalty' contained in Article 12 of the DTAAs, the distribution agreements/ End-User License Agreements do not create any interest or right in such distributors/end users, which would amount to the use of or right to use any copyright. The Hon'ble Apex Court also noted that the definition under the Act is wider as compared to the definition in DTAA in at least the following three aspects: - Consideration includes lumpsum consideration which would not amount to income of the....
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....s / suppliers, as consideration for the resale / use of the computer software through EULAs / distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment." 7. Moreover, the disallowance in the assessment order by invoking section 40(a)(ia) of the I.T.Act was deleted by the ITAT in order dated 11.03.2021 (supra) by following the above judgment of the Hon....