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2017 (11) TMI 1985 - AT - Income TaxTDS u/s 195 - deduct tax for making payment to a foreign entity - AO holding that the payment by the assessee to ISL was in the nature of royalty within the meaning of Article-12 of India Israel Tax Treaty - HELD THAT:- The assessee did not have any right to exploit the copyright of the software and that ISL had the copyright over the software. In other words the assessee was using a copyrighted article. ISL had sold copyrighted Article and not the copyright itself. We find that in the case of Alcatel Lucent, USA[2017 (5) TMI 1605 - ITAT MUMBAI] the Tribunal has dealt with the issue of sale of copyrighted Article and sale of copyright as held that provisions of the DTAA would prevail over the Act unless the Act is more beneficial to the assessee. Therefore, except to the extent a provision of the Act is more beneficial to it, the DTAA will override the Act. This is irrespective of whether the Act contains a provision that corresponds to the treaty provision. In our opinion, international taxation issues have to be decided keeping in mind the above broad principles. - the impugned payment made by the Branch to the H. O. towards reimbursement of cost of data processing cannot be held to be covered within the scope of expression “royalty” under Article 12(3)(a) of the India Belgium DTAA - data processing cost paid by the assessee does not amount to royalty, consequently, there is no requirement for deducting tax at source on such payment. Therefore, the provisions of section 40(a)(i) will not apply. - Decided in favour of assessee.
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