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2018 (1) TMI 184 - AT - Income TaxTDS u/s 195 - intranet charges, payment of SAP software - AO held that above services constitute royalty u/s 9(l)(vi) of the Act and it has deemed to accrue or arise in India hence, chargeable to tax u/s 5(2) of the Act in the hands of the non-resident recipient - India Germany DTAA - Held that:- In the present case the financial year are FY 1999-2000 to 2005-06, therefore, the ld Assessing Officer cannot assume jurisdiction for FY 1999- 2000 and 2000-01 accordingly, the ld AO cannot work out short deduction of tax on SAP Maintenance expenses of ₹ 18248673/- and ₹ 2503235/- for FY 2000-01 respectively. Accordingly, respectfully following the decision of the Hon’ble Delhi High Court we direct AO to not to treat the assessee in default u/s 201(1) as well as not to charge interest consequently, u/s 201(1A) of the Act for these two financial years. Accordingly, the orders passed u/s 201 (1) / 201 (1A) for FY 1999-2000 and 2000-01, consequent tax and interest thereon covered in the order for these two years are cancelled. Contentions raised by the assessee that it is a reimbursement of expenses and therefore, no tax is required to be deducted thereon - Held that:- To test the payment made by the assessee for SAP charges it is important to note that payment of such charges are made for use of licensed software on the Internet/ intranet and payment is also contingent on the basis of number of the user license or number of sessions for which the software is used, in the present case the technical support would also be provided by SAP, a German company and not by the recipient of the expenditure. In view of this, the above software receipt is scientific equipment under the Act and India Germany Tax Treaty. Hence, such payment is correctly regarded as royalty by the lower authorities according to article 12 of the DTAA. In view of this, the above payment made by the assessee to its holding company is chargeable to tax as royalty according to the income tax act as well as according to the double taxation avoidance agreement. Therefore, on such payment assessee should have deducted tax at source under the provisions of section 195 of the income tax act at the beneficial rate of 10% provided under the double taxation avoidance agreement. In view of this, the order passed by the Ld. assessing officer under section 201/201 (1A) for financial year 2001 - 2002 to 2005 - 2006 are correctly confirmed by the Ld. CIT (A). Hence, appeal of the assessee with respect to the financial years 2001 - 2002 to 2005 - 2006 are dismissed.
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