Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (8) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (8) TMI 858 - AT - Income TaxTDS u/s 195 - disallowing sum paid by the assessee as software maintenance charges to its overseas group companies by invoking section 40(a)(ia) - whether the provisions of the Act can override the provisions of the DTAA, the Hon'ble Court held that Explanation 4 was inserted in section 9(1)(vi) of the ITA in 2012 to clarify that the "transfer of all or any rights" in respect of any right, property, or information included and had always included the "transfer of all or any right for use or right to use a computer software"? - HELD THAT:- Once a DTAA applies, the provisions of the Act can only apply to the extent they are more beneficial to the taxpayer and therefore the definition of 'royalties' will have the meaning assigned to it by the DTAA which was more beneficial. It was held that the term 'copyright' has to be understood in the context of the Copyright Act. The court said that by virtue of Article 12(3) of the DTAA, royalties are payments of any kind received as a consideration for "the use of, or the right to use, any copyright "of a literary work includes a computer program or software. It was held that regarding the expression "use of or the right to use", the position would be the same under explanation 2(v) of section 9(1)(vi) because there must be, under the licence granted or sales made, a transfer of any rights contained in sections 14(a) or 14(b) of the Copyright Act. Since the end-user only gets the right to use computer software under a non-exclusive licence, ensuring the owner continues to retain ownership under section 14(b) of the Copyright Act read with sub-section 14(a)(i)-(vii), payments for computer software sold/licenced on a CD/other physical media cannot be classed as a royalty. As contended by the DR, neither the AO nor the CIT(A) had the benefit of the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. [2021 (3) TMI 138 - SUPREME COURT] and therefore in all fairness, the issue should be remanded to the AO to examine the terms of the agreement under which right were granted to the Assessee in the light of the provisions of the DTAA as to whether the same would amount to royalty. We accordingly remand the issue to the A.O. The AO will afford opportunity of being heard to the Assessee in the set aside proceedings. The appeal of the Assessee is accordingly treated as allowed for statistical purpose.
|