2011 (10) TMI 195 - HC - Income Tax

Royalty paid to foreign software Supplier- deduction of tax at source- Double Tax Avoidance Agreement- Held that:- Assessee imported software products from USA, France and Sweden. No tax was deducted at source in respect of such payments on the ground that software imported was not customized and therefore payment does not constitute royalty neither under I.T. Act nor under provisions of DTA agreement therby not liable to tax. It is held that right to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back up copy would itself amount to copyright work under Section 14(1) of the Copyright Act and licence is granted to use the software by making copies, which work, but for the licence granted would have constituted infringement of copyright and licencee is in possession of the legal copy of the software under the licence and payment made in that regard would constitute 'royalty' for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of Explanation 2 to Section 9(1)(vi) of the Act.

In any view of the matter, in view of the provisions of Section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. In view of the said finding, it is clear that there is obligation on the part of the respondents to deduct tax at source under Section 195 of the Act.

Further, it is stated that obligation to deduct TDS u/s 195 arises only when there is a sum chargeable under the Act and not all payments are subject to TDS. Decided against the aseessee.