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2006 (1) TMI 464 - AT - Income TaxTDS u/s 195 - Applicability of section 9 of the Act - TDS liability arise on payments for purchase of software to non-residents ? - Taxability of sale of software as “Royalty” - consideration received on sale of computer software programme i.e. C D ROM as business income OR “Royalty Income” - HELD THAT:- In the instant case, the appellant has acquired the software for business use. The rights acquired in the software are limited to the extent to enable the appellant to operate the programme. The appellant has not acquired any copyright of the software but has only acquired a copyrighted programme. The appellant relied on the judgment of the Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004 (11) TMI 11 - SUPREME COURT] in which the Apex Court held that canned software are goods and liable to sales tax. The worthy Supreme Court further observed that intellectual property has been incorporated in the media for transfer and both cannot be split up. The facts in the instant case are similar to the facts of Samsung Electronics (P.) Ltd.’s case [2005 (2) TMI 438 - ITAT BANGALORE-A], ruled that a readymade off the shelf computer programme does not grant any right to utilise the copyright of the computer programme and accordingly, the payments for its import would not constitute royalty income in India and no tax needs to be deducted u/s 195 of the Act. The Special Bench also held that software supplied is goods. Though an information technology product is normally regarded as an intangible asset, once technology is put on a media, then it becomes goods liable to custom duty. Finally, the Special Bench held that the payments for hardware and software were lump-sum payments and no separate consideration should be attributed towards software as "royalty". Thus, it is held that payments made for import of software is not royalty and tax was not required to be deducted at source. Hence the demand raised u/s 201 for non-deduction of tax at source is cancelled. In the result, the appeals are allowed.
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