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2014 (12) TMI 430 - AT - Income TaxDeletion of demand u/s 201(1) and 201(1A) - Liability to Deduct tax on remittance made to its Denish group concern – Remittance made attract Provisions u/s 9(1)(vi) relating to Royalty or not - whether the assessee’s act of acquiring ‘2003 Microsoft licensing for 270 sets of MS Office, Windows and Cals’ amounts to payment of ‘royalty’ or not – Held that:- The assessee has paid a ‘royalty’ sum to its Denish group concern in lieu of acquiring software licence for ‘2003 Microsoft licensing for 270 sets of MS Office, Windows & Cals’ - the granting of licence is already included as a right in Explanation 2 clause (i) and (v) - These clauses form part of the ‘royalty’ provision since its coming into being - This licence would also enable the assessee to make use of the ‘shrink wrap software’ availed. Following the decision in Commissioner of Income-tax Versus Samsung Electronics Co. Ltd. & Others [2011 (10) TMI 195 - KARNATAKA HIGH COURT] - 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 - agreements with foreign countries DTAA would override the provisions of the Act - there is obligation on the part of the respondents to deduct tax at source u/s 195 of the Act - the nature of software technology availed, invoice raised specifically quoting only licence and right of usage embedded supports the case of the revenue. Transactions relating to sale of goods – Held that:- The present case involves only a licence pertaining to ‘shrink wrap software’ - There is no material to prove any ‘goods’ element in the ‘2003 Microsoft licensing for 270 sets of MS Office, Windows and Cals’ - The CIT(A)’s view does not refer neither to any statutory provision nor evidence on record - cost sharing formula or any other method is only an internal arrangement - In determining ‘royalty’ payment, we have to refer to facts of the case vis-à-vis the statutory provision - Since the conditions are satisfied, this formula in itself cannot defeat applicability of the TDS provision - whatsoever may be the medium or mode of acquiring the licenced right, the fact remains that the assessee has acquired a licence to use the Microsoft Office software - Its claim that it is merely a copy of the copyrighted article does not make any difference - the assessee ought to have deducted TDS for acquiring ‘2003 Microsoft licensing for 270 sets of MS office, Windows and Cals’ - Thus, the assessing authority has rightly raised demand u/s 201(1) and interest u/s 201(1A) of the Act – Decided in favour of revenue.
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