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2015 (8) TMI 413 - AT - Income TaxWithholding of tax - payment as reimbursement of cost for purchase of standard off the shelf software, a copyrighted article, by the Appellant to its group company, Lionbridge Technologies Inc. USA - whether is not in nature of royalty in the hands of recipient under Income Tax Act read with the Double Taxation Avoidance Agreement between India and USA and therefore the question of withholding doesn’t arise? - assessee in default under section 201/201(1A) - Held that:- Lionbridge USA has entered into an agreement with vendors like Microsoft inc. for the purchase of Standard off Shelves Software to be used by Lionbridge group entities across the globe. The cost of the purchase of the softwares has been allocated amongst various group entities based on allocation key of number of desktop in each office. The said allocation was made at cost and no mark-up was charged. Accordingly, all the group entities had reimbursed their share of cost to the Lionbridge USA. In support, the copy of the agreement along with invoices by the Vendors and allocation key has been placed in the paper book. It has not been disputed that the cost of reimbursement paid to Lionbridge USA is not chargeable to tax in India. If that is so, then assessee was not required to withhold the tax u/s 195 and this proposition is well supported by a decision of Hon’ble Supreme Court in the case of G E India Technology Centre P Ltd (2010 (9) TMI 7 - SUPREME COURT OF INDIA). Secondly, here in this case, it is not a question where Lionbridge US has developed software which has been given for use to the assessee. The software has been purchased from Microsoft, the cost of which has been distributed amongst all the group entities. It is pure case of reimbursement of cost and admittedly, there is no mark-up. Accordingly, there was no liability to deduct TDS on such reimbursement of cost. - Decided in favour of assessee.
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