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2017 (3) TMI 1888 - AT - Income TaxTDS u/s 195 - Disallowing software purchased by way of imports 40(a)(i) on account of non deduction of TDS - Whether payments made for software purchased by the assessee amounted to “royalty’ as envisaged in Explanation 3 to section 9(1)(vi)? - CIT-A deleted the addition - HELD THAT:- Perusal of the agreement suggests that neither there was any transfer of copyright nor the vendor has given any permission for commercial exploitation of the copyright of the software. No source codes etc have been supplied by the vendor to the assessee. There is no permission given to the assessee to make any modification or re-engineering of the software, which was supplied for the limited purpose of internal use of the assessee. Ownership with regard to title and interest in the licensed software is retained by the supplier. It is noted that in the case of Shinhan Bank vs DDIT [2016 (7) TMI 1432 - ITAT MUMBAI] similar situations arose before the Mumbai bench of the Tribunal wherein the AO had disallowed the deductions claimed by the assessee on account of payment made for purchase of software u/s 40(a)(i) for non deduction of tax at source u/s 195 by the said assessee. Hon’ble Bench examined latest legal position in this regard and held that impugned payments were not liable to the taxed as ‘royalty’ in the hands of payees (i.e. suppliers) and therefore, no tax was required to be deducted at source and thus no disallowance could have been made u/s 40(a)(i). Identical situation came up in the case of CIT vs Vinzas Solutions India (P) ltd [2017 (1) TMI 1102 - MADRAS HIGH COURT] wherein the department invoked provisions of section 40(a)(i) by treating the amount of purchase of software as ‘royalty’ under Explanations 4 and 5 of section 9(1)(vi) of the Act and the assessee in the said case was a dealer engaged in buying and selling of software products in the open market. It was contended on behalf of the assessee before the Hon’ble High Court that the transaction in question was one of purchase and sale of product and nothing more. Thus we find that it was rightly held by Ld. CIT(A) that TDS was not required to be deducted in this case. Therefore, disallowance made by AO by invoking provisions of section 40(a)(i) has been rightly deleted by Ld. CIT(A). No interference is called for in his order and therefore, the same is upheld. - Decided against revenue.
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