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2020 (1) TMI 1641 - AT - Income TaxTDS u/s 195 - Disallowance u/s. 40(a)(i) - payment of ‘Software Maintenance charges’ - payment of Software charges made by the assessee for the year was excessive - assessee reported certain international transactions in Form No. 3CEB which included `Payment of Software Maintenance charges’ to CMA CGM, France - HELD THAT:- CMA CGM, France received the amount from the assessee in order to facilitate its shipping business. As such, the amount will rightly qualify as profit derived from shipping business in the international traffic. Interest arising on funds connected with the operation of ships shall be regarded as profits derived from the operation of such ships, and such interest will be dealt with as per Article 9 and not Article 12 (which specifically deals with Interest income). Thus, it is ostensible that an item of income, which is not only directly connected with the shipping business but also indirectly connected with the shipping business, such as, interest on funds connected with the operation of ships, has also been understood as profits derived from shipping business under the DTAA. When we examine the nature of income of CMA CGM, France under consideration, it becomes unequivocal that the same, being, directly concerned with the operation of ships, cannot be considered as anything other than profits derived from operation of ships and hence covered under Article 9 of the DTAA. As such, it would not magnetize any taxation in the hands of CMA CGM, France. Ex-consequenti, there will be no obligation on the part of the assessee to deduct tax at source and the fortiori is that there will not be any disallowance u/s.40(a)(i) of the Act. Assessee was allowed the use of the software for its own business purpose and there was no permission to sub-licence the same. There is a specific bar on the assessee in not sub-licensing the software, which were to be used for its sole business needs. In other words, the consideration was for the use of software for its own business purpose and not for the use of, or the right to use, any copyright of software. As the consideration payable by the assessee for use of LARA, DIVA and Ocean was only for the use of the software for its own business purpose and not having right to copyright, the same will not constitute ‘Royalties’ within Article 13(3) of the DTAA. Thus held that payment for use of software made by the assessee to CMA CGM, France does not satisfy the requirement of `use of, or the right to use, any copyright of software’. Once it is held that para 3 of Article 12 is not attracted, as a sequitur, the application of clause (a) of para 4 of Article 12 of the DTAA with Portuguese would automatically be ousted, thereby making the amount paid by the assessee to CMA CGM, France for use of LARA, DIVA and Ocean software as immune from taxation in India. Going by the beneficial provision in the DTAA vis-à-vis the Act, it is held that there was no requirement on the part of the assessee to deduct tax at source which should have called for any disallowance u/s. 40(a)(i) of the Act. We, therefore, order to delete the addition. Decided in favour of assessee.
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