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2015 (11) TMI 1893 - AT - Income TaxNature of expenses - software expenses - revenue or capital expenses - assessee is in the business of media planning, executing and buying in the field of advertising and marketing and other related services - HELD THAT:- We find that these software license costs which has been paid by the assessee is for using of software for its day-to-day business requirements, as stated by the assessee before the AO. These softwares keep are ever changing from time to time and did not have a useful life for very long period and at one point of time it becomes obsolete. Thus, it cannot be held that they are capital in nature on account of enduring benefit. As decided in Asahi India Safety Glass Ltd [2011 (11) TMI 2 - DELHI HIGH COURT] and Raychem RPG Ltd, [2011 (7) TMI 953 - BOMBAY HIGH COURT] have held that, these softwares do not form part of the profit making apparatus and merely facilitate the assessee’s trading operation or enabled the management to conduct the assessee’s business more efficiently and more profitable. Thus, they have to be treated as revenue expenditure. TDS u/s 195 - disallowance being the provision made for the expenditure to be reimbursed in connection with the software allocation cost by the foreign AE/group company, “Mindshare Asia Pacific” - AO observed that, such a payment on account of reimbursement of software cost amounts to “royalty” within the meaning of Explanation to section 9(1)(vi) and TDS should have been deducted by the assessee while making the payment - assessee contended that it is merely reimbursement of cost of software expenses incurred by the Group company which has been allotted to the assessee and is not a “Royalty” within the meaning of Explanation 2 to Section 9(1)(vi) - HELD THAT:- These softwares have not been developed by the Parent Company or any AE, but have been centrally procured so that same can be allotted and given to the various Group entities in order to ensure proper functioning; proper coordination and quality. Whatever cost had been incurred for procuring the software from third parties has been allocated among the group entities on the proportionate basis. Such an allocation has not been disputed except for holding that the reimbursement of cost paid by the assessee to the Parent/ AE Company amounts to “Royalty”. Such a reimbursement of cost cannot be held to be for any transfer of any right or giving any right to use within the ambit and scope of any of the definition as given in Explanation 2 to section 9(1)(vi). Once such a payment does not fall within any of the parameters set out in Explanation 2, then it cannot be held that, it is in the nature of “royalty”. ‘Mindshare Asia Pacific’ is procuring the software from somewhere else and loading the cost on proportionate basis to various group entities without any mark-up hence on reimbursement of such a cost, assessee was not liable to deduct TDS on account of “royalty” - Decided in favour of assessee.
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