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2016 (3) TMI 213 - AT - Income TaxAssessee in default u/s.201(1) and 201/(1A)- non deduction of tds on software licence - whether the provisions of sec.9(1)(vi) of the Act, is applicable to the payment made to the software license by treating the same as ‘royalty’ concluding that the assessee is liable for deduction of tax u/s.195? - Held that:- It is necessary to make a distinction between the cases where consideration is paid to acquire the right to use a patent or a copyright and cases where payment is made to acquire patented or a copyrighted product/material. In cases, where payments are made to acquire products which are patented or copyrighted, the consideration paid would have to be treated as a payment for purchase of the product rather than consideration for use of the patent or copyright. In the present case, what was transferred is copyright and the right to use the copyright give rise to ‘royalty’ payment. Being so, in our opinion, the finding of the CIT(Appeals) in observing that granting of any license to use the software amounts to ‘royalty’ and the provisions of sec.9(1)(vi) are applicable. Accordingly, we are of the opinion that the authorities are justified in holding that the assessee is in default u/s.201(1)/201(1A) of the Act for non-deduction of T.D.S. on the impugned payment. - Decided against assessee Nonpayment of TDS on bandwidth charges - Held that:- As decided in Verizon Communications Singapore Pte. Ltd. v. ITO(International Taxation) [2013 (11) TMI 1058 - MADRAS HIGH COURT] the receipts are liable to be treated as 'royalty' for the use of IPLC under Section 9(1)(vi) read with Explanation 2(iva) and correspondingly Article 12(3) of DTAA between India and Singapore. We also agree that even if the payment is not treated as one for the use of the equipment, the use of the process was provided by the assessee, whereby through the assured bandwidth the customer is guaranteed the transmission of the data and voice. The fact that the bandwidth is shared with others, however, has to be seen in the light of the technology governing the operation of the process and this by itself does not take the assessee out of the scope of royalty. Thus the consideration being for the use and the right to use of the process, it is 'royalty' within the meaning of Clause (iii) of Explanation 2 to Section 9(1)(vi) of the Income Tax Act. and thus the authorities are justified in holding that the assessee is in default u/s.201(1)/201(1A) of the Act for non-deduction of T.D.S. on the impugned payment. - Decided against assessee Reimbursement of expenses - AO classified “reimbursement of Expenses” under the head ‘business development commission and bandwidth charges - Held that:- There was nothing on record to indicate as to how such reimbursement could be termed as business income of the assessee. The reimbursements were made in the process of executing the agreement. The expenditure being part and parcel of the process of advice of technical character, the payment on account of reimbursement also attracted the provisions of section 195(2) of the Act. - Decided against assessee
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