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2017 (3) TMI 142 - AT - Income TaxTds U/S 195 - Grant of license - P.E. in India - whether the sums paid by the Appellant to NPL is in the nature of “Royalty” chargeable to tax in India has to be decided - Whether the definition of ‘Royalty’ as provided under the Income Tax Act is to be taken or that which has been provided in the DTAA between India and Singapore? - Held that:- We have to clarify that Explanation-4 to Sec.9(1)(vi) of the Act was inserted by the Finance Act, 2012 w.r.e.f 1-6-1976 which enlarges the definition of “Royalty” and therefore not beneficial to NPL in so far as it treats mere “right for use” or “right to use” a computer software as distinct from the definition in Article 12(3) of the DTAA which refers to ‘use of’ or the ‘right to use’ ‘any copyright of literary, artistic, scientific work including. In view of Sec.90(2) of the Act NPL can opt to be governed by the DTAA which is more favourable rather than Explanation-4 to Sec.9(1)(vi) of the Act which imposes a tax burden on NPL. The question whether Explanation-4 to Sec.9(1)(vi) which was enacted after the DTAA can override the provisions of the DTAA is another question which will be discussed later. Therefore the definition of “Royalty” as given in the DTAA has to be adopted. whether the term ‘literary work’ as mentioned in the definition of royalty in the treaty would include ‘software’ or not? - Held that:- We are of the view that the view expressed by the Hon’ble Delhi High Court in the case of DIT Vs. Ericsson AB, New Delhi (2011 (12) TMI 91 - Delhi High Court), which is favourable to the Assessee, should be followed and therefore we hold that the consideration received by the Assessee for software was not royalty. The receipts would constitute business receipts in the hands of the NPL. Admittedly NPL does not have a permanent establishment and therefore business income of the NPL cannot be taxed in India in the absence of a permanent establishment. In the present case there is no dispute raised by the revenue that NPL was not a tax resident of Singapore and that the benefits of DTAA between India and Singapore cannot therefore be available to the appellant. The amount paid by the appellant to NPL is not in the nature of royalty within the meaning of the DTAA between India and Singapore and therefore the amount received by NPL would be in the nature of business income which would be chargeable to tax in India under Article 7(1) of the DTAA only if NPL has a Permanent Establishment (PE) in India. Admittedly NPL did not have a PE in India and therefore the payment in question is not chargeable to tax in India and therefore there was no obligation on the part of the appellant to deduct tax at source u/s.195 of the Act. Consequently, the Assessee could not be treated as an Assessee in default u/s.201(1) of the Act nor could interest be levied on tax not deducted at source on tax not deducted at source till date of payment to the account of the Central Government u/s.201(1A) - Decided in favour of assessee
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