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2017 (9) TMI 513 - AT - Income TaxPenalty proceedings u/s. 271(1)(c) - non deduction of tds u/s 195 - distributing the software to the end users - levy of interest u/s. 201(1A) - Indo-UK DTAA - Held that:- We are of the opinion that definition of term royalty as appearing in the India UK DTAA apply and amendments made by Finance Act, 2012 would have no bearing on the present case. Even the Cir. No. 333 of CBDT states that where a DTAA provides for a particular mode of computation of income, the same should be followed irrespective of the provisions of the Act. In the case before us, the DTAA is providing particular mode of computation for royalty. As per the agreement the assessee did not have any right to generate the license key or make copies of license key or was provided access to source code in the software. The ASL software products were developed and marketed by it were in the nature of shrink-wrap-software-products that are also known as off the shelf software products. The assessee had no role in developing a software, it was just distributing the software to the end users. Therefore, we are of the opinion that payment by the assessee to ASL for procuring and distributing copyrighted software on principal to principal basis could not be treated as payment towards royalty. ASL was not having a PE in India, therefore, the assessee was not liable to deduct tax at source as per the provision of section 195 of the Act, hence, for its failure it cannot be treated as A-I-D u/s. 201. Reversing the order of the FAA we decide effective First effective Ground of appeal. As far as grossing of tax-rate is concerned, we want to state that we have already held that assessee was not liable to deduct tax at source, therefore, the issue of grossing up would not arise. Secondly, even if the taxes were to be paid same were to be paid by ASL. But, we have already held that as it was not having PE in India so ASL was not supposed to pay tax in India. Levy of interest u/s. 201(1A) of the Act. We have already held that the assessee was not liable to deduct tax for the payments made by it. Therefore, there would not be any liability towards payment of interest under section 201(1A).
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