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2018 (4) TMI 449 - AT - Income TaxPayments for software licenses fees as 'Royalty' as per Section 9(1)(vi) - treatment to payment made for software licence fees - DTAA applicability - withholding of tax - Held that:- The present case before us the Assessing Officer has held that the payment made by the assessee was ‘royalty’ as per definition of ‘royalty’ under the DTAA also. We find no merit in the said stand of Assessing Officer, in view of the issue being so held in DIT Vs. Infrasoft Ltd. (2013 (11) TMI 1382 - DELHI HIGH COURT). We further hold that payment made for purchase of software was not royalty as per definition of ‘royalty’ under the DTAA between India and USA, Germany and Singapore, since the term ‘royalty’ under the DTAA with these different countries had not been amended. Even if the definition of ‘royalty’ under the Act stands amended but the assessee was not liable to withhold tax on the payments made to Non-resident entities on account of purchase of software. Unilateral amendment by the Indian Government to the term ‘royalty’ by way of amendment to section 9(1)(vi) of the Act cannot be extended to the meaning of the term ‘royalty’ defined under DTAA. Applying the principle laid down by the Hon’ble High Court of Delhi in DIT Vs. New Skies Satellite BV (2016 (2) TMI 415 - DELHI HIGH COURT), we hold that where the provisions of DTAA overrides the provisions of Income-tax Act being beneficial and the definition of ‘royalty’ having not undergone any amendment in DTAA, the assessee was not liable to withhold tax on the payments made for purchase of software. The amended provisions of section 9(1)(vi) of the Act brought into force by the Finance Act, 2012 are applicable to domestic laws and the said amended definition cannot be extended to DTAA, where the term ‘royalty’ had been defined originally and not amended. As per the definition of ‘royalty’ under the DTAA, purchase of software does not fall in realm of ‘royalty’. Accordingly, there was no liability on the assessee to withhold tax and the assessee cannot be held to be in default. The demand created under section 201(1) and interest under section 201(1A) of the Act is thus, cancelled.
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