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2019 (3) TMI 458 - AT - Income TaxTDS u/s 195 - payments made to Deere & Co. USA on account of for software license fees and IT support services - income accrued in India - default u/s 201(1) and 201(1A) - assessee was one of the permitted users by Deere & Co. of the aforesaid software - whether payments were liable to tax as Royalty / FTS as per section 9(1)(vi) & 9(1)(vii) of the Act as well as Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and USA? - amended definition of ‘royalty’ under the domestic law - HELD THAT:- Purchase of software by the assessee being copyrighted article is not covered by the term ‘royalty’ under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) - amended definition of ‘royalty’ under the domestic law cannot be extended to the definition of ‘royalty’ under DTAA, where the term ‘royalty’ originally defined has not been amended. As per definition of ‘royalty’ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of ‘royalty’. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of ‘royalty’ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled. Payment with regard to provision of IT support charges i.e. internet charges, use of e-mail charges, backup support services, etc. was held to be ‘royalty’ - HELD THAT:- The terms of DTAA between India and Australia and India and USA are similar and applying the said ratio to the facts of present case, we hold that the amount paid by assessee for internet charges, use of e-mail facility and backup support services is not ‘royalty’ under Article 12 of DTAA between India and USA and is also not ‘royalty’ under section 9(1)(vi) of the Act. The assessee has filed breakup of expenses accordingly, we hold that internet charges paid, line charges, service charges and other charges i.e. VPN charges, online meeting charges, etc. of ₹ 22,94,256/- are not payment of ‘royalty’ and are not even for make available of any technical services and hence, there was no requirement to deduct tax at source out of such payments. In the said breakup, the assessee has also pointed out that software charges paid were to the tune of ₹ 4,22,73,399/-, which we have already held in the paras hereinabove, not liable for deduction of tax at source. Payment on account of lease line charges and non deduction of tax at source - HELD THAT:- As in ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VERSUS DIRECTOR OF INCOME-TAX [2011 (1) TMI 47 - DELHI HIGH COURT] held that there was no lease of equipment but only use of broadband facilities and applying the said ratio to the facts of present case, we hold that in the case of assessee, there is no question of any equipment royalty where the assessee was only using lease lines for transmitting data and it cannot be said to be a case of equipment royalty. Applying the said propositions to the facts of present case, we hold that the assessee has not defaulted in non deduction of tax at source out of payments made for lease line charges. We also uphold the alternate plea of assessee that the said lease line charges are at best reimbursement of expenses and hence, not liable for deduction of tax at source. Training fees paid to Deere & Co - DTAA between India and USA - default for non deduction of tax at source on charges paid to Deere & Co. on account of reimbursement of salary of expat employees - HELD THAT:- As decided in VEEDA CLINICAL RESEARCH (P.) LTD. [2014 (1) TMI 886 - ITAT AHMEDABAD] where the onus was on Revenue authorities to demonstrate that these services too involve any transfer of technology and since that onus was not discharged, then the payment was not covered by the definition of ‘Fees for Technical Services’. The facts of the said case are similar to the facts before us, wherein training availed by employees of assessee were web based services available on internet and no technical knowledge was being imparted by service provider and the Revenue has failed to demonstrate that the services did involve transfer of technology and in the absence of same, it cannot be said to be payments in the nature of Fees for Technical Services. Applying the said ratio, we hold that there was no liability upon the assessee to deduct tax at source on the aforesaid payments and hence, assessee cannot be held to be in default under section 201(1) and 201(1A) Reimbursement of salary of expat employees - HELD THAT:- Where the Hon'ble Supreme Court has only dismissed SLP, then no ruling on principle being laid down by the Apex Court, the proposition laid down by the jurisdictional High Court of Bombay in MARKS & SPENCER RELIANCE INDIA PVT. LTD. [2017 (5) TMI 1638 - BOMBAY HIGH COURT] would rule. Accordingly, we further hold that the assessee having deducted tax at source out of salary paid to employees deputed, has not defaulted under section 201(1) / 201(1A) of the Act. The grounds of appeal of assessee allowed.
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