2023 (3) TMI 478 - AT - Income Tax

TDS u/s 195 - reimbursement for software licenses liable to tax deduction as ‘Royalty payments’ - Addition towards the 20% of TDS on the software license payment in the nature of royalty and also charged interest u/s 201(1A) - HELD THAT:- When AO herself recorded that the parent entity has no role to play in the transaction of assessee’s access to the software, the agreement between the parent entity and Microsoft and Dell does not appear to be much relevant. Suffice to say that through the invoices produced by the assessee and as found by the learned Assessing Officer, there is no component of income involved in this license transaction accruing to the parent entity.

In view of the fact that the payments made by the assessee were essentially for making use of the shrink wrap computer software wherein the assessee has non-exclusive and non-transferrable license enabling use of the programme in the copyrighted product, there is no transfer of any copyright in the product nor the assessee was granted any commercial right to exploit it other than for permissible usage. The matter is covered by the decision of the Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT] respectfully following the same, we hold that the impugned payments made by the assessee do not fall in the definition of royalty and consequently, do not attract any addition on that score. Appeal of the assessee is allowed.