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2010 (3) TMI 110 - AAR - Income TaxProcurement of hardware and software from USA with installation service – Permanent establishment – DTAA with USA - The contract specifically provides that the title and risk in the property (hardware and software) shall pass to AAI outside India. AAI is responsible for payment of import duties and customs clearances. As regards software and documentation, the contract grants to AAI a non-transferable, non-exclusive, royalty free licence for using the software only at Delhi. The applicant contends that the essence of the contract is only purchase of certain copyrighted software and hardware on outright basis subject to certain end-use restrictions. The applicant points out that the consideration stipulated for installation is approximately 0.10% of the total contract value. It is the case of the applicant that the amounts received by Raytheon for supply of hardware, software and support services are in the nature of business profits and would not be taxable in India in the absence of Permanent Establishment (PE) in India, having regard to the provisions of Art.7 of DTAA (Tax treaty) between India and USA. It is submitted that the payments received by Raytheon cannot be construed as giving rise to income by way of royalty and/or fees for technical services. Held that – Income from hardware is not taxable especially in view of specific stipulations that the title and risk in the property passed on to AAI outside India, that AAI was responsible for import duties and customs clearance and that the consignments were shipped directly to AAI at the cost of Raytheon. Withholding tax is required to be deducted on payment except payment for hardware and COTS software that go with the hardware which are not liable to be taxed in India. - The rate of withholding tax is governed by Section 115A(1)(b)(BB) which is more beneficial to the tax payer when compared to the rate prescribed in Art.12 of the Treaty
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