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2020 (1) TMI 292 - AT - Income TaxTDS u/s 195 - Disallowance u/s. 40(a)(i) in respect of payment of 'Software Maintenance charges' - HELD THAT:- Assessee was allowed the use of the software for its own business purpose and there was no permission to sub-licence the same. There is a specific bar on the assessee in not sub-licensing the software, which were to be used for its sole business needs. The consideration was for the use of software for its own business purpose and not for the use of, or the right to use, any copyright of software. As the consideration payable by the assessee for use of LARA, DIVA and Ocean was only for the use of the software for its own business purpose and not having right to copyright, the same will not constitute 'Royalties' within Article 13(3) of the DTAA. Even if for a moment, we presume that the amount is chargeable to tax in the hands of the CMA CGM, France as royalty u/s 9(1)(vi) of the Act with the assistance of Explanation 4, as urged by the ld. DR, the same would escape taxation in terms of the DTAA because the parallel of Explanation 4 to section 9(1)(vi) is not a part of the DTAA. We have noted above that on the plain language of section 9(1)(vi) de hors the effect of Explanation 4, the consideration does not fall in the realm of 'royalty'. Now we turn to the 'Maintenance charges' of the software paid by the assessee, which have been impliedly treated by the authorities below as 'fees for technical services' u/s 9(1)(vii) as well as the DTAA. Though there is no separate quantification of such an amount, but the same is a part of the overall consideration as per the Agreements. Section 9(1)(vii) deals with income by way of 'fees for technical services'. Explanation 2 gives definition of 'fees for technical services' to mean any consideration for the rendering of any managerial, technical or consultancy services. As the maintenance of software is in the nature of a technical service, it is held that the same is covered u/s. 9(1)(vii) of the Act. Reverting to the DTAA, it is seen that para 4 of the Article 13 deals with 'fees for technical services'. In the present context, it provides that the term "fees for technical services" means consideration for services of a managerial, technical or consultancy nature. Thus, the definition of 'fees for technical services' in the present context given in the DTAA is almost similar to that used in Explanation 2 to section 9(1)(vii) of the Act, going by which the software maintenance charges fall within the ambit of 'fees for technical services'. Payment for use of software made by the assessee to CMA CGM, France does not satisfy the requirement of 'use of, or the right to use, any copyright of software'. Once it is held that para 3 of Article 12 is not attracted, as a sequitur, the application of clause (a) of para 4 of Article 12 of the DTAA with Portuguese would automatically be ousted, thereby making the amount of ₹ 6.85 crore paid by the assessee to CMA CGM, France for use of LARA, DIVA and Ocean software as immune from taxation in India. Going by the beneficial provision in the DTAA vis-à-vis the Act, it is held that there was no requirement on the part of the assessee to deduct tax at source which should have called for any disallowance u/s.40(a)(i) of the Act. We, therefore, order to delete the addition. Granting of correct amount of credit of TDS - HELD THAT:- AO is directed to verify the amount of TDS and allow appropriate credit as per law.
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