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2021 (10) TMI 1258 - AT - Income TaxDisallowance of excess depreciation on computer software - assessee had purchased software being operating system for Windows and claimed depreciation as per Rule 5 of IT Rules, 1962 @ 60% as applicable to computer and computer software. The AO restricted depreciation claimed on computer software @ 25% as applicable to intangible assets being patent, license etc on the ground that payment made by the assessee for acquiring license for software is nothing but an intangible asset - HELD THAT:- Computer software (whether canned form or uncanned form) is goods and a tangible asset by itself. Further Rule 5 of IT Rules, 1962 governing the rate of depreciation for software, has prescribed 60% depreciation on computer and computer softwares. Since, the assessee has purchased software like Windows, MS Office and other operating system which is embaded in computer system and thus, the same is construed as an integrated part of computer system which is eligible for depreciation @ 60% as claimed by the assessee, but not 25% as applicable to intangible asset as considered by the Ld. AO. Therefore, we are of a considered view that the AO as well as CIT(A) were erred in restricting depreciation on software to 25% as against 60% as claimed by the assessee. Hence, we direct the AO to allow depreciation @ 60% as claimed by the assessee. TDS u/s 195 - disallowance of payment made to a non-resident for purchase of software u/s. 40(a)(i) - assessee has purchased copyrighted software from a service provider from USA and assessee has not deducted TDS u/s. 195 for the reason that software license purchased from non-resident supplier is not in the nature of Royalty as defined u/s. 9(1)(vi) - HELD THAT:- In the case of CIT vs M/s. Dassault Systems Simulia P Ltd.,[2021 (4) TMI 180 - MADRAS HIGH COURT] had considered an identical issue and held that whether assessee had purchased only a right to use copyright, i.e., software and not entire copyright itself, amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not payment of royalty for the use of copyright in the computer software, and same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 were not liable to deduct any TDS u/s. 195 of the Act, 1961. In this case, the assessee has purchased software from supplier in USA and said software is a copyrighted article - payment made by the assessee for purchase of software to non-resident supplier is outside the scope of the definition of Royalty as defined u/s. 9(1)(vii) and thus, the assessee does not required to deduct TDS u/s. 195 and consequently, payment made for purchase of software cannot be disallowed u/s. 40(a)(i) of the Act for non-deduction of tax at source. Hence, we direct the AO to delete the additions made towards disallowance of payments made to non-resident for purchase of software. Assessee appeal allowed.
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