TMI Blog2010 (10) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... ute taxability in India in the hands of recipients, the tax withholding liability u/s.195 cannot arise – Appeal is dismissed - 1473/Mum/2009 - - - Dated:- 29-10-2010 - ORDER Per Pramod Kumar: This is an appeal filed by the Assessing officer and it calls into question correctness of CIT(A) s order dated 30th April. 2008, in the matter of tax withholding demand raised on the assessee under section 201 r.w.s. 195 of the Income Tax Act, 1961, for the assessment year 2006-07, on the following grounds: 1. On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in holding that the payment for purchase of Shrink Wrap Software is payment of Royalty is not correct under section 9(1)(vi) of the Income tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation in India inasmuch as the assessee has not purchased any copyrights in the software but only a copyright product. A reference was made to several decisions of this Tribunal, in support of the proposition that the buyer of the software was liable to pay royalty only when the copyright was transferred to it, including in the cases of Lucent Technologies Hindustan Ltd v ITO, 92 ITD 366, Samsung Electronics Co. Ltd. V ITO, 94 ITD 91, and Motorala Inc v. DCIT, 95 ITD SB 269. It was also submitted that since USA based company from which, software was purchased, did not have Permanent Establish in India, the question of income could have arisen only in the event of the payment for purchase of software being treated as royalty, but given the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax at source u/s.195(1), the assessee was liable to pay the amount that the assessee ought to have deducted alongwith interest under section 201(1A) to the Assessing Officer. It was in this backdrop that the payment under section 201(1) r.w.s. 195 and demand under section 201(1A) was raised on the assessee. 3. The CIT (A) noted that the undisputed position being that the payment is made for off the shelf software packages from CIM, USA , it is only a copyright article and in view of series of decisions by the various co-ordinate Benches of this Tribunal as also the decision of the Special Bench in the case of Motorala Inc (supra), the amount paid to US based company for the purchase of software is not liable to be taxed in India in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary that tax deduction liability at source is a vicarious liability and it can be invoked only when primary liability i.e. the liability of the CIM in India survives. As we have held that the US company itself did not have any tax liability in respect of the payments, the vicarious tax liability does not survive either. In any event, in accordance with the procedure stipulated by the CBDT, the assessee had duly obtained the Chartered Accountant s certification regarding applicability tax withholding right and based on the certification, made the remittance for deduction at source. We see no infirmity in this approach of the assessee and in such a situation, and particularly when no tax is indeed payable by the recipients of the income, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he footing that only a portion of the payment made represented income chargeable to tax in India , then it was necessary for him to make an application under Section 195(2) of the Act to the ITO(TDS) and obtain his permission for deducting TAS at lesser amount. Thus, it was held by this Court that if the payer had a doubt as to the amount to be deducted as TAS he could approach the ITO(TDS) to compute the amount which was liable to be deducted at source. In our view, Section 195(2) is based on the principle of proportionality . The said sub-Section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. It is in this context ..... X X X X Extracts X X X X X X X X Extracts X X X X
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