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TMI Blog2014 (5) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... At the outset, the learned AR submitted that he does not want to press grounds raised relating to violation of priciples of natural justice in both the appeals. Hence ground No.2 in ITA No.362/Hyd/2011 and ground No. 3 in ITA No. 1736/Hyd/2012 are dismissed as not pressed. 3. The only common issue in the present appeals of the assessee is with regard to the disallowance made u/s 40(a)(i) of the Act on alleged failure on the part of the assessee to deduct tax at source on the payment of royalty. 4. Since facts in both the appeals are identical, we will deal with the facts as taken from ITA No. 362/Hyd/2011. Briefly stated facts are, the assessee is a private limited company engaged in the business of providing consulting services and softw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, the Assessing Officer primarily relying upon the finding of the CIT (A) in the appeal order passed for the assessment years 2004-05 and 2005-06 on identical issue, held that the amount paid is royalty, hence subject to TDS provisions u/s 195(1) of the Act. Since the assessee has not deducted any tax at source on such payments, the Assessing Officer disallowed the entire expenditure of Rs. 1,33,46,155/- and added the same to the income of the assessee for the impugned assessment year. Being aggrieved of the said order of assessment, the assessee preferred an appeal before the CIT (A). The CIT (A) also sustained the disallowance. 5. The learned AR submitted before us that the assessee had purchased software from the parent company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software does not arise. It was submitted that in the aforesaid circumstances, the payment made to the Associated Enterprises (AE) cannot be considered to be royalty. In this context, the learned AR referred to clauses 14.4 of OECD commentary to stress upon the fact, when there is distribution of software on back to back basis, there is no requirement to deduct tax at source. In this context, the learned AR relied upon a decision in case of CIT v. Dynamic Vertical Software India (P.) Ltd. (332 ITR 222) It was further contended by the learned AR that neither the Assessing Officer nor the CIT (A) have considered the facts and materials placed before them in proper perspective and hence have arrived at an erroneous conclusion. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 12(3) of the India-US DTAA makes it clear that only a payment for the right to use any copy right can be treated as payment for royalty. 8. It is a fact that the Hon'ble Delhi High Court in case of Dynamic Vertical Software India (P.) Ltd. (supra) has held that in case of payment towards purchase and sale of software by an assessee who acted merely as a dealer cannot be termed as royalty so as to require deduction of tax at source u/s 40(a)(i) of the Act. However, the assessee is required to establish the fact on record by producing supporting evidence that it was merely a distributor of software to the Indian customer by procuring from the overseas associated enterprise. The assessee is required to prove that the payment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years 2004-05 and 2005-06, we also remit the issue back to the file of the Assessing Officer who shall consider it afresh after examining all the facts and materials on record. The Assessing Officer shall also take into consideration any decision which may be relied upon by the assessee in support of its claim. Since we have remitted the issue back to the file of the Assessing Officer for considering the same afresh, it will be open to the assessee to raise all other contentions with regard to its claim of not being liable to deduct tax at source u/s 195 of the Act. With the aforesaid observation, the matter is remitted to the file of the Assessing Officer for deciding the same in accordance with law after affording a reasonable opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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