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2015 (6) TMI 211 - ITAT HYDERABAD

2015 (6) TMI 211 - ITAT HYDERABAD - TMI - Deduction of tax at source u/s. 195 - whether payment made by assessee to the foreign company being in the nature of 'royalty'? - CIT(A)deleting the demand raised u/s. 201(1) and 201(1A) - Held that:- When the department has not been able to bring any material on record to controvert the factual findings, arrived at by the Ld.CIT(A), we do not see any merit in the contention of the department that the payment made is in the nature of 'royalty'. On going .....

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circumstances, we find no reason to interfere with the order of the Ld.CIT(A) which is accordingly upheld. - Decided against revenue. - ITA No. 1874/HYD/2011, 1964/HYD/2011, 837/HYD/2013 - Dated:- 3-6-2015 - SHRI P.M. JAGTAP AND SHRI SAKTIJIT DEY, JJ. For the Appellant : Shri Rajat Mitra, DR For the Respondent : Shri A. Srinivas, AR ORDER PER SAKTIJIT DEY, J.M : Aforesaid appeals are by the department against separate orders of Ld. Commissioner of Income Tax (Appeals)-V, Hyderabad for the Assess .....

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company is basically engaged in the business of trading of software. On verification of record, the AO noticed that assessee has made payment of US $ 88,304 (Rs. 1,02,34,981/-) to a foreign company namely M/s. Altiris Singapore Pte. Ltd., (Altiris) without deduction of tax at source as required u/s. 195 of the Act. When the AO called upon the assessee to explain the reason for not deducting tax at source, the assessee submitted that assessee has been appointed as a registered re-seller of softw .....

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siness purposes. In support of such submission, assessee produced the re-seller agreement with Altiris as well as invoices. The AO on going through the submissions of the assessee, however, did not find merit in them. The AO observed that what the assessee has acquired is the user licenses in respect of computer programmes/softwares and for the same, assessee had acquired the right to sale or distribute to the customers in India. The AO observed, as the right to sale or distribute any copy of th .....

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y on the basis of the number of copies of the computer software/programme or number of such licenses or the duration of such licenses, it amounts to right to use the copyright. Hence, is in the nature of 'royalty'. The AO observed as the payment by way of 'royalty' to a non-resident in India is taxable under the Income Tax Act, the quantum of such tax has to be determined as per the provisions of the DTAA between Indian and Singapore. On the basis of the above reasoning, the AO p .....

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rely in the nature of purchase and sale of software products, the payments made cannot be treated as 'royalty'. In support of his contention, assessee also produced the agreement with the foreign company and other relevant documents. Ld.CIT(A) after going through the registered reseller agreement between the assessee and Altiris and other relevant documents, accepted assessee's claim that it is purely a purchase and sale of goods and there is no right to use of any copyrighted articl .....

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as 'royalty'. Ld.CIT(A) after carefully analyzing the terms of the reseller agreement found that the foreign company i.e., M/s. Altiris Singapore Pte. Ltd., (Altiris) does not provide the assessee or the end user any right to make copies or to reproduce the software. The assessee or the end users do not derive any value from the actual efforts put in by the developer. The assessee under the terms of the agreement is only allowed to sell as many number of software copies as are imported .....

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d with the decision of the Ld.CIT(A), department is before us. 5. The Ld. DR submitted before us that what the assessee has paid to the foreign company is towards right to use of copyright. Hence, the payment made is in the nature of 'royalty' as provided under Explanation-2 to Section 9(1)(vi). In support of such contention, Ld. DR relied upon the following decisions: i) Citrix Systems Asia Pacific Pty. Ltd., In re (AAR) 343 ITR 0001; ii) M/s. Gracemac Corporation V. Asstt. Director of .....

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of Altiris to the end users for a price. The Ld. AR submitted as the activity is purely in the nature of a trading activity, there being no involvement of the assessee either as user of the software products or licenses thereof, the payment made is not in the nature of 'royalty' but merely towards the cost of the goods purchased for re-sale. In support of such contention, he relied upon the following decisions: i) 94 ITD 91 Samsung Electronics Company Ltd., Vs. ITO (ITAT, Bangalore Bench .....

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the parties before us. As can be seen, the AO has treated the payment made by the assessee to Altiris as 'royalty' on the reasoning that as the assessee is authorized by the foreign company to sell a product which is protected under the copyright, the consideration for the right to sale/distribute is to be treated as 'royalty'. According to the AO as the payment made by the assessee to the foreign company is towards acquiring a right to distribute the computer programme to clien .....

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n India. In our view, the conclusion drawn by the AO is not acceptable. On going through the order of the Ld.CIT(A), we find that he has exhaustively dealt with the terms of the re-seller agreement between the assessee and the foreign company and other materials on record and has passed a well reasoned order bringing on record the fact that assessee is purely a trader in software and not the user of the software. In view of such elaborate discussions made by the Ld.CIT(A), though it is not neces .....

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rchase the software products from Altiris and sell it to customers in India. Therefore, the end user of the software products procured/obtained from the foreign company is not the assessee but the customers in India, to whom the assessee has sold the products. It is further evident from the facts on record, the nature of activity of the assessee under the registered re-seller agreement is to book orders with Altiris on behalf of customers, collect payment and deliver software to the end users or .....

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epartment has not been able to bring any material on record to controvert the factual findings, arrived at by the Ld.CIT(A), we do not see any merit in the contention of the department that the payment made is in the nature of 'royalty'. On going through the facts and materials on record, we are of the firm opinion that the payments made by the assessee to M/s. Altiris do not come within the purview of 'royalty' as finds place u/s. 9(1)(vi) of the Act. As far as the decisions rel .....

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e appeals by the department are against the decision of Ld.CIT(A) in deleting the additions made by the AO on account of disallowance made u/s. 40(a)(i) of the Act for alleged non-deduction of tax at source u/s. 195 of the Act on payments made to M/s. Altiris for the AYs. 2008-09 and 2009-10. Facts in these appeals are more or less identical, except the fact that in AY. 2009-10, AO has not passed any order u/s. 201(1) of the Act declaring the assessee as an assessee in default. Be that as it may .....

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