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2015 (8) TMI 48 - ITAT HYDERABAD

2015 (8) TMI 48 - ITAT HYDERABAD - TMI - Non deduction of TDS on payments made in the nature of royalty - orders passed by the A.O. under section 201(1) and 201(1A) treating the assessee as is in default - whether there was transfer of any rights including the granting of a license in respect of copy right to the assessee in the present case under the license agreements? - Held that:- Orders passed by the Ld. CIT(A), however, shows that although he has passed a very detailed order, he has neithe .....

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1976 and the benefit of this amendment made subsequently with retrospective effect was not available to the Ld. CIT(A) while passing the impugned orders. As contended by assessee in this regard, it is also relevant to see whether there is any amendment in the relevant articles of the DTAAs widening the scope of the term “Royalty” as done in the domestic Law. Keeping in view all these relevant aspects of the matter which have a direct bearing on the issue under consideration, consider it fair and .....

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bhat Kumar Gupta ORDER These six appeals filed by the assessee involving four assessment years i.e., A.Y. 2007-08 to 2010-11 are directed against the six separate orders passed by the Ld. CIT(A)-V, Hyderabad dated 02.01.2012 whereby he upheld the orders passed by the A.O. under section 201(1) and 201(1A) of the Act treating the assessee as is in default. 2. The assessee in the present case is a company which is engaged in the business of rendering KPO services. During the years under considerati .....

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lt for this failure. In reply, the following explanation was offered by the assessee in writing vide its letter dated 23.03.2010. "2. The company has purchased certain software licenses of the following types: (a) SDS/2 detailing software licenses from Design Data corporation USA. (b) SDS/2drafting software licenses from Design Data corporation USA. (c) SDS/2 detailing review software licenses from Design Data corporation USA. (d) Steel Detailing software user licenses from Tekla corporatio .....

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of the above are subject to their being used at only one PC or workstation. This means that at any point of time only one person can work on the said software. Further, the user license is granted on a one time charge basis and its validity is for life in the version in which it is purchased. Subsequently, if there are any upgrades to the said software, an upgraded version user license has to be separately obtained (on payment of a differential fee) for use. 4. The said software is installed in .....

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m chargeable under the provisions of the Income Tax Act, 1961. b) TDS is deductible on any portion of the income arising out of the payment/s made if any part or the whole of such payment is considered to be a sum chargeable to tax under the provisions of the Act. It is humbly submitted in the light of the above submissions that the above mentioned transactions do not, therefore come under the purview of any withholding tax/TDS per section 195, and no default u/s 201 should normally arise ." .....

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e right of the Copyright owner (in this case Data Design and/or its licensors), the act of selling/distributing/using the copy of the computer programme or the user licences thereof without being authorized to do so would infringe the copyright. But in the present case, Mold-Tek was authorized by Data Design to do an act protected under the copyright and the consideration for the right to sell/distribute/use was paid by Mold-Tek to Data Design on the basis of the number of copies of the computer .....

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and payment to non-resident is deemed to accrue and arise in India and liable for TDS. In one of the recent rulings by the Authority for Advance Rulings (AAR) in the case of Airports Authority of India (2008-TIOL-IO-ARA-IT) it was held that consideration paid by an Indian company for the use of a computer program amounts to royalty. Moreover, in a very recent judgment by the Hon'ble Special Bench of the ITAT, New Delhi in the case of New Skies Satellite NV & Others 2009-(126)-TTJ 0001-TD .....

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such licenses to Data Design is nothing but payment for the right to use the copyright and amounts to 'royalties'. 2.2. For the reasons given above and relying, inter alia, on the decision of Hon ble Karnataka High Court in the case of Samsung Electronics Company Limited dated 24.09.2009, the A.O. held that the assessee company was liable to deduct tax at source from the amounts in question paid by the assessee company to M/s. Tekla and M/s. DDC as consideration for the right to use the .....

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orders passed by the A.O. under section 201(1) and 201(1A) of the Act, appeals were preferred by the assessee before the Ld. CIT(A) for all the four years under consideration. During the course of appellate proceedings before the Ld. CIT(A), the following submissions were made on behalf of the assessee company in support of its case that the payments in question having been made for the purchase of standard software, which did not contain any element of proprietary knowledge, they were not in th .....

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esign Data Corporation. software CD's were air freighted to India along with necessary hardware dongles. which were routed through customs and no import duties were paid due to low value of the CD's imported. The said confirmations for the air freighting from Design Data and the customs bill of entries etc in the case of Tekla Corporation were submitted to the Addl Director of Income Tax ( International tax), along with Xerox copies of the CD's in which the software arrived. 2. The a .....

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stic business, if any. 3. The assessee merely purchased a software SDS/2 from Design Data and Tekla Structures software, which respective installation CD's were imported by it by payment of customs duties and other import levies as applicable. The said softwares were purchased for its use in its export business and not for reproduction. resale, rental or any other such use. The said CD's are installation CD's and accompanied by a hardware lock which allows it to be used by a single u .....

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separately and the suppliers will provide additional hardware locks. being anti piracy devices. The assessee has then to install the software. which it already has on a CD format and owns, and activate the same by means of a hardware lock. In case the computer crashes or is rendered dysfunctional, the assessee can reload the installation from the CD and activate the same with the hardware lock provided to them previously. 4. It may be submitted that the assessee merely purchased goods from forei .....

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ghts on the same. Nor were any other rights available to the assessee as a purchaser of the copyrighted article. It could only use the same as a user which it did for its export business. The assessee as a purchaser did not acquire the rights to reproduce, sell, or otherwise distribute the said purchase, and it is humbly submitted that the order of the honourable DDIT dated 26.2.2010 is not based on facts and is erroneous to this extent. 6. The assessee did not acquire the source code of the sai .....

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how, and no copyrights or other rights have been transmitted to the assessee. 8. To buttress its action, the assessee also obtained suitable certificates from an accountant/counsel in the prescribed forms prior to making any remittance against the said purchases. 9. It is submitted once again that the entire business of the assessee is that of export in the form of a KPO business model, and it is engaged in this business as an STPI registered organization. Section 9(1 )(vi), which specifies inc .....

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ions made on behalf of the assessee company. According to him, there was a basic distinction between royalties and consideration of sale paid to a non-resident. In this regard, he referred to the definition of the term royalty as given in Explanation (2) to Section 9(1)(vi) of the Act as well as in the relevant clause of the treaty to discuss the nature of payments that come within the ambit of the said definition. He also relied inter alia, on the decision of Authority for Advanced Rulings in t .....

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d M/s. DDC for purchase of software thus were in the nature of royalty from which tax at source was liable to be deducted. Accordingly, the orders passed by the A.O. under section 201(1) and 201(1A) for all the four years under consideration were upheld by the Ld. CIT(A). Aggrieved by the Orders of the Ld. CIT(A), the assessee has preferred these appeals before the Tribunal. 4. I have heard the arguments of both the sides and also perused the relevant material on record. Although, the Learned Re .....

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n question paid by the assessee to M/s. Tekla and M/s. DDC under the relevant license agreements was for a copy right or a copy righted article and this distinction is material because as held in the various judicial pronouncements cited by the Ld. Counsel for the assessee, if it is for a copy right, the same should be classified as Royalty both under the Income Tax Act and under the DTAA. On the other hand, if the payment is actually for a copy righted article, then it only represents the purch .....

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