TMI Blog2005 (8) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... dvocate RULING (By Mr. A.S.Narang) - In this case an application under section 245Q(1) of the Income-tax Act, 1961(for short the 'Act') in Form No.34D (meant for resident applicants) seeking advance ruling from the Authority has been filed on 17.5.2006. The applicant Headstart Business Solutions Private Limited ('HBSPL') is a company incorporated under provisions of the Companies Act, 1956 having its registered office at S-85, Greater Kailash Part II, New Delhi-110048. Microsoft Regional Sales Corporation, Singapore ('MRSC') is a non-resident company, having its registered office at 4388, Alexandra Road, #04-09/12, Singapore-119968. MRSC had entered into a Solution Provider Agreement ('SPA') vide agreement dated: July21, 2005 with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware are taxable as royalty only if the software imported is accompanied by the copyrights enabling the importer to replicate it and relied on decisions of ITAT in case of Motorola Communications Inc., Ericsson Radio Systems AB, Nokia Networks OY. The company has also referred to the cases of Lucent Technologies and Samsung Electronics Company Ltd. in its submission. The company has further stated that its agreement with MRSC is without any copyrights and it grants only distribution rights. Therefore, the remittance made by the company to MRSC does not require withholding of taxes. The claim of the assessee does not appear to be correct. From a perusal of the agreement enclosed by the company, it is seen that it can make copies of the soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net, is constantly monitored by MRSC as the software license key that is purchased from MRSC always bears the name of the client to whom the software is to be delivered. The SPA expressly prohibits assignment of any of the intellectual rights vested with MRSC to be HBSPL under Article 5(a). Thereby, not giving HBSPL any right to commercially exploit the product. The term royalty under Explanation 9(1)(vi) of the Income Tax Act, 1961 means that the transfer of all or any right (including the granting of license) in respect of a patent, invention, model, design, secret formula or process or trademark or similar property. The Income Tax Appellate Tribunal ('ITAT') has in a catena of cases laid down that the buyer of a software is liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted below:- "Other sums.195 (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force." A plain reading of the sub-section shows that any person responsible for paying to a foreign company (i) any interest; or (ii) any other sum chargeable under the provisions of the Act (except salary) is required to deduct income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. Further, the rights of the payee or recipient are fully safeguarded under sections 195(2), 195(3) and 197. The only thing which is required to be done by them is to file an application for determination by the Assessing officer that such sum would not be chargeable to tax in the case of the recipient, or for determination of the appropriate proportion of such sum so chargeable, or for grant of certificate authorizing the recipient to receive the amount without deduction of tax, or deduction of income-tax at any lower rates or no deduction. On such determination, tax at the appropriate rate could be deducted at the source. If no such application is filed, income-tax on such sum is to be deducted and it is the statutory obligation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d casts an obligation to deduct appropriate tax at the rates in force." Following the principle laid down by the Hon'ble Supreme Court, we hold that the expression "any other sum chargeable under the provisions of this Act" in section 195(1) contemplates not only amounts, the whole of which is taxable without deduction, but also amounts of a mixed composition, a part of which only might turn out to be taxable income, as well as other disbursements which are of the nature of gross revenue receipts, are yet sums chargeable under the provisions of Act and come within the ambit of section 195(1) of the Act. In the light of the forgoing discussion we rule as follows: "In view of the provisions of section 195(1) there exists a legal obliga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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