TMI Blog2021 (10) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... ible asset as considered by the Ld. AO. Therefore, we are of a considered view that the AO as well as CIT(A) were erred in restricting depreciation on software to 25% as against 60% as claimed by the assessee. Hence, we direct the AO to allow depreciation @ 60% as claimed by the assessee. TDS u/s 195 - disallowance of payment made to a non-resident for purchase of software u/s. 40(a)(i) - assessee has purchased copyrighted software from a service provider from USA and assessee has not deducted TDS u/s. 195 for the reason that software license purchased from non-resident supplier is not in the nature of Royalty as defined u/s. 9(1)(vi) - HELD THAT:- In the case of CIT vs M/s. Dassault Systems Simulia P Ltd., [ 2021 (4) TMI 180 - MADRAS HIGH COURT ] had considered an identical issue and held that whether assessee had purchased only a right to use copyright, i.e., software and not entire copyright itself, amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not payment of royalty for the use of copyright in the comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The assessee has raised the following grounds of appeal:- 1. The order dated 30.08.2016 of the Learned CIT(A)- Appeals-3, Chennai in ITA No. 193/2016-17 for the Assessment year AY 2014-15 is contrary to facts, opposed to law and untenable. Whether Depreciation on Software purchase is 60% or 25% 2. The Learned Commissioner of Income Tax (Appeals) erred in rejecting the claim of Depreciation on Software License at 60% and allowing depreciation at 25%. 2.1 The Ld CIT(A) grossly erred in not following the Rule 5 governing the Rate of depreciation of Software. 2.2 The Ld CIT(A) further erred in following the word the word License was mentioned in the documents and the word license and the right to use the software do not alter the purchase of Software. Non deduction of TDS on Purchase of Software is Royalty 3. The Learned Commissioner of Income Tax (Appeals) grossly erred in following the ratio of the case law in M/s. Poompuhar Shipping Corporation ltd Vs ITO International taxation II Chennai dated 09.10.2013. 3.1 The Learned Commissioner of Income Tax (Appeals) grossly erred in following case laws which are distinguishable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets like copyrights, patent and license etc. 6. The Ld. AR for the assessee submitted that the Ld. CIT(A) has erred in sustaining the additions made by the AO towards disallowance of excess depreciation on computer software without appreciating the fact that any computer software embaded with computer system is an integrated computer system which is eligible for depreciation @ 60% as applicable to computer and computer software as per Rule 5 of the IT Rules, 1962. The CIT(A) without appreciating the fact, has simply disallowed depreciation by holding that the assessee has purchased a license in computer software which is nothing but an intangible asset which is eligible for depreciation @ 25% as applicable to intangible assets. 7. The Ld. DR on the other hand strongly supporting the order of the CIT(A) submitted that what was purchased by the assessee is a license in software which is nothing but a Right which is intangible asset eligible for depreciation @ 25% as applicable to intangible assets. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The assessee had purchased computer software like Win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon ble High Court of Karnataka in the case of CIT vs Rational Software Corporation of India P Ltd., to observe that payment for purchase of software amount to royalty and TDS has to be deducted. 10. The Ld. AR for the assessee submitted that the Ld. CIT(A) has erred in sustaining additions made by the AO towards disallowance of payment made to non-resident supplier from USA for purchase of software for non-deduction of tax at source u/s. 195 of the Act, 1961, without appreciating the fact that what is purchased by the assessee is a copyrighted article but not a copyright itself and thus, it is outside the scope of definition of Royalty as defined u/s. 9(1)(vii) of the Act, 1961. 11. The Ld. DR supported order of the ld. CIT(A). 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Undisputed fact are that, the assessee had purchased a copyrighted article from an USA supplier and made payment without deducting tax at source u/s. 195 of the IT Act, 1961. The AO disallowed sum paid by the assessee u/s. 40(a)(i) of the Act, for deduction of tax at source u/s. 195 by holding that, amount paid by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copyright in the computer software, and thus, same does not give rise to any income taxable in India. Similarly, the Hon ble High Court of Madras in the case of CIT vs M/s. Dassault Systems Simulia P Ltd., (2021) 127 Taxmann.com 27 (madras) had considered an identical issue and held that whether assessee had purchased only a right to use copyright, i.e., software and not entire copyright itself, amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not payment of royalty for the use of copyright in the computer software, and same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 were not liable to deduct any TDS u/s. 195 of the Act, 1961. In this case, the assessee has purchased software from supplier in USA and said software is a copyrighted article. Therefore, we are of the considered view that payment made by the assessee for purchase of software to non-resident supplier is outside the scope of the definition of Royalty as defined u/s. 9(1)(vii) and thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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