Citation of the Case:- M/s Tejas Networks Ltd. vs. DDIT
(ITAT Bangalore), Income tax (Appeal) nos.715-717 of 2015, Date
of Judgment: 16/10/2015
Brief of the Case
ITAT Bangalore held In the case of
M/s Tejas Networks Ltd. vs. DDIT that the right that is transferred in the
present case is the transfer of copyright including the right to make copy of
software for internal business, and payment made in that regard would
constitute “royalty” for imparting of any information concerning technical, industrial,
commercial or scientific knowledge, experience or skill as per clause (iv) of
Explanation 2 to section 9(1)(vi) of the Act. In any view of the matter, in
view of the provisions of section 90 of the Act, agreements with foreign
countries DTAA would override the provisions of the Act. Once it is held that
payment made by the respondents to the nonresident companies would amount to
“royalty” within the meaning of article 12 of the DTAA with the respective
country, it is clear that the payment made by the respondents to the
non-resident supplier would amount to royalty. In view of the said finding, it
is clear that there is obligation on the part of the respondents to deduct tax
at source under section 195.
Facts of the Case
The assessee is an Indian Company
who is engaged in developing telecommunication equipment. During the relevant
asst. year, the assessee has purchased shrink-wrap Software from Cadence
Designs Ireland amounting to Rs.5,946,245/- and Rs.4,015,887/- respectively.
The AO noticed that the assessee has remitted the above amounts to Cadence
Designs Systems Ireland without deducting tax at source u/s 195. The AO
initiated proceedings u/s 201(1).
The assessee submitted that the
payment made to the non-resident Indian was made for the use of software under
non exclusive and non transferable and licensed to use the software.
Accordingly, the payments in question are not chargeable to tax in India and,
therefore, no liability to deduct tax at source in respect of such payment. The
AO however did not convinced with the explanation furnished by the assessee and
was of the view that as per the provision of sec. 195, the assessee was liable
to deduct tax at source on the payment made to Cadence Designs Systems Ireland.
During the purchase of shrink-wrap software as a payment made amounts to
royalty under the Income-tax Act as well as the Indo-Ireland DTAA. The AO
accordingly held that the assessee is default u/s 201 and 201(1A) and
accordingly calculated the tax liability.
Contention of the Assessee
The ld counsel of the assessee
submitted that the appeals are already decided against the assessee in
assessee’s own case in ITA No.31/Bang/2015 dated 5/6/2015.
Contention of the Revenue
The ld counsel of the revenue
supported the order of the CIT (A).
Held by CIT (A)
The CIT(A) dismissed the assessee’s
appeal by following the decision of the Hon’ble High Court of Karnataka in the
case of CIT Vs. Samsung Electronics Co. Ltd., 245 ITR 181. It was held that it
is very clear from the express terms of the agreement that the right to use
copy righted software has been transferred to the assessee. Keeping in view the
fact that the judgment of the Hon’ble High Court of Karnataka takes the nature
of binding precedent the amounts in question paid as consideration for the
right to use copy-righted software amounts to Royalty within the meaning of the
Act read with respective DTAA, the contentions of the assessee’s representative
are rejected.
Held by ITAT
Whether the payments made for
acquiring the shrink-wrap Software amounts to royalty u/s 9(1)(vi) of the
Income tax Act and also Indo- Ireland DTAA?
As pointed out by both the counsels,
the issue is already decided against the assessee in assessee’s own case by
this tribunal in ITA No.31/Bang/2015 dated 5/6/2015 considering the ratio of
Hon’ble Karnataka High Court in the case of Samsung Electronics Co. Ltd. 245
ITR 181. It was held in this case that It is clear from the analysis of the
DTAA, the Income-tax Act, the Copyright Act that the payment would constitute
“royalty” within the meaning of article 12(3) of the DTAA and even as per the
provisions of section 9(1)(vi) of the Act as the definition of “royalty” under
clause 9(1)(vi) of the Act is broader than the definition of “royalty” under
the DTAA as the right that is transferred in the present case is the transfer
of copyright including the right to make copy of software for internal business,
and payment made in that regard would constitute “royalty” for imparting of any
information concerning technical, industrial, commercial or scientific
knowledge, experience or skill as per clause (iv) of Explanation 2 to section
9(1)(vi) of the Act. In any view of the matter, in view of the provisions of
section 90 of the Act, agreements with foreign countries DTAA would override
the provisions of the Act. Once it is held that payment made by the respondents
to the nonresident companies would amount to “royalty” within the meaning of
article 12 of the DTAA with the respective country, it is clear that the
payment made by the respondents to the non-resident supplier would amount to
royalty. In view of the said finding, it is clear that there is obligation on
the part of the respondents to deduct tax at source under section 195.
Respectfully following the above
decision of the Hon’ble Karnataka High Court and also decision of the
Co-ordinate Bench of this Tribunal in the assessee’s own case in ITA No.31/Bang/2015
dated 5/6/2015, we are of the opinion that the contentions raised by the
assessee are not acceptable for the reason that the payment in question was
consideration for the right to use copy right shrink-wrap software amounts to
royalty within the meaning of sec. 9(1)(vi) of the Act and also Art 12 of the
Indo- Ireland DTAA, therefore, grounds raised by the assessee are dismissed.
Accordingly appeal of the assessee
dismissed.
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