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Case Law Details

Case Name : M/s. Kansai Nerolac Paints Ltd. Vs. Addl. DIT (International Taxation, Mumbai) (ITAT Mumbai)
Appeal Number :
Date of Judgement/Order :
Related Assessment Year :
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A computer software when put into a media and sold, it becomes goods like any other audio cassette or painting on canvass or book. The amount paid by the assessee towards purchase of IXOS-eCON for R/3 50 users cannot be treated as payment of royalty taxable in India under Article 12 of DTAA between India and Singapore. Therefore, the assessee, in our opinion, is not liable to deduct tax at source.

In the case of: M/s. Kansai Nerolac Paints Ltd. Vs. Addl. DIT (International Taxation, Mumbai), decided by : ITAT Mumbai

Assessees Contention:-The assessee applied to the AO for a NOC u/s 195(2) for remittance of a fee to IXOS Software, Singapore, to acquire software. The assessee claimed that the fee was commercial profits and not taxable in the hands of the recipient under Article 7 of the India-Singapore DTAA as the recipient did not have a PE in India.

Assessing Offiver and CIT Appeals View:- As the software acquired by the Assessee was a “copyright” / “secret process” and the assessee had merely acquired a ‘non-exclusive & non-transferable’ license to use the software and as the Singapore Company continued to be the owner of the software, the fee constituted “royalty” under s. 9(1)(vi) of the Act and Article 12 of the DTAA and that it was chargeable to tax in India.

Points to consider:-

  • Primary condition for coming within the definition of ‘royalty’ is that the payment must be received as consideration for the use of or right to use any copyright of a literary, artistic or scientific work etc.
  • A ‘right to use the copyright’ is totally different from the ‘right to use the programme embedded in a CD’.
  • In acquiring a ready made off-the-shelf computer programme, no right was granted to the assessee to utilise the copyright of the computer programme. The assessee had merely purchased a copy of the copyrighted article, namely, a computer programme which is called ‘software’.
  • Computer software when put into a media and sold becomes goods like any other audio cassette or painting on canvas or book.

ITAT Judgement:- The amount paid by the assessee towards purchase of the software cannot be treated as payment of “royalty” so as to be taxable in India under Article 12 of the DTAA and the assessee was not liable to deduct tax at source.

Relevant case laws:-

Tata Consultancy Services vs. State of AP 271 ITR 401 (SC),

Samsung Electronics Co 94 ITD 91 (Bang),

Motorola Inc 95 ITD 269 (SB)

Dassault Systems 229 CTR 105 (AAR)

Velankani Mauritius vs. DDIT (ITAT Bangalore)

NF

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