Delhi ITAT rules – Tax payable on import of all software (In the case of Microsoft)

Court : Delhi ITAT

Citation: Delhi Income Tax Appellate Tribunal (ITAT) in the case of Microsoft Corporation (MS Corp) and its affiliates M/s Grace mac Corporation (G Corp) and M/s Microsoft Regional Sales Corporation (MRSC) (Taxpayers)

Brief  : TAX is payable on import of all software , even if the sale does not involve exercise of copyright, according to a Delhi tax tribunal order in a case relating to Microsoft .

While the order, passed on October 28, is significant in terms of the liability to withhold tax from payments made while importing software, the Delhi Income Tax Appellate Order (ITAT) attracted the attention of tax professionals on account of its observation that questioned the sanctity of tax treaties.

In the order, which may spark multiple litigation , the division bench of ITAT observed that it is not necessary that provisions of tax treaties always override the provisions of domestic tax laws. In a situation, where a provision in the domestic tax law is incorporated after the signing of a Double Taxation Avoidance Agreement (DTAA), it is the domestic law that will override DTAA. According to the existing position, if there is a conflict between domestic tax laws and treaty provisions, the latter is supreme.

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