TDS not deductible on Software Purchased with mere ‘right to use’ 

the payment made for the use of copyrighted article was not royalty. The definition of ‘royalty’ under DTAA had not been amended though there is retrospective amendment to section 9(1)(vi) of the Act but since the provisions which are more beneficial to the assessee are to be applied, then as per un-amended provisions of royalty under DTAA, the assessee having purchased copyrighted article and not having purchased copyright in the article cannot be said in default for non deduction of tax at source out of such payments made to different entities in different countries. The assessee had only purchased internally developed software by the Sweden entity and it had not passed the copyright and only ‘right to use’ had been given to the assessee and as such ‘right to use’ is akin to purchase of copyrighted article and in the absence of purchase of any copyright in the article, the assessee cannot be held liable to deduct tax at source out of such payments. Hence, the assessee has not defaulted in not deducting the tax at source. Accordingly, we hold so in respect of payments made for purchase of software and also in respect of IT support service charges.

FULL TEXT OF THE ITAT JUDGEMENT

This bunch of cross appeals filed by Revenue and assessee are against consolidated order of CIT(A)-IT/TP, Pune, dated 28.07.2014 relating to assessment years 2009-10 to 2011-12 against respective orders passed under section 201(1) and 201(1A) of the Income-tax Act, 1961 (in short ‘the Act’).

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