ACIT Vs Acer India Private Limited (ITAT Bangalore)
Conclusion: No disallowance under section 40(a)(i) could be made as there could not be a retrospective obligation to deduct tax at source and therefore as on the date when assessee made payments to the non-resident for acquiring off-the-shelf software, could not be regarded as in the nature of royalty and therefore, there was no obligation on the part of assessee to deduct tax at source.
Held: AO treated the purchases of computer software as payment in the nature of royalty. Since assessee did not deduct tax at source from the payments so made, AO disallowed the same u/s 40(a)(i). CIT(A) held that the payment made by assessee for purchase of software was in respect of copy righted article and accordingly held that disallowance u/s 40(a)(i) was not called for. Accordingly, he deleted the disallowance. In the case of Ingersoll Rand (India) Ltd. by the Bangalore Bench of the ITAT and it was held therein that prior to the decision of Hon’ble jurisdictional High Court in the case of CIT v. Samsung Electronics Co. Ltd. which was passed on 15.10.2011 transactions carried out on purchase of off the shelf software were not liable to TDS and hence there could be no disallowance u/s.40(a)(ia) based on subsequent development of law after the date on which payments were made. The instant case related to the financial year 2009-10 relevant to the assessment year 2010-11 and the payments had been made for purchase of software prior to the date of pronouncement of the decision by Hon’ble Karnataka High Court in the case of Samsung Electronics Company Ltd. (15.10.11) and also prior to the amendment of Sec. 9(1)(vi). Accordingly, following the above said decision rendered by the Tribunal, it was held that the disallowance u/s 40(a)(i) could not be made in the facts of the present case.
