No TDS on Purchase of software licenses with associated hardware from Foreign Companies

Autodesk Asia Pte Limited Vs DCIT (ITAT Bengalore)

The assessee is a Singapore based company, a subsidiary of Autodesk US and the headquarters for Asia-Pacific (APAC) region. It is engaged in the business of manufacturing, designing and supporting computer software and related Autodesk products in the APAC region. It performs or manages activities related to Autodesk’s products and services including R&D, localization, manufacturing, order processing and distribution operations and sale & marketing activities. It also provides management, marketing, accounting, finance, legal and information technology support services for the Asia Pacific region. The assessee has established regional offices in Malaysia, Thailand, Philippines, Indonesia and Vietnam. The assessee is responsible for all aspects of software duplication, packaging, materials, purchasing, quality control and testing, shipping and warehousing for the Asia-Pacific region. In respect of Autodesk software technology, it licenses the rights to Autodesk US’s core product software technology from the parent company and  manufactures and sells the product in the Asia-Pacific region.

During the year under consideration, the assessee company sold software licenses along with associated hardware to Indian customers and in connection with the same also provided certain ancillary services. The AO treated this income as royalty after the directions from the DRP.

Supreme Court in the case of ENGINEERING ANALYSIS CENTRE FOR EXCELLENCE PRIVATE LIMITED VS COMMISSIONER OF INCOME TAX & ANOTHER held that the amounts paid by resident Indian end users/distributors to non-resident computer software manufacture/suppliers, as consideration for the resale/use of the computer software through EULAs/ distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act were not liable to deduct any TDS under Section 195 of the Income Tax Act.

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