TDS on payment made for purchase of software from non-residents

RELEVANT PARAGRAPH

The above appeals are all by the revenue directed against the orders passed by the Income Tax Appellate Tribunal, Bangalore Bench, where under the Tribunal had allowed the appeals filed by different resident – assessees in respect of different assessment years by holding that the resident – assessees were not liable for deduction of any part of the payments made by them to non-resident suppliers as price (for consideration) for the software which the resident – assessees had acquired/purchased from the non-residents for the purposes of the activities/business of the resident – assessees in the background of the nature of their liability/obligation under the provisions of section 195 of the Income Tax Act, 1961 [for short ‘the Act’] by holding that the subject payments were not in the nature of royalty payments within the meaning of section 9(1)[vi] of the Act and if it is not royalty it is not income and if it was not income in the hands of the non-resident assessees it is not chargeable to tax even as per section 4 of the Act and if so there is no obligation on the part of the respondents – resident – assessees to deduct any amount in terms of section 195 of the Act and therefore the orders passed under section 201 of the Act calling upon the respondents – assessees to pay the amount by treating them as an assessee in default in respect of the amount as has been contemplated for deduction under section 195 of the Act are all not sustainable.

2. The Income Tax Appellate Tribunal acting as the second appellate authority under the Act having passed the leading judgment in the case of M/s. Samsung Electronics Co., Ltd., India Software Operations. No. 67. Infantry Road, Bangalore – 560 001 as per its Judgment dated 18.02.2005 passed in 1TA Nos.264 to 266/Bang/2002 relating to assessment years 1999-00, 2000-01 and 2001-02 in the ease of M/s. Samsung Electronics Co. Ltd., India Software Operations. No. 67, Infantry Road, Bangalore – 560 001 holding that the Income Tax Officer as well as the first appellate authority were both wrong in taking the view that the payments made by the resident payer for purchase of computer programme which is also called software in commercial parlance is in the nature of a royalty payment and therefore obligation to deduct and remit the amount under section 195 of the Act had not been cast on the remitter.

3. The Income Tax Appellate Tribunal has by and large followed the ruling rendered in Samsung Electronics Co., Ltd., case in respect of all other assessees for different assessment years.

4. It will be productive to know the facts at least in the leading case to appreciate the legal contentions that have been raised in all these appeals and for such purpose it is useful to borrow the facts as noticed by the Tribunal itself in the present case and that is as under:

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