Cognizant Technology Solutions India Private Limited Vs CIT (Madras High Court)
Madras High Court held that payment made for International Private Leased Circuits [IPLC] doesn’t constitute royalty within the expression provided under clause (iva) to Explanation 2 to section 9(1)(vi) of the Income Tax Act. Hence, disallowance u/s. 40(a)(i) of the Income Tax Act not sustained.
Facts- The assessee is a company engaged in the business of software development and export. Apropos of assessment year 2003-2004, the Assessing Officer finding that the amount paid by the assessee to Sprint USA, for International Private Leased Circuits (IPLC), was without deduction of tax at source, disallowed it under Section 40(a)(i) of the Act. For the said assessment year, the Assessing Officer also denied claim of tax holiday deduction under Section 10A/10B of the Act on miscellaneous income. CIT(A) upheld the order of AO. Being aggrieved, the present appeal is filed.
Conclusion- Held that the payment made in the present case by the assessee to Sprint USA for IPLC would not constitute ‘royalty’ within the meaning of that expression as provided under clause (iva) to Explanation 2 to Section 9(1)(vi) of the Act, in as much as it does not partake nature of consideration for the use or right to use a scientific equipment, applying the principle laid down in Asia Satellite Telecommunications Private Limited v. DIT. Accordingly, the questions of law on this issue are answered in favour of the assessee and against the revenue.
