A computer software when put into a media and sold, it becomes goods like any other audio cassette or painting on canvass or book. The amount paid by the assessee towards purchase of IXOS-eCON for R/3 50 users cannot be treated as payment of royalty taxable in India under Article 12 of DTAA between India and Singapore. Therefore, the assessee, in our opinion, is not liable to deduct tax at source.
In the case of: M/s. Kansai Nerolac Paints Ltd. Vs. Addl. DIT (International Taxation, Mumbai), decided by : ITAT Mumbai
Assessees Contention:-The assessee applied to the AO for a NOC u/s 195(2) for remittance of a fee to IXOS Software, Singapore, to acquire software. The assessee claimed that the fee was commercial profits and not taxable in the hands of the recipient under Article 7 of the India-Singapore DTAA as the recipient did not have a PE in India.
Assessing Offiver and CIT Appeals View:- As the software acquired by the Assessee was a “copyright” / “secret process” and the assessee had merely acquired a ‘non-exclusive & non-transferable’ license to use the software and as the Singapore Company continued to be the owner of the software, the fee constituted “royalty” under s. 9(1)(vi) of the Act and Article 12 of the DTAA and that it was chargeable to tax in India.
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