Facts:

•        On the basis of a CA certificate, the assessee made payment to a US based company without deducting tax at source and without ascertaining from the A.O u/s 195(2) as to whether tax was required to be deducted or not

•        The assessee submitted that payment for ‘off the shelf’ software did not have any tax implications since what was purchased was only a copyrighted article and not copyright in the software; hence he submitted that no tax was required to be deducted at source

Decision:

•        Copyright article is distinct from copyright per se and payment for copyright article, therefore, cannot be treated as payment of copyright, which could be brought to tax

•        Liability to deduct tax is a vicarious liability and it can be invoked only when primary liability survives. Since the US company itself did not have any tax liability in respect of the payments, the vicarious tax liability did not survive either

•        In any event, in accordance with the procedure stipulated by the CBDT, the assessee had duly obtained the CA certification regarding applicability of tax withholding and based on the certification, made the remittance for deduction at source

•        When no tax is indeed payable by the recipients of the income, a demand u/s.201(1A) cannot be raised on the assessee merely because he had not obtained prior approval of the AO u/s 195(2)

ADIT Mumbai vs Tata Communications (201 0-TII-1 57-ITAT-MUM-INTL)

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