Case Law Details
Brief of the Case
ITAT Mumbai held in the case of M/s. Capgemini Business Services (India) Ltd. vs. ACIT that the definition of royalty given in the treaty is more beneficial to the assessee as compared to the provisions of section 9 of the Income Tax Act and the assessee has opted for the definition that is provided under the DTAA, thus as per section 90 of the Income Tax Act, definition of royalty as provided in the DTAA will prevail as over the general definition of ‘royalty’ provided under the Income Tax Act. The assessee cannot be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD- ROM which can be said to be sale of ‘good’ by the owner. The consideration paid by the assessee thus as per the clauses of DTAA cannot be said to be royalty and the same will be outside the scope of the definition of royalty as provided in DTAA and would be taxable as business income of the recipient.
Facts of the Case
The assessee formerly known as Unilever India Shared Services Limited for a part of A.Y 2007-08 was a subsidiary of Hindustan Unilever Limited (HUL), which is in turn a subsidiary of Unilever Plc. CBSIL. Out of various grounds raised, ground No.4 is in relation to disallowance of expenditure of Rs.9,53,437/- incurred for purchase of “off the shelf” software from ‘QAD Singapore Pvt. Ltd.’ under section 40(a)(i) of the Act on the ground that the said expenditure was subject to deduction of tax at source under section 195 of the Act. The AO noticed that the assessee had incurred expenses in foreign currency for the purchase of software from QAD Singapore Pvt. Ltd. The case of the assessee has been that it had not purchased any copyright in the software rather; it had purchased only a copyrighted article named as ‘MFG Pro Software.’ The AO, however, observed that the assessee had purchased the right to use the software and the software is used for the business purpose in India. He, therefore, held that the same was liable for deduction of tax at source under section 195 of the Act in view of the provisions of section 9 of the Income Tax Act, wherein it has been provided that the income on account of consideration paid for royalty is to be deemed to have accrued in India.
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