Case Law Details
Brief of the Case
ITAT Bangalore held In the case of M/s Tejas Networks Ltd. vs. DDIT that the right that is transferred in the present case is the transfer of copyright including the right to make copy of software for internal business, and payment made in that regard would constitute “royalty” for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of Explanation 2 to section 9(1)(vi) of the Act. In any view of the matter, in view of the provisions of section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. Once it is held that payment made by the respondents to the nonresident companies would amount to “royalty” within the meaning of article 12 of the DTAA with the respective country, it is clear that the payment made by the respondents to the non-resident supplier would amount to royalty. In view of the said finding, it is clear that there is obligation on the part of the respondents to deduct tax at source under section 195.
Facts of the Case
The assessee is an Indian Company who is engaged in developing telecommunication equipment. During the relevant asst. year, the assessee has purchased shrink-wrap Software from Cadence Designs Ireland amounting to Rs.5,946,245/- and Rs.4,015,887/- respectively. The AO noticed that the assessee has remitted the above amounts to Cadence Designs Systems Ireland without deducting tax at source u/s 195. The AO initiated proceedings u/s 201(1).
The assessee submitted that the payment made to the non-resident Indian was made for the use of software under non exclusive and non transferable and licensed to use the software. Accordingly, the payments in question are not chargeable to tax in India and, therefore, no liability to deduct tax at source in respect of such payment. The AO however did not convinced with the explanation furnished by the assessee and was of the view that as per the provision of sec. 195, the assessee was liable to deduct tax at source on the payment made to Cadence Designs Systems Ireland. During the purchase of shrink-wrap software as a payment made amounts to royalty under the Income-tax Act as well as the Indo-Ireland DTAA. The AO accordingly held that the assessee is default u/s 201 and 201(1A) and accordingly calculated the tax liability.
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