The Supreme Court has stayed the Karnataka High Court ruling that asked technology firms to deduct tax on all payments made to non-residents on software purchases.A Bench headed by Justice S H Kapdia stayed the Karnataka High Court judgement on a couple of petitions by GE India Technology Centre Pvt Ltd and Engineering Analysis Centre of Excellance Pvt Ltd (EACEPL) seeking to set aside the high court judgement that held them legally bound to withhold tax on all cross-border payments.

The apex court while “staying the recovery till further orders” in an ad-interim order also sought reply from the Commissioner of Income Tax, International Taxation, as to why such payments should be subjected to tax. According to software companies, there is no need to deduct TDS while remitting payments overseas as they do not deem the income to be taxable in India.

Challenging the HC’s April 24 verdict, the firms said that the high court overlooked the accepted principles of international taxation that are broadly being adhered to by all the countries to ensure uniformity in how tax is to be levied on transnational transactions. “The proliferation of DTAA’s establishes the growing recognition of harmony in the taxation systems of different nations. One of the accepted principles of taxation is that the law should not seek to assume jurisdiction over a tax payer who has no presence,” the petitions said.

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