Case Law Details
Pidilite Industries Ltd. Vs ITO (ITAT Mumbai)
We find merit in the argument of the assessee for the reason that on perusal of deed of assignment of copyrights and technical knowhow, we find that the assessee has purchased copyrights with exclusive right and interest. Therefore, we are of the considered view that payment made by the assessee for outright purchase of copyrights and technical knowhow does not constitute royalty within the meaning of royalty as defined in section 9(1)(vii) and not liable for TDS u/s 194J of the Act.
We further notice that the payments made by the assessee are coming within the exclusion provided under Explanation 2 to section 9(1)(vii) of the Act for the reason that the recipient has claimed consideration received from the assessee as capital receipt not liable to tax. But the fact remains that once the receipt is coming within the meaning of capital receipt, whether it is liable for tax under the head ‘ capital gains’ or not and such receipt is considered by the assessee in its return of income then certainly, the payments made for purchase of copyrights and know how are coming within the ambit of exclusion provided under Explanation 2 to section 9(1)(vii) of the Act.
The AO as well as the CIT(A) has given a narrow meaning to the word “chargeable under the head capital gains” so as to mean that if the recipient has offered the income under the head ‘capital gains’ then the payments are coming within the ambit of exclusion without appreciating the facts that whether or not taxes have been paid on receipts even if such payment is in the nature of capital receipt which is not liable to tax under the provisions of the Act and the assessee has disclosed such a receipt in his books of account, then the AO is incorrect in treating the payments within the meaning royalty as defined u/s 9(1)(vii) of the Act.
Therefore, we are of the considered view that the payments made by the assessee for outright purchase of copyright and technical knowhow is not coming within the definition of royalty as defined u/s 9(1)(vii) of the Act and the assessee is not liable to deduct tax u/s 1 94J of the Act, hence we direct the AO to delete addition made on account of short deduction of tax at source and interest u/s 201(1 )/201 (1A) of the Act.
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