Case Note & Summary
The case involves two appeals filed by the Revenue under Section 260-A of the Income Tax Act, 1961, against the common order of the Income Tax Appellate Tribunal (ITAT), Bangalore, dated 03-07-2009, for assessment years 2006-2007 and 2007-2008. The respondent-assessee, M/s Manipal Health Systems Pvt. Ltd., had made payments to a non-resident for purchase of computer software. The Revenue contended that such payments constituted 'royalty' under Section 9(1)(vi) of the Act, read with the Double Taxation Avoidance Agreement (DTAA), and that the assessee was liable to deduct tax at source under Section 195. The Assessing Officer had held that the payments were royalty and disallowed the deduction claimed by the assessee. The Commissioner of Income Tax (Appeals) reversed the order, holding that the payment was not royalty. The ITAT confirmed the order of the CIT(A). The High Court, after hearing both sides, dismissed the appeals, holding that the payment for purchase of computer software from a non-resident does not amount to royalty as no copyright in the software is transferred. The court relied on the principle that the payment is for the purchase of goods and not for the use of any copyright. Consequently, the assessee was not liable to deduct TDS under Section 195. The substantial questions of law were answered in favor of the assessee and against the Revenue.
Headnote
A) Income Tax - Royalty - Computer Software - Section 9(1)(vi) Income Tax Act, 1961 - Whether payment for purchase of shrink-wrapped software from non-resident constitutes royalty - Held, no copyright in software is transferred; payment is for purchase of goods, not royalty, hence no TDS liability under Section 195 (Paras 1-5).
Issue of Consideration
Whether the payment made by the assessee to a non-resident for purchase of computer software amounts to 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961, read with the relevant Double Taxation Avoidance Agreement, thereby attracting TDS provisions under Section 195 of the Act.
Final Decision
Both appeals dismissed. Order of ITAT confirmed. Substantial questions of law answered in favor of assessee and against Revenue.
Law Points
- Payment for computer software not constituting royalty under Section 9(1)(vi) of Income Tax Act
- 1961
- when no copyright in software is transferred
- TDS provisions under Section 195 not attracted
- Interpretation of 'royalty' under Income Tax Act and Double Taxation Avoidance Agreement.
