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Section 9(1)(vi), 195 – Payment for purchase of computer software for reselling to ultimate users, does not amount to royalty under the Act.
Facts:
Taxpayer, an Indian Co, was engaged in the business of trading of software. Taxpayer made certain payments to a non-resident (“NR”) for the purchase of computer software without withholding taxes on such payments u/s. 195 of the Act. Tax Authority contended that the payments were towards obtaining user license in the computer software and hence they represented use of copyright and accordingly being in the nature of royalty, were chargeable to tax in India.
The Taxpayer contended that it is a distributor of NR’s software products and the payments were made merely for the purchase of software for distributing them to the ultimate customers (i.e., the actual users of the software) in the prescribed territory. Accordingly, payments did not represent payment for use the software nor for acquiring license for use of the software and hence, were not royalty.
Held:
Taxpayer is purely a trader in software and not the user of the software. NR has appointed Taxpayer as nonexclusive distributor/re-seller of the software products of the for the territory.
The end user of the software products is not the Taxpayer but the customers in India, to whom the Taxpayer has sold the products.
Based on the agreement between the Taxpayer and NR, it is evident that the Taxpayer is a registered reseller, who books orders with NR on behalf of customers, collects payments and delivers software to the end users or customers. Further most of the time, the delivery is actually made via e-mail or via internet download. Since no ownership rights in the patents, copyrights relating to the software have been transferred by the NR to the Taxpayer, payment does not amount to royalty under the Act and hence taxes are not required to be withheld.
