April 2016
Business expenditure – TDS – Disallowance u/s. 40(a)(i), (ia) – A. Y. 2008-09 – Payment made for purchase of software as product and for resale in Indian market – Not royalty – Assessee not liable to deduct tax at source – Payment not to be disallowed
By K. B. Bhujle Advocate
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Prin. CIT vs. M. Tech India P. Ltd.; 381 ITR 31 (Del):
For the A. Y. 2008-09, The Assessing Officer disallowed payment made in respect of software without deduction of tax at source u/s. 40(a)(i) and (ia), holding that the payments were in the nature of royalty. The Commissioner (Appeals) accepted the assessee’s contention that it was a value added reseller and the payments made by it for the purchase of software were not royalty but on account of purchases and that the assessee was not obliged to deduct tax at source on such payments. The addition/ disallowance was deleted. The Tribunal concurred with the decision of the CIT(A).
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
“i) The agreement indicated that the assessee was appointed for the purposes of reselling the software and payments made were on account of purchases made by the assessee. Payments made by a reseller for the purchase of software for sale in the Indian market could not be considered royalty.
ii) It was not disputed that in the preceding year, the Assessing Officer had accepted the transaction to be of purchase of software. The assessee was not liable to deduct tax at source. Deletion of addition was proper.”
