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May 2016

TDS – Disallowance u/s. 40(a)(i) – Royalty – Payment for import of software – Not royalty – Tax not deductible at source on such payments – Amount not disallowable u/s. 40(a)(i)

By K. B. Bhujle Advocate
Reading Time 1 mins
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Wipro Ltd. vs. Dy. CIT; 382 ITR 179 (Karn)

The Assessing Officer disallowed the claim for deduction of expenditure incurred for import of software relying on section 40(a)(i), on the ground that the payment was a royalty and that the tax was not deducted at source. The Tribunal allowed the assessee’s claim, holding that the payment made by the assessee for import of software is not royalty.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held that the payments made by the assessee for import of software did not constitute royalty u/s. 9(1)(vi) of the Act and there was no obligation to deduct tax at source u/s. 195 and as such the expenditure cannot be disallowed u/s. 40(a)(i) of the Act.

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