Income Tax Appellate Tribunal - Chennai
Nissan Motor India Private Limited , ... vs Dcit International Taxation 2(1) , ... on 21 March, 2018
आयकर अपील य अ धकरण, 'डी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL , 'D' BENCH, CHENNAI
ी एन.आर
एन आर.एस
आर एस. न याियक सद य एवं ए. मोहन अलंकामणी, लेखा सद य के सम!
एस गणेशन, याियक
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER
आयकरअपीलसं./I.T.A. No.1854/ CHNY/2017
( नधारणवष / Assessment Year: 2014-15)
M/s. Nissan Motor India Pvt. Ltd., Vs The DCIT,
Plot No.1, SIPCOT Industrial Estate, International Taxation - 2(1),
Oragadam, Mattur Post, Chennai.
Sriperumbudur - 602 015.
PAN: AACCN0695D
(अपीलाथ /Appellant) ( यथ /Respondent)
नधा रती क ओर से /Assessee by : Shri N.V. Balaji, Advocate
राज व क ओर से /Revenue by : Smt. S. Vijayaprabha, JCIT
सुनवाईक तार!ख/Da t e of h e ar in g : 05.01.2018
घोषणाक तार!ख /D at e of Pr on o unc em en t : 21.03.2018
आदे श / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-16, Chennai dated 08.06.2017 in ITA No.99/CIT(A)-16/2014-15 for the assessment year 2014-15 passed U/s. 250(6) r.w.s 201(1)(1A) of the Act.
2 ITA No.1854/CHNY/2017
2. The assessee has raised several grounds in its appeal however the cruxes of the issues are as follows:-
(i) The Ld.CIT(A) has erred in upholding the order of the Ld.AO who had held that the payments made by the appellant towards reimbursement of warranty expenditure to its group entities outside India is in the nature of payment made towards "fees for technical services (FTS)" and accordingly taxable income in India in the hands of the recipients and since the assessee had not deducted TDS in accordance with the provisions of Section 195 of the Act, such expenditure cannot be allowed as deduction.
(ii) The Ld.CIT(A) has erred in upholding the order of the Ld.AO who had invoked the provisions of Section 195 of the Act and disallowed the expenditure incurred towards purchase of software from tax resident of Japan and United Kingdom by treating it as taxable income in India in the hands of the recipients under the head 'royalty' as per provisions of Section 9(1)(vi) of the Act.
(iii) The Ld.CIT(A) has erred by not adjudicating the ground relating to the error in computation of interest payable U/s.201(1A) of the Act.3 ITA No.1854/CHNY/2017
3. The brief facts of the case are that the assessee is a resident private limited company engaged in the business of manufacturing and selling motor cars in India as well as abroad. During the course of verification of Form 15CA/CB filed by the assessee for the assessment year 2014-15, it was noticed that the assessee had not deducted 'tax at source' with respect to the payment made towards reimbursement of warranty expenses to the assessee's associated companies and payment made towards purchase of software from tax residents of Japan and United Kingdom, abroad.
4. Ground No.2(i) : Non-deduction of Tax at Source towards payment made for reimbursement of Warranty:-
During the course of the proceedings, it was noticed by the Ld.DCIT (International Taxation) that the assessee had made payment towards reimbursement of warranty on various dates to various Nissan group of companies aggregating to Rs.86,05,89,763/- as detailed herein below:-
S.No. Parts Labour Cost Reasons for Non deduction
1. Direct Sublet
2. 18,88,03,600 5,98,82,642 1,95,14,529 No FTS clause in DTAA
3. 6,87,281 9,45,571 4,45,237 No make available
4. 29,31,13,053 21,27,24,896 8,44,72,927 Not in the Nature of FTS 4 ITA No.1854/CHNY/2017 4.1 The Ld.DCIT was of the opinion that the reimbursement of warranty expenditure by the Assessee Company amounts to payment made towards "fee for technical services" outside India which is a taxable income of the recipient in India. On query as to why tax was not deducted at source by the assessee, the assessee made the following submissions before him:-
"NMIPL is in the business of selling of cars and exports to various destinations across the globe. In fulfilment of a key responsibility as a seller, NMIPL is required to extend after sale support in the form of warranty of cars and parts sold. The above remittances made are properly backed up by warranty claim invoices raised on NMIPL by the respective companies in various countries.
The amount recharged by the non-resident is without any margin and is based on actual cost incurred by them. As a result of this, there is no profit element/ income accruing in the hands of the non-resident on the amount paid by NMIPL.
And assessee placed its reliance on Bovis Lend Lease (India)(P.) Ltd vs ITO [(2010) 127 TT! 25] GE India Technology Centre (P) Ltd vs CIT & Am (2010) 327 ITR 456 DCIT vs AT&S India Private Limited [(2015) 58 taxmann.com 73] The amount charged back is towards replacement of parts and labour cost incurred in providing the services to the ultimate customer. Thus, there is no service provided by the non-resident to NMIPL and hence, payment made is not in the nature of Fees for Technical Services (FTS).
Given that the payment is not in the nature of FTS and the amount received is in the course of the business of the non-resident, such amount would be treated as business income in the hands of non-resident. However, the same shall not be subject to tax due to absence of any business connection/ permanent establishment of the non-resident in India.5 ITA No.1854/CHNY/2017
Without prejudice to the above, even if it is admitted that the payment made are in the nature of FTS, section 9(1)(vii) of the Income-tax Act, 1961 ("the Act") provides that such FTS paid by a resident to non-resident would not be deemed to accrue /arise in India where the payment is made for the purpose of earning income outside India. Given that the payment made by NMIPL to the non-resident parties does not result in NMIPL earning any income in India, such payment made by NMIPL would not be taxable in the hands of the non-resident in India and consequently, not liable to withholding tax .
..... . All services that involve technology will not be treated as payment made towards fee for technical services ..... The technical repairs are different from technical services; and Mere repair work would not be in the nature of fee for technical services and therefore is not liable to tax in India.
Assessee placed reliance on the following judicial precedents
- Luftansa Cargo India Pvt Ltd v. DCIT(92 TTJ 837)
- ADIT v. BHEL-GE-Gas Turbine Servicing Pvt Ltd (151 TTJ 126) ..... Without prejudice to the above, we wish to submit that where the payment is made to a country with which India has DTAA and such DTAA does not have an FTS clause, such labour cost shall not be liable to withholding tax provisions due to absence of specific clause in the relevant DTAA .....
..... Given the absence of FTS clause and that the amount received is in connection with the business activity of the non-resident, the amount shall be treated as receipt in the nature of business income which is taxable only if the non-resident has a Permanent Establishment ('PE') in India .....
..... Further, we wish to state that the 'Other Income' article of the relevant DTAA can be invoked only where the subject payment is not specifically covered by any other article in the DTAA. In the instant case, the payment is covered by the business income article, but is not subject to tax in India owing to the absence of PE in India .
Assessee relied on
- Bangkok Glass Industry Co. Ltd vs ACIT (257 CTR 326) 6 ITA No.1854/CHNY/2017
- P.T Mckinsey Indonesia vs DDIT (25 ITR(T) 52) ..... In the given facts, the company has made payment to parties in Australia wherein .....
Assuming but not agreeing to a situation where the above payments are treated in the nature of technical services by your goodself, the same cannot be held liable to tax since it does not make available any technical knowledge, skill or experience to NMIPL under India - Australia DTAA Assessee placed reliance on Raymond Ltd v. DCIT [86 ITD 791] (Mum ITAT) Intertek Testing Services India (P) Ltd., In re [307 ITR 418] (AAR) Karnataka High Court in the case of CIT vs De Beers India Minerals (P) Ltd Delhi High Court in the case of Guy Carpenter * Co Ltd [ITA No. 202/2012] Pune ITAT in the case of Sandvik Australia Pty Ltd. Vs DCIT(ITA.No.93/PN/2011] and others.
Assessee also submitted that ..... Without prejudice to our submissions in para 2 above, where your goodself proposes to subject the above payments to withholding tax, we wish to submit that only portion of the amount that pertains to labour cost would be in the nature of services subject to withholding tax...."
4.2 However the Ld.DCIT relying in the decision in the case SPX India Pvt. Ltd., Vs. CIT reported in 36 taxmann.com 377 (Delhi Tribunal) and the decision in the case Ashok Leyland Vs. DCIT reported in 120 ITO sic., ITD 14 (Chennai) was of the view of that payment made outside India towards reimbursement of warranty expenditure is a taxable income in the hands of the recipient in India and therefore the assessee was bound to deduct tax at 7 ITA No.1854/CHNY/2017 source. The reasons that led to such belief by the Ld.DCIT are as follws:-
(i) The responsibility is cast on the assessee to provide warranty services to its customers at its own cost for which the amount was included in the sale proceeds.
(ii) The assessee has engaged its dealers (sister companies) to provide warranty services and the expenses incurred by them are reimbursed by the Assessee Company.
(iii) The warranty is promised by the manufacturer i.e., the Assessee Company and not the dealers.
(iv) The customers while making the purchases relies on the warranty offered by the manufacturer and not the dealer.
(v) Warranty schemes for the products are devised and offered by the manufacturer viz., the Assessee Company and not the dealer.
(vi) The contract of warranty is between the Assessee Company and the end customers.
(vii) In order to comply with the warranty promised to the end customers the Assessee Company has engaged the services of its dealers (i.e., assessee's sister companies).8 ITA No.1854/CHNY/2017
(viii) The service and maintenance of the motor cars manufactured by the Assessee Company is a "technical service" because technical experts are required.
(ix) The Assessee Company also provides technical training to the technicians employed by the dealers.
4.3 For the above said reasons the Ld.DCIT came to the conclusion that the contractual payments made by the assessee for obtaining technical services from the dealers for servicing the vehicles manufactured and sold by it, is in the nature of "fee for technical services" as per the Act and the DTAA and therefore it is taxable income in the hands of the recipient in India. 4.4 On appeal, the Ld.CIT(A) upheld the order of Ld.AO by observing as under:
"However, it is to be noted that, there are judicial decisions wherein, it is held that what an element of income is embedded in the receipt in the hands of the third party, the reimbursements are also liable to tax.
The Hon'ble Delhi Tribunal, in the case of SPX India Private Limited v. CIT ( 147 ITD 120) (Delhi ITAT) held that sec. 195, r.w.sec 40(a) (i) of the Act, payment to non- resident for reimbursement of audit fee to a parent company held that the tax was required to be deducted outsource, as element of income was embedded in the receipt of auditor and therefore, upheld the disallowance u/s 40(a) (i) of the Act. Similarly, the Hon'ble ITAT, Chennai in the case of Ashok Leyland Limited v. DCIT 9 ITA No.1854/CHNY/2017 (119 TTJ 716) (Chennai ITAT), the assessee agreed to reimburse expenditure towards Airfare, accommodation and subsistence cost of personnel deputed by foreign company, since it was a part and parcel of advice of a technical character, the Hon'ble Court held that it would attract provision of sec.195 of the Act. Thus, relying on the same, when assessee company reimburses warranty expenses to parent non-resident company Nissan Sales Company (NSC), the ratio laid is clearly covered and applies to the reimbursement of warranty expenses Now, the warranty process flow includes part identification, defect analysis and codification being most critical element of the process and certainly the most variable. Moreover, the process of diagnosing the problem and correcting it remains a difficult and unscientific process. For the said purpose, the mechanic using visual inspection, technical manuals, service bulletin etc. are matched with the warranty conditions for carrying out repairs or to resolve the problem. Clearly, reflects that the mechanics process is a strong diagnostic skill. Thus, what is rendered at the repair shop level is a technical service. On completion of the repair at dealer repair shop, the claim is sent to NSCs and who in turn raise the claim on assessee, NMIPL. It makes it abundantly clear that warranty is not only a warranty for the service after the defect but a warranty is for the no defect of the product offered by the manufacturer. Thus, warranty relates to the sale of goods and will say that it is of a particular standard. A warranty is a promise that refers to more tangible things, like parts of the product or machine. It promises that the motor in a juicer will function smoothly for a year or two If It does not, the manufacturer will repair or replace the motor The contract of warranty IS between the assessee arid customer and the further contract for carrying out the warranty service is between the assessee and the dealer for which the NSC receives reimbursement from Nissan India. Therefore, it is established beyond doubt that the service of a car is a technical service. It requires the service personnel to be technically expert in the field of auto industry. Moreover, the assessee has to provide technical training to the technicians who carry out the service. Hence, the payment made by Nissan India for warranty for offering technical services from the dealers for servicing the vehicles for warranty services through NSCs and therefore, such payment is required to be treated as fees for technical services as per the Act and as per the DTAA. The same is liable to be offered to tax in India. In view of the above discussion I upheld the action of the AO to treat the warranty expenses reimbursement for Rs.29,71,97,823/- as FTS and appellant has failed to deduct TDS on such payment as required u/s 195 hence assessee in default u/s 201 (1) of the Act."10 ITA No.1854/CHNY/2017
4.4 Before us the Ld.AR pointed out the provision of Section 9(1)(vii)(b) of the Act and argued by stating that, the exemption to the provision clearly provides, where any resident pays fees in respect of services for the purpose of making or earning any income from any source outside India, the income arising from such payment to the recipient outside India will not be deemed to be income accruing or arising in India. Further the Ld.AR relied on various decisions to drive his point that tax was not liable to be deductible in the case of the assessee for the payment made towards reimbursement of warranty expenses to sister concerns outside India. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities.
4.5 We have heard the rival submissions and carefully perused the materials on record. The relevant provision of Section 9 of the Act is reproduced herein below for reference:-
"Section 9(1) : The following income shall be deemed to accrue or arise in India:-
(i) ------------------
(ii) ---
(iii) ---
(iv) ----
(v) ----
11 ITA No.1854/CHNY/2017
(vi) ----
(vii) Income by way of fees for technical services payable by ---
----
(a) -----------------
(b) A person who is resident, except where the fees are payable in respect of services utilized in business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India; or"
The above provision of Section 9(1)(vii) and the second limp of (b) of the Act, clearly provides that where a resident is liable to pay fees in respect of services utilized in a business or profession carried on by such person for the purpose of making or earning any income from any source outside India, the income arising from such payment shall be excluded from the deeming provision of Section 9(1) of the Act viz., "income accruing or arising in India". In the case of the assessee, the assessee is a manufacturer of motor cars in India and exports the motor cars to other countries and sells them in those countries through its sister concerns who acts as the dealer of the assessee company. The assessee company also provides warranty to the end customers who purchase the car. The assessee's sister companies who acts as the dealers of the assessee company maintains the cars sold by them according to the terms of the warranty promised by the 12 ITA No.1854/CHNY/2017 Assessee Company, towards which the dealer companies incurs expenditure. As per the contractual obligation, the assessee company reimburses such expenses incurred by its "dealer - sister companies". Thus the assessee company incurs expenditure outside India for the purpose of earning income from source outside India. Therefore by virtue of Section 9(1)(vii)(b) of the Act, the payment made by the assessee company to a person outside India for earning income from any source outside India, and the income arising from such payment to the recipient shall be excluded from the deeming provision of Section 9(1) of the Act. Hence we are of the considered view that the assessee company will not be liable to deduct tax U/s.195 of the Act. It is pertinent to mention that the decision relied by the Ld.AO in the case SPX India Pvt. Ltd., Vs. CIT supra and Ashok Leyland Ltd., Vs. DCIT supra are not applicable to the facts of the case of the assessee. In the case SPX India Pvt. Ltd., the issue was with respect to deduction of tax at source on the amount reimbursed as ISO audit fee to parent company. In the case of Ashok Leyland Ltd., the company was engaged in the business of manufacture of motor vehicles in India and the issue was with respect to reimbursement of expenditure towards air fare, accommodation and subsistence 13 ITA No.1854/CHNY/2017 cost of personal disputed by foreign company. Accordingly the issue is decided in favour of the assessee.
5. Ground No.2(ii) : Non-deduction of Tax at Source towards payment made for purchase of software from non- residents:-
The assessee company had made payment towards purchase of software (1) mTAB License (2) CONSULT-III plus, from M/s.
Gamma Associates, resident of United Kingdom and M/s. Nissan Motor Ltd., tax resident of Japan. The nature of software is extracted herein below from the order of the Ld.CIT(A):-
mTAB License:-
mTAB license is a statistical survey analysis tool for analyzing huge database from survey results like new car buyers, etc. mTAB tool facilitates study by enabling regression analysis, modeling, etc., to effectively derive income from raw data. CONSULT-III Plus:-
- "This is an electronic system diagnostic tool designed for vehicle maintenance technicians to be used for diagnosis and maintenance of the electronic control system installed in vehicles.
- NML provides the software license to NMIPL on a chargeable basis, which in turn would retail the same to Dealers for a price.14 ITA No.1854/CHNY/2017
- This software DVD itself has restriction for duplication/copies, hence, the dealer cannot duplicate the software. This software is only for use by the dealer and resale by Dealer is strictly prohibited.
- The right to change/modify the software rests only with NML and NMIPL has the license only to use the software without any right to modify/change.
- Further, NMIPL would pay a software annual fee to NML for updates including New Model Data, New Programme for electronic control system, Bug fixing and other Vehicle data. Further, NMIPL would charge a software annual fee from the dealers.
- This Annual fee cycle will start from date of software license purchase. And would be based on the number of Software Licenses purchased.
- To avail the software update, each dealer PC is linked with NML server for Software updates. This update will be automatically installed in the dealer PC through "Online Update" application."
5.1 The Ld.DCIT opined relying on the provisions of Section 9(1)(vi) clause (v) to explanation 2 of the Act that payment of royalty is nothing but consideration for transfer of all or any rights (including granting of license) in respect of any copyright etc. He further opined that though the copy rights vests with the owner of the software, the license allows the assessee to use the software subject to certain terms and conditions, therefore the payment made towards purchase of software can be held to be royalty for usage of software and the income arising out of it is taxable in India 15 ITA No.1854/CHNY/2017 in the hands of the non-resident. The Ld.AO also drew strength from the DTAA with Japan and UK wherein royalty is explained as follows: "As per Article 13(3)(a) and Article 12(3) of the DTAA with UK and Japan respectively, royalty means payment of any kind received as consideration for the use of, or right to use, any copyright of a literary, artistic, or scientific work ...... any patent, trademark, design or model, plan, secret formula or process....."
The Ld.DCIT further relied in the decision of the case CIT Vs. CGI Information Systems and Management Consultants Pvt. Ltd. Thereafter the Ld.DCIT held as follows:-
"In view of the above, the payment for software are taxable as royalty as per Section 9(1)(vi) of the Act and as per Article 13(3)/12(3) of DTAA with UK/Japan. As the assessee has failed to deduct tax on the remittances made to M/s. Nissan Motor Limited Japan and Gamma Associates, UK during the Financial Year 2013-14 relevant to Assessment year 2014-15 towards purchase of software, as per the provisions of the Act, it is hereby held to be in default u/s 201(1) and 201(1A) of the Act and liable to pay the tax and interest specified in the Annexure A forming part of this order."
5.2 On appeal, the Ld.CIT(A) confirmed the order of the Ld.DCIT by agreeing with his view.
5.3 The Ld.AR argued before us by stating that the payments made by the appellants towards purchase of software from non- 16 ITA No.1854/CHNY/2017 residents does not envisage the transfer of any right in the nature of copy-right or similar nature in relation to the software and is purely in the nature of purchase. Consequently the same would not be covered as royalty under the relevant DTAA. He further submitted that the income arising to non-residents towards sale of software to the assessee is in the nature of business income which would be liable to be taxable in India only if there exist a PE in India, and in the case of the assessee no permanent establishment of non-residents who has supplied software to the assessee exists in India. He further relied in the decision of the case DCIT Vs. Atmel R & D India (P) Ltd reported in 74 taxmann.com 106 to drive his point.
5.4 The Ld.DR on the other hand relied on the orders of the Ld. Revenue Authorities.
5.5 We have heard the rival submissions and carefully perused the materials on record. From the facts of the case it is apparent that the assessee has obtained license only for the usage of the software for a limited period and does not have the right to change or modify the software. This issue is squarely covered by the 17 ITA No.1854/CHNY/2017 decision of the Chennai Bench of the Tribunal in the case DCIT Vs. Atmel R&D India (P) Ltd., cited by the Ld.AR wherein the Bench after relying on various decisions of the higher judiciary observed as follows:
"41. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non- exclusive and non- transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/transferor who divests himself of the rights he possesses in his favour.18 ITA No.1854/CHNY/2017
42. The license granted to the licensee permitting him to use the programme for its business purpose is only incidental to the facility extended to the licensee to make use of the copyrighted product for its internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do.
43. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the OTAA.
44. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Intra Asia Trading (P) Ltd. copyright and all copies of the software shall be exclusive properties of Intra Asia Trading (P) Ltd. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub-licence or transfer the copy of software to any third party without the consent of Intra Asia Trading (P) Ltd.
45. The licensee has been prohibited from copying, de-compiling, de-assembling, or reverse engineering the software without the 19 ITA No.1854/CHNY/2017 written consent of lntra Asia Trading (P) Ltd. The licence agreement between the Assesseè company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Intra Asia Trading (P) Ltd. and only Intra Asia Trading (P) Ltd. has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to lntra Asia Trading (P) Ltd..
46. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty.
47. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions ot which are more beneficial. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA.20 ITA No.1854/CHNY/2017
48. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income.
49. In view of elaborate discussion and in the light of the judgment of the Hon'ble Delhi High court in the case of DIT Vs. Infrasoft Ltd. (supra), on which reliance placed by the learned AR, in the present case, the assessee has acquired a readymade off -- the shelf computer programme to be used in their business and no right was granted to the assessee to utilize the copy right of the programme and, therefore, consideration cannot be treated as royalty. As held by the CIT(A), the payments made by the assessee company cannot be held as 'royalties' coming into the ambit of Article 12 of DTAA or 'fee for technical services' u/s 9(1 )(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act. We, therefore, uphold the order of the CIT(A) on this count and dismiss the grounds raised by the revenue in this regard."
In view of the above, we are inclined to allow the ground taken by the assessee. This ground is allowed."
Since the issue is squarely covered by the decision of the Chennai Bench of the Tribunal, following the same, we hereby hold that in the case of the assessee, the payment made for obtaining license to use the software cannot be held as royalties coming into the ambit of the DTAA or fees for technical services under Section 21 ITA No.1854/CHNY/2017 9(1)(vii) of the Act and accordingly tax need not be deducted at source U/s.195 of the Act.
6. Ground No.2(iii) : Error in computation of interest payable U/s.201(1A) of the Act:-
Since we have held that, in the case of the assessee, tax need not be deducted at source with respect to payment made towards reimbursement of warranty and payment made towards purchase of software and deleted the addition made on account of non-
deduction of tax at source, this ground raised by the assessee does not survive because the assessee is not liable for payment of interest U/s.201(1A) of the Act.
7. In the result the appeal of the assessee is allowed. Order pronounced on the 21st March, 2018 at Chennai.
Sd/- Sd/-
(एन.आर.एस. गणेशन) (ए. मोहन अलंकामणी)
(N.R.S. Ganesan) (A. Mohan Alankamony)
याियक सद य/Judicial Member लेखा सद य/Accountant Member
चे&नई/Chennai,
'दनांक/Dated 21st March, 2018
22 ITA No.1854/CHNY/2017
RSR
आदे श क त*ल+प अ,े+षत/Copy to:
1. अपीलाथ /Appellant 2. यथ /Respondent 3. आयकर आय/
ु त (अपील)/CIT(A)
4. आयकर आय/
ु त/CIT 5. +वभागीय त न2ध/DR 6. गाड फाईल/GF