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9. The next issue that came up for consideration from ground no. 3 of the assessee appeal is disallowance of payment made to a non-resident for purchase of software u/s. 40(a)(i) of the Act, for non-deduction of tax at source u/s. 195 of the IT Act, 1961. The assessee has purchased copyrighted software from a service provider from USA. The assessee has not deducted TDS u/s. 195 of the IT Act, 1961 for the reason :-8-: ITA. No: 104/Chny/2018 that software license purchased from non-resident supplier is not in the nature of Royalty as defined u/s. 9(1)(vi) of the IT Act, 1961. The assessee further claimed that it has acquired only a copyrighted article, but not a copyright itself. The AO disallowed payment made to a non-resident for purchase of software on the ground that when assessee has deducted TDS on payment made to another supplier on similar nature, failed to offer any explanation for non-deduction of tax at source on payment made for purchase of software from USA supplier. The AO has also taken support from the decision of Hon'ble High Court of Karnataka in the case of CIT vs Rational Software Corporation of India P Ltd., to observe that payment for purchase of software amount to royalty and TDS has to be deducted.

13. The Proviso to section 9(1)(vii) deals with copyrights as per which any payment made for acquiring copyright is in the nature of Royalty and income embaded in such payments to a non-resident is taxable in India. If any amount made for copyrighted article, then the proviso to section 9(1)(vii) is not attracted. This legal principle is supported by the decision of the Hon'ble High Court of Madras in the case of CIT vs Vinzas Solutions India (P) Ltd, where the Hon'ble High Court clearly opined that there is the distinction between copyrighted article and one of the copyright and further held that proviso to section 9(1)(vii) as a whole is not applicable to payment made for purchase of copyrighted article. A similar issue has been considered by the coordinate bench of ITAT, Mumbai in the case of DDIT vs Reliance Communication Ltd [2018] 90 Taxmann.com 358, where it was held that consideration paid by assessee to non-resident supplier for acquiring copy of software was actually made for copyrighted article and not for use of copyright or transfer of right to use of copyright and thus, payment made by the assessee to vendors of software :-11-: ITA. No: 104/Chny/2018 could not be taxed as royalty. The Hon'ble Supreme Court in the recent judgment of Engineering Analysis Center of Excellence P. Ltd. Vs CIT (2021) 125 Taxmann.com42 (SC) has put an end to all controversies with regard to deduction of tax at source on payment to non-resident for purchase of computer software and held that amount paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not a payment of royalty for the use of copyright in the computer software, and thus, same does not give rise to any income taxable in India. Similarly, the Hon'ble High Court of Madras in the case of CIT vs M/s. Dassault Systems Simulia P Ltd., (2021) 127 Taxmann.com 27 (madras) had considered an identical issue and held that whether assessee had purchased only a right to use copyright, i.e., software and not entire copyright itself, amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not payment of royalty for the use of copyright in the computer software, and same does :-12-: ITA. No: 104/Chny/2018 not give rise to any income taxable in India, as a result of which the persons referred to in section 195 were not liable to deduct any TDS u/s. 195 of the Act, 1961. In this case, the assessee has purchased software from supplier in USA and said software is a copyrighted article. Therefore, we are of the considered view that payment made by the assessee for purchase of software to non-resident supplier is outside the scope of the definition of Royalty as defined u/s. 9(1)(vii) and thus, the assessee does not required to deduct TDS u/s. 195 of the Act, 1961 and consequently, payment made for purchase of software cannot be disallowed u/s. 40(a)(i) of the Act for non-deduction of tax at source. Hence, we direct the AO to delete the additions made towards disallowance of payments made to non-resident for purchase of software.