Indian Kanoon - Search engine for Indian Law

4.2 The Assessee had also entered into a similar agreement with M/s Intersystems India Pvt. Ltd., Gurgaon in terms of which the Assessee had paid a sum of Rs. 13,78,496/- without deducting any tax at source. This expenditure was disallowed by the AO under Section 40(a)(ia) of the Act. 4.3 Aggrieved by the assessment order, the Assessee preferred an appeal before the CIT(A). In the appellate proceedings the Assessee submitted that it was a Value Added Reseller (VAR) of software related to healthcare and hospitality. The said software was purchased from THPL under the 'VAR Agreement' and the same was resold to various end-users in India. During the financial year relevant to the AY 2008-09, the Assessee had purchased software worth Rs. 66,87,509/- from THPL. In addition, the Assessee had also purchased software from M/s Speed Miners, Malaysia for Rs. 9,35,987/- and M/s Data Innovation Asia Limited, Hong Kong for Rs. 5,03,894/-. The Assessee claimed that similar purchases made in the preceding years had been considered as purchases and allowed as a deduction in computing its taxable income. However, the AO had sought to treat such payments as royalty in the AY 2008-09. The Assessee contended that being a reseller of products, the payments made by the Assessee for acquiring the products could not be considered as royalty. The Assessee relied on the decision of this Court in CIT v. Dynamic Vertical Software India P. Ltd .: (2011) 332 ITR 222 (Del) and also sought to distinguish the Tribunal's earlier decision in M/s Microsoft Corporation and Ors. v. ADIT:

4.5 Aggrieved by the CIT(A)'s order dated 30th April, 2012, the Revenue preferred an appeal before the Tribunal. The Tribunal concurred with the decision of the CIT(A) that the payments in question made to THPL and M/s Speed Miners, Malaysia were for purchasing software and the payments made could not be considered as royalty. The Tribunal further held that the decision of this Court in Dynamic Vertical Software India P. Ltd . (supra) squarely covered the issue raised and following the aforesaid decision, rejected the Revenue's contention. For similar reasons, the Tribunal also rejected the Revenue's contention that the payments made by the Assessee to Intersystem India Pvt. Ltd., Gurgaon were to be disallowed as deductions under Section 40(a)(ia) of the Act.

(2015) 376 ITR 371 (AAR) in support of his contentions.

7. Mr Ved Jain, learned advocate appearing for the Assessee supported the decision of the CIT(A) and the Tribunal. He also referred to the decisions of this Court in Dynamic Vertical Software India P. Ltd. (supra) wherein the payments made by a reseller for purchase of software for sale in the Indian market was held not to be royalty. He also referred to the decision of this Court in Director of Income Tax v. Infrasoft Ltd.: (2014) 220 Taxman 273 (Del) and drew the attention of this Court to paragraph 98 of the said judgment wherein this Court had unequivocally expressed that it was not in agreement with the decision of the Karnataka High Court in the case of Samsung Electronics Co. (supra).

14. Insofar as the reliance placed by the Revenue on the decision of the Karnataka High Court in Samsung Electronics Co. (supra) is concerned, a Coordinate Bench of this Court in Infrasoft (supra) has unequivocally expressed its view that it was not in agreement with that decision. Thus, the said decision is of no assistance to the Revenue in this case.

15. In another case, Dynamic Vertical Software India P. Ltd. (supra), this Court had reiterated the view that payment made by a reseller for the purchase of software for sale in the Indian market could by no stretch be considered as royalty.