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DATE: May 18, 2016 (Date of pronouncement)
DATE: May 26, 2016 (Date of publication)
AY: -
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(i) Purchase of a license to use shelf/shrink-wrapped software is purchase of a “product” and not a “copyright”, (ii) The retrospective insertion of Explanation 4 to s. 9(1)(vi) to include “software” in the definition of “royalty” does not apply to DTAAs, (iii) In view of the conflict of views amongst the High Courts, the view in favour of the assessee should be followed, (iv) An obligation to deduct TDS u/s 195 cannot be imposed by the retrospective insertion of Explanation 4 to s. 9(1)(vi), (v) As payments for software were not “royalty” at the time of payment, the assessee cannot be held to be in default for not deducting TDS

The assessee cannot be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD- ROM which can be said to be sale of “good” by the owner. The consideration paid by the assessee thus as per the clauses of DTAA cannot be said to be royalty and the same will be outside the scope of the definition of “royalty” as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a license provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957

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DATE: May 13, 2016 (Date of pronouncement)
DATE: May 16, 2016 (Date of publication)
AY: 2001-02
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S. 40(a)(i): The law in s. 40(a)(i) that failure to deduct TDS on payment to a non-resident will result in a disallowance violates the non-discrimination clause in Article 26 of the India-USA DTAA because a similar disallowance is not made on payments to residents (pre s. 40(a)(ia))

The argument of the Revenue overlooks the fact that the condition under which deductibility is disallowed in respect of payments to non-residents, is plainly different from that when made to a resident. Under Section 40 (a) (i), as it then stood, the allowability of the deduction of the payment to a non-resident mandatorily required deduction of TDS at the time of payment. On the other hand, payments to residents were neither subject to the condition of deduction of TDS nor, naturally, to the further consequence of disallowance of the payment as deduction. The expression “under the same conditions” in Article 26 (3) of the DTAA clarifies the nature of the receipt and conditions of its deductibility. It is relatable not merely to the compliance requirement of deduction of TDS. The lack of parity in the allowing of the payment as deduction is what brings about the discrimination

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DATE: April 27, 2016 (Date of pronouncement)
DATE: May 5, 2016 (Date of publication)
AY: 2009-10
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S. 195/ 40(a)(ia): Commission paid to non-resident agents for services rendered outside India is not liable for TDS u/s 195. The retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India makes no difference to the legal position

As the commission agent did not have any business connection in India as they had no permanent establishment in India and in fact neither any income arose or accrued to non-resident agent in India. DCIT v/s Ardeshi B Cursetjee & Sons Ltd. 115 TTJ 916 which held that the commission paid to non-resident agent outside India for the services rendered were not chargeable to tax in India. In these circumstances, there was no occasion to deduct tax at source in respect of the payment made to the non-resident agent

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DATE: January 20, 2016 (Date of pronouncement)
DATE: April 28, 2016 (Date of publication)
AY: 2010-11
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S. 195/ 40(a)(ia): Commission paid to a non-resident for services rendered outside India is not chargeable to tax in India and is not liable for TDS. Insertion of Explanation 4 to s. 9(1)(i) and Explanation 2 to s. 195(1) by FA 2012 w.r.e.f. 01.04.1962 and insertion of Explanation below s. 9 (2) by FA 2010, w.r.e.f. 01.06.1976 makes no difference to the law

The commission payments to the non-resident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad. The contention of the Revenue that the Tribunal ought not to have relied upon G.E.India Technology’s case, cited supra, in view of insertion of Explanation 4 to Section 9 (1) (i) of the Act with corresponding introduction of Explanation 2 to Section 195 (1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962 is not correct. When the transaction does not attract the provisions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act

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DATE: February 5, 2016 (Date of pronouncement)
DATE: February 12, 2016 (Date of publication)
AY: 1999-00
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CITATION:
S. 172/ 195: Shipping companies assessed u/s 172 are not subject to TDS obligations u/s 195

To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt. Ltd 325 ITR 554 seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be apprehension because there is no escape from the levy and recovery of tax. The tax has to be levied and collected. The ship cannot leave the port or if allowed to leave any port in India, it must either pay or make arrangement to pay the tax. Hence, the apprehension of avoidance or evasion both are taken care of by the legislature. That is how advisedly the legislature cast the obligation to deduct tax at source on the person responsible to make payment to a non-resident in shipping business

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DATE: December 8, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 2007-08, 2008-09
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Commission earned by a non-resident agent who carried on business of selling Indian goods outside India cannot be said have deemed to be income which has accrued and/or arisen in India. Circular No. 23 of 1969 & Circular No.786 of 2000 were withdrawn on 22.10.2009. The withdrawal of a Circular cannot have retrospective operation

in CIT v/s. Toshoku Ltd. 125 ITR 525 the Apex Court held that the commission earned by the non-resident agent who carried on the business of selling Indian goods outside India, cannot be said have deemed to be income which has accrued and/or arisen in India. Circular No. 23 of 1969 and its reiteration in Circular No.786 of 2000 were in force during the Assessment Years. It was only subsequently i.e. on 22nd October, 2009 that the earlier Circular of 1969 were withdrawn. However, such subsequent withdrawal of an earlier Circular cannot have retrospective operation as held in UTI v. P. K. Unny 249 ITR 612

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DATE: August 20, 2015 (Date of pronouncement)
DATE: December 21, 2015 (Date of publication)
AY: 2009-10
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CITATION:
S. 195/ 40(a)(ia): In view of retrospective amendment to s. 195 to provide that s. 195 applies whether or not the non-resident person has a residence or place of business or business connection in India, commission to non-resident agents for services rendered outside India is liable for TDS u/s 195 and has to suffer disallowance u/s 40(a)(ia)

In respect of the issue as to whether the Assessee was liable to deduct TDS u/s 195 and whether the disallowance was liable to be made u/s 40(a)(ia) of the Act, it is noticed that the provisions of s. 195 has been amended by the introduction of the Explanation-II to the said section by the Finance Act, 2012, with retrospective effect from 1.4.1962, whereby it is clarified that ‘the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has (i) a residence or place of business or business connection in India…’ In view of the introduction of Explanation II to s. 195… the disallowance… would have to be restored

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DATE: January 29, 2015 (Date of pronouncement)
DATE: February 2, 2015 (Date of publication)
AY: 2007-08
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CITATION:
S. 9(1)(vii): Reimbursement of expenditure under cost-sharing agreement does not constitute "income" and there is no obligation to deduct TDS u/s 195

A perusal of the decision of the Supreme Court in Tejaji Farasram Kharawalla Limited (1967) 67 ITR 95 (SC) clearly shows that Supreme Court has categorically held that the reimbursement of the actual expenses would not be taxable in the hands of the person receiving the reimbursements

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DATE: January 7, 2015 (Date of pronouncement)
DATE: January 12, 2015 (Date of publication)
AY: 2008-09, 2009-10, 2010-11
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S. 40(a)(i): Usance charges paid by the Assessee on import of raw material from foreign countries attracts tax in India u/s 5(2)(b) r.w.s. 9(1)(v)(b)

From reading the decisions of the Hon’ble Supreme Court in CIT vs. Vijay Ship Breaking Corporation as reported in 314 ITR 309 (SC) and the Hon’ble Gujarat High Court (reported in 261 ITR 113) it is apparent that the Hon’ble Supreme Court has not reversed the decision in the case of CIT vs. Vijay Ship Breaking Corporation, 261 ITR 113 (supra) on the finding that the usance charges are not interest u/s 2(28A) except where an undertaking is engaged in the business of ship breaking in view of explanation (2) to Sec. 10(15)(iv)(c) inserted by the Taxation Laws (Amendment) Act, 2003 with retrospective effect

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DATE: November 21, 2014 (Date of pronouncement)
DATE: December 2, 2014 (Date of publication)
AY: 2009-10
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CITATION:
Impact of Explanation 2 to s. 195(1) inserted by Finance Act, 2012 w.r.e.f. 01.04.1962 on law laid down in GE India Technology Centre 327 ITR 456 (SC) explained

The law laid down in GE India Technology Centre (P.) Ltd. vs. CIT [2010] 327 ITR 456 (SC) that there is no obligation to deduct TDS u/s 195 if the sum is not chargeable to tax in India is not …

ACIT vs. Vilas N. Tamhankar (ITAT Mumbai) Read More »