Commissioner of Incometax, (International Taxation) v. Wipro Ltd.

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The Tax Publishers2012 TaxPub(DT) 0791 (Karn-HC) : (2012) 047 (I) ITCL 0027 : (2013) 355 ITR 0284 : (2011) 203 TAXMAN 0621 INCOME TAX ACT, 1961 Income deemed to accrue or arise in India- Under section 9(1)(vi)-Royalty-No deduction of TDS Assessee made certain payments to a non-resident of USA/Ireland, on which no tax was deducted under section 195. Assessee submitted that payment was akin to making a subscription for a journal or magazine of a foreign publisher and though the journal contained information concerning commercial, industrial or technical knowledge, the payee made no attempt to impart the same to the payer in response to show-cause notice issued by AO. Thus, the payment fell outside the scope of clause (ii) of Explanation 2 to section 9(1)(vi). It further submitted that the payment was not contingent on productivity, use or disposition of the information concerning industrial, commercial or scientific experience in order to be construed as royalty within the meaning of article 12 of Indo-US DTAA. AO was held that payments made to non-resident was `royalty`within the meaning of Explanation 2 to section 9(1)(vi) and in the alternative `fees for technical services`, both of which were liable for tax in India in terms of section 195, read with section 9(1)(vi) and (vii) and the relevant provisions of the DTAA. Tribunal accepted explanation of assessee and assessment order passed by AO was set aside. *Held:* It was clear from the material on record that the Court was held that the payment made by assessee to non-resident company would amount to royalty and wherefore, there was statutory obligation on the part of assessee to make tax deduction, falling which, it was liable to pay tax and interest under section 201(1) and 201(1A). Mere fact that in this case, the issue did not pertain to shrink wrapped software or off-the-shelf software and access to database maintained by non-resident was granted online, would not make any difference in the reasoning assigned to hold that such right to access would amount to transfer of right to use the copyright held by non-resident thus, the payment made by the assessee respondent to non-resident in that behalf was for the licence to use the said database maintained by non-resident and such payment was to be treated as `royalty`. Therefore, Tribunal found that payment made by the assessee to non-resident, a non-resident company would not amount to royalty was not justified and liable to be set aside. [Para 6] Income-tax Act, 1961 Section 9 DTAA between India and USA Article 12 Decision: In favour of revenue. A.Y. 2001-02 to 2003-04 IN THE KARNATAKA HIGH COURT V.G. SABHAHIT & RAVI MALIMATH, JJ. CIT v. Wipro Ltd. *ITA Nos. 2804, 2805 & 2807 of 2005* *15 October, 2011* Appellant by : E. Sanmathi Indrakumar Respondent by : R.B. Krishna SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0791 (Karn-HC) : (2012) 047 (I) ITCL 0027 : (2013) 355 ITR 0284 : (2011) 203 TAXMAN 0621

INCOME TAX ACT, 1961

Income deemed to accrue or arise in India- Under section 9(1)(vi)-Royalty-No deduction of TDS

Assessee made certain payments to a non-resident of USA/Ireland, on which no tax was deducted under section 195. Assessee submitted that payment was akin to making a subscription for a journal or magazine of a foreign publisher and though the journal contained information concerning commercial, industrial or technical knowledge, the payee made no attempt to impart the same to the payer in response to show-cause notice issued by AO. Thus, the payment fell outside the scope of clause (ii) of Explanation 2 to section 9(1)(vi). It further submitted that the payment was not contingent on productivity, use or disposition of the information concerning industrial, commercial or scientific experience in order to be construed as royalty within the meaning of article 12 of Indo-US DTAA. AO was held that payments made to non-resident was `royalty`within the meaning of Explanation 2 to section 9(1)(vi) and in the alternative `fees for technical services`, both of which were liable for tax in India in terms of section 195, read with section 9(1)(vi) and (vii) and the relevant provisions of the DTAA.

Tribunal accepted explanation of assessee and assessment order passed by AO was set aside. Held: It was clear from the material on record that the Court was held that the payment made by assessee to non-resident company would amount to royalty and wherefore, there was statutory obligation on the part of assessee to make tax deduction, falling which, it was liable to pay tax and interest under section 201(1) and 201(1A). Mere fact that in this case, the issue did not pertain to shrink wrapped software or off-the-shelf software and access to database maintained by non-resident was granted online, would not make any difference in the reasoning assigned to hold that such right to access would amount to transfer of right to use the copyright held by non-resident thus, the payment made by the assessee respondent to non-resident in that behalf was for the licence to use the said database maintained by non-resident and such payment was to be treated as `royalty`. Therefore, Tribunal found that payment made by the assessee to non-resident, a non-resident company would not amount to royalty was not justified and liable to be set aside. [Para 6]

Income-tax Act, 1961 Section 9
DTAA between India and USA Article 12

Decision: In favour of revenue.
A.Y. 2001-02 to 2003-04

IN THE KARNATAKA HIGH COURT

V.G. SABHAHIT & RAVI MALIMATH, JJ.

CIT v. Wipro Ltd.

ITA Nos. 2804, 2805 & 2807 of 2005

15 October, 2011

Appellant by : E. Sanmathi Indrakumar

Respondent by : R.B. Krishna