Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Monday, 03 August 2015 13:27

Whether a copy right or a copy righted article for Section 201(1) - Matter remitted back

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Gist

Where the Ld. CIT(A) has neither considered nor analysed the terms and conditions of the relevant license agreements so as to ascertain the exact nature of rights acquired by the assessee which is so vital and material to decide the issue under consideration the Honb. Tribunal considered it fair and proper and in the interest of justice to remit the matter back to the Ld. CIT(A) for deciding the same afresh on merit in accordance with law, after giving the assessee proper and sufficient opportunity of being heard.

Facts

1. Assessee is engaged in the business of rendering KPO services.

2. Made payments to foreign third parties for the purchase of software licence.

3. AO held that the payments were in the nature of Royalty and was required to deduct TDS.

4. AO passed order u/s 201(1) on the grounds of non deduction of TDS

5. CIT (A) decided against the assessee passing a detailed order and however failed to consider the terms and conditions of the relevant license agreements.

6. Tribunal remitted it back to the CIT(A)

Adjudication

The crux of the issue thus is whether the amount in question paid by the assessee to M/s. Tekla and M/s. DDC under the relevant license agreements was for a copy right or a copy righted article and this distinction is material because as held in the various judicial pronouncements cited by the Ld. Counsel for the assessee, if it is for a copy right, the same should be classified as ‘Royalty’ both under the Income Tax Act and under the DTAA. On the other hand, if the payment is actually for a copy righted article, then it only represents the purchase price of the article and the same cannot be considered as ‘Royalty’. It is, therefore, relevant to ascertain as to whether there was transfer of any rights including the granting of a license in respect of copy right to the assessee in the present case under the license agreements and this exercise is required to be done by examining and analysing the terms and conditions of the relevant license agreements entered into by the assessee company with M/s. Tekla and M/s. DDC. A perusal of the impugned orders passed by the Ld. CIT(A), however, shows that although he has passed a very detailed order, he has neither considered nor analysed the terms and conditions of the relevant license agreements so as to ascertain the exact nature of rights acquired by the assessee which is so vital and material to decide the issue under consideration. Moreover, as pointed out by the learned D.R., the scope of the definition “Royalty” as given in Explanation (2) to Section 9(1)(vi) has been further clarified by inserting Explanation (iv) and Explanation (v) by the Finance Act, 2012 with retrospective effect from 01.06.1976 and the benefit of this amendment made subsequently with retrospective effect was not available to the Ld. CIT(A) while passing the impugned orders. As contended by the Ld. Counsel for the assessee in this regard, it is also relevant to see whether there is any amendment in the relevant articles of the DTAAs widening the scope of the term “Royalty” as done in the domestic Law. Keeping in view all these relevant aspects of the matter which have a direct bearing on the issue under consideration, I consider it fair and proper and in the interest of justice to remit the matter back to the Ld. CIT(A) for deciding the same afresh on merit in accordance with law, after giving the assessee proper and sufficient opportunity of being heard.

Cases Referred to

Frontline Soft Ltd vs. DCIT (2008) 12 DTR (Hyd)(Trib) 131 
New Skies Satellite NV & Others (2009) 30 DTR 289
Del International Services (India) P. Ltd., 305 ITR 37 (AAR)

 

 

Additional Info

Read 2733 times Last modified on Saturday, 13 February 2016 17:02
Deepak Kumar

A Post Graduate and Chartered Accountant Deepak Sinha is a member of Taxpundit's core team. An analytical, result oriented professional with more than 10 years of combined experience in industry and consultancy.

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