Payments made by IBM India to IBM Singapore for Purchase of Shrink Wrapped/ Off the Shelf Software is ‘Royalty’: ITAT confirms Penalty [Read Order]

While hearing the case of M/s. IBM India Private Limited v. Deputy Commissioner of Income Tax, Income Tax Appellate Tribunal, Bangalore bench recently deleted penalty against IBM India finding that the payment made by them to IBM Singapore for the purpose shrink wrapped/off the shelf software should be considered as royalty.

In the present case, Assessee, an Indian private company has duly filed its return of income for the relevant assessment year. During the course of assessment proceedings the Assessing Officer (AO) noticed that the assessee has made a payment to IBM Singapore Private Limited for the purchase of shrink wrapped/ off the shelf software as ‘royalty’ and consequently he held that the assessee to be an “assessee in default” under the provisions of Section 201(1) of the Income Tax Act 1961. CIT(A) also confirmed the same.

Thereafter the assessee approached tribunal on appeal.

Before the bench revenue submitted that the Supreme Court taken a decision in on the similar issue in the assessee’s own case during the preceding year and also submitted the copy of the same order and the it is clearly specified in the order that payment made by the assessee is the payment of royalty, therefore, the assessee is in default for non-deduction of TDS under section 201 of the Act.

After analyzing the facts and circumstances deeply the tribunal bench including Judicial Member Sunil Kumar Yadav and Accountant Member Inturi Rama Rao upheld the order passed by the lower authorities in the light of the order passed by the Supreme Court in the assessee’s own case by holding the fact that that payment made by the assessee to the non-resident supplier of software is a royalty.

The division bench further declared that while perusing the available material facts on records it can be confirmed that payment made by the assessee is the payment of royalty and therefore assessee is in default for non-deduction of TDS under section 201 of the Act and accordingly the bench dismissed the appeal filed by the assessee since there was no merit exists in assessee’s appeal.