The Income Tax Appellate Tribunal (ITAT), Banglore Bench deleted the disallowance on purchase of software for non-deduction of Tax at Source.
The assessee, M/s. Acer India Private Limited is engaged in the business of manufacture and trading of computer systems and peripherals.
The issue relates to the disallowance of purchase of software made by the AO under section 40(a)(i) of the Act for non-deduction of tax at source. The AO treated the purchases of computer software as payment in the nature of royalty.
Since the assessee did not deduct tax at source from the payments so made, the AO disallowed the same under section 40(a)(i) of the Act.
The CIT(A) held that the payment made by the assessee for purchase of software was in respect of a copyrighted article and accordingly held that disallowance under section 40(a)(i) of the Act is not called for. Accordingly, the disallowance was deleted.
The Department submitted that the payment made for software purchase is in the nature of payment of royalty. Accordingly, the assessee should have deducted tax at source from the payment made for purchase of software. Accordingly, he submitted that the AO was justified in making disallowance under section 40(a)(i) of the Act.
The coram consists of George George K. and B.R. Baskaran while upholding the order of the CIT(A) held that the disallowance under section 40(a)(i) of the Act cannot be made in the facts of the present case.
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