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No TDS On Software Purchase From Foreign Source - CA Firm VJMGLOBAL
No TDS On Software Purchase From Foreign Source - CA Firm VJMGLOBAL
(https://vjmglobal.com/)
Long debated and thinkable issues have arisen during a long period which has
been judged by the bench of the Supreme court (https://vjmglobal.com/income-
tax/information-income-tax/apex-court-most-favored-nation-mfn-clause-in-
dtaa-is-not-automatically-applicable/). In this judgment as there have been a lot
of ambiguities arisen when payment is made by resident to non-resident entity for
granting the use of the software to resident Indian businessmen who use this
software for the internal purposes of the business.
Hon’ble Supreme Court addressed the issue in the matter of ENGINEERING ANALYSIS
CENTRE OF EXCELLENCE PRIVATE LIMITED Versus THE COMMISSIONER OF INCOME TAX
& ANR. vide CIVIL APPEAL NOS. 8733-8734 OF 2018 wherein a detailed discussion has
been carried out around possible scenarios of purchase of software and
consequential liability of TDS (https://vjmglobal.com/income-tax/tds/guidelines-
issued-for-tds-on-payment-by-e-commerce-operator/) under section 195 of
Income Tax Act (https://vjmglobal.com/fema/fdi/foreign-owned-or-controlled-
companies-focc-under-fema/), 1961.
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3/10/24, 1:41 PM NO TDS On Software Purchase
In this article, we have given a brief about facts of the case and judgement given
by Hon’ble Supreme Court.
(https://vjmglobal.com/)
1.Brief facts of the case
1. M/s Engineering Analysis Centre of Excellence Pvt. Ltd. (“The Applicant”) is a
resident Indian.
2. The applicant is an end-user of shrink-wrapped computer software which is
directly imported from the USA.
3. After applying DTAA (https://vjmglobal.com/income-tax/information-
income-tax/apex-court-most-favored-nation-mfn-clause-in-dtaa-is-not-
automatically-applicable/) between India and USA and section 9(i)(vi) of
Income Tax (https://vjmglobal.com/company-law/corporate-social-
responsibility-under-companies-act-2013-and-its-related-aspects/) Act,
Assessing officer held that the USA company has transferred copyright to the
applicant for which payment of royalty is made.
4. Therefore, the applicant was required to deduct TDS on such payment under
Section 195 of Income Tax Act, 1961.
5. ITAT decided the matter in favour of the applicant relying on its judgment
passed in matter of Samsung Electronics Co. Ltd. v. Income Tax Officer, ITA
Nos. 264-266/Bang/2002.
6. An appeal was made against the order of ITAT with the High Court of
Karnataka by the Revenue wherein Karnataka High Court held that resident
Indian importers are liable to deduct TDS.
1. As per Section 195 of Income Tax Act, TDS is deductible on any income paid to
non-resident which is taxable under Income Tax Act, 1961.
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3/10/24, 1:41 PM NO TDS On Software Purchase
https://vjmglobal.com/income-tax/tds/no-tds-on-software-purchase/ 3/7
3/10/24, 1:41 PM NO TDS On Software Purchase
DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The
contents of this article are solely for informational purpose. It does not constitute professional
advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any
liabilities for any loss or damage of any kind arising out of any information in this article nor for any
actions taken in reliance thereon.
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(https://vjmglobal.com)
We serve on FDI advisory, cross-border accounting, International tax planning and Management consulting needs of our overseas clients all over the world.
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Corporate Office: 601, 6th Floor, GMIT Park, Sector 142, Noida Exp Way, Noida – 201305
Registered Office: 44, Backary Portion, 2nd Floor, Regal Building, New Delhi 110001
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(https://vjmglobal.com/)
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