Madras High Court: No TDS For Computer Software Procured From A Non-Resident

Madras High Court: No TDS for Computer Software Procured from A Non-Resident

The Court referred to a Supreme Court order to hold that TDS did not apply to a non-resident since his income was not taxable in India

The Madras High Court has set aside an order of the Income Tax Appellate Tribunal by concluding that the reopening of the assessment was unsustainable since the Assessee would not be liable to deduct Tax at Source (TDS) in respect of the Computer Software, which was procured from a Non-Resident.

The matter titled M/s Financial Software and Systems Private Limited v Commissioner of Income Tax was placed before the Division Bench of the High Court of Madras, comprising Justices T.S. Sivagnanam and Sathi Kumar Sukumara Kurup.

The Appellant – Assessee had filed this petition challenging the order of the Income Tax Appellate Tribunal wherein it upheld the reopening of the assessment of the Assessee u/S 147 of the Income Tax Act, 1961 as valid.

The Court opined that even though the appeal was challenging the validity of the reopening of the assessment, it gave rise to a question of law i.e. whether the Assessee was liable to deduct Tax at Source (TDS) in respect of the Computer Software which was dealt with by them, procured from a Non-Resident and sold in the Indian Market.

A Supreme Court judgment with the citation as (2021) SCC Online SC 159 was relied on by the Court to answer this question of law, wherein it was held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, was not the payment of royalty for the use of copyright in the computer software, and that the same did not give rise to any income taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act, 1962 were not liable to deduct any TDS u/S 195 of the Income Tax Act, 1962.

The Court took this judgment of the Supreme Court into consideration and therefore, chose to decide this case against the Respondent – Authorities and in favour of the Appellant – Assessee. Thus, the reopening of the assessment was held to be unsustainable.