Disallowance under s 40(a)(i)

Payment to non-resident — Purchasing software from Microsoft and selling it in Indian market will not give rise to royalty — Assessee, who merely acted as dealer, not liable to deduct tax — Thus, no disallowance can be made under s 40(a)(i) — Held by DelHC in CIT v Dynamic Vertical Software India Pvt Ltd — In favour of: The assessee; ITA No 1692 of 2010.

CIT v Dynamic Vertical Software India Pvt. Ltd.

High Court of Delhi

ITA No. 1692 of 2010

A K Sikri and M L Mehta, JJ.

Decided on: 22 February 2011

Counsel appeared:

Mr M P Sharma, Sr Standing Counsel for the appellant

Mr Piyush Kaushik, Adv. for the respondent

Judgment

1. Although, two issues are raised in this appeal, the only issue which is pressed is the

disallowance of expenses incurred by the assessee under section 40(a)(i) of the Income Tax Act,

on the ground that in the said expenses no tax at source was deducted. The Assessing Officer

treated the payment made by the assessee to Microsoft as royalty and, therefore, came to the

conclusion that tax at source was to be deducted thereupon and on failure to do so, the

respondent's expenses shall be disallowed.

2. The CIT(A) confirmed this order of the Assessing Officer, however, the ITAT has deleted the

addition. After going through the order of the authorities below, whereby, the ITAT dealt with the

transaction between the assessee examined the true nature of it.

3. What is found, as a matter of fact, is that the assessee has been purchasing the software from

Microsoft and sold it further in Indian market. By no stretch of imagination it would be termed as

"royalty".

4. The assessee, in fact, acted as a dealer of Microsft as is evident. Under these circumstances,

section 40(a)(i) of the Income Tax Act has no application at all. We find that no question of law

arises for consideration. The present appeal, is accordingly, dismissed.