sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
From the Courts »
  Oriental Bank Of Commerce Vs. Additional Commissioner Of Income Tax
  Suresh M. Jamkhindikar vs. ACIT (Bombay High Court)
  Union of India vs. Pirthwi Singh (Supreme Court)
 Cromption Greaves Limited vs. CIT (ITAT Mumbai)
 Director Of Income Tax Vs. M/s. Modiluft Ltd.
 Director Of Income Tax Vs. M/s. Royal Airways Ltd.
 Lally Motors India (P.) Ltd vs. PCIT (ITAT Amritsar)
  Mehsana District Co-operative vs. DCIT (Gujarat High Court)
 Suresh M. Jamkhindikar vs. ACIT (Bombay High Court)
 Union of India vs. Pirthwi Singh (Supreme Court)
  In Re Hiten Ramanlal Mahimtura (ITAT Mumbai)

The grey tax clouds
November, 25th 2011

Will tax keep pace with changing technology? Going by recent trends, at least in India, Zenobia Aunty thinks the pace of keeping up is sluggish. "I hate a slow Internet connection," she wails, as she waits for her Internet connection to come to life. She adds, "But what I hate even more is the lack of clarity in tax land. Technology grows at a very fast pace and tax legislatures are not able to cope up.

Yes, judicial decisions will vary based on the facts of each case, but the issue of tax imposition on import of shrink wrapped software, needs to be dealt with once and for all." A recent news item caused her a lot of anguish. The Karnataka High Court has recently held that import of computer software would result in transfer of a copyright and the payment made to the foreign supplier would be in the nature of a royalty payment.

Thus, the Indian buyer would have to withhold tax on the same, both as per the Indian Income-Tax Act and the relevant tax treaty. Transfer of a copyright article, such as shrink-wrapped software, ought not to result in a royalty payment.

It is similar to buying a book off the shelf. Zenobia Aunty is given to understand that the high court, in the given case, observed that the right to make a copy of the imported software and use it for internal business, store it on hard disk of designated PCs and take a backup would amount to copyright under Indian Copyright Act. It was actual transfer of part of a copyright, rather than an outright sale of a copyright product. Hence the need to classify it as royalty that both you and I know suffers a withholding tax in India.

In the past, there have been several rulings of tax tribunals and Authority of Advance Rulings that have appreciated that a distinction needs to be made between a copyright right and a copyright article for the purpose of characterisation of computer software transactions. In case the transaction is held to be a sale of a copyright right, then unless and until the foreign supplier has a permanent establishment in India, India cannot tax the payment, which constitutes business income. The issue of withholding tax on import of computer software is a hotbed of litigation across the world.

Zenobia Aunty spoke to experts who point out that a few countries have taken a clear stand and do not advocate imposition of withholding tax at source, either owing to the existence of clear-cut guidelines or practice adopted by the tax authorities and the judiciary.

Broadly, these include countries such as Singapore, US, UK and Australia, to name a few. On the other hand, countries such as China and India seem to have adopted an ambiguous stand with divergent views on the same issue. Ambiguity doesn't help. It would have been better if the Supreme Court had resolved this issue once and for all. Or if the Central Board of Direct Taxes had issued some clearcut guidelines for the tax authorities to follow. Or better still, if the Income-Tax Act itself provided a final answer.

While a foreign tax credit can be availed of in the home country (foreign supplier's country) if tax has been legitimately withheld at source in the other country, it can be cumbersome to get a foreign tax credit if tax has been presumed to be wrongly withheld.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Outsourcing Test Solutions Software Testing Software Bug Testing Software Issues Tracking Software Issue Fix Software Code Optimization Database Design Optimization

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions