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Subscription - TDS to be deducted or not?

Prithi (Student) (166 Points)

30 December 2009

Whether TDS has to be deducted on Software license renewals termed as subscripttion payments??

Support your answers with case laws or sections from the act, if any??

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25 Replies

shailendra (C.A. FINAL) (189 Points)
Replied 30 December 2009

Dear Prithi,

No section covers the laibility to deduct TDS on software license. According to me License fees does not attract TDS.

Sorry but i don't know any case law on the same.

1 Like

Shudhanshu Agrawal (Business) (2570 Points)
Replied 30 December 2009

Please mention the amount of payment for it.

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 30 December 2009

U/s 194C, tax needs to be deducted.

shailendra (C.A. FINAL) (189 Points)
Replied 30 December 2009

Dear nitin,

Could you please explain how will it fall in sec 194C

Is there any contract in this issue?

It is simply the license fees and not contract.

anuj dhingra (Accounts Executive) (152 Points)
Replied 30 December 2009

I dont Know Any Case law. but Answer to Your Question is

IT IS COVERED UNDER SECTION 194 J. FOR EXAMPLE

WE ARE USING COMPUTDS SOFTWARE. IT IS POLICY TO RENEW IT BY EVERY YEAR.THEN IT IS PROVIDING US SERVICES SO TDS IS DEDUCTED.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 30 December 2009

I dont think query is related to computer software updation. Query is on software license fees renewal.

anuj dhingra (Accounts Executive) (152 Points)
Replied 30 December 2009

HEY SUDHANSHU

IF LICENSE FEE IS RELATED TO PRIVATE CO THAN IT IS COME UNDER FEE & PROFESSIONAL CHARGES 194 J

IF LICENSE FEE IS RELATED TO GOVT. CO. THEN THERE IS NO TDS TO BE DEDUCTED

Shudhanshu Agrawal (Business) (2570 Points)
Replied 30 December 2009

We need more clarification in this case. What kind of renewal it is. Is it a yearly renewal or more than a year?

Prabeer (B. COM (H) CA & CS Final) (5484 Points)
Replied 30 December 2009

Originally posted by : Prithi
	Whether TDS has to be deducted on Software license renewals termed as subscriptttion payments?? Support your answers with case laws or sections from the act, if any??

Hi!

Tax need to be deducted U / Section 194J if the gross payment exceed Rs. 20,000.00 for a F.Y. Please read Section 44AA for a better understanding.

NARENDER PAWAR (CA final Student) (337 Points)
Replied 30 December 2009

IN MY OPINION SECTION 194C SHALL ATTRACT. PLZ. PROVIDE DETAIL FOR MORE CLEARITY.

J.K.Shahi (Service) (44 Points)
Replied 30 December 2009

Dear Prithi

In my opinion you will have to deduct TDS u/s 194 J (1) c ie. under royalty depending upon the terms of your agreement.

Further,royalty under sec 194j shall have the meaning as in explanation 2 to clause (vi) of subsection (1) of section 9.

It would be better if you read the terms of your agreement with reference toSec 194 j and explanation 2 to clause (vi) of subsection (1) of section 9.

For your reference i am mentioning two case laws defining the word Royalty

Royalty 1988 Cal-HC N.V. Philips V/s. CIT

The dictionary meaning of the term royalty makes it clear that the said term connotes payments

periodic or at a time for user by one person of certain exclusive rights belonging to another

person. The examples of such exclusive rights are rights in the nature of a patent mineral rights

or rights in respect of publications. It is possible for a person carrying out operations of

manufacture and production of a particular produce to acquire specialised knowledge in respect

of such manufacture and production which is not generally available. A person having such

specialised knowledge can claim exclusive right to the same as long as he chooses not to

make such specialised knowledge public. It is also conceivable that such a person can exploit

and utilise such specialised knowledge in the same way as a person holding a patent or owning

a mineral right or having the copyright of a publication to allow a limited user of such specialised

knowledge to others in confidence against payment. There is no reason why payment for the

user of such specialised knowledge though not protected by a patent should not be treated as

royalty or in the nature of royalty. [65 CTR 103, 172 ITR 521]

Royalty 2000 Mad-HC CIT V/s. Neyveli Lignite

Corporation Ltd.

………..the term royalty normally connotes the payment made by a person who has exclusive

right over a thing for allowing another to make use of that thing which may be either physical

or intellectual property or thing. The exclusivity of the right in relation to the thing for which

royalty is paid should be with the grantor of that right. Mere passing of information concerning

the design of a machine which is tailor-made to meet the requirement of a buyer does not by

itself amount to transfer of any right of exclusive user, so as to render the payment made

therefor being regarded as royalty. [162 CTR 206, 243 ITR 459]

Regards

shailendra (C.A. FINAL) (189 Points)
Replied 30 December 2009

Dear J.K. Shahi sir,

could you please explain that how can license fees will come under royalty.

According to my understanding royalty means payments for exclusive rights to a person.

But incase of license fees it is not like that.

For eg:

ERP called NAVISION has been made by microsoft. A company X ltd. pays license fees per year to microsoft for its usage. If company Yltd. comes to microsoft for setting up NAVISION software in its company, then according to you microsoft should not give the license to Y ltd.

But in reality there are no exclusive rights to use the software. If Microsoft want, then it can give the license to as many no. of companies as it want to.

Since there are no exclusive rights, so payment of License fees does not form Royalty.

Is there any mistake in my understanding?

CA Nitin Wadhwani (Chartered Accountant) (4469 Points)
Replied 30 December 2009

There is a case law - Kohinoor Infrastructure V/s CIT which provides for deduction u/s 194C.(Contract for "work" and labour).

Since it is not a specified profession, no need of 194J.

shailendra (C.A. FINAL) (189 Points)
Replied 30 December 2009

Dear nitin,

First of all it should be clear that license fees for renewal of subscripttion will not include any type of labour charges. Its only the fees which we give yearly for using the software.

See it like this:-

Suppose you subscribe to the monthly subscripttion of ITR(i.e. case law book). This fees is paid by every CA firm yearly.

Now can you please tell, that whether this payment of fees will attract TDS u/s 194C. I think no. But if you think its YES then WHY?