TDS in case of software development charges paid to nonresid

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

02 July 2011 I found a case during audit of a manufacturing company in which advance of $3,000/- is givin to a Hong Kong based party for software development charges. Is covered u/s 195 of income tax act or not? I mean TDS should be deducted or not? please express your valuable views.

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)

03 July 2011 THE ISSUE IS DABATABLE
THE KARANATAKA HC HAS HELD THAT THE PAYMENT MADE FOR SUPPLY OF SOFTWARE IS ROYALTY HENCE TAX IS DEDUCTIBLE
VARIOUS BENCHES OF ITAT HAS HELD THAT IN CASE THE PAYMENT IS MADE FOR SUPPLY OF OFF THE SHELF SOFTWARE THEN IT IS A CSE OF SALE HENCE NO TAX IS DEDUCTIBLE
THE ITAT HAS HELD OTHERWISE ALSO
IT IS DIFFICULT TO FIND A CORREECT SOLUTION
FURHTER U WILL BAVE TO SEE IN CASE PAYMENT IS MADE TO NR THEN WHETHER NR HAS A PE IN INDIA OR NOT

CA MANOJ GUPTA
JODHPUR
09828510543

CA. Anuj Gupta

CA. Anuj Gupta (Expert)

03 July 2011 Kindly check here whether the software is being specifically developed for Indian Party or whether some changes are being made to existing software.

In case of former there is definite TDS liability @ 10.51%(if PAN of foreign Party is there) otherwise 20%.
In latter case the issue needs to be examined carefully before ariving at any conclusion.

Anuj
091-9810106211

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