TDS on Contract PAyment

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This query is : Resolved

bankim (Querist)

03 September 2010 A p'ship firm hired the service of a professional software engineer to develop a software for maintaining stock records. The software engineer after developing the software raised an invoice for sale of software charging VAT. The amount paid was capitalised in the books. However is the firm not required to treat the payment as contract payment and deduct TDS on the same??

CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)

03 September 2010 Ideally... this is a customized software being prepared as per specific requirement of the client, so it should easily be categorized as service.

Hence, TDS should be deducted & in my opinion it should be deducted under 194J.

Reason : the engineer has provided its professional service to develop a customized software for the client.

There may be other opinions too... on this issue.

Aditya Maheshwari

Aditya Maheshwari (Expert)

03 September 2010 Software Supply Is Not "Sale": Madras High Court

Infotech Software Dealers Association vs. UOI (Madras High Court)

Though software is “goods”, its supply may be a “service” and not a “sale”

... (iii) However, while software is “goods”, all transactions are not necessarily a “sale”. The transaction may be one which is either an ‘exclusive sale’ or ‘an exclusive service’ or one which has the elements of a sale and service. A perusal of a sample ‘End User Licence Agreement’ (EULA) shows that the dominant intention of the parties is that the developer keeps the copyright of each software is only the right to use with copyright protection. By the agreement, the developer does not sell the software as such. The Petitioner in turn enters into a EULA for marketing the software to the end-user. Accordingly, when a transaction takes place between the Petitioner and its customers, it is not the sale of the software as such, but only the contents of the data stored in the software which would amount to only service. To bring the deemed sale under Article 366(29A)(d) of the Constitution, there must be a transfer of right to use any goods and when the goods as such is not transferred, the question of deeming sale of goods does not arise and in that sense, the transaction would be only a service and not a sale;

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)

03 September 2010 AGREED TDS WILL BE DEDUCTED U/S 194 J EVEN IF HE RAISED BILL AFTER CHARGING VAT/

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

03 September 2010 While developing customised software generally follwing expenses may incurred

1. Hadrware charges
2. Licence fees
3. Professional charges
some of the developers will raise separate invoice for avoiding the TDS effect

If the invoice is raised gross, TDS should be deducted u/s.194J

bankim

bankim (Querist)

05 September 2010 As per the decision of Madras High Court software is goods and whether the transaction is a sale or service will depend upon each individual transaction. In my case it can be treated as sale of software as the copyrights are with the developer and the client has only right to use. So in that case TDS would not be applicable

Aditya Maheshwari

Aditya Maheshwari (Expert)

05 September 2010 TDS should be deducted u/s. 194J as it is provision of technical service.

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