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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Subscription - TDS to be deducted or not?
Replies (25)
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.
Please mention the amount of payment for it.
U/s 194C, tax needs to be deducted.
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.
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.
I dont think query is related to computer software updation. Query is on software license fees renewal.
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
We need more clarification in this case. What kind of renewal it is. Is it a yearly renewal or more than a year?
| Originally posted by : Prithi | ||
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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?? |
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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.
IN MY OPINION SECTION 194C SHALL ATTRACT. PLZ. PROVIDE DETAIL FOR MORE CLEARITY.
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
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?
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.
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?
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