IN RE: HEADSTART BUSINESS SOLUTIONS P. LTD. Vs. STATE

JUDGEMENT

(1.) IN this case an application under Section 245Q(1) of the Income -tax Act, 1961 (for short "the Act"), in Form No. 34D (meant for resident applicants) seeking advance ruling from the Authority has been filed on May 17, 2006. The applicant Headstart Business Solutions Private Limited ("HBSPL") is a company incorporated under the provisions of the Companies Act, 1956, having its registered office at S -85, Greater Kailash Part II, New Delhi -110048. Microsoft Regional Sales Corporation, Singapore ("MRSC") is a non -resident company, having its registered office at 4388, Alexandra Road, #04 -09/12, Singapore -119968. MRSC had entered into a Solution Provider Agreement ("SPA") vide agreement dated July 21, 2005 with HBSPL for supplying packaged business software solutions. The product is delivered in physical form through a compact disc accompanied by a software licence key which is delivered electronically through e -mail over the internet. The software licence key that is purchased from MRSC always bears the name of the client to whom the software is to be delivered. MRSC and HBSPL have also signed the Microsoft Business Solutions (MBS) Solution Provider Agreement ("SPA"), and Addendum along with the SPA, in order to provide the licensed software to HBSPL, who is intending to commence the purchase of the software from MRSC. In this regard, the applicant wants to know whether there exists a legal obligation on the part of HBSPL to withhold taxes whilst making payment for the software purchased from MRSC. On the basis of these facts the following question has been raised before the Authority for ruling:

(2.) THE jurisdictional Commissioner vide his comments dated August 3, 2006 has stated as below:

(3.) DURING the course of oral hearing it was contended by learned Counsel that withholding of taxes is not applicable to the present transaction since import of the "CD" and the "Key" does not confer copyright on HBSPL. That is, the copyright remains with MRSC. Therefore, the remittance made by HBSPL to MRSC for purchase of software does not entail deduction of taxes. Further, that the income arising in India to MRSC from the sale of software is business income and in the absence of any linkage to the PE of MRSC in India, the same cannot be brought to tax.