IN RE: IMT LABS (INDIA) 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"), has been filed on December 30, 2005, in Form No. 34D (meant for resident applicants), seeking ruling with regard to the tax liability of a non -resident arising out of a transaction with a resident. The applicant IMT Lab (India) Pvt. Ltd. (for short "IMT India") having its registered office at C -1/113, Janak Puri, New Delhi, has entered into an agreement with a non -resident company, Con -versagent Inc., a Delaware Corporation, New York, USA (for short Con -versagent) and secured licence of a particular software, which the applicant is entitled to use. The applicant has to pay licence fee for the software to the said non -resident company. It has been categorically stated by the applicant that "Conversagent", the non -resident company does not have any establishment or office in India, and therefore, the payments received by the non -resident (Conversagent) from the applicant, for allowing the applicant to download and use the software are covered under Article 7 of the Double Taxation Avoidance Agreement with USA (i.e., business profits), which are not chargeable to tax in India. On these facts the applicant has sought ruling of the Authority on the following question:

(2.) THE jurisdictional Commissioner in his comments has stated as under:

(3.) DURING the course of oral hearing, Shri Naveen Modi, C.A., counsel for the applicant, has pleaded that the payments received by the Conversagent for allowing the applicant company to download and use the software, are covered under Article 7 of the Double Taxation Avoidance Agreement (DTAA) with USA which is not chargeable to tax in India since the nonresident company does not have a permanent establishment or a branch in India, and in view of this position payments made to the non -resident are not chargeable to tax in India. At this point of time during the hearing, counsel's attention was drawn to the "licence agreement" with Conversagent, which states that the licence is granted only to produce and distribute interactive agents by using the software on the server platform of Conversagent for which royalty is required to be paid on monthly basis, learned Counsel did not like to controvert the plea of the Revenue or to elaborate and support his own line of argument. Learned Counsel however, placed reliance on the decision of Dun and Bradstreet Espana S.A., In re [2005] 272 ITR 99 (AAR).