Date:12/01/2005 URL: http://www.thehindubusinessline.com/2005/01/12/stories/2005011202040500.htm

Back Licence payment: Amendment to I-T laws sought

K.R. Srivats

New Delhi , Jan.11

THE domestic income-tax law should be amended to ensure that the licence payments made to non-residents for use of software for the payer's own operations are outside the ambit of the definition of `royalty', the Institute of Chartered Accountants of India (ICAI) has suggested.

Currently, the revenue authorities interpret the definition of `royalty' in the domestic law/tax treaties to include within its ambit licence payments for use of software when the licence is for the use in the payer's own operations and not for further duplication and sale/licence. The revenue authorities insist on levying a tax on such payments, the ICAI has said in pre-budget memorandum.

The ICAI has held that this interpretation is inconsistent with the OECD model tax convention on income and on capital and the generally prevalent international view.

The memorandum held that the clarificatory amendment would ensure interpretation of the provision in consonance with the OECD guidelines and international interpretation, thus eliminating prolonged litigation on this aspect.

Further, ICAI has also highlighted that Indian software exports are being marketed as proprietary software and unless the law is clarified, the revenue authorities in other countries could also retaliate by treating such exports as liable to tax.