Centre may settle tax dispute on IT imports soon

MUMBAI: The question of whether tax is payable on import of packaged software products will soon be settled. Vijay Mathur, who heads the Emerging Issues Task Force, a body set up by the government to advise it on matters relating to latest developments in international taxation, told ET that it has completed the exercise of collecting views on the subject from trade associations, the I-T department and professionals. He said he hopes to submit a report in 20 days.
The issue has come into prominence after the income-tax department issued notices to some assessees asking them to deduct tax, while making payment to non-residents from whom they had imported ‘shrink-wrapped’ software — products such as Microsoft Office. According to the department, payments for import of software can be considered as royalty, and tax is deductible under section 115 A. The tax payable is at the rate of 20%.
However, trade associations have pointed out to the task force that what is being imported is a product like any other commercial goods. The authors of such software never pass on the copyright to the purchaser of a single copy of the software. In such a scenario payments for such imports cannot be construed to be royalty. The trade bodies further pointed out that a CBDT circular dating from 1969 is till valid. This circular stipulates that goods imported from foreign countries are not further subjected to tax on account of royalty or other considerations.
Mr Mathur said the government will soon issue a circular on the taxability of business process outsources. The taskforce has already submitted its report to the government. “I think the government will take a decision on the report within a fortnight,� he said.