BANGALORE: In a judgment of far-reaching consequences, the Karnataka High Court on Thursday made it clear that software companies located and operating in India are liable to pay Tax Deducted at Source (TDS) for software they import into the country.
This judgment is likely to net the tax authorities close to Rs. 800 crore in revenue due to them from scores of software companies in Bangalore and other places.
A Division Bench passed the order on appeals by the Income Tax Department against an order of the Income Tax Appellate Tribunal (ITAT) disallowing TDS from being levied.
The IT Department clarified that only some software companies had not deducted TDS and, therefore, they had passed assessment orders asking them to pay up.
The companies claimed that the IT Department had no jurisdiction over firms abroad and that such firms were not liable for tax. They said tax could only be on residents and not on non-residents. Moreover, in this case there had been no income for deduction of TDS.
The companies said though they imported software, it was only in the nature of work and that there was no income generated. Non-residents, they said, supplied some material to them and, therefore, the question of TDS did not arise.
The Bench said the question of whether non-resident firms were liable for tax and whether they could be given exemption would arise only if they filed returns and sought for exemption. It said when payments were made, TDS had to be deducted under Section 195 of the Income Tax Act.
It said where there was even a semblance of income, Section 195 of the IT Act came into operation.