The Authority for Advance Rulings (AAR), in a decision dated 28 July, has added to the confusion surrounding the taxation of e-commerce transactions in India. The transaction in the present case relates to the supply of software by Raytheon, a US-based non-resident company, to the Airport Authority of India (AAI).
An application was filed by the AAI to the AAR to seek a ruling on the tax liability of Raytheon, which had entered into a contract with the AAI for the supply and testing of a surveillance system. The contract involved the supply of hardware and software and the provision of installation, testing and training services. It provided a non-transferable, non-exclusive, royalty-free licence to use the software code, and technical documentation to operate the system. It also specified that the AAI would not have any rights to make copies of the software or commercially exploit it in any manner.
The contract, however, stated that a consideration for patents owned or controlled by Raytheon in any device, system or process used under the contract would be deemed to be part of the contract price.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
