2014 (9) TMI 1063 - HC - Income Tax

Sale of pre-packaged software - royalty or fee for technical services - whether not taxable as business income? - Held that - In the present case, Double Taxation Avoidance Agreement between India and the United States of America is applicable and to construe royalty conditions stipulated in the DTAA have to be satisfied. The question raised, it is accepted, is covered by the decision of this Court in DIT Vs. Infrasoft Limited 2013 (11) TMI 1382 - DELHI HIGH COURT wherein held that the right to make a backup copy purely as a temporary protection against loss, destruction or damage does not amount to acquiring a copyright in the software - What has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income - The consideration received on grant of licences for use of software is not royalty within the meaning of Article 12(3) of the Double Taxation Avoidance Agreement between India and the United States of America Decided against Revenue.

Summary

The High Court of Delhi dismissed the appeal regarding the taxability of consideration received on the sale of pre-packaged software as royalty or fee for technical services. The decision was based on the Double Taxation Avoidance Agreement between India and the United States of America. The issue raised in the appeal was found to be covered by a previous court decision (ITA 1034/2009, DIT Vs. Infrasoft Limited). The appeal was dismissed as per the earlier decision, despite an appeal being filed before the Supreme Court.