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Issues involved: Whether payment received by the assessee company for providing software constitutes royalty under Article 12(3) of the DTAA between India and USA.
Summary: In the appeal before the Appellate Tribunal ITAT Mumbai, the revenue challenged an order regarding the assessment year 2004-05. The main issue was whether the payment of Rs. 16,72,61,927 received by the assessee company for supplying software to Reliance Infocomm Ltd. constituted royalty under the DTAA between India and USA. The assessee contended that the consideration received for the software supply was not taxable in India as it was business profit, not royalty, and as the assessee was a tax resident of the USA, it could not be taxed under the DTAA. The agreement between the assessee and RIL contained clauses granting rights to use the software but retaining copyright ownership with the assessee. The Assessing Officer relied on a previous assessment order where a similar issue was considered and the claim of the assessee was rejected. However, the Tribunal in the previous assessment year upheld the order of the CIT(A) stating that the amount received for software use could not be treated as royalty under the IT Act or DTAA. In the assessment year 2004-05, the CIT(A) examined the agreement clauses and relevant provisions, concluding that the payment received was for the sale of a copyright article and not royalty under the DTAA. The Tribunal, based on the previous year's decision, agreed with the CIT(A) and dismissed the revenue's appeal. Therefore, the Tribunal upheld the CIT(A)'s decision that the payment received by the assessee for providing software did not amount to royalty under the DTAA between India and USA, resulting in the dismissal of the revenue's appeal.
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