2015 (10) TMI 2513 - AT - Income Tax

Sale of software and maintenance services Payments to be taxable as Royalty u/s 9(1)(vi) of the Act Article 12 of DTAA between India and US - Held that - Even though there is amendment to the Finance Act 2012 there is no change in the DTAA between India and USA and the same was not refuted by the DR. Therefore in light of assessee s own case for the A.Y 2008-09 2014 (4) TMI 369 - ITAT DELHI appeals are covered in assessee s favour wherein held 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 the addition made for sale of software and provisions of maintenance/other support services to the customers in India is not taxable - Decided in favour of Assessee.

Summary

Issues:
1. Interpretation of tax laws in light of retrospective amendments
2. Applicability of Double Taxation Avoidance Agreement (DTAA)
3. Precedential value of decisions by Delhi High Court and Karnataka High Court

Analysis:
1. The judgment dealt with the interpretation of tax laws in the context of retrospective amendments. The assessee's counsel relied on a previous case for the A.Y 2008-09, which was in favor of the assessee and confirmed by the Delhi High Court. The Tribunal noted that despite a retrospective amendment to the Finance Act, 2012, there was no change in the DTAA between India and the USA. The Tribunal emphasized that the issue in the present case was similar to the previous decision, and the submissions made by the DR regarding the amendment were not sustainable based on the previous year's decision.

2. The Tribunal considered the applicability of the DTAA between India and the USA. It was observed that there was no refutation by the DR regarding the consistency of the DTAA. The Tribunal highlighted that the DTAA remained unchanged despite the retrospective amendment to the Finance Act, 2012. This aspect played a crucial role in the Tribunal's decision to rule in favor of the assessee based on the provisions of the DTAA.

3. The judgment also discussed the precedential value of decisions by different High Courts. The Tribunal distinguished the decision of the Hon'ble Karnataka High Court in a specific case cited by the DR, emphasizing that the jurisdictional High Court in the assessee's previous case had ruled in favor of the assessee. This comparison underscored the importance of following decisions by the jurisdictional High Court, which had already favored the assessee in a similar context.

In conclusion, the Tribunal allowed both appeals of the assessee based on the consistency of the DTAA, the similarity of the issues with the previous decision, and the favorable precedent set by the jurisdictional High Court. The judgment was pronounced on October 23, 2015.