2014 (5) TMI 1122 - AT - Income Tax

Income on account of Royalty and Fees for Technical Services - taxable on receipt basis OR accrual basis - Held that - As decided in assessee s own case for assessment years 1990-91 1991-92 1994-95 1996-97 1997-98 and 2001-02 has held that Royalty has to be assessed to tax on receipt basis and not on accrual basis Software is a part and parcel of equipment sold therefore no Royalty is payable

Summary

Issues:
1. Taxability of income on receipt basis vs. accrual basis for Royalty and Fees for Technical Services.
2. Treatment of software supplied along with equipment as Royalty.

Issue 1:
The appeal concerned the taxability of income arising from "Royalty and Fees for Technical Services" on receipt basis versus accrual basis for the assessment year 2006-07. The Assessing Officer (AO) disagreed with the assessee's method of accounting income on receipt basis, insisting on accrual basis. The Ld. CIT(A) ruled in favor of the assessee, citing previous Tribunal orders for assessment years 1990-91, 1991-92, 1994-95, 1996-97, 1997-98, and 2001-02. The Revenue challenged this decision, leading to the appeal. The Hon'ble Bombay High Court's decision for assessment year 1996-97 supported the taxability of Royalty on a receipt basis. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing consistency with the High Court's ruling, dismissing the Revenue's appeal.

Issue 2:
The second issue revolved around whether software supplied with equipment should be treated as Royalty. The AO treated the software supply as Royalty, while the assessee argued that software was integral to the equipment sold, thus not subject to Royalty. The Ld. CIT(A) relied on previous ITAT decisions for assessment years 2001-02 and 2002-03, favoring the assessee's stance. The Tribunal referenced the Special Bench's decision in Motorola Inc. vs. DCIT, holding that software payments did not constitute Royalty. The Tribunal maintained the Ld. CIT(A)'s decision, aligning with earlier Tribunal rulings for the same issue in favor of the assessee. Consequently, the Revenue's appeal on this ground was also dismissed.

In conclusion, the Tribunal upheld the Ld. CIT(A)'s decisions on both issues, emphasizing consistency with previous Tribunal rulings and the Hon'ble Bombay High Court's judgment. The appeal filed by the Revenue was ultimately dismissed on 6th May 2014.