2021 (3) TMI 1245 - HC - Income Tax

Income deemed to accrue or arise in India - Royalty receipts - treatment of income from sale of off-the-shelf software - India- Ireland DTAA - whether the payments made to non-resident software suppliers is royalty and hence TDS u/s.195 was required to be deducted on those payments or not? - HELD THAT - Issue involved in this appeal has been put to rest in view of the decision rendered in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED 2021 (3) TMI 138 - SUPREME COURT and the issue involved in this appeal has been answered against the Revenue and in favour of the assessee.

Summary

Issues:
1. Interpretation of whether the amount received for the sale of software constitutes 'royalty' under the Income Tax Act and India-Ireland DTAA.
2. Application of a previous court decision on software sales to the current case.
3. Impact of a recent Supreme Court judgment on the present appeal.

Analysis:
1. The primary issue in this case revolved around determining whether the proceeds from the sale of software should be classified as 'royalty' under Explanation 2 to Section 9(1)(vi) of the Income Tax Act, 1961, and Article 12 of the India-Ireland Double Taxation Avoidance Agreement (DTAA). The Tribunal had upheld that the amount received by the Appellant for the software sale indeed qualified as 'royalty,' leading to taxable income in India. The Appellant challenged this decision, questioning the correctness of this classification.

2. Another aspect of contention was whether the Tribunal's reliance on a previous court ruling involving Samsung Electronics Co. Ltd. was appropriate in the current scenario. The Appellant argued that the factual circumstances of the present case differed significantly from the Samsung Electronics case, thus warranting a distinct interpretation. This issue raised concerns regarding the applicability of precedents in varying factual contexts.

3. Notably, during the proceedings, the Appellant cited a recent Supreme Court judgment in Civil Appeal Nos. 8733-8734/2018, which had a bearing on the subject matter of the present appeal. The Supreme Court's decision in that case, dated 02.03.2021, had favored the assessee, leading to a conclusion against the Revenue. Subsequently, the Revenue failed to contest this submission, acknowledging the impact of the Supreme Court ruling on the current appeal.

In conclusion, based on the Supreme Court's recent judgment and its implications on the issues raised in the appeal, the High Court ruled in favor of the assessee. The Court quashed the Tribunal's order and allowed the appeal, aligning the decision with the judicial precedent established by the Supreme Court.