2021 (7) TMI 1276 - AT - Income Tax

TDS u/s 195 - Royalty - Treatment to receipts of assessee s on account of sale of software to the Indian customers, as royalty - HELD THAT - As relying on ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED 2021 (3) TMI 138 - SUPREME COURT , we are of the view that Ld.CIT(A) erred in treating the receipts from sale of software with the support services as royalty.

Summary

Issues:
Treatment of receipts from the sale of software to Indian customers as royalty.

Analysis:
1. The appellant filed appeals against the final assessment orders passed by the Ld.DCIT (International Taxation) Circle-1 (1), Bangalore, raising the issue of the treatment of receipts from the sale of software to Indian customers as royalty.

2. The appellant argued that besides software sales, they were also engaged in selling tangible hardware and providing support services related to the products supplied during the relevant years under consideration.

3. The Ld.AO treated the receipts as royalty under section 9(1)(vi) of the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands, citing precedents like the decision of the Hon'ble Karnataka High Court in the case of CIT vs Samsung Electronics Co Ltd.

4. Both parties acknowledged that the issue raised in the appeal was addressed by the Hon'ble Supreme Court in the case of Engineering Analysis Centre for Excellent Pvt.Ltd vs CIT, which favored the appellant's position.

5. The appellant highlighted a favorable decision by the Hon'ble Karnataka High Court in their own case for the assessment year 2011-12, supporting their stance based on the Supreme Court's ruling.

6. The tribunal examined the submissions of both parties and reviewed the records presented.

7. Referring to the Supreme Court's judgment, the tribunal noted that the transactions involving the sale of software did not amount to royalty as defined under the applicable laws and DTAA, aligning with the principles outlined in the Supreme Court's decision.

8. Consequently, the tribunal ruled in favor of the appellant, stating that the CIT(A) incorrectly treated the software sales receipts as royalty, allowing the appellant's grounds for the assessment years 2014-15 and 2015-16.

9. The additional grounds raised by the appellant were not pursued during the hearing, leading to their exclusion from consideration, and the appeal by the appellant was ultimately allowed.

This detailed analysis of the judgment highlights the issues raised, the arguments presented by both parties, the relevant legal precedents cited, and the final decision rendered by the tribunal based on the Supreme Court's ruling and supporting case law.