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2022 (4) TMI 1419 - AT - Income TaxRoyalty receipt - consideration received on sale of software - addition in hands of assessee on protective basis and in the hands of MOL Corporation (MOLC) on substantive basis - DTAA between India and US - HELD THAT - Revenue has been following a persistent approach in regard to assessee and its sister assessee subsidiaries of MS Corp holding sale of MS Retail Software Products to Indian Distributors as royalty under the Act as well as under DTAA between India and US. The assessment in the hands of present assessee was made on protective basis while the substantive assessment was in the hands of MOLC. The assessments in the hands of Gracemac which stands amalgamated with MOLC stands set aside in regard to assessment years 2005-06, 2006-07 and 2007-08 by the co-ordinate Bench s judgment dated 16.11.2020 which have been further upheld by Hon ble Delhi High Court by judgment dated 07.03.2022. The same were based on the principles of law that sale of software products does not give rise to royalty income as laid down in Infrasoft Ltd. 2013 (11) TMI 1382 - DELHI HIGH COURT case which have now further been affirmed by the Hon ble Supreme Court of India in the case of Engineering Analysis Centre of Excellence P. Ltd. ( 2021 (3) TMI 138 - SUPREME COURT There are no distinguishing facts with regard to present assessment years.
Issues:
1. Appeal against common order of DRP-2, New Delhi for AY 2010-11 and 2011-12. 2. Taxability of revenue from sale of software as royalty in India. 3. Granting TDS credit to the Appellant. 4. Levying interest under section 234B of the Act. 5. Initiating penalty proceedings under section 271(l)(c) of the Act. Issue 1: Appeal against DRP Order The assessee appealed against the common order of DRP-2, New Delhi for AY 2010-11 and 2011-12. The company, a wholly owned subsidiary of Microsoft Corporation, USA, had a branch office in Singapore. The dispute arose from the tax treatment of revenue from the sale of software. The AO assessed the revenue as taxable royalty in India. The Tribunal had previously remanded the matter to the AO following the Infrasoft Ltd. case judgment by the Delhi High Court. The DRP upheld the assessment, leading to the current appeal. Issue 2: Taxability of Revenue from Sale of Software The main contention was whether revenue from the sale of Microsoft Retail Software Products to Indian Distributors constituted royalty income. The assessee argued that the sale of software products did not give rise to royalty income but was business income. The Tribunal noted a persistent approach by the revenue in treating such sales as royalty. However, recent judgments by the Delhi High Court and the Supreme Court affirmed that the sale of software products did not amount to royalty income. Citing precedents, the Tribunal allowed the appeals for AY 2010-11 and 2011-12, setting aside the assessment orders. Issue 3: TDS Credit The appellant contended that the AO erred in not granting the entire TDS credit. However, detailed arguments or findings related to this issue were not explicitly mentioned in the judgment. Issue 4: Interest under Section 234B The appellant challenged the levy of interest under section 234B of the Act. The judgment did not provide specific details regarding the arguments or findings related to this issue. Issue 5: Penalty Proceedings under Section 271(l)(c) The appellant disputed the initiation of penalty proceedings under section 271(l)(c) of the Act. However, the judgment did not elaborate on the specific arguments or findings related to this issue. In summary, the ITAT Delhi allowed the appeals for AY 2010-11 and 2011-12, setting aside the assessment orders concerning the taxability of revenue from the sale of software products. The Tribunal relied on recent judgments affirming that such sales did not amount to royalty income. The decision highlighted the importance of legal precedents and the application of established principles in tax assessments.
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