2021 (8) TMI 1370 - AT - Income Tax

Income deemed to accrue or arise in India - sale value of software and provision of ancillary support services as royalty receipts/FTS income - assessee is a company incorporated in the United States of America as engaged in the business of developing, manufacturing and distribution of software products from outside India and also providing ancillary support services from outside India - HELD THAT - As following the decision rendered in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT and also following the decision rendered by the co-ordinate bench in AY 2016-17 2021 (7) TMI 615 - ITAT BANGALORE we hold that receipts by way of sale of software licenses and provision of ancillary support services connected with the sale of software products cannot be assessed as royalty/FTS income in the hands of the assessee. Accordingly, we set aside the order passed by the AO on this issue. Appeal filed by the assessee is allowed.

Summary

Issues:
Assessment of receipts from sale of software and provision of ancillary support services as royalty/FTS income.

Analysis:
The appellant, a company incorporated in the United States, challenged the assessment order for the assessment year 2015-16, where the Assessing Officer (AO) treated the receipts from the sale of software licenses and provision of support services as royalty income. The AO relied on a decision by the Hon'ble High Court of Karnataka in a specific case. The Dispute Resolution Panel (DRP) upheld the AO's decision, leading to the final assessment order assessing the income as royalty/FTS. The appellant contended that the support services were related to the sale of software products and cited a decision by the Hon'ble Supreme Court in a different case, which reversed the decision relied upon by the AO. The appellant also referred to a previous decision in their own case for another assessment year, where a similar issue was decided in their favor based on the Supreme Court's ruling. The appellant argued that the receipts from software licenses and support services should not be considered as royalty income.

The Tribunal noted that a similar issue had been decided in the appellant's favor in a previous assessment year and cited a judgment by the Hon'ble Supreme Court in another case, which clarified the nature of transactions involving software licenses and support services. The Supreme Court held that such transactions did not amount to the payment of royalty for the use of copyright in the software, and therefore, were not taxable in India. The Tribunal also highlighted that the decision relied upon by the DRP had been reversed by the Supreme Court. Consequently, the Tribunal held that the receipts from the sale of software licenses and provision of support services could not be assessed as royalty/FTS income in the hands of the appellant. Therefore, the order passed by the AO on this issue was set aside, and the appeal filed by the appellant was allowed.