2022 (10) TMI 1201 - AT - Income Tax

Income deemed to accrue or arise in India - Royalty receipt - amount received by the Appellant from Indian Customers on account of sale of software/license charges India Israel DTAA - Distinction between royalty paid on transfer of 'copyright' and consideration for transfer of 'copyrighted article' - HELD THAT - We find force in the contention of the ld. counsel for the assessee. The issue raised in the present appeals was also there in VERINT SYSTEM LIMITED 2023 (1) TMI 464 - ITAT DELHI as held this issue is covered in this issue is squarely covered in favour of the assessee and against the Revenue as relying on decision of Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT and also Intrasoft Ltd. 2013 (11) TMI 1382 - DELHI HIGH COURT Grant of tax credit without considering the provisions of section 240 - HELD THAT - We find that while giving appeal effect, the AO should have considered the provisions of section 240 - We, therefore, direct the AO to consider the provisions of section 240 of the Act while giving appeal effect to our order.

Summary

Issues:
1. Taxability of amount received from Indian customers as royalty under DTAA and Income-tax Act.
2. Addition of amount received from Wipro Limited.
3. Grant of tax credit and refund of excess taxes.
4. Charging of interest under section 234A, 234B, and 234C of the Act.

Detailed Analysis:
Issue 1:
The appeals were against orders framed under the Income-tax Act for Assessment Years 2011-12 and 2012-13 regarding the taxability of amount received from Indian customers as royalty. The Assessing Officer treated the income as royalty based on the definition in Section 9(1)(vi) of the Act and India-Israel DTAA. The assessee contended that the income was from the sale of copyrighted software, not royalty, citing precedents. The Tribunal found merit in the assessee's argument, referencing a previous decision and the Supreme Court's ruling, ultimately deciding in favor of the assessee.

Issue 2:
The second issue involved an addition made by the Assessing Officer for an amount received from Wipro Limited. The assessee challenged this addition due to lack of documentation for reconciliation. The Tribunal noted the lack of supporting documents and ruled in favor of the assessee, directing the Assessing Officer to consider the lack of documentation while giving appeal effect.

Issue 3:
Regarding the grant of tax credit and refund of excess taxes, the Assessing Officer capped the tax credit without providing a refund for excess taxes deducted at source. The Tribunal found that the Assessing Officer should have considered the provisions of section 240 of the Act while granting tax credit. Consequently, the appeals were allowed in favor of the assessee.

Issue 4:
The final issue pertained to the proposal of charging interest under section 234A, 234B, and 234C of the Act. However, the Tribunal did not provide a specific ruling on this issue in the judgment, as it was not a central point of contention in the appeals.

In conclusion, the Tribunal ruled in favor of the assessee on the taxability of the amount received from Indian customers as royalty and the addition from Wipro Limited. The Tribunal directed the Assessing Officer to consider relevant provisions while granting tax credit, but did not provide a specific decision on the charging of interest under the Act.