2022 (9) TMI 1536 - HC - Income Tax

Income taxable in India - receipts earned from supply of software - whether taxable in India under Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the India-USA Double Tax Avoidance Agreement (DTAA)? - As revenue says that the issue is covered against the revenue by the judgement titled Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT and a review petition has been filed against the said judgement, which is pending consideration in the Supreme Court. HELD THAT - We may note that the issue which arises for consideration is whether receipts earned from supply of software are taxable in India under Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the India-USA Double Tax Avoidance Agreement (DTAA). Accordingly, the appeals preferred by the revenue are closed. Liberty is, however, given to the appellant/revenue to revive the appeals in case the decision rendered by the Supreme Court in the aforementioned review petition favours the revenue.

Summary

Issues:
1. Taxability of receipts earned from the supply of software in India under Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the India-USA Double Tax Avoidance Agreement (DTAA).

Analysis:
The High Court dealt with appeals by the revenue, where the appellant's counsel referred to a judgment by the Supreme Court in a related matter. The counsel highlighted that the issue at hand, concerning the taxability of receipts from software supply under Section 9(1)(vi) of the Income Tax Act, 1961, along with the India-USA DTAA, was unfavorable to the revenue based on the Supreme Court's previous decision. It was noted that a review petition against the said judgment was pending before the Supreme Court.

The primary issue before the High Court was whether the receipts from the supply of software are taxable in India under the specified provisions of the Income Tax Act and the DTAA between India and the USA. The court acknowledged the existing legal position established by the Supreme Court's judgment and closed the appeals in favor of the respondent. However, the court granted liberty to the revenue to reopen the appeals if the outcome of the pending review petition favored them. This decision reflects the court's adherence to precedent while allowing for potential reconsideration based on any subsequent favorable developments in the Supreme Court's decision.

In conclusion, the High Court's judgment was based on the interpretation and application of relevant provisions of the Income Tax Act and the India-USA DTAA regarding the taxability of software supply receipts in India. The court's decision to close the appeals while providing the appellant with the opportunity to revive them depending on the outcome of the review petition demonstrates a balanced approach that upholds the existing legal position while allowing for potential future modifications based on higher judicial determinations.