2022 (9) TMI 1563 - HC - Income Tax

Taxable income deemed to accrue in India - income from supply of CAS and middleware products to Indian customers - whether fall under the 'royalty' as defined under Section 9(1)(vi) of the Income Tax Act, 1961 ( the Act ) and Article 12(3) of the India-Swiss DTAA. HELD THAT - Admittedly, the questions of law urged in the present appeal are covered by the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT wherein held amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195. Though the review petition in Engineering Analysis (supra) is pending before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments of the Supreme Court in Kunhayammed and Others Vs. State of Kerala And Another, ( 2000 (7) TMI 67 - SUPREME COURT ) and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras ( 1992 (4) TMI 183 - SUPREME COURT ) the present appeal is covered by the judgment of the Supreme Court in Engineering Analysis (supra). No substantial question of law.

Summary

Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for the Assessment Year 2017-18.
2. Interpretation of the definition of 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961 and Article 12(3) of the India-Swiss DTAA.
3. Applicability of the Supreme Court judgment in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT.
4. Pending review petition against the decision in Engineering Analysis case.
5. Lack of stay on the judgment in Engineering Analysis case.
6. Application of the principles laid down in Kunhayammed case and Shree Chamundi Mopeds case to the present appeal.

Analysis:

1. The High Court was presented with an income tax appeal challenging the order passed by the Income Tax Appellate Tribunal for the Assessment Year 2017-18. The Tribunal had considered issues related to the classification of income from the supply of CAS and middleware products to Indian customers as 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961 and Article 12(3) of the India-Swiss DTAA. The Appellant contended that the Tribunal erred in its interpretation of the law.

2. The Court noted that the questions of law raised in the appeal were similar to those addressed in the Supreme Court's judgment in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT. The Appellant's counsel highlighted that the revenue had not accepted the decision in the Engineering Analysis case and had filed a review petition. However, as of the present moment, there was no stay on the judgment in the Engineering Analysis case.

3. In light of the legal principles established in previous Supreme Court cases such as Kunhayammed and Shree Chamundi Mopeds, the Court concluded that the present appeal fell within the ambit of the judgment in the Engineering Analysis case. Consequently, the Court determined that no substantial question of law merited consideration in the appeal, leading to its dismissal.