2023 (2) TMI 1293 - HC - Income Tax

Accrual of income in India - Royalty receipts - subscription received towards Cloud Services - income earned from licensing/sale of software and subscription received against cloud services offered by assessee - scope of Indo-USA DTAA - Whether the Ld. ITAT erred in holding that licensing of computer is copyrighted article and not copyright and accordingly the sale of software is in nature of business income and not taxable as royalty under Section 9(1)(vi) of Income Tax Act 1961 and absence of PE in India it is not taxable under Article 7 of India-USA DTAA? - HELD THAT - Tribunal has ruled that neither income earned from licensing/sale of software products nor subscription fee earned for providing cloud services could be construed as royalty. As revenue says that the proposed questions are covered by the judgment of the Supreme Court rendered in Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT - We are also informed that a review petition has been filed which is pending consideration. Accordingly the appeal is closed as no substantial question of law arises for our consideration albeit with the caveat that in case the appellant/revenue were to succeed in the review petition the parties will abide by the decision rendered therein.

Summary

Issues: Condonation of delay in filing the appeal; Condonation of delay in re-filing the appeal; Interpretation of tax laws regarding royalty income from software licensing and cloud services.

Condonation of Delay in Filing the Appeal:
An application was filed by the appellant seeking condonation of a 4-day delay in filing the appeal. The appellant/revenue acknowledged the delay and the respondent/assessee had no objection to condone the delay. Consequently, the delay in filing the appeal was condoned, and the application was disposed of accordingly.

Condonation of Delay in Re-filing the Appeal:
Another application was filed by the appellant seeking condonation of a 10-day delay in re-filing the appeal. Similar to the previous instance, the appellant/revenue admitted the delay, and the respondent/assessee did not object to condoning the delay. Thus, the delay in re-filing the appeal was condoned, and the application was disposed of accordingly.

Interpretation of Tax Laws Regarding Royalty Income:
The appeal in question pertained to the Assessment Year 2013-14 and challenged the order of the Income Tax Appellate Tribunal (ITA) dated 05.07.2022. The appellant/revenue raised questions regarding the taxation of income from licensing software products and cloud services. The Tribunal had ruled that such income did not qualify as royalty. The appellant/revenue argued that the issues were covered by a Supreme Court judgment and mentioned a pending review petition. The court found no substantial question of law for consideration and closed the appeal, with the caveat that the parties would abide by the decision of the review petition if successful.

This judgment addressed applications for condonation of delay in filing and re-filing the appeal, as well as the interpretation of tax laws concerning royalty income from software licensing and cloud services. The court granted condonation of both delays as there was no objection from the respondent. The appeal challenged the ITA order regarding the taxation of software licensing and cloud service income, with the appellant contending that the issues were covered by a Supreme Court judgment and mentioning a pending review petition. The court found no substantial question of law and closed the appeal, subject to the outcome of the review petition.