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2018 (1) TMI 793 - AT - Income TaxTaxability of supply of software - Supply of off the shelf software treated Royalty - receipts from supply of software - amount receivable treated as grant of copyright - existence of PE - DTAA - Held that - The definition of Royalty under the Indo-Ireland Tax Treaty is pari-materia as that under Indo-US Tax Treaty and the Coordinate Bench of the Tribunal had already decided the issue of taxability of supply of software under the same agreement in favour of the Intec- Ireland with reference to the Indo-US Tax treaty for the Assessment Year 2002-03, wherein it has been held that receipts from supply of software are not taxable in the hands of Intec-Ireland as Royalty. Therefore, since both the treaties are pari-materia with each other, we hold that the receipts from supply of software are not taxable in the hands of Intec Ireland as Royalty under new Ireland tax treaty. Intec-Ireland does not have PE in India and accordingly amounts received by Intec-Ireland towards supply of software are not liable to tax in India. Therefore, we hold that payment received by the assessee was not in the nature of Royalty and cannot be therefore brought to tax. - Decided in favour of assessee.
Issues Involved:
1. Assessment of total income. 2. Treatment of receipts from software supply as 'Royalty'. 3. Taxability under the India-Ireland Tax Treaty. 4. Credit for Tax Deducted at Source (TDS). 5. Levy of interest under Sections 234B and 234C. 6. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Assessment of Total Income: The assessee contested the assessment of total income at ?11,37,32,921/- against ?6,64,72,920/- reported in its revised Return of Income (ROI). 2. Treatment of Receipts from Software Supply as 'Royalty': The primary issue was whether the receipts from Reliance Industries Limited (RIL) for the supply of off-the-shelf software should be treated as 'royalty' under Section 9(1)(vi) of the Act and Article 12 of the India-Ireland Tax Treaty. The assessee argued that the software was a standard product and that the license granted to RIL did not include any rights in the underlying copyright, only a right to use the software. The Assessing Officer (AO) and the Disputes Resolution Panel (DRP) held that the receipts were for the use of or right to use the copyright, thus qualifying as royalty. 3. Taxability under the India-Ireland Tax Treaty: The assessee contended that under the beneficial provisions of the India-Ireland Tax Treaty, the payments for the software should not be regarded as 'royalty' and hence not chargeable to tax in India. The Tribunal noted that the definition of 'royalty' under the India-Ireland Tax Treaty is similar to that under the India-USA Tax Treaty. Previous decisions, including the Tribunal's ruling in the case of Intec Billing America, supported the assessee's position that such payments are not taxable as royalty. The Tribunal also referenced multiple judicial precedents where payments for the use of software were not considered royalty under similar treaties. 4. Credit for Tax Deducted at Source (TDS): The assessee claimed that the AO erred in not granting the entire credit for TDS amounting to ?1,23,61,709/-. The Tribunal directed the AO to examine and grant the credit for TDS as claimed by the assessee, subject to verification. 5. Levy of Interest under Sections 234B and 234C: The assessee argued against the levy of interest amounting to ?51,17,981/- under Section 234B and ?3,22,384/- under Section 234C, stating that as a non-resident, its entire income was subject to tax deduction at source, and hence advance tax payment was not applicable. The Tribunal held that the charging of interest under these sections is consequential. 6. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee contested the initiation of penalty proceedings under Section 271(1)(c). The Tribunal deemed this issue premature and dismissed it. Conclusion: The Tribunal ruled in favor of the assessee on the primary issue, holding that the receipts from the supply of software were not taxable as 'royalty' under the India-Ireland Tax Treaty. The Tribunal directed the AO to grant TDS credit after verification and dismissed the grounds related to interest and penalty proceedings as either consequential or premature. The appeal was partly allowed.
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