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2021 (8) TMI 996 - AT - Income TaxRoyalty income - Assessment of sale proceeds received on sale of software licenses as Royalty income - DTAA provisions - whether the payments received by non-resident suppliers for selling software licenses are royalty or not? - HELD THAT - As per the decision rendered by Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT sale proceeds received by the assessee on sale of software licenses cannot be categorized as Royalty within the meaning of provisions of DTAA. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete the addition made as royalty income. Chargeability of interest u/s 234B - CIT(A) has given relief to the assessee - HELD THAT - As addition relating to sale of software has been deleted by us in the earlier paragraph. According to A.R., it is not liable to pay advance tax at all, since the TDS credit available with it is more than tax payable by it. In view of the above, we are of the view that no interference in the order passed by Ld. CIT(A) on this issue is called for.
Issues Involved:
1. Assessment of sale proceeds received on sale of software licenses as "Royalty income". 2. Chargeability of interest under section 234B of the Income Tax Act. Issue-wise Detailed Analysis: 1. Assessment of Sale Proceeds as "Royalty Income": The assessee, a Singapore-based company, sold software licenses to its Associated Enterprise (AE) and other Indian customers. The Assessing Officer (A.O.) considered the aggregate sale consideration of ?441.94 Crores as "royalty" under section 9(1)(vi) of the Income-tax Act, 1961, and the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. The A.O. relied on the Karnataka High Court's decisions in Samsung Electronics Co. Ltd. and Synopsis International Old Ltd. The Ld. CIT(A) confirmed this addition, leading to the assessee's appeal. The assessee argued that the sale receipts of software licenses cannot be taxed as "royalty" under the DTAA, citing the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that payments for software licenses are not "royalty" unless copyrights are parted with. The Supreme Court had reversed the Karnataka High Court's decisions in Samsung Electronics and Synopsis International. The Tribunal, following the Supreme Court's decision, concluded that the sale proceeds received on the sale of software licenses cannot be assessed as "royalty" and directed the A.O. to delete the addition. 2. Chargeability of Interest under Section 234B: The revenue contested the CIT(A)'s decision to grant relief regarding interest charged under section 234B. The CIT(A) had followed the ITAT's decision in IBM Corporation, which held that interest under section 234B cannot be levied on an assessee not liable to pay advance tax, as the amount received by the non-resident is subject to 100% tax deduction at source. The Tribunal upheld the CIT(A)'s decision, noting that the deletion of the addition related to the sale of software would reduce the quantum of interest under section 234B. Additionally, the TDS credit available to the assessee exceeded the tax payable, negating any advance tax liability. Conclusion: The Tribunal allowed the assessee's appeal in part and dismissed the revenue's appeal, effectively ruling that the sale proceeds from software licenses are not "royalty" and that the assessee is not liable for interest under section 234B due to sufficient TDS credit. The judgment aligns with the Supreme Court's interpretation in Engineering Analysis Centre of Excellence Pvt. Ltd., emphasizing the non-taxability of software license payments as "royalty" under the DTAA.
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