9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (2) TMI 313 - AT - Income TaxNature of payment in the light of the definition of Royalty - chargeability of amount received from MCPL by the Assessee towards BT charges for providing WAN connectivity/bandwidth services outside India as equipment/process royalty u/s 9(1)(vi) of the Act and/or Article 13(3) of the India UK DTAA - Assessee is a tax resident of UK - bandwidth services are provided as standard services wherein the customer enjoys an uninterrupted service to transmit voice and data at standard rate of reliability - diversified views - HELD THAT - Applying the rule that if two interpretations are possible on tax liability benefit of interpretation is given to the subject, we follow the ruling of the Hon ble Delhi High Court in the case of Asia Satellite 2011 (1) TMI 47 - DELHI HIGH COURT and Bombay High Court in the case of Siemens Aktiongesellschaft 2008 (11) TMI 74 - BOMBAY HIGH COURT and hold that in the case of Assessee, the consideration received for providing bandwidth facility will not be taxable as equipment royalty or process royalty. The plea of the Assessee in this regard is accepted and the relevant grounds of appeal in all the 7 appeals are allowed, as admitted by both the parties, the facts and circumstances of the case are identical. Taxable income in India - purchase of software - Indo-UK DTAA - HELD THAT - Case of present Assessee falls within the third category analyzed by Hon'ble Supreme Court. Respectfully following the above view by Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT We hold that purchase of software in the present facts does not amount to give rise to any taxable income in India as the provisions of sec.9(1)(vi) along with Explanation- 2 or the relevant provisions of the Indo-UK DTAA are not applicable to present Assessee's. Accordingly, we allow the relevant ground of appeal.
Issues Involved:
1. Taxability of BT rental charges as royalty. 2. Taxability of payments for shrink-wrapped software as royalty. Detailed Analysis: 1. Taxability of BT Rental Charges as Royalty: The primary issue in these appeals is whether the BT rental charges received by the Assessee from MCPL are chargeable to tax in India as royalty. The Assessee argued that the payments were merely reimbursements for costs paid to BT and should not be characterized as income. The Assessee relied on various judicial precedents, including CIT v. Expeditors International (India) (P) Ltd and ABB Limited, which held that cost reimbursements based on cost-sharing agreements are not liable to tax in India. Additionally, the Assessee contended that the payments do not qualify as "royalty" under the Indo-UK DTAA or the Income Tax Act, 1961, because they were for telecom bandwidth services, not for the use of any industrial, commercial, or scientific equipment. The AO rejected the Assessee's arguments, stating that the payment for services rendered, regardless of whether it is equivalent to the cost, falls under the category of royalty as per Sec.9(1)(vi) of the Act and Article 13(3) of the DTAA. The AO relied on the decision of the Hon’ble Madras High Court in Verizon Communications Singapore Pte. Ltd v. ITO, which held that payments for bandwidth services are for the use of equipment and thus constitute royalty. The AO also referenced the Special Bench ITAT Delhi decision in New Skies Satellites N.V. Vs. ACIT, which considered transponder services as a "process" and thus royalty. The Tribunal, however, found support in the decisions of Dell International Services (India) (P) Ltd and New Skies Satellite BV, where it was held that payments for bandwidth services do not constitute royalty as there is no use or right to use any equipment by the customer. The Tribunal also referenced the Hon’ble Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT, which held that the expanded definition of royalty as per the Finance Act, 2012, does not apply to the India-UK DTAA. The Tribunal concluded that the payments received by the Assessee for providing bandwidth services do not fall within the definition of "royalty" under the Act or the DTAA and allowed the Assessee's appeal on this ground. 2. Taxability of Payments for Shrink-Wrapped Software as Royalty: For AY 2010-11, an additional issue was whether the sum received by the Assessee from MCPL for shrink-wrapped software should be taxed as royalty. The AO treated these payments as royalty based on the decision of the Hon’ble Karnataka High Court in CIT Vs. Samsung Electronics Co. Ltd. The Assessee argued that the payments were for the purchase of copyrighted articles, not for the use of copyright, and thus should not be treated as royalty. The Tribunal referred to the Hon’ble Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT, which clarified that payments for the resale or use of software through End User License Agreements (EULAs) or distribution agreements do not constitute royalty. The Tribunal held that the payments for shrink-wrapped software do not give rise to any taxable income in India under Sec.9(1)(vi) of the Act or the Indo-UK DTAA. Consequently, the Tribunal allowed the Assessee's appeal on this ground as well. Conclusion: The Tribunal allowed all the appeals, holding that the BT rental charges and payments for shrink-wrapped software are not taxable as royalty under the Income Tax Act, 1961, or the Indo-UK DTAA. The Tribunal emphasized that the definitions and provisions of the DTAA take precedence over the expanded definitions in the Act, and the Assessee's receipts do not fall within the scope of taxable income in India.
|
