2022 (2) TMI 513 - AT - Income Tax

Income accrued in India - Royalty receipts - receipts on account of sale of software license and support, maintenance and allied services to its customers in India as liable to tax in India - According to the AO, the said receipts are in the nature of Royalty and liable for tax as per the provisions of section 115 of the Act or as per the provisions of Article 12 of India Singapore DTAA - HELD THAT - This Tribunal in assessee s own case for A.Y. 2010-11 placing reliance in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT held the receipt derived by the assessee under the sale of software licenses and support services are not chargeable to tax in terms of section 9(1)(vi) of the Act r.w. Article 12 of DTAA. DR fairly conceded that the facts and circumstances in the year under consideration are similar to that of A.Y. 2010-11 in assessee s own case. 2021 (9) TMI 462 - ITAT PUNE Therefore, we hold the receipt under sale of software licenses and support services are not chargeable to tax u/s. 9(1)(vi) of the Act r.w. Article 12 DTAA between India and Singapore. Thus, the final assessment order dated 09-10-2019 passed by the AO/ACIT (IT), Circle-1, Pune is set aside and sole issue raised by the assessee is allowed.

Summary

Issues:
Appeals against final assessment orders for assessment years 2016-17 and 2017-18. Determination of tax liability on receipts from sale of software licenses and services. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Analysis:
*For A.Y. 2016-17:*
The assessee, a Singapore-based company, declared receipts from software licenses and services. The Assessing Officer (AO) treated the receipts as Royalty under the India-Singapore DTAA or section 115 of the Act. The AO contended that the assessee lacked ownership rights over the software licenses and services. The AO held the receipts as taxable. The Dispute Resolution Panel (DRP) relied on a precedent to support the taxability of such receipts as Royalty. However, the Tribunal referred to a previous case and held that the receipts were not taxable under section 9(1)(vi) of the Act read with the DTAA. Consequently, the assessment order was set aside in favor of the assessee. The challenge to penalty proceedings was deemed premature and dismissed.

*For A.Y. 2017-18:*
The appeal was filed with a delay, which was condoned due to valid reasons. The issues and facts were found to be identical to the previous year. Therefore, the findings from the earlier assessment for A.Y. 2016-17 were applied mutatis mutandis to this year. The sole ground raised by the assessee was allowed, resulting in the allowance of the appeal for this assessment year as well.

In conclusion, both appeals by the assessee were allowed, setting aside the assessment orders for both years. The judgment was pronounced on 24th September, 2021.