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2022 (2) TMI 521 - AT - Income TaxIncome accrued in India - Income from supply of software embedded in the hardware equipment or otherwise to customers in India - royalty receipts under Section 9(1)(vi) of the Income-tax Act and under Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and France - HELD THAT - Tribunal while deciding assessee s appeals for assessment years 2013-14 and 2014-15 2021 (9) TMI 1337 - ITAT DELHI has held that the amount received for embedded software supplied along with the telecommunication equipments cannot be treated as royalty. Similar is the finding of the Assessing Officer while deciding the issue in assessment year 2019-20. There being no difference in the factual position in so far as it relates to taxability of royalty on embedded software, we respectfully follow the decision of the coordinate benches in assessee s own case, as referred to above, and hold that no ade assessee. Accordingly, we uphold the decision of learned Commissioner (Appealdition on account of payment of royalty can be made at the hands of ths) on the disputed issue. Grounds are dismissed.
Issues Involved:
1. Taxability of income from the supply of software embedded in hardware equipment under Section 9(1)(vi) of the Income-tax Act and Article 13 of the India-France Double Taxation Avoidance Agreement (DTAA). 2. Consideration of software as royalty under Section 9(1)(vi) of the Income-tax Act, 1961. Detailed Analysis: 1. Taxability of Income from Embedded Software: The primary issue revolves around whether the income from the supply of software embedded in telecommunication equipment to customers in India constitutes royalty under Section 9(1)(vi) of the Income-tax Act and Article 13 of the India-France DTAA. The assessee, a French company, supplied telecommunication equipment with embedded software to Indian customers. The Assessing Officer (AO) treated the payment for the software as royalty, taxable under both the Act and the DTAA. The AO's decision was based on the precedent set in the case of Alcatel Lucent France for the assessment year 2006-07. However, the learned Commissioner (Appeals) and the Tribunal had previously reversed the AO's decision in that case, holding that the payment for embedded software cannot be treated as royalty. This position was affirmed by the Hon'ble Delhi High Court and upheld by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Ltd. The Tribunal, in the present case, followed these precedents and concluded that the payment received for the embedded software supplied with the telecommunication equipment cannot be treated as royalty. 2. Consideration of Software as Royalty: The AO argued that the software supplied with the telecommunication equipment should be taxed as royalty under Section 9(1)(vi) of the Income-tax Act. However, the Tribunal noted that this issue had been extensively litigated and settled in favor of the assessee in multiple judicial precedents, including the assessee's own cases for previous assessment years. The Tribunal reiterated that the software embedded in the hardware does not have an independent existence and is integral to the functioning of the equipment. Therefore, the payment for such software cannot be considered as royalty. The Tribunal also referred to the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Ltd., which clarified that payments for software embedded in hardware do not constitute royalty and are not taxable in India. Conclusion: The Tribunal dismissed the Revenue's appeals, upholding the decisions of the learned Commissioner (Appeals) that the income from the supply of embedded software is not taxable as royalty under the Income-tax Act or the India-France DTAA. The Tribunal's decision was consistent with the established judicial precedents, including the Hon'ble Delhi High Court and the Hon'ble Supreme Court rulings. The Tribunal emphasized that the embedded software is an integral part of the hardware and does not have an independent existence, thereby not attracting royalty taxation. The appeals were dismissed, and the orders of the learned Commissioner (Appeals) were upheld. Order Pronounced: The Tribunal pronounced the order in the open court on 9th February 2022, dismissing both appeals by the Revenue.
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