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2022 (3) TMI 903 - HC - Income TaxIncome accrued / taxable in India - Royalty u/s 9(1)(vi) of the Act read with Article 12 of the Indo US DTAA - licensing of software products of Microsoft in the Territory of India by the Respondent - HELD THAT - This Court finds that the issue raised in the present appeal is no longer res integra as the Supreme Court in Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT as held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195. Also see EY GLOBAL SERVICES LIMITED AND EYGBS (INDIA) PRIVATE LIMITED 2021 (12) TMI 571 - DELHI HIGH COURT - Decided in favour of assessee.
Issues involved:
Challenge to ITAT judgment on taxation of software licensing as Royalty under IT Act and Indo US DTAA. Analysis: 1. The appellant challenged the ITAT's decision regarding the taxability of software licensing by the respondent as Royalty under Section 9(1)(vi) of the Income Tax Act read with Article 12 of the Indo US DTAA. The appellant argued that the distribution model involved in making multiple copies of the software indicated a transfer of copyright. 2. The High Court referred to the Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax, categorizing cases involving computer software transactions. The AAR's ruling on the transfer of copyright through licensing was examined, highlighting the distinction between a copyright and copyrighted articles. The court emphasized that the end-user's right under a non-exclusive license does not include the rights retained by the owner under the Copyright Act. 3. The court analyzed the broader language in Section 9(1)(vi) of the Income Tax Act and emphasized that any ruling conflicting with the DTAA's definition of copyright should be disregarded. The interpretation of "copyright" was discussed in the context of municipal laws and the DTAA. The court concluded that payments made by Indian end-users/distributors to non-resident software manufacturers/suppliers were not royalty under the Income Tax Act, leading to no income taxable in India. 4. Referring to a similar case, the court highlighted that for a payment to be taxed as royalty, there must be a transfer of copyright enabling acts under the Copyright Act. The court rejected the revenue's argument based on the amendment to Section 9(1)(vi) and upheld the Supreme Court's decision as applicable beyond the mentioned categories. The court set aside the AAR's rulings, determining that payments for software use did not constitute royalty taxable in India. 5. The court dismissed the appeal, stating that the issue had been conclusively decided in favor of the assessee by the Supreme Court, with no substantial question of law arising for consideration. The appellant's admission of the previous Tribunal decision in favor of the assessee further supported the dismissal of the appeal. Additionally, the court noted the dismissal of related appeals for other assessment years based on the same order. This detailed analysis of the judgment provides a comprehensive understanding of the legal issues surrounding the taxation of software licensing as royalty under the Income Tax Act and the Indo US DTAA, as interpreted by the High Court in light of relevant precedents and legal principles.
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