2022 (8) TMI 677 - AT - Income Tax

Income accrued in India - Royalty receipt - Consideration received by the assessee on account of providing Norton security - India-Singapore DTAA - use of the computer software by the end users together with or without technical support taxable under section 9(1)(vi) of the Act as well as DTAA - HELD THAT - It is an admitted position that the facts and circumstances of the assessee s case in AY 2015-16 remain the same as in immediately preceding years for AY 2014-15 2021 (4) TMI 645 - ITAT DELHI and the Revenue has accepted Nil income returned by the assessee in AY 2018-19 and 2019-20 following the decision of the Hon ble Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd. 2021 (3) TMI 138 - SUPREME COURT Hence, the dispute between the Revenue and the assessee no longer survives. In this view of the matter, we do not find any substance in the appeal of the Revenue as the decision of Hon ble Delhi High Court in DIT vs. Infrasoft Ltd. 2013 (11) TMI 1382 - DELHI HIGH COURT has been approved by the Hon ble Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd. (supra). Therefore, we reject the appeal of the Revenue and allow the appeal of the assessee.

Summary

Issues Involved:
1. Whether the consideration received by the assessee for providing Norton Security is to be treated as royalty under section 9(1)(vi) of the Income Tax Act and the India-Singapore DTAA.
2. Whether the receipt on sale of software licenses constitutes consideration for use of 'process' or 'information concerning industrial, commercial or scientific experience' and thus taxable as royalty.

Issue-wise Detailed Analysis:

1. Treatment of Consideration for Norton Security as Royalty:
The Revenue argued that the consideration received by the assessee for providing Norton Security should be treated as royalty under section 9(1)(vi) of the Income Tax Act and the India-Singapore DTAA. The assessee contended that the software sold provides a facility to keep computer systems secure, which is different from the term 'process' used in the relevant sections of the Act and DTAA. The assessee also emphasized that the software was sold in object code form without passing any right to use any process or information concerning industrial, commercial, or scientific experience.

2. Receipt on Sale of Software Licenses as Royalty:
The assessee argued that the sale of software licenses should not be treated as royalty since it does not involve the use of any 'process' or 'information concerning industrial, commercial or scientific experience'. The assessee highlighted that no rights to use any 'know-how', source code, logic, or algorithm of the software were granted to the purchasers.

Tribunal's Findings:

1. Tribunal's Reference to Previous Decisions:
The Tribunal referred to its earlier decisions in the assessee's own case for AY 2013-14 and 2014-15, where it was held that the consideration from the sale of software licenses does not constitute royalty under section 9(1)(vi) of the Act and Article 12(3) of the India-Singapore DTAA. These decisions were based on the Delhi High Court's ruling in DIT vs. Nokia Networks OY and the Supreme Court's decision in Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT.

2. Supreme Court's Ruling:
The Tribunal noted that the Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT held that payments by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers for the resale/use of computer software do not constitute royalty. Consequently, such payments are not taxable in India, and there is no obligation to deduct TDS under section 195 of the Income Tax Act.

3. Consistency in Assessments:
The Tribunal observed that for AY 2018-19 and 2019-20, the Revenue accepted the assessee's returned income at Nil, following the Supreme Court's decision. Given that the facts and circumstances remained unchanged for AY 2015-16, the Tribunal found no substance in the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, concluding that the consideration received from the sale of software licenses is not taxable as royalty. The Tribunal's decision was consistent with the Supreme Court's ruling and previous Tribunal decisions in the assessee's favor.