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2022 (11) TMI 1295 - AT - Income TaxIncome deemed to accrue or arise in India - Taxability of the amounts received by the assessee on the sale of software licences - royalty receipts - HELD THAT - As decided in own case A.Y. 2013-14 the amount received by the assessee from sale of software products/licenses to be not royalty as per Article 12(3) and as per Section 9(1)(vi) of the Act. Thus the grounds of the assessee are allowed.
Issues Involved:
1. Taxability of the amount received from the sale of software licenses as "Royalty" under Section 9(1)(vi) of the Income Tax Act, 1961 and Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA). Issue-wise Detailed Analysis: 1. Taxability of the Amount Received from Sale of Software Licenses as "Royalty" under Section 9(1)(vi) of the Income Tax Act, 1961 and Article 12 of the India-USA DTAA Facts and Background: The assessee, a foreign company engaged in the business of developing and selling Project Management Software (PMS) licenses, filed its return of income for A.Y. 2014-15 declaring total income at Rs. Nil. The Assessing Officer (AO) noticed that the assessee had received Rs. 1,49,48,277/- from license fees, which the assessee claimed to be non-taxable. The AO, however, treated this amount as taxable "Royalty" under the provisions of the Income Tax Act, 1961 and the India-USA DTAA. The Dispute Resolution Panel (DRP) upheld the AO's order. Assessee's Contentions: The assessee argued that the amount received was for the use of user licenses and not for granting any substantial rights to reproduce or duplicate the software. The assessee contended that similar receipts in past assessment years were also held to be non-taxable by the Tribunal. Revenue's Contentions: The Revenue supported the lower authorities' orders, arguing that the payments received by the assessee qualified as "Royalty" under Section 9(1)(vi) and Article 12 of the India-USA DTAA. Tribunal's Analysis: The Tribunal noted that identical issues had arisen in the assessee's own case for previous assessment years (2007-08, 2009-10 to 2013-14), where it was consistently held that the payments received from the sale of software licenses were not in the nature of "Royalty." The Tribunal referred to its earlier decisions and the Hon'ble Delhi High Court's ruling in the case of Director of Income Tax vs. Infra Soft Limited, which distinguished between payments for the use of copyrighted products and payments for the transfer of copyright rights. Key Observations: - The Tribunal observed that the software licenses sold by the assessee did not grant any substantial rights to the customers to reproduce or commercially exploit the software. - The Tribunal emphasized that the payments were for the use of copyrighted products, not for the transfer of copyright rights. - The Tribunal referenced multiple judicial precedents, including the Delhi High Court's decisions in Infra Soft Limited and PCIT vs. M. Tech India Private Limited, which supported the assessee's position. Conclusion: The Tribunal concluded that the payments received by the assessee from the sale of software licenses did not constitute "Royalty" under Section 9(1)(vi) of the Income Tax Act, 1961, and Article 12(3) of the India-USA DTAA. Consequently, the amount was considered normal business income and not taxable in India in the absence of a Permanent Establishment (PE). Final Judgment: The Tribunal allowed the assessee's appeal, holding that the amount received from the sale of software licenses was not taxable as "Royalty" and should be treated as business income not taxable in India. Order Pronounced: The order was pronounced in the open court on 25.11.2022.
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