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2023 (2) TMI 1108 - AT - Income TaxIncome deemed to accrue or arise in India - Royalty receipts - Revenue earned from sale/distribution of software - Income chargeable to tax in India as Royalty under Article 12 of India- Ireland Double Taxation Avoidance Agreement (DTAA) - assessee is a non-resident corporate entity incorporated in Ireland engaged in the business of sale of software and hardware and provision of support services - HELD THAT - As in assessee s own case in assessment year 2013-14 2018 (12) TMI 112 - ITAT DELHI and AY 2014-15 2020 (7) TMI 824 - ITAT DELHI has decided the issue in favour of the assessee to hold that the amount received by the assessee from sale of software cannot be treated as royalty under Article 12 of India Ireland tax treaty. In any case of the matter, now the issue is no more res integra in view of the decision of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT . Accordingly, we delete the addition - Assessee Grounds are allowed.
Issues Involved:
1. Taxability of revenue from the sale/distribution of software as Royalty under Article 12 of the India-Ireland DTAA. 2. Treatment of revenue from the provision of support services as fee for technical services under Article 12 of the India-Ireland DTAA. 3. Applicability of the Permanent Establishment (PE) clause under Article 7 of the India-Ireland tax treaty. 4. Reliance on previous judicial decisions and consistency in Tribunal rulings. Detailed Analysis: 1. Taxability of Revenue from Sale/Distribution of Software as Royalty: The core issue in the appeal is whether the revenue earned from the sale/distribution of software is chargeable to tax in India as Royalty under Article 12 of the India-Ireland Double Taxation Avoidance Agreement (DTAA). The assessee, a non-resident corporate entity incorporated in Ireland, earned revenue from the sale of software and provision of support services in India during the assessment year 2015-16. The revenue from the sale of software was treated as business income and not offered to tax in India by invoking Article 7 of the India-Ireland tax treaty, citing the absence of a Permanent Establishment (PE) in India. The Assessing Officer, however, considered the revenue from the sale of software as Royalty, taxable in India, relying on the decision of the Karnataka High Court in the case of Samsung Electronics Co. Ltd. (345 ITR 494). The Dispute Resolution Panel (DRP) upheld the Assessing Officer's decision, relying on its directions in the assessee's own case for the assessment years 2013-14 and 2014-15. 2. Treatment of Revenue from Provision of Support Services: The assessee offered the revenue earned from the provision of support services to tax by treating it as a fee for technical services under Article 12 of the India-Ireland tax treaty. This treatment was not disputed and was accepted as per the provisions of the DTAA. 3. Applicability of the Permanent Establishment (PE) Clause: The assessee argued that the revenue from the sale of software should be treated as business income under Article 7 of the India-Ireland tax treaty, due to the absence of a PE in India. This argument was rejected by the Assessing Officer, who classified the revenue as Royalty under Article 12, thus making it taxable in India. 4. Reliance on Previous Judicial Decisions and Consistency in Tribunal Rulings: The Tribunal noted that identical issues had been decided in favor of the assessee in the assessment years 2013-14 and 2014-15. The Tribunal cited its previous decisions, which were based on the rulings of the Hon'ble Jurisdictional High Court in the cases of Ericsson A.B. and Infrasoft Ltd. These cases established that payments for software, which is an integral part of hardware, do not constitute Royalty under the DTAA. The Tribunal reiterated that the software supplied was an integral part of the hardware and could not be used independently. The payment for such software did not amount to Royalty as there was no transfer of copyright rights. The Tribunal emphasized the distinction between the acquisition of a copyrighted article and the acquisition of copyright rights. The Tribunal also noted that the Delhi High Court had specifically disagreed with the view taken by the Karnataka High Court in the case of Samsung Electronics Co. Ltd. The Tribunal, being under the jurisdiction of the Delhi High Court, followed the decisions of the Jurisdictional High Court, which were binding. In conclusion, the Tribunal held that the revenue from the sale of software could not be treated as Royalty under Article 12 of the India-Ireland tax treaty. The Tribunal deleted the addition of Rs. 18,16,14,910/- made by the Assessing Officer. Conclusion: The appeal was allowed, and the Tribunal ruled that the revenue from the sale of software is not taxable as Royalty under Article 12 of the India-Ireland DTAA. The Tribunal's decision was consistent with its previous rulings and the decisions of the Hon'ble Jurisdictional High Court. The order was pronounced in the open court on 26/12/2022.
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