2023 (9) TMI 840 - HC - Income Tax

Income deemed to accrue or arise in India - Royalty receipt - consideration received by assessee, i.e., a company incorporated and based in Israel - scope of India-Israel DTAA - Tribunal has taken the view that there was no transfer of copyright in the off the shelf sale software; the consideration received thereby could not be construed as royalty and hence was not taxable - HELD THAT - As a matter of fact, the assertions made in the appeal seem to clearly indicate that even the appellant/revenue accepted that what was sold by the respondent/assessee was off the shelf software. Appellant also attempted to draw our attention to the agreement entered into by the respondent/assessee with Wipro Ltd.It is required to be noted this agreement has not been placed before us. In ground B, there is a short extract of the agreement has been set forth which adverts to the fact that the respondent/assessee also extends services in the nature of training to the employees of Wipro Ltd., at their own facility, which is presumably located in Israel or through virtual mode. These are the aspects, which, even according to Appellant were not raised before the statutory authorities and hence they had no occasion to discuss them. According to us, the Tribunal was right in concluding, that the consideration received by the respondent/assessee, did not constitute royalty in consonance with the principle enunciated by the Supreme Court in Engineering Analysis 2021 (3) TMI 138 - SUPREME COURT

Summary

Issues involved: Condonation of delay in filing and re-filing appeals, Taxability of consideration received as royalty under the Income Tax Act.

Condonation of Delay: The appellant/revenue sought condonation of delay of 24 days in filing the appeal and 94 days in re-filing the appeal. The delay was condoned by the court based on the period of delay and the stand taken by the counsel for the appellant/revenue.

Taxability of Consideration as Royalty: The appeal pertained to Assessment Year (AY) 2011-12, involving consideration received by the respondent/assessee, a company incorporated in Israel, for the sale of software. The Assessing Officer proposed tax imposition on the consideration as royalty under the India-Israel Double Tax Avoidance Agreement and the Income Tax Act. The Tribunal held that the consideration did not constitute royalty as there was no transfer of copyright in the software, and the amount received was not taxable. The appellant/revenue's arguments regarding the custom-built nature of the software were not supported by evidence before the statutory authorities. The Tribunal's decision was upheld, stating that no substantial question of law arose for consideration, as per the principle enunciated by the Supreme Court in a previous judgment.

Separate Appeal for AY 2012-13: A separate appeal for AY 2012-13 was also filed by the appellant/revenue, which was being considered alongside the current appeal for AY 2011-12. The court noted the appellant's failure to appeal for AY 2010-11 due to the tax effect being below the threshold limit, as mentioned in the Tribunal's order for that year.

Conclusion: The court upheld the Tribunal's decision that the consideration received did not amount to royalty, as per the legal principles established by the Supreme Court. The appeal and applications were closed, with parties instructed to act based on the court's order, irrespective of the pending review petition against the Supreme Court's decision in a related case.