2024 (3) TMI 581 - HC - Income Tax

Accrual of income in India - Royalty receipts - income earned from licensing/sale of software and subscription received against cloud services offered by assessee - scope of Indo-USA DTAA - HELD THAT - Tribunal has ruled that neither income earned from licensing of software products nor subscription fee earned for providing cloud services, could be construed as royalty. Revenue, says that the proposed questions are covered by the judgment of the Supreme Court rendered in Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT - We are also informed by Appellant that a review petition has been filed which is pending consideration. Accordingly, the appeal is closed as no substantial question of law arises for our consideration, albeit, with the caveat that in case the appellant/revenue were to succeed in the review petition, the parties will abide by the decision rendered therein.

Summary

Issues involved:
1. Condonation of delay in filing the appeal.
2. Interpretation of tax laws regarding income from licensing/sale of software and subscription fees for cloud services.

Condonation of delay in filing the appeal:
An application was filed by the appellant/revenue seeking condonation of a 4-day delay in filing the appeal. The respondent/assessee had no objection to condoning the delay, and the court allowed the application, disposing of the matter accordingly.

Interpretation of tax laws regarding income from licensing/sale of software and subscription fees for cloud services:
The appeal pertained to the Assessment Year 2014-15 and challenged the order of the Income Tax Appellate Tribunal regarding the taxation of income from licensing of software products and subscription fees for cloud services. The appellant/revenue raised questions of law regarding the taxability of these incomes under the Income Tax Act, 1961 and the India-USA Double Taxation Avoidance Agreement. The Tribunal had ruled that such income could not be considered as royalty. The appellant/revenue argued that the questions raised were covered by a Supreme Court judgment and mentioned a pending review petition. The court closed the appeal, stating that no substantial question of law arose for consideration, but parties would abide by the decision of the review petition if successful.