2022 (9) TMI 1634 - AT - Income Tax

Royalty receipts - payments from the Indian distributor/resellers towards the sale of software license and consideration towards ancillary support - HELD THAT - Similar issue in the assessee s own case stands adjudicated 2022 (2) TMI 820 - ITAT DELHI No. 6064/Del/2017 wherein held the quarrel /is squarely covered in favour of the assessee and against the Revenue by the decision of Engineering Analysis Center of Excellence Pvt. Ltd 2021 (3) TMI 138 - SUPREME COURT held that the amounts paid by resident Indian end-users/distributors to nonresident computers. manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the pay of royalty for the use of copyright in the computer software, and that same does not give rise to any income taxable in India, as a result of the persons referred to in section 195 were not liable to deduct any TDS under section 195. Thus no right in copy right is being transferred and accordingly, consideration received by the assessee cannot be brought to tax as per India - USA DTAA. Appeal of assessee allowed.

Summary

Issues:
1. Treatment of payments from Indian distributor/resellers as royalty.
2. Applicability of India-USA DTAA regarding consideration for software license.
3. Refund and levy of interest u/s 234D.

Analysis:
1. The appeal concerns the treatment of payments from Indian distributor/resellers as royalty. The issue revolves around the categorization of payments towards software license and ancillary support as royalty. The Tribunal referred to a previous order by the Coordinate Bench of ITAT Delhi and noted that similar issues were adjudicated in favor of the assessee. The Tribunal relied on a landmark judgment by the Hon'ble Supreme Court, which emphasized that the distribution agreements/EULAs did not create any interest or right in distributors/end-users amounting to the use of copyright. Consequently, the Tribunal directed the Assessing Officer to delete the addition, as no right in copyright was being transferred, aligning with the India-USA DTAA. The Tribunal allowed the appeal on this ground, citing the earlier order of the Coordinate Bench.

2. Regarding the applicability of the India-USA DTAA on consideration for software license, the Tribunal followed the Supreme Court's decision and concluded that no right in copyright was being transferred. The Tribunal directed the Assessing Officer to delete the addition based on the facts of the case and the Supreme Court's ruling. The Tribunal highlighted that the Revenue had accepted the assessee's stand in previous assessment years, further supporting the decision to delete the impugned addition. The Tribunal allowed the appeal based on the previous order and the Supreme Court's judgment.

3. The issue of refund and levy of interest u/s 234D was also addressed. The Tribunal directed the Assessing Officer to follow the ratio laid down in a specific case involving Maruti Suzuki for A.Y. 1999-00 and A.Y. 1994-95. The Tribunal allowed the appeal of the assessee, considering the decisions in previous cases and the specific order related to refund and interest levy. The Tribunal pronounced the order in favor of the assessee, emphasizing the deletion of the impugned addition and the direction on refund and interest levy.

In conclusion, the Tribunal ruled in favor of the assessee on all grounds, highlighting the non-applicability of royalty treatment to payments from Indian distributor/resellers, the alignment with the India-USA DTAA, and the directive on refund and interest levy based on relevant precedents and legal principles.