2024 (6) TMI 1069 - HC - Income Tax

TDS u/s 195 - remittance made by the assessee to foreign parties on account of purchase of certain computer software, required for the business of the assessee, would be liable to tax in India as royalty under the provisions of Section 9 (1) (vi) or would it be a business income of the recipient companies - HELD THAT - It is not in dispute that transactions in the present case are similar to what had fell for consideration of Engineering Analysis Centre of Excellence (P.) Ltd 2021 (3) TMI 138 - SUPREME COURT Also there is no dispute that there is a DTAA entered with the countries in question, with whose residents the transactions were entered into by the assessee. It is clear that the approach of the AO in the present case was against the correct position in law as held by the Tribunal, and now also endorsed by the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd 2021 (3) TMI 138 - SUPREME COURT . In this view of the matter, we are in agreement with Mr. Madhur Agarwal that these four Appeals would not give rise to the question of law as noted by us hereinabove. As fairly pointed out for the parties, as the facts are not in dispute as also the DTAA in question applicable we are not discussing the facts involved in each of these Appeals.

Summary

Issues:
1. Whether remittance made by the assessee to foreign parties for the purchase of computer software constitutes "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961?
2. Whether the Assessing Officer's approach was against the correct legal position as held by the Tribunal and endorsed by the Supreme Court in a relevant case?

Analysis:
1. The High Court heard an appeal by the Revenue challenging the Tribunal's order dismissing appeals against the CIT (A)'s decision. The primary issue was whether remittance for computer software purchases constituted "royalty" under Section 9(1)(vi) of the Act or business income. The Tribunal held that purchases from Denmark and Finland fell under the Double Taxation Avoidance Agreement (DTAA) with India, similar to previous cases with Germany and France. The Tribunal relied on its previous decision and dismissed the Revenue's appeal.

2. The Supreme Court's decision in a relevant case clarified the tax implications of transactions involving computer software purchases. The Court held that such transactions did not create any interest or right in distributors/end users amounting to the use of copyright, thus not constituting royalty under Section 9(1)(vi) of the Act. This decision contradicted the High Court of Karnataka's stance but aligned with the Delhi High Court's view. The High Court concurred with the legal position established by the Tribunal and endorsed by the Supreme Court, dismissing the appeals as they did not raise any legal questions.

3. The High Court emphasized that the transactions in question mirrored those addressed in the Supreme Court's ruling, and a relevant DTAA applied to the countries involved. It concluded that the Assessing Officer's approach was contrary to the correct legal position established by the Tribunal and endorsed by the Supreme Court. As the facts and applicable DTAA were undisputed, the High Court dismissed the appeals without costs, as they did not present any legal questions for consideration.