2024 (7) TMI 227 - HC - Income Tax

Taxability of Income In India or not - Royalty receipts - payments made by the assessee to a foreign resident, for obtaining computer software - HELD THAT - Similar issue of law which had arisen before this Court in the case of Reliance Industries Ltd. 2024 (6) TMI 1069 - BOMBAY HIGH COURT wherein this Court, considering the position in law as laid down in Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT and other decisions, dismissed the revenue s appeals inter alia observing that the question of law would stand squarely covered by such decision of the Supreme Court as onsidering the provisions of DTAA, there was no obligation on the persons mentioned in Section 195 (1) of the Act to deduct tax at source as the distribution agreements, in the facts of the case did not create any interest or right in such distributors/end users, which amounted to the use or right to use any copyright. It was held that the provisions of Section 9 (1) (vi) of the Act along with Explanation 2 and 4 thereof which dealt with royalty, not being more beneficial to the assessee, had no application in the facts of the case. Decided against revenue.

Summary

Issues:
Whether payments made by the assessee to a foreign resident for obtaining computer software are liable to be taxed in India as "royalties" under Section 9(1)(vi) of the Income Tax Act, 1961.

Analysis:
The judgment involved a common question of law raised by the revenue regarding the taxation of payments made by the assessee to a foreign resident for computer software under Section 9(1)(vi) of the Income Tax Act. The court referenced the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. vs. Commissioner of Income Tax, which clarified the taxability of such payments as royalties. The court also mentioned a previous order where a similar issue was dismissed based on the Supreme Court's decision.

The Tribunal considered the Double Taxation Avoidance Agreement (DTAA) between India and certain countries in relation to the purchases of computer software. It noted that similar remittances to residents of other countries were not liable for tax deduction at source. The Tribunal dismissed the revenue's appeal based on its earlier decisions and the DTAA provisions.

The court highlighted the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd., which clarified that payments for computer software did not constitute royalties under Section 9(1)(vi) of the Act. The court referenced conflicting views from different High Courts but ultimately upheld the decision that such transactions did not give rise to taxable income in India.

The court concluded that the Assessing Officer's approach was against the correct legal position as established by the Tribunal and endorsed by the Supreme Court. As the facts and applicable DTAA were not in dispute, the court dismissed the appeals as they did not raise any substantial question of law. The judgment reiterated that the transactions in question did not amount to royalties under the Income Tax Act.

In summary, the judgment clarified the tax treatment of payments made for computer software, emphasizing the Supreme Court's decision and the interpretation of royalty under the Income Tax Act. The court dismissed the appeals based on established legal principles and the absence of any disputed facts or legal questions.