2024 (7) TMI 969 - HC - Income Tax

Taxability of income in India - Royalty receipts - payments received by the assessee for supply of software - as per revenue receipts of the amounts in question from Reliance were on account of supply of the copyright software as per the terms of the Wireless Software Assignment and License Agreement - case of the assessee was to the effect that the amount was a business income and was not taxable in India, in the absence of or assessee having a Permanent Establishment (PE) in India. HELD THAT - 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 in Commissioner of Income Tax- (LTU) Versus Reliance Industries Ltd. 2024 (6) TMI 1069 - BOMBAY HIGH COURT , and now also endorsed by the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT as held remittance made by the assessee to foreign parties on account of purchase of certain computer software, would not be liable to tax in India as royalty under the provisions of Section 9(1) (vi) - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether payments received by the assessee for the supply of software to Reliance Infocomm Limited constitute "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.
2. Whether the payment made to the assessee amounts to income by way of "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Whether payments received by the assessee for the supply of software to Reliance Infocomm Limited constitute "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.

The Revenue questioned whether the payments received by the assessee for supplying software to Reliance Infocomm Limited (now Reliance Communication Limited) should be classified as "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961. The Assessing Officer initially held that the payments were for the license to use the software, thus taxable as royalty. The CIT (A) overturned this decision, stating that the payments did not constitute "royalty" under Section 9(1)(vi). The Tribunal upheld the CIT (A)'s decision.

In the hearing, it was noted that a similar issue had been decided by the High Court in the case of Commissioner of Income Tax (LTU) vs. Reliance Industries Ltd., where it was determined that such payments were not taxable as "royalty." The court referred to the Supreme Court's ruling in Engineering Analysis Centre of Excellence (P.) Ltd. vs. Commissioner of Income Tax, which held that payments for software do not constitute "royalty" under Section 9(1)(vi) of the Act.

Issue 2: Whether the payment made to the assessee amounts to income by way of "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.

For the other appeals (Income Tax Appeal No. 611 of 2020, Income Tax Appeal No. 621 of 2020, Income Tax Appeal No. 612 of 2020), the question was whether the payment made to the assessee amounted to income by way of "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961. The CIT (A) and the Tribunal had previously ruled in favor of the assessee, stating that these payments were not "royalty."

The court reiterated its earlier decision in Commissioner of Income Tax (LTU) vs. Reliance Industries Ltd., and the Supreme Court's ruling in Engineering Analysis Centre of Excellence (P.) Ltd., emphasizing that payments for software do not amount to "royalty" under Section 9(1)(vi) of the Act. Consequently, the court found no fault in the Tribunal's orders and dismissed the appeals, stating that they did not give rise to any open question of law.

Conclusion:
The court dismissed all the appeals, affirming that the payments received by the assessee for supplying software to Reliance Infocomm Limited and other similar transactions do not constitute "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961. The decisions were based on the authoritative pronouncements of the Supreme Court and previous rulings of the High Court, which clarified that such payments are not taxable as "royalty."