2024 (8) TMI 127 - HC - Income Tax

Taxability of income in India - payments received by the respondent / assessee for supplying Computer Software - liability to be taxed as royalties under the provisions of Section 9 (1) (vi) or not? - HELD THAT - As seen that from the order passed by this Court in Lucent Technologies 2024 (7) TMI 969 - BOMBAY HIGH COURT the Court not only considered the case of the purchaser of the software but also the supplier of the Software, when the Court had observed that the assessee therein (Lucent Technologies) who had in fact supplied the software cannot be treated differently and same parameters of law would be required to be applied. We find ourselves in agreement with the learned counsel for the parties that the issue would stand squarely covered by such order passed by this Court. In view of the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT and the orders passed by this Court in Reliance Industries 2024 (6) TMI 1069 - BOMBAY HIGH COURT and Lucent Technologies 2024 (7) TMI 969 - BOMBAY HIGH COURT the appeal is accordingly dismissed.

Issues Involved:
1. Whether the payments received by the respondent/assessee for supplying computer software were liable to be taxed as royalties under Section 9(1)(vi) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Payments for Computer Software as Royalties:
The primary issue in this case was whether payments received by the respondent/assessee for supplying computer software should be taxed as royalties under Section 9(1)(vi) of the Income Tax Act, 1961 (IT Act). The assessment year in question was 2012-13. The court noted that similar issues had been addressed in previous judgments, particularly in the case of Commissioner of Income Tax-(LTU) Vs. Reliance Industries Ltd. and Engineering Analysis Centre of Excellence (P.) Ltd. Vs. Commissioner of Income Tax.

The court referred to the authoritative pronouncement of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd., which held that payments for software purchases from foreign suppliers were not to be considered royalties under Section 9(1)(vi) of the IT Act. This precedent was crucial in determining the current case.

2. Previous Judgments and Their Applicability:
The court examined previous judgments where similar issues were adjudicated. In the case of Commissioner of Income Tax (IT)-3 Mumbai Vs. M/s. Lucent Technologies GRL Ltd., the court had dismissed the Revenue's appeal, holding that payments for software supply did not constitute royalties. The court reiterated that the same legal principles applied in the current case, emphasizing the consistency in judicial reasoning.

3. Assessment Officer's View and Tribunal's Decision:
The Assessing Officer had initially treated the payments as royalties, arguing that the supply of software amounted to a transfer of intellectual property rights. However, the respondent/assessee contended that the payments were business income and not taxable in India due to the absence of a Permanent Establishment (PE) in India. The Commissioner of Income-Tax (Appeals) [CIT(A)] and subsequently the Income Tax Appellate Tribunal (ITAT) ruled in favor of the assessee, holding that the payments did not amount to royalties under Section 9(1)(vi) of the IT Act.

4. Supreme Court's Ruling in Engineering Analysis Centre of Excellence (P.) Ltd.:
The Supreme Court's ruling in Engineering Analysis Centre of Excellence (P.) Ltd. was pivotal. The Court held that payments made by Indian end-users/distributors to non-resident software suppliers were not royalties and did not give rise to taxable income in India. This ruling was based on the interpretation of the Double Taxation Avoidance Agreement (DTAA) and the provisions of Section 9(1)(vi) of the IT Act. The court in the current case found that the transactions were similar and thus, the Supreme Court's ruling applied.

5. Conclusion and Dismissal of Appeals:
The court concluded that the approach of the Assessing Officer was incorrect and upheld the Tribunal's decision, which was consistent with the Supreme Court's ruling. The appeals did not raise any new question of law and were dismissed accordingly. The court also dismissed related appeals (Income Tax Appeal No. 1542 of 2016 and Income Tax Appeal No. 1041 of 2022) on similar grounds, reinforcing the legal consistency.

In summary, the court's judgment reaffirmed that payments for the supply of computer software from foreign suppliers are not taxable as royalties under Section 9(1)(vi) of the IT Act, aligning with the Supreme Court's interpretation in Engineering Analysis Centre of Excellence (P.) Ltd.

← Previous Next →