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2024 (8) TMI 462 - AT - Income TaxAccrual of income in India - Taxability of consideration received from subscription from use of standard software application - royalty receipts under the Income Tax Act read with Article 12 of the India - Ireland DTAA - HELD THAT - The issues involved in the present appeal stands covered by the order of the Tribunal in assessee s own case 2023 (9) TMI 1523 - ITAT DELHI no substantial question of law arises out of the order of the Tribunal in accepting that subscription receipts from Cloud Services is not taxable as royalty. In case of Amazon Web Services Inc 2023 (8) TMI 331 - ITAT DELHI the coordinate Bench of the Tribunal has also expressed identical view holding that subscription received from Cloud Services is not taxable as royalty. The income received by the assessee from Cloud Services is not taxable in India, as they cannot be treated as royalty income. Accordingly, we direct the AO to delete the additions. Assessee appeal allowed.
Issues:
1. Assessment of total income by the AO under Income Tax Act, 1961. 2. Taxability of consideration received from subscription for standard software application as royalty under the Act and India-Ireland Double Tax Avoidance Agreement (DTAA). 3. Short grant of Tax Deducted at Source (TDS) credit. 4. Initiation of penalty proceedings under section 270A of the Act. Analysis: 1. The appeal was filed against the AO's order assessing the total income of the assessee at a higher amount than the income returned. The grounds raised included errors in the final order passed by the AO and DRP. The Tribunal referred to a previous case involving the same assessee where the issue was similar, and the Tribunal had ruled in favor of the assessee, holding that the subscription receipts from Cloud Services were not taxable as royalty income. As there were no changes in facts or legal aspects, the appeal was allowed. 2. The main issue was whether the consideration received from subscription for standard software application should be taxed as royalty under the Act and India-Ireland DTAA. The AO and DRP assessed the revenue from subscription charges as royalty income at a rate of 10%. However, the assessee argued that they had granted a non-exclusive license for the software's use and retained all other rights. The Tribunal cited precedents and the decision of the Hon'ble Supreme Court to support the assessee's position that such payments do not amount to royalty. The Tribunal directed the AO to delete the additions, ruling in favor of the assessee. 3. The issue of a short grant of TDS credit was also raised. The AO had granted TDS credit at a lower amount than reflected in the latest Form 26AS. The Tribunal directed the AO to grant the credit after due verification, resolving this discrepancy in favor of the assessee. 4. Lastly, the initiation of penalty proceedings under section 270A of the Act was challenged. The Tribunal did not provide detailed analysis but mentioned that in the absence of changes in facts or legal aspects, the appeal of the assessee was allowed, indicating a favorable outcome for the assessee regarding the penalty proceedings. In conclusion, the Tribunal ruled in favor of the assessee on all issues, directing the AO to make necessary adjustments in favor of the assessee.
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