2021 (8) TMI 1232 - AT - Income Tax

Income deemed to accrue or arise in India - Royalty receipts - treatment of income from sale of off-the-shelf software - India- Ireland DTAA - whether the payments made to non-resident software suppliers is royalty and hence TDS u/s.195 was required to be deducted on those payments or not? - HELD THAT - Issue involved in this appeal has been put to rest in view of the decision rendered in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED 2021 (3) TMI 138 - SUPREME COURT and the issue involved in this appeal has been answered against the Revenue and in favour of the assessee.

Summary

Issues: Whether sale of software was liable to be taxed as royalty.

Analysis:
The appeal before the Appellate Tribunal ITAT Bangalore pertained to the final assessment order under section 143(3) read with 144C(13) of the Income Tax Act for the assessment year 2016-2017. The main contention revolved around the taxability of the sale of software as royalty.

The initial assessment order concluded that a payment received by the assessee would constitute royalty under the DTAA and section 9(1)(vi) of the Income Tax Act. The assessee challenged this before the Dispute Resolution Panel (DRP), which rejected all objections leading to the final assessment order.

During the appeal, the assessee relied on a judgment of the Hon'ble Apex Court in a specific case, asserting that the issue in question was covered in their favor. The Departmental Representative failed to counter this argument. The Tribunal, considering the Apex Court judgment and its similarity to the present case, ruled in favor of the assessee. It was held that the payment received would not amount to royalty and therefore cannot be taxed.

Consequently, the appeal filed by the assessee was allowed, and the order was pronounced on July 27, 2021.