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2021 (9) TMI 1083 - AT - Income TaxAccrual of Income in India - Royalty - right to use the software - overriding effect to the DTAA - whether the assessee who is a non-resident and tax resident of Singapore in terms of the India-Singapore Double Taxation Avoidance Agreement (DTAA) who acts as a distributor of computer software and providing ancillary services in the Asia Pacific region is taxable in respect of receipts on sale of computer software to Indian distributors/end users along with ancillary services? - HELD THAT - The terms of licence agreement were already examined by the DRP and from reading of the terms of the agreements, it is clear that there was no right to use the computer software. In other words, the terms of agreement are identical to the case decided in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT The overriding effect to the DTAA vis- -vis provisions of the Act have also been discussed in the submissions of the Assessee before AO and DRP and in the order of the AO and the DRP - plea for remanding of the case to the AO/TPO cannot be accepted in the facts and circumstances of the present case. Accordingly, following the earlier orders of the Tribunal, we hold that income of the assessee which was brought to tax by the Revenue authorities cannot be brought to tax and the same is directed to be deleted. - Appeal of the assessee is allowed.
Issues:
1. Taxability of non-resident assessee under India-Singapore DTAA for sale of computer software and ancillary services to Indian distributors/end users. Analysis: The appeal concerns the taxability of a non-resident company incorporated in Singapore under the India-Singapore Double Taxation Avoidance Agreement (DTAA) for distributing computer software and providing ancillary services in the Asia Pacific region. The company sells design software to Indian distributors/end users, generating revenue based on a percentage of sales. The company argued that it only holds a license to distribute the software and does not have the right to use it, thus the receipts are not taxable in India. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) disagreed, citing previous rulings. The Tribunal referred to a Supreme Court judgment in a similar case and held that the payments made by Indian end-users/distributors to non-resident software manufacturers/suppliers do not constitute royalty for the use of copyright in the software, thus not taxable in India under section 195 of the Income Tax Act. The Tribunal allowed the appeal, stating that the income brought to tax by the Revenue authorities should be deleted. The Tribunal's decision was based on the interpretation of the Software License and Distribution Agreement, which did not grant the assessee the right to use the software. The Tribunal relied on the Supreme Court's ruling that the distribution agreements do not create any interest or right in distributors/end-users amounting to the use of copyright, thus not falling under the definition of royalty in the Income Tax Act. The Tribunal emphasized that the DTAA prevails over the Act, and the terms of the agreement were already examined by the DRP, aligning with the Supreme Court's decision. Therefore, the Tribunal rejected the plea for remand and directed the deletion of the tax on the assessee's income. The Tribunal's decision was consistent with previous orders and concluded that the income of the assessee could not be taxed under the prevailing legal framework. In conclusion, the Tribunal's ruling in favor of the assessee was based on the interpretation of the agreement, the Supreme Court's judgment, and the precedence set in similar cases. The decision highlighted the non-taxability of the receipts in India under the DTAA and the absence of the right to use the software, leading to the deletion of the tax on the assessee's income. The Tribunal's analysis considered the legal provisions, agreements, and previous judgments to arrive at the conclusion that the income in question was not subject to taxation in India.
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