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2022 (3) TMI 372 - AT - Income TaxIncome accrued or deemed to accrue or arise in India - Royalty - the BREW Operator Software agreements - an application development platform - Treating revenue received by the assessee under the BREW agreement as taxable under the provisions of article of India-US DTAA - Treating revenue received by the assessee under the test tool agreements as income of the assessee - HELD THAT - Considering the assessment order of the Assessing Officer wherein he has followed the findings given in earlier assessment years and considering the fact that the same agreement is being carried on since assessment year 2005-06, we do not find any reason in differing with the view taken by this Tribunal 2015 (3) TMI 364 - ITAT DELHI therefore, respectfully following the finding of the co-ordinate Bench we hold that the royalty from BREW operator agreement is not chargeable to tax in the hands of the assessee and also the revenue received under the test tools agreement. We direct the Assessing Officer to delete the impugned additions. - Decided in favour of assessee.
Issues Involved:
1. Treating revenue received by the assessee under the BREW agreement as taxable under the provisions of article of India-US DTAA. 2. Treating revenue received by the assessee under the test tool agreements as income of the assessee. Issue-wise Detailed Analysis: 1. Revenue under BREW Agreement: The primary issue was whether the revenue received by the assessee under the BREW agreement should be treated as taxable royalty under section 9(1)(vi)(c) of the Income-tax Act, 1961, and article 12 of the India-US DTAA. The Tribunal noted that this issue had been previously considered and decided in favor of the assessee in earlier assessment years. The Assessing Officer had previously treated such revenue as royalty, following the reasoning that the payment was for the right to use the software, not for the sale of a copyrighted article. The Tribunal referred to the Delhi High Court's judgment in DIT v. Infrasoft Ltd., which distinguished between payments for copyrighted articles and payments for the use of copyright, concluding that the payments in question were for copyrighted articles and thus not royalty. The Tribunal upheld this view, directing the Assessing Officer to delete the addition of ?2,52,70,569, thus allowing the assessee's appeal on this ground. 2. Revenue under Test Tool Agreements: The second issue was whether the revenue received under the test tool agreements should be considered taxable royalty. The Assessing Officer had treated the payments for annual maintenance of software as royalty, taxable under section 9(1)(vi) of the Income-tax Act and article 12 of the Indo-USA DTAA. The Tribunal, however, found that the nature of the payments was for a copyrighted article, not for the use of copyright, following the same reasoning as in the BREW agreement issue. The Tribunal cited previous decisions, including those for assessment years 2005-06 to 2012-13, which consistently held that such payments were not taxable as royalty. Consequently, the Tribunal directed the Assessing Officer to delete the additions related to the test tool agreements, thus allowing the assessee's appeal on this ground as well. Conclusion: The Tribunal, considering the consistent findings in the assessee's favor in earlier years and the applicable legal precedents, concluded that the revenue received under both the BREW agreement and the test tool agreements should not be treated as taxable royalty. The appeals filed by the assessee were allowed, and the Assessing Officer was directed to delete the impugned additions. The decision was announced in the open court on November 16, 2021.
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