2024 (7) TMI 1235 - HC - Income Tax

Royalty income - payments which were made by Assessee for obtaining computer software - whether such payments were liable to be taxed in India as royalty under the provisions of Section 9 (1) (6)? - HELD THAT - Oder passed by this Court in Commissioner of Income Tax-(LTU) Vs. Reliance Industries Ltd. 2024 (6) TMI 1069 - BOMBAY HIGH COURT which according to the learned counsel for the parties would govern the present proceedings as there is a DTAA entered with the countries in question, with whose residents the transactions were entered into by the assessee. The amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 - Assessee appeal allowed.

Issues:
Appeals filed by Revenue assailing orders passed by the Income Tax Appellate Tribunal dismissing the Appeals against orders passed by the Commissioner of Income Tax (Appeals) regarding taxation of payments made for computer software as royalty under Section 9(1)(vi) of the Income Tax Act, 1961.

Detailed Analysis:

1. The primary issue in this case was whether the remittance made by the assessee to foreign parties for purchasing computer software should be taxed in India as royalty under Section 9(1)(vi) of the Income Tax Act, 1961, or considered as business income of the recipient companies. The Tribunal had to determine the nature of these payments and their taxability in India.

2. The assessee had raised contentions under Section 195(2) of the Act, arguing against the taxation of remittances as royalty. The Deputy Director of Income Tax (International Tax) initially rejected the application, leading the matter to be appealed before the CIT(A). The CIT(A) allowed the appeals filed by the assessee, prompting the Revenue to take the matter to the Tribunal for further consideration.

3. The Tribunal, in assessing the case, referred to the Double Taxation Avoidance Agreement (DTAA) between India and Denmark/Finland, where similar transactions were not considered liable for tax deduction at source. The Tribunal also cited a previous decision in the assessee's case involving Germany and France, where similar remittances were deemed not liable for tax deduction. Relying on these precedents, the Tribunal dismissed the Revenue's appeal.

4. The Revenue raised a substantial question of law challenging the taxability of payments for computer software as royalties under Section 9(1)(vi) of the Act. However, the Tribunal, after considering various legal provisions and precedents, concluded that the payments did not constitute royalty under the Act, following the decision of the Supreme Court in a related case involving copyright transactions.

5. The Supreme Court, in a previous case, had clarified that transactions involving computer software did not amount to the use of copyright, and therefore, were not taxable as royalty under Section 9(1)(vi) of the Act. This decision was crucial in determining the tax treatment of similar transactions in the present case, aligning with the Tribunal's findings and dismissing the Revenue's appeals.

6. Based on the legal precedents and the Supreme Court's authoritative pronouncement, the High Court concurred with the Tribunal's decision, emphasizing that the transactions in question did not give rise to any income taxable in India. The Court dismissed the appeals filed by the Revenue, as no substantial question of law arose for consideration in the present case.

7. The subsequent orders passed by the High Court on similar questions of law reiterated the dismissal of appeals by the Revenue, following the legal principles established in previous judgments. The consistent application of legal interpretations and precedents led to the final dismissal of the appeals in this case.

8. In conclusion, the High Court upheld the Tribunal's decision and the Supreme Court's interpretation, determining that the payments made for computer software did not constitute royalty under the Income Tax Act, thereby dismissing the Revenue's appeals on the grounds that no substantial question of law was raised.

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