The assessee, a non-resident corporate entity incorporated in ...

Software license sales by Austrian firm not taxable as royalty income in India.

Case Laws     Income Tax

November 9, 2024

The assessee, a non-resident corporate entity incorporated in Austria, earned income from the sale of software licenses. The Assessing Officer (AO) computed the profit at 15% and taxed it at 40%, alleging that the assessee was not the economic owner of the IPs as most were registered outside Austria, primarily in the USA, and the assessee did not incur expenditure for developing the IPs. However, the Tribunal held that the assessee had substantial revenue from operations in different jurisdictions, including Austria, filed tax returns and was assessed by Austrian Revenue Authorities. The receipts from software license sales in India formed a small part of the total revenue. The allegation of treaty shopping was without credible reasoning. The revenue from software license sales could not be taxed as royalty income in India per judicial precedents. The assessee's tax residency and genuineness could not be doubted in the absence of evidence of fraud or illegal activity, especially when other jurisdictions did not raise such doubts. The BEPS Action Plan cannot influence judicial decision-making without evidence of the assessee lacking commercial or economic substance. Merely registering IPs in different jurisdictions does not divest the assessee's ownership rights. No evidence showed the revenue was repatriated to related parties. Thus, the assessee is entitled to India-Austria DTAA benefits, and the receipts cannot be taxed in.

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