The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that the income received by a non-resident company from sale of software, either directly to the customers in India or through Distributors or Resellers constitutes its business income and not the Royalty income.
The assessee is engaged in India in the sale of software licenses relating to information security and storage technology as well as the provision of support and maintenance services with respect to the above software. During the year under consideration, the assessee earned revenue from sale of software licenses in India including certification and software for authentication business which was claimed as not chargeable to tax in the absence of it having any Permanent Establishment (PE) in India. The Assessing Officer held that such income shall be treated as “Royalty” under the Income Tax Act, 1961.
Diving deeply into the facts of the case, the Tribunal held that it a case of sale to the Resellers or the Distributors, the assessee only transfers Symantec Products to them.
“It is not as if the Distributors or the Resellers acquire any right from the assessee to copy the software and then exploit it commercially. Their transactions are confined to purchasing specific Symantec Products from the assessee and then eventually selling the same to the end customers in India. There is no qualitative difference between the direct sales made by the assessee to its customers in India, which have already passed the scrutiny by the Tribunal in assessee’s own case for earlier year and the sales made by the assessee through the Distributors or the Resellers. In both the sets of circumstances, it is only one-to-one sale of the Symantec Products by the assessee and at no stage the right to use the copyright in the software is licensed either to the Distributor or the Reseller,” the Tribunal observed.
Based on the above findings, the Tribunal held that the income earned by the assessee from sale of software, either directly to the customers in India or through Distributors or Resellers constitutes its business income and not the Royalty income.
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