The Income Tax Appellate Tribunal (ITAT), Pune bench has held that the income from the sale of software license cannot be treated as “royalty” for the purpose of the Income Tax Act, 1961.
The Assessing Officer, while concluding the assessment proceedings against the assessee, noted that Rs.86,05,13,407/- was received by the latter towards income from the sale of the software license. He was of the opinion that an income in the nature of ‘Royalty’ and chargeable to tax under the relevant provisions of the Income Tax Act, 1961.
While ruling in favor of the assessee relying on the precedents and the decisions of the Tribunal in the past years, Judicial Member Partha Sarathi Chaudhuri and Accountant Member R.S Syal held that the receipt of Software license amounting to Rs.86,05,13,407/- cannot be charged to tax as ‘Royalties’ under the DTAA.
“In the same manner, the amount will escape taxation as ‘Business profits’ under Article 7 also because of it not having any PE in India. Albeit Explanation 4 to section 9(1)(vi) is applicable to the year under consideration, but section 90(2) of the Act states that where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1), then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. In other words, the provisions of the Act or the DTAA, whichever are more beneficial to the assessee would apply. Coming back to the factual panorama, we find that the provision of the DTAA, being more beneficial than that of the Act would apply to make the receipt from the sale of software license as not chargeable to tax in India,” the Tribunal said.
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