Income from Sale of Software not ‘Royalty’ under India-Ireland Treaty: ITAT [Read Order]

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The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the income from the sale of software cannot be treated as ‘royalty’ under the Double Taxation Avoidance Agreement (DTAA) between India and Ireland.

The assessee , an Ireland-based Company received certain sum towards “Sale of Software” and “Provision for Support Services” from its Indian Distributors. The amount received by the assessee from “Provision of Support Services” was been offered to tax on gross basis as per Article 12 of India-Ireland Double Taxation Avoidance Agreement (DTAA).

With regard to the taxation of the sale of software, the assessee contended that the incorporeal right to the software i.e., copyright remained with the Assessee and the same was not transferred in any way by the Assessee to its distributors or the End Users. However, the Assessing Officer treated the amount as ‘royalty’ and demanded tax.

On second appeal, the Tribunal bench found that treaty provisions between India and Ireland unambiguously require that the use of copyright is to be taxed in the source country.

“In the present case, the payment has been made by assessee for use of “copyrighted material” rather than for the use of copyright. The facts of the present case are identical with the facts before the Hon’ble Jurisdictional High Court. None of the lower authorities have factually doubted the contention of the assessee that it has received consideration for the transfer of a copyrighted product and not for the transfer of copyrights in the computer software programme. The distinction between the transfer of a copyright and the transfer of a copyrighted product is prominent,” the Tribunal said.

Following the decision of the jurisdictional High Court in the case of Infrasoft Ltd., the Tribunal held that the receipts derived by the assessee from “Sale of Software” is not in nature of “Royalty” as defined under Article 12 of India-Ireland DTAA.

Since treaty provisions are more beneficial, an adjudication on nature of receipts vis a vis provisions of Section 9(1)(vi) is not required, the Tribunal added.

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