Licensing of Microsoft Softwares in India is not Taxable as ‘Royalty’ as per Indo-US Treaty: Delhi HC [Read judgment]

The division bench of the Delhi High Court has held that the licensing of software products of Microsoft in the Territory of India by the Respondent was not taxable in India as Royalty under Section 9(1)(vi) of the Act read with Article 12 of the Indo US DTAA.

The Revenue approached the High Court against the decision of the Tribunal contending that the distribution model in the case of the respondent-assessee involved making of multiple copies of the software clearly indicating transfer of copyright.

Having heard learned counsel for the appellant, this Court the bench comprising of Justices Manmohan and Sudhir Kumar Jain found that the issue raised in the present appeals is no longer res integra as the Supreme Court in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr, wherein it was held that the amounts paid by resident Indian end-users/distributors to nonresident 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.

The ebnch further relied on the decision of the same Court on similar facts in EY Global Services Limited vs. Assistant Commissioner of Income Tax &Anr held that the payment received by EYGSL (UK) for providing access to computer software to its member firms of EY Network located in India, that is, EYGBS (India), does not amount to ‘royalty’ liable to be taxed in India under the provisions of the Income Tax Act, 1961 and the India-UK DTAA.

Upholding the order of the ITAT in the light of the above rulings, the bench held that “since, the issue of law raised in the present appeals has been conclusively decided in the favour of the assessee by the Supreme Court, no substantial question of law arises for consideration in the present appeals. It is also pertinent to mention that the appellant had admitted before the ITAT that the dispute in question had been decided in favour of the assessee by the Tribunal in earlier years. Accordingly, the present appeals are dismissed.”

Commissioner of Income Tax (International Taxation)-2 VS Gracemac Corporation

CITATION: 2022 TAXSCAN (HC) 116

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