The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the consideration received from the sale of software with associated hardware cannot be regarded as royalty and the benefit of the Indo-Singapore Double Taxation Avoidance Agreement (DTAA) shall be granted to the assessee.
The assessee is a company incorporated in Singapore, engaged in the business of distribution of computer software and providing ancillary services in the Asia Pacific region. During the relevant previous year, the assessee sold software and provided certain ancillary services to its Indian distributors/customers. In certain cases, the assessee sold hardware together with embedded software to Indian parties. It was the case of the assessee that the sale of software/hardware was made outside India and the proceeds received from Indian distributors/customers were received by the assessee outside India.
The Assessing Officer held treated the money received by the assessee on sale of software license along with associated hardware to the Indian customers as in the nature of royalty and brought the same to tax. Aggrieved by the orders of the lower authorities, the assessee approached the Tribunal for relief.
A bench comprising ITAT Vice President N V Vasudevan and Accountant Member B R Bhaskaran relied on a catena of decisions favoring the assessee wherein it was held that the purchase of software does not amount to give rise to any taxable income in India as a result of which provisions of sec.195 of the Act are not attracted.
Allowing relief to the assessee, the Tribunal held that “Respectfully following the decision of the Tribunal, we allow the appeal of the assessee and hold that consideration received for the sale of software with associated hardware cannot be regarded as royalty and cannot be brought to tax in India. The appeal of the assessee is accordingly allowed.”
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