The Income Tax Appellate Tribunal (ITAT) Delhi bench held that receipts from reselling of hardware and software packages are not “Royalty” under India Singapore Double Taxation Avoidance Agreement.
Assessee ,Avnet Asia Pte Ltd.is a non-resident corporate entity and a tax resident of Singapore. Assessee is a wholly owned subsidiary of Avnet Inc. USA. The assessee procures goods from vendors in Singapore and other overseas countries for sale to its customers in India.
During the proceedings the AO observed that in assessment year 2012-13, the revenue earned by the assessee from sale of software was taxed as royalty income.
AO issue show cause notice to the assessee to explain, as to why, the revenue from sale of software should not be treated as royalty income .
The assessee, objecting to the proposed addition, submitted that it is a reseller of hardware and software and it has not transferred any right to use of copyright, however, the Assessing Officer remained unconvinced and ultimately.
Further the Assessing Officer concluded that the amount received by the assessee from sale of software is taxable as royalty income under section 9(1)(vi) of the Act and Article 12(3) of India-Singapore Double Taxation Avoidance Agreement (DTAA).
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeal){ CIT(A)} . who allowed the appeal of assessee.
The CIT(A) during the appeal proceedings before it held that assessee merely purchases hardware including software packages from vendors in Singapore and other overseas countries and resells them to customers in various countries including customers in India.
Therefore the receipts from hardware and software packages are not in the nature of royalty.
Aggrieved by the order the revenue filed the appeal before the tribunal.
It was observed by the tribunal that Assessee procures the hardware and software packages from non-resident vendors and re-sells them to Indian customers without any value addition, along with, warranty packages.Moreover assessee has sold to Indian customers is copyrighted articles and not use or right to use of any copyright.
Further assessee procures hardware and software packages from other vendors and sells them to third party customers. Therefore, the ownership over copyright lies with the manufacturer and original supplier of software packages and not with the assessee
After carefully analysing the material facts and keeping in view the ratio laid down by the Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. the two member bench of G.S. Pannu, (President) and Saktijit Dey,( Vice-President) held that receipts from reselling of hardware and software packages are not “Royalty” under India Singapore Double Taxation Avoidance Agreement.
Therefore the bench dismissed the appeal filed by the assessee
Tapas Misra, counsel appeared for assessee and Vizay B. Vasanta,, counsel appeared for the revenue
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
