Receipts from Sale of Copyrighted Software would not constitute Royalty: ITAT [Read Order]

Sale of Copyrighted Software - Royalty - ITAT - Taxscan

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the receipts from the sale of the copyrighted software would not constitute “royalty” under the Income Tax Act, 1961.

The assessee, a foreign company, engaged in the business of development and licensing of software productshad sold software to various Indian customers. During the course of assessment proceedings, it was seen that the assessee had received total amount of Rs.1,15,40,710 on account of sale of software licenses and provision of software maintenance and related training services. The department held that the amounts received by assessee for the sale of software/licenses is in the nature of royalty in view of the judgment of the Karnataka High Court in the case of CIT v. Samsung Electronics Limited. The assessee, objected the tax demand and submitted that the sale of software and maintenance software services ought not have been considered as royalty and be brought to tax in India.

The Tribunal bench comprising Accountant Member B R Bhaskaran and Judicial Member George George K observed that the assessee is a foreign company, which sells software licenses to the end-users in India.

“Therefore, this case falls within the first category grouped by the Hon’ble Apex Court…………..On perusal of the end-users license agreement, it is clear even in cases where some element of source code were made available to the end-users i.e. the Indian customers, it is only for the purpose of fixing the bugs, customizations etc. Under no circumstances we noticed there is a transfer of copy right in the software,” the Tribunal said.

Allowing the appeal filed by the assessee, the Tribunal held that “In the facts of the instant case, it is clear the amounts received by the assessee is on account of sale of copyrighted software and not transfer of copyright in a software. In such circumstances, we are of the view that the instant case is identical to the case considered by the Hon’ble Apex Court. Accordingly, by following the principles laid down in the judgment of the Hon’ble Apex Court, we hold that the receipts on account of sale of software licences and other incidental receipts such as provision for software maintenance and related training services would not constitute royalty within the meaning of DTAA between India and Australia andprovisions of section 9(1)(vi) of the Income Tax Act,1961.”

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