In the relief to IBM Singapore, the Banglore Bench of Income Tax Appellate Tribunal (ITAT) while reiterating the decision of the Supreme Court held that the payments to non-resident firms for software are not taxable as royalty.
The assessee is a Singapore-based company engaged in the business of dealing in software & hardware products. Under the provisions of the Indian Income-tax Act, the assessee is a non-resident. During the year under consideration, the assessee has sold software licenses to its Associated Enterprise (AE) and also to other Indian customers. The assessee did not offer any income on such a sale for taxation in India. The AE of the assessee, viz., M/s IBM India Pvt Ltd is the authorized distributor of software licenses sold by the assessee. In respect of sales made to Non-Associated enterprises, majority of sales were made to “other distributors” and in few cases, it was sold to End users also.
The assessee submitted that it has sold only licenses to use the software and it did not part with any of its rights over the products within the meaning of the Copyright Act. He further submitted that the provisions of DTAA entered between India and Singapore shall govern these transactions and as per the provisions of DTAA, the sale receipts of software licenses cannot be taxed as “royalty”. For all these propositions, the department has placed its reliance on the decision rendered by the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.
The two-member bench of Judicial Member Beena Pillai and Accountant Member B.R. Baskaran while dismissing the grounds urged by the Revenue held that the receipts on sale of software is not taxable as royalty in line with the decision rendered by the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.
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