The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, while deciding an appeal filed before it, held that sale consideration of software products is not taxable as royalty under Article 12 of the India-Singapore DTAA.
The aforesaid observation was made by the Delhi ITAT, when an appeal was preferred before it by the assesseeSymantec Asia Pacific Pte Ltd., as against the final assessment order dated 30.05.2019, passed under Section 143(3) read with section 144C(13) of the Income-Tax Act, 1961, pertaining to the assessment year 2016-17, in pursuance to the directions of the Dispute Resolution Panel (DRP).
The facts of the case were that the assessee was a non-resident corporate entity incorporated under the Laws of Singapore, who was a tax resident of that country, and for the assessment year under dispute, the assesseehad filed its return of income on 30.09.2016 declaring nil income and claiming refund of Rs.21,72,75,550,on account of tax deducted at source (TDS).
However, in the course of the assessment proceedings, the Assessing Officer called upon the assessee to furnish various details, including, the Revenue earned from India. And after perusing the details furnished by the assessee including the distributor agreement, general and administrative services agreement, license agreement etc., the Assessing Officer was of the view that the consideration received by assessee from the sale of software as well as maintenance and supportservices to customers in India either directly or through authorized distributors, resellers or service providers in India , was in the nature of royalty, both under Section 9(1)(vi) of the Act as well as under the provisions of Article 12 of India-Singapore DTAA.
Thus, based on such conclusion, the Assessing Officer held the consideration received from sale of software and provision of services amounting to Rs.217,24,54,383 to be taxable in India as royalty, at 10% on gross basis, as per provisions of India-Singapore DTAA. And accordingly, he proposed a draft assessment order also.
Against the said draft assessment order, the assessee raised objections before DRP, and relying upon their decision in assessee’s own case in the assessment years 2013-14 and 2014-15, the DRP upheld the decision of the Assessing Officer by rejecting the objection of assessee. And it is in this situation that the present appeal is preferred by the assessee before the Delhi ITAT.
With Shri Nageshwar Rao, Ms. Deepika Agarwal and Viyushti Agarwal, advocates for the assesse submitting on the assessee’s behalf that the issue in dispute is squarely covered in favour of assessee by the decisions of the Tribunal and Hon’ble jurisdictional High Court in the assessment years 2013-14 and 2014-15, Ms. Sapna Bhatia, Sr. DRdutifully relied upon the observations of the Assessing Officer and the DRP.
Hearing the opposing contentions of both the sides and finally delivering its observation, the ITAT Bench consisting of Dr. BRR Kumar, the Accountant Member and SaktijitDey, the Judicial Member commented :
“While deciding the issue in assessment year 2013-14, the Tribunal in ITA No.1000/Del/2017 dated 31.08.2020,has held that the amount received by assessee from the customers in India does not fit into the definition of royalty as provided under Article 12 in India-Singapore DTAA. Identical view was expressed by the co-ordinate Bench while deciding assessee’s appeal in assessment year 2014-15 vide ITA No.3013/Del/2017 dated 15.04.2021”
“It is a matter of record that appeals filed by the Revenue against the aforesaid orders of Tribunal have been dismissed by the Hon’ble jurisdictional High Court.”, the ITAT Bench added.
“Thus, considering the fact that the issue in dispute is squarely covered by the decisions of the Tribunal and the Hon’ble jurisdictional High Court in assessee’s own case, as discussed above, we delete the addition made by the Assessing Officer”, they ruled.
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