The Delhi Income Tax Appellate Tribunal has recently held that sale of software is not royalty under article 12(3) of Indo –US treaty.
Assessee Moogsoft Inc is a non-resident corporate entity, incorporated in the United States of America (USA) and tax resident of the USA. The assessee is engaged in developing technology for enterprise IT operations and development operations and provides operational intelligence solutions.
While the assessment procedure the assessing officer found that assessee sold software to HCL Technology Ltd. and Infosys Ltd. for their internal use and received license fee.Assessed claim that the amount received from the sale of software are not in nature of royalty under article 12(3) of the India –USA DTAA.Without considering the claim assessing officer treating the amount received as royalty. Against this assessment order assesee filed an appeal before the ITAT.
Nageshwar Rao, counsel for the assessee contended that the amount received by the assessee was from sale of software products which are copyrighted articles.
Referring to Article 12(3) of India –USA DTAA defining royalty and the amount received was not for the use of or right to use of any copyright, literary, artistic or scientific work or any secret formula or process.
Sanjay Kumar counsel for the revenue submits that the amount received by the assessee towards sale of software is in the nature of royalty under Article 12(3) of India – USA DTAA.
After considering the contentions of the both sides the division bench of the ITAT comprising G.S. Pannu, (President) and Saktijit Dey, (Judicial Member) allowed the appeal filed by the assessee and the bench observed that, amount received by the assessee from sale of software is not in the nature of royalty under Article 12(3) of India USA DTAA.
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