In a recent ruling, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the sale of software products does not constitute royalty income and is not taxable under Article 12 of India- Japan Double Taxation Avoidance Agreement ( DTAA ).
The assessee is a non-resident for the purposes of the Act. It is engaged in the distribution of software products developed by its associate enterprises and provision of implementation and related services to customers in the Asia Pacific region.
The revenue submitted the following issue: “Whether on the facts and circumstances of the case the CIT (A) was correct in holding that the consideration received by the assessee from Indian end customers for sale of software products does not constitute royalty income and is not taxable under Article 12 of the India – Japan Double Taxation Avoidance Agreement ( DTAA ) and is not business profits under Article 7 of the India Japan DTAA.”
Mr. Vishal Kalra representing the assessee submitted to the favourable decision of Mumbai Bench of ITAT in case of one of its group entity, Dassault Systemes vs. DDIT, wherein the ITAT on identical facts held that receipt on account of sale of shrink- wrapped software was not in nature of royalty and, hence, was not liable to tax in India in view of provisions of section 9(1) (vi) of the Act as well as article 12(3) of DTAA between India and USA.
The two member bench of the tribunal comprising Dr.B.R.R Kumar ( Accountant member ) and Anubhav Sharma ( Judicial member ) observed that the CIT (A) had fallen in error in making the deletion. It was observed that “After the judgement of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs CIT (supra), the issue with regard to taxability of the income from the sale of Software licenses subscription, stands settled and same is followed by ld. CIT(A), so there is no infirmity in the impugned orders, requiring interference.”
Thus, the appeal of the revenue was dismissed.
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