The Kolkata bench of the Income Tax Appellate Tribunal (ITAT), has held that the sale of the software would not constitute ‘royalty’ as per the Double Taxation Avoidance Agreement (DTAA) between India and Ireland.
The assessee company,“M/s Ixia Technologies International Limited” is a non-resident foreign company registered in Dublin, Ireland. The principal line of activity of the company is design, development, marketing, sales and support including warranty and maintenance of advanced software-based test systems and integrated suites of testing applications which seek to optimize networks and data centres to accelerate, secure and scale the delivery of applications and services for worldwide customers outside of the United States.
While concluding the assessment proceedings against the assessee, the Assessing Officer was of the view that the consideration received by a non-resident entity for the licensing of copyrighted article/software, i.e. consideration for use of or for granting the right to use a computer software amounts to royalty under Article 12(3) of the India-Ireland DTAA.
After going through Article 12 of India vs. Ireland DTAA, the Tribunal noted that the term ‘royalty’ is defined to mean payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph film or films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or processor for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft, or for information concerning industrial, commercial or scientific experience.
“We note that in the assessee`s case under consideration, the buyers of the software are not allowed to sell/distribute the copies of the software to the third parties. What the buyers get, is merely a right to use the software (which is a copyrighted article) and not the copyright in that software. Therefore, the sale of software is not ‘Royalty’. Moreover, any incidental copy made while using the software for its proper use does not amount to acquisition of copyright which has been held by the Hon`ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd,” the Tribunal said.
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