Subscription Payment received by End user to a non-resident Computer supplier is not royalties: Delhi HC Dismisses Revenue’s Appeal [Read Order]

The Delhi High Court has dismissed the revenue’s appeal and upheld the ruling that the subscription payment  received by an end user from a non-resident computer supplier is not royalties.

The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 [the Act] impugning an order dated 05.08.2024 passed by the Income Tax Appellate Tribunal [ITAT] in ITA No. 3250/Del/2023 in respect of Assessment Year [AY] 2021-22.

The respondent Assessee,Goto Technologies Ireland Unlimited Company – a tax resident of the Republic of Ireland – has preferred the said appeal impugning an order dated 19.09.2023 passed by the Assessing Officer [AO] under Section 143(3) read with Section 144C(13) of the Act.

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One of the controversies involved in the present appeal is regarding subscription payments received by the Assessee for providing cloud services. Whereas the Revenue claimed that the said proceeds are taxable as royalty, the Assessee contests the same. It is the Assessee’s case that such payments could not be considered as royalty under the provisions of Article 12(3) of the India Ireland Double Taxation Avoidance Agreement [DTAA]. It is also contended on behalf of the Assessee that the issue stands covered in its favour by the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd. v. CIT: (2022).

It was found that in the said case, the Court has determined that the amounts remunerated by the resident end-users/distributors to non-resident computer software suppliers/manufacturers are not royalty payments for the use of copyright in the software.

The ITAT noted that there were no material changes in the factual matrix or the legal proposition. Therefore, following the earlier decisions, the ITAT had allowed the assessee's appeal.

Concededly, the decisions rendered by the  ITAT in ITA No.1514/Del/2022 and ITA No.793/Del/2023 in respect of AY 2019-20 and AY 2020-21 were subject matter of the appeals filed by the Revenue in the Court being ITA No.282/2024 and 315/2024 respectively.  The said appeals were examined and disposed of by this Court in terms of the orders dated 14.05.2024 and 02.07.2024 respectively. This Court had rejected the Revenue‘s contention that the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (supra) would not cover the issues in question.

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Concededly, the issues involved in the appeal is covered by the decision of the Court in ITA No.282/2024 and 315/2024, captioned Commissioner of Income Tax International Taxation-1, New Delhi v. Goto Technologies Ireland Unlimited Company (Earlier known As Logmein Ireland Unlimited Company).

In view of the above, the division bench of Justice Vibhu Bakhru and Justice Tejas Karia found that no substantial question of law arises for consideration of the court and dismissed the appeal.

To Read the full text of the Order CLICK HERE

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