ITAT: As per Indo-Singapore DTAA Software Income Can't Be Considered As Royalty
The Income Tax Appellate Tribunal (ITAT), Delhi bench, in the case titled Symantec Asia Pacific Pvt. Ltd. (Appellant/ Assessee) v. DCIT (Respondent/ Revenue) has ruled that the software income cannot be deemed as royalty according to the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
The ITAT division bench comprising of Judicial Member Suchitra Kamble and Accountant Member R K Panda ruled that issue of software income is not a royalty income.
The factual matrix of the case is that the assessee company is formed under the laws of Singapore and the Company does not have any presence in India either by way of a Permanent Establishment or fixed base as defined under Article 5 of the DTAA entered between India and Singapore.
The Assessing Officer (AO) during the course of assessment proceedings, observed that the assessee had received an amount of Rs 242,52,89,282/- on account of sale of license standard software, Maintenance and Support Services to its own user's customers in India.
He opined that the assessee sold application software like community wires software to the end-users for their self-used either directly or indirectly through authorized distributors, resellers or service providers in India and not for making copies of its product/software and sale to others thereby making a profit by way of exploiting the IPRs which are with the assessee.
The AO treated the consideration amounting to Rs 242,52,89,282/- on sale of license software should be treated as receipts received on account of sale of license software as royalty.
An Appeal was filed before the Appellant Tribunal and it stated that it is settled by the Apex Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. wherein the Court observed that as per the definition of royalties contained in Article 12 of the DTAAs it is clear that there is no obligation on the persons mentioned in Section 195 of the Income Tax Act (IT Act) to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright.
It added that the provisions contained in the IT Act Section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessee, have no application in the facts of these cases.
The Supreme Court held in the aforesaid case that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use 226 of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India.
The ITAT placed reliance on the above precedent and granted relief to the assessee.
It concluded that "The legal principal and the factual matrix are identical in present Assessment year of the assessee to that of the issues discussed in case of Engineering Analysis Centre of Excellence Pvt. Ltd. Besides this, the issue is covered in favor of the assessee in the previous year as well. Hence, the appeal of the assessee is allowed."