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2020 (7) TMI 640 - AT - Income TaxRoyalty receipt - revenue earned by the Appellant from sale of hardware equipment - addition as per section 9(1)( vi) of the Act and Article 12(3) of the India-Switzerland Double Taxation Avoidance Agreement (India-Swiss tax treaty') - Whether revenue earned by the Appellant from sale of hardware equipment represents business income, which is not taxable in India in the absence of any Permanent Establishment (‘PE') of the Appellant in India? - HELD THAT:- It is an admitted fact that though Explanation 5 has been inserted in section 9(1)(vi) of the Act but no amendment has been made to the definition of ‘Royalty’ under DTAA and since the provisions of DTAA are beneficial to the assessee, then the said provisions would be applied. What has been transferred is limited right to use copyrighted material, then the receipts on sale of licensing of software is not Royalty in view of the beneficial provisions of the DTAA between India and Sweden - Amended definition of ‘Royalty’ under the domestic law cannot be extended to the definition of ‘Royalty’ under DTAA, where the term ‘Royalty’ originally defined has not been amended. As per definition of ‘Royalty’ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of ‘Royalty’. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of ‘Royalty’ having not undergone any amendment in Tax Treaty, the assessee was not liable to be taxed on aforesaid receipts of Licensing software and also on sale of Hardware. - Decided in favour of assessee.
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