2012 (2) TMI 258 - AAR - Income Tax

DTAA with Australia – Australian company entered into distribution agreement with Indian Company(IMI Ltd) for the distribution and sale of its software and hardware products in India - sale and collection of software product is made through the distributor - no physical delivery of the product is made to the distributor - taxability of the payments made by distributor for the software product, and for the right to downloand/receive version updates for the software products of the applicant – applicant submitted that payment received are for sale of copyrighted article - Held that:-In the Income-tax Act, royalty is defined as consideration for the transfer of all or any rights (including the grant of license) in respect of any Copyright. Article 12 of the India-Australia DTAC defines royalties to mean payment made as consideration for the use of or the right to use any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right. The definition in article is seen to be wider than the one contained in the Income-tax Act. Therefore, payments concerned would be royalty as defined in Article 12 of the DTAA between India and Australia and u/s 9(1)(vi) of the Income-tax Act.

Payment received by way of Subscription for the updates would also be royalty and not 'FTS' under DTAC & Income Tax Act.

Applicant contention about non-existence of PE in India – Held that:- Since payment received is royalty, the amount is liable to be taxed in India under Article 12.2 of the DTAC.

Further, distributor IMI Ltd is required to withhold taxes in India in terms of Section 195 of the Income-tax Act at the rate of 10% of the gross amount of royalty, as provided under Article 12.2 of the DTAC.