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2010 (5) TMI 666 - AT - Income TaxIncome taxable in India - Income from sale of software as income from royalty chargeable under the IT Act/DTAA - assessees had supplied off-the-shelf shrink-wrapped software to Infosys Technologies Ltd., (ITL) in India - assessee did not find any reason to declare any income in India in the hands of the assessees for the reason that the software sold by the company to Indian entities were shrink-wrapped off-the-shelf software which is only the sale of copies of copyrighted articles HELD THAT:- A very similar issue in similar circumstances was considered by Larger Bench of the ITAT, Delhi Bench ‘A’ (Special Bench) in the case of Motorola Inc. [2005 (6) TMI 226 - ITAT DELHI-A] the cellular operator did not transfer or load any part of the software as to the SIM card or the handset of the subscriber. That established that the software supplied by the assessee to the cellular operator was installed on the hardware and no part of it was loaded on the SIM card or the handset of the subscriber. The Tribunal held that the crux of the issue was whether the payment was for a copyright or for a copyrighted article. If it was for a copyright, it should be classified as ‘Royalty’ both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payment was for a copyrighted article, then it only represented the purchase price of the article and, therefore, could not be considered as ‘Royalty’, either under the, IT Act or under the DTAA. The very same principle has been upheld by the Authority for Advance Rulings in the case of Airports Authority of India [2010 (3) TMI 110 - AUTHORITY FOR ADVANCE RULINGS] where they have held that the earnings of contract is only purchase of certain copyrighted software on outright basis and when there is no PE in India, royalty income does not arise either within the framework of the Income-tax Act or under the realm of DTAA. In the present case, there is no doubt that both the assesses do not have any PE in India. Also in the case of Sonata Software Ltd. [2005 (4) TMI 530 - ITAT BANGALORE] software packages were brought in India for the purpose of distributing to ultimate users and imports were made from non-residents. The Tribunal held that the payments partook the character of purchase and sale of goods; and as there is no PE in India, it could be concluded that no income accrued or deemed to accrue or arise in India. Therefore, in the facts and circumstances of the case, and in the light of the above binding decisions, we find that the sale of software cannot be treated as income from royalty either under the IT Act or under the terms of DTAA. Assessee appeal allowed.
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