2010 (2) TMI 1212 - AT - Income Tax

Summary

Issues involved:
The issue involves determining whether payments received by the assessee from Reliance Industries Limited (RIL) on account of software usage constitute royalty, as per Article 12 of India-USA DTAA and section 9(1)(vi) of Explanation 2 of the Income Tax Act.

Summary:
The Appellate Tribunal ITAT Mumbai heard an appeal by the Revenue against an order related to the assessment year 2002-03. The assessee, engaged in providing software solutions globally, entered into a software licensing agreement with RIL. The Revenue contended that the payments received were royalty, while the assessee claimed they were business profits not taxable in India due to the India-US tax treaty. The Assessing Officer taxed the income as royalty, but the CIT(A) ruled in favor of the assessee, stating the payment was for a copyrighted article and not royalty. The Tribunal upheld the CIT(A)'s decision, emphasizing the limited rights granted to RIL under the agreement, which did not involve a transfer of copyright. The Tribunal cited legal precedents to support the conclusion that the software sale did not constitute royalty, leading to the dismissal of the Revenue's appeal.

Key Points:
- The assessee provided software to RIL under a licensing agreement, with RIL having limited rights to use the software for internal purposes only.
- The CIT(A) determined the payment as business profits, not royalty, due to the absence of a Permanent Establishment in India.
- Legal precedents, including the Tata Consultancy Services case, supported the view that software sales do not involve a transfer of copyright and are akin to the sale of goods.
- The Tribunal affirmed the CIT(A)'s decision, stating that the consideration received was not royalty and therefore not taxable in India.

This summary provides a detailed overview of the legal judgment, highlighting the key issues, arguments, and conclusions of the case.