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2019 (4) TMI 1851 - AT - Income TaxRoyalty - consideration received on sale of software - Non-resident entity which is a company incorporated under the laws of USA - assessee in India was engaged in sale of software license relating to information securities and storage technology as well as provision of support and maintenance services with respect to the said software - HELD THAT:- The assessee is non-resident entity and is recipient of consideration on sale of software products. The assessee claims that the said income is not taxable in its hands. On the other hand, the case of Revenue authorities is that receipts from sale of software license are to be taxed as 'royalty' both under the Income Tax Act and as per DTAA with USA. The assessee claims to have sold standard software to its customers, wherein end users were not allowed to modify, copy, sub-license, rent, lease or transfer any portion of said software. The said article sold by the assessee was a copyrighted article and the assessee claimed that it had not transferred copyright of the literary, artistic or scientific work to the end user. The Hon'ble High Court of Delhi in the case of Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT] had held that sale of standard software is not covered under the realm of 'royalty' as defined under the Income Tax Act or as per DTAA. Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. DDIT [2019 (3) TMI 458 - ITAT PUNE]while deciding the issue of tax deduction at source under section 201(1) of the Act on payment made for purchase of software has elaborated on the settled legal propositions In the hands of recipient had held that where the purchase of software was copyrighted article, then the same was not covered by the term 'royalty' under section 9(1)(vi) of the Act and it was further held that the amended definition of 'royalty' under the domestic law could not be extended to the definition of 'royalty' under DTAA, where the term originally defined had not been amended. Applying the said ratio to the facts of the present case, we hold that in the hands of assessee, the consideration received on sale of software is not 'royalty' under Explanation 2 to section 9(1)(vi) of the Act and is also not covered by the definition of 'royalty' under DTAA between India and USA. Accordingly, the assessee is not exigible to tax on the said consideration received in its hands. We reverse the orders of authorities below in this regard.
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