2020 (7) TMI 824 - AT - Income Tax

Income deemed to accrue or arise in India - royalty receipt - consideration received by the Appellant from supply/distribution of its copyrighted software products - DTAA between India and Ireland ( AADT) - Whether right to use the copyright in the software? - HELD THAT - The issue arising in the present appeal is identical to the issue raised in assessee s own case in Assessment Year 2013-14 2018 (12) TMI 112 - ITAT DELHI and applying the ratio laid down by the Jurisdictional High Court in Infrasoft Ltd. 2013 (11) TMI 1382 - DELHI HIGH COURT we hold that the receipt from sale of software by the assessee was not in the nature of Royalty under Article 12 of DTAA between India and Ireland. Since the treaty provisions are more beneficial there is no merit in adjudicating the issue vis- vis amended provisions of section 9(1)(vi) - Ground of appeal raised by the assessee are thus allowed.

Summary

Issues:
1. Whether the consideration received by the assessee from supply/distribution of copyrighted software products is chargeable to tax in India as income from 'Royalty' as per the India-Ireland Double Taxation Avoidance Agreement (DTAA).
2. Whether the consideration received by the assessee for supply/distribution of copyrighted software products qualifies as royalty for the grant of 'right to use' the copyright in the software.

Analysis:
1. The appeal challenges the authorities' decision that the consideration from supply/distribution of copyrighted software products is taxable as 'Royalty' under the India-Ireland DTAA. The Assessing Officer treated the amount from software sales as 'Royalty' under section 9(1)(vi) of the Income-tax Act and DTAA. The assessee argued that the payment was for copyrighted material use, not for copyright transfer. The Tribunal noted similar issues in the assessee's case for the previous assessment year, where the Tribunal ruled in favor of the assessee based on jurisdictional High Court decisions.

2. The Assessing Officer held that the consideration for software supply/distribution qualifies as royalty for the 'right to use' copyright. The assessee contended that no copyright transfer occurred, relying on High Court decisions. The Tribunal found that the issue was identical to the previous year's case, where the High Court's decision favored the assessee. Following the High Court's ruling, the Tribunal held that the software sale receipts were not 'Royalty' under the DTAA, making an adjudication on Section 9(1)(vi) unnecessary.

3. The Tribunal's decision aligned with the High Court's interpretation, emphasizing that the payment was for copyrighted material use, not copyright transfer. The Tribunal dismissed the appeal against the interest levy under sections 234A & 234B as consequential. The issue regarding non-granting of TDS credit was not argued and dismissed. The appeal against the penalty proceedings initiation under section 271(1)(c) was deemed premature and dismissed. Ultimately, the Tribunal allowed the assessee's appeal, pronouncing the order on 9th July 2020.