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2017 (11) TMI 981 - AT - Income TaxSupply of software on licence - Taxability in India - whether the payment received by the assessee from supply of software, is taxable in India as royalty in India or not either under section 9(1)(vi) or under Article 12(3) of India USA DTAA or both? - Held that:- Software is sold to be used only on one server in India and not in other jurisdictions. As clarified that clause 2.3 of the licensing agreement uses the word ‘applicable supplement’ which suggests that supplement would be different for different customers depending upon various customers. Though the order form is standard, but they may be different in supplement agreement so as to number of users, manage code, size base for different customers. It is only with a view to provide flexibility to customers, the clause subscription to overnight the Master Licensing agreement have been inserted. Thus, the reference made by the ld. CIT D.R. to these clauses and also supplement will not change the basic fact that what has been sold by the assessee is purely a copyrighted software given for use of the customers without transferring any kind of right to use and with lot of restrictions as given in clause 2.4 of the agreement. We completely agree with the clarification and submission made by the Ld. Counsel that supplementary agreement does not enlarge the scope of the main license agreement but only envisages providing access to all the persons within the enterprise. Thus, in view of the discussion made above and respectfully following the judgment of Hon’ble Delhi High Court, in the cases of DIT vs. Nokia Networks (2012 (9) TMI 409 - DELHI HIGH COURT) DIT vs. Ericsson A.B. (2011 (12) TMI 91 - Delhi High Court); DIT vs. Infrasoft Ltd. (2013 (11) TMI 1382 - DELHI HIGH COURT ); and CIT vs. Alcatel Lucent Canada (2015 (5) TMI 431 - DELHI HIGH COURT) we hold that the payment received by the assessee does not fall within the ambit of ‘royalty’ under Article 12(3) of India USA DTAA and hence, the same cannot be taxed under the terms of India USA Treaty. If the receipts cannot be taxed under the treaty as royalty, then it cannot be taxed under the domestic law under section 9(1)(vi) Income Tax Act and the amended provision cannot be read into treaty as held by the Hon’ble Delhi High Court in aforesaid cases. Accordingly, the appeal of the assessee is allowed.
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