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2019 (12) TMI 1029 - AT - Income TaxRoyalty u/s. 91 (vi) OR Business income - amount received by the assessee company from its customers as per Article 12 (3) of the Indo US DTAA - PE in India - whether software with restriction of copying etc is a copy right or a copy righted product ? - HELD THAT:- Mumbai Bench of the Tribunal in the case of ADIT (IT) Mumbai Vs. First Advantage Private Limited [2017 (1) TMI 984 - ITAT MUMBAI] has held that Payment made by assessee to US company for use of software owned by US company, when assessee would use software only for internal business operations and would not sub-license or modify same, could not be considered as royalty within meaning of article 12(4) of DTAA. Coordinate Bench of the Tribunal in the case of ACIT Vs. Landmarks Graphics Corporation [2017 (7) TMI 1269 - ITAT DELHI] has held that where assessee, a US based company, did not have PE in India and its activities were not covered by deeming fiction of article 5(2) of India - USA DTAA, income earned by it from sale of software to Indian companies which was 'off the shelf software, was not taxable In India. Tribunal in the case of Black Duck Software Inc Vs. DCIT [2017 (7) TMI 1269 - ITAT DELHI] has held that where assessee, a US based company, granted a non-exclusive, non-transferable software license to Indian customer for a specific time period, since copyright in said software programme was retained by assessee, payment received by it was not liable to tax in India as royalty. In the case of Aspect Software Inc Vs. ADIT [2015 (5) TMI 726 - ITAT DELHI] held that consideration received by assessee for supply of 'contact solutions' used for better management, customer interaction, comprising of sale of hardware alongwith license of embedded software to end user is not royalty under article 12 of DTAA between India and USA. Provision of implementation and maintenance services are inextricably and essentially linked to supply of software; where supply of software is itself not taxable as 'royalty', these services are also not royalty. Respectfully following all we hold that the payment received by the assessee from its customers from sale of software products/ licenses is not in the nature of the royalty u/s. 9(1)(vi) of the IT Act, 1961 and also as per article 12 (3) (a) and article 12(3) (b) of the Indo US DTAA. In our opinion the said amount received by the assessee is normal business income of the assessee on account of sale of copy righted products (licenses) and not taxable in India in the absence of permanent establishment. - Decided in favour of assessee.
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