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2021 (6) TMI 513 - ITAT PUNETaxability as income from ‘Royalty’ within the meaning of section 9(1)(vi) r.w. Article 12 of the Double Taxation Avoidance Agreement between India and USA - receipt as a consideration for sale of Software/License relating to Development of Software - A.Y. 2009-10 - HELD THAT:- The disputed receipt from M/s. Honeywell Technology Solutions Lab Pvt. Ltd. is on account of sale of Software/license and not for parting with the copyright of the software. Since facts of the present case are similar to those considered and decided by the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd [2021 (3) TMI 138 - SUPREME COURT] respectfully following the precedent, we hold that the amount cannot be brought within the ambit of ‘Royalties’ under Article 12 of the DTAA. Case of the assessee before the authorities below has been that the receipt is not in the nature of ‘Royalty’, but ‘Business Profits’ - In order to bring `Business profits’ of a resident of the other country to tax in India within the ambit of Article 7, it is sine qua non that the foreign enterprise must have a Permanent Establishment (PE) in India in terms of Article 5 of the DTAA. In the absence of a PE, the taxability under Article 7 does not trigger. The assessee categorically submitted before the DRP that it did not have any PE in India. As the assessee did not have a PE in India during the relevant year, the mandate of Article 7 cannot activate. A fortiori, the receipt cannot be charged to tax in India as ‘Business profits’ either. In view of the foregoing discussion, we are satisfied that the amount received by the assessee from sale of software/license to M/s. Honeywell Technology Solutions Lab Pvt. Ltd. ceases to chargeable to tax in India. This issue is, therefore, decided in assessee’s favour. Income taxable in India - chargeability being, income from sale of software license which was held by the AO to be an income in the nature of ‘Royalty’ - A.Y. 2014-15 - HELD THAT:- We hold that receipt of Software license cannot be charged to tax as ‘Royalties’ under the DTAA. In the same manner, the amount will escape taxation as ‘Business profits’ under Article 7 also because of it not having any PE in India. Albeit Explanation 4 to section 9(1)(vi) is applicable to the year under consideration, but section 90(2) of Act states that where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1), then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. In other words, the provisions of the Act or the DTAA, whichever are more beneficial to the assessee would apply. Coming back to the factual panorama, we find that the provision of the DTAA, being more beneficial than that of the Act would apply making the receipt from sale of software license as not chargeable to tax in India.
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