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2022 (12) TMI 864 - AT - Income TaxTaxability of revenue from sale of software - DRP/AO held that receipt earned by the Appellant outside India from sale of Microsoft Retail Software Products to distributors belonging to India is taxable under the Act/ DTAA - HELD THAT:- As in assessee’s own case for AY 2012-13 [2022 (5) TMI 246 - ITAT DELHI] the issue has culminated in favour of assessee conclusion based on the principles of law that sale of software products does not give rise to royalty income as laid down by the Hon’ble Delhi High Court in Infrasoft Ltd. case [2013 (11) TMI 1382 - DELHI HIGH COURT] which have now further been affirmed in the case of Engineering Analysis Centre of Excellence P. Ltd. [2021 (3) TMI 138 - SUPREME COURT] Royalty receipts - subscription to cloud base service - whether income from cloud services cannot be taxed as ‘royalty’ in the hands of distributor? - HELD THAT:- As cloud base services do not involve any transfer of rights to the customers in any process. The grant of right to install and use the software included with the subscription does not include providing any copy of the said software to the customer. The assessee’s cloud base services are though based on patents / copyright but the subscriber does not get any right of reproduction. The services are provided online via data centre located outside India. The Cloud services merely facilitate the flow of user data from the front end users through internet to the provider’s system and back. The ld. AO has fallen in error in interpreting it as licensing of the right to use the above Cloud Computing Infrastructure and Software (para 10.5 of the Ld. AO order). Thus the subscription fee is not royalty but merely a consideration for online access of the cloud computing services for process and storage of data or run the applications. While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. [2022 (4) TMI 327 - ITAT DELHI] where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services held that all the equipments and machines relating to the service provided by the assessee are under its control and are outside India and the subscribers do not have any physical access to the equipment providing system service which means that the subscribers are only using the services provided by the assessee. Chennai Tribunal in the case of ACIT v Vishwak Solutions Pvt. Ltd. [2015 (4) TMI 794 - ITAT CHENNAI] has upheld the findings of CIT(A) that “the amount paid to the non-resident is towards hiring of storage space.” The aforesaid squarely covers the controversy in regard to the present assessee also. In the light aforesaid, the Bench is of considered view that the ld. Tax Authorities below had fallen in error in considering the subscription received towards Cloud Services to be royalty income. No distinction on facts or law could be pointed by Ld. DR. Therefore, following aforesaid findings in favor of the assessee these grounds are determined in favour of the assessee.
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