TMI Blog2018 (4) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... hen a software is embedded in hardware and there is one composite price, the entire amount remains as Business income and a part of the same cannot be considered as royalty within the Explanation 4. Payment received for software, which is embedded in the hardware, has to be treated as business profits, which is of the same nature as from the supply of hardware. The impugned order is set aside to this extent and the AO is directed to compute the income of the assessee afresh by considering income from supply of software embedded in hardware as Business profits. - ITA Nos.5817 to 5821/Del/2011 - - - Dated:- 31-1-2018 - Sh.R.S.Syal, Vice President and Smt. Beena A. Pillai, Judicial Member Appellant by Sh. Sachit Jolly, Adv. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not chargeable. The assessee preferred appeals before the Hon'ble High Court in respect of the instant five matters, contending that the Tribunal has not returned any finding with reference to taxation of software income and attribution of income between hardware as well as software sales and services. The Hon'ble High Court, vide its order dated 25.10.2017, has remitted the matter to the file of the Tribunal for adjudication on the above issues. 3. During the course of extant proceedings before the Tribunal, the Ld. AR fairly conceded that the issue restored by the Hon'ble High Court for fresh adjudication was, in fact, not argued by the assessee before the Tribunal in the first round. It was also admitted that only the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 20% towards the software and related services. There is no quarrel in this appeal against the attribution of income from supply of hardware as Business profits. The only dispute as raised by the ld. AR is against the taxability of income on account of software, licence and related services, which the AO estimated at 20% and after allowing deduction of 20% towards expenses, taxed it as Business profits as the same was found to be effectively connected with the PE of the assessee. The ld. AR contended that such income at the rate of 20% should not have been treated as royalty but business income at the first stage itself. 5. It is found from the assessment order itself that the assessee earned gross income from supply of software embed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cellular operator for acquiring such property cannot be regarded as a payment by way of royalty. 7. Similar view has been taken in several judgments holding that supply of software embedded in the hardware does not result in to royalty income. No contrary decision has been brought to our notice by the ld. DR. 8. Here it is relevant to mention that Explanation 4 to section 9(1)(vi) has been inserted by the Finance Act, 2012, w.e.f. 01.06.1976 providing that: `For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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