9911796707
TMI Blog2022 (12) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Pacific region, including India and in licensing of software through independent distributors to the end users under an End User License Agreement (EULA). There was another wholly owned subsidiary of MS Corp. Gracemac Corporation which was also incorporated in the US. This subsidiary Gracemac was granted exclusive license to manufacture Microsoft Retail Software Products and exclusive license to distribute the products retailers or to MS Corp. or other subsidiaries of MS Corp. MOL Corporation (MOLC) was also wholly owned subsidiary of MS Corp. in which Gracemac Corporation was merged on 02.10.2006 in pursuance of which rights which earlier belonged to Gracemac were assigned in favour of MOLC. Microsoft operations Pte. Ltd. ('MO') was a company incorporated under the laws of Singapore and was a wholly owned subsidiary of MS Corp. MOLC has granted Microsoft Operations Ltd. Singapore the non exclusive right to manufacture MS Retail Software Products in Singapore and distribute such products in Asia (with restrictions in China, Korea and Taiwan), Japan, South East Asia and South Pacific as per the distribution agreement. This corporation MO further entered into a non-exclusive distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP and Ld. AO have failed to appreciate that sale of software is a sale of 'Copyrighted Article' and accordingly, revenue from sale of software being in the nature of business income is not taxable under Article 7 of India - USA Double Taxation Avoidance Agreement ('DTAA') in the absence of a Permanent Establishment of the Appellant in India. 2.4 That on the facts and in the circumstances of the case and in law, Ld. DRP and Ld. AO erred in holding that revenue from sale of software is taxable as 'royalty' in India, which is contrary to the Supreme Court decision in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT (Civil Appeal 8733-8734 of 2018). 2.5 That on the facts and in the circumstances of the case and in law, Ld. DRP and Ld. AO erred in failing to appreciate that MRS is merely a distributor of software and income from sale of software cannot be taxed as 'royalty' in the hands of distributor. 2.6 Ld. DRP and Ld. AO erred in failing to appreciate that receipt of INR 44,17,46,478 is not taxable as 'Royalty' or 'otherwise' in the hands of Appellant, under the Income-tax Act, 1961 ('Act') or India-USA DTAA. 3. Taxability of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have failed to follow the ratio and principles of law in regard to the sale of software products not giving rise to royalty income as held by Hon'ble Delhi High Court in DIT vs. Infrasoft Ltd. (2014) 220 Taxman. 273. It was submitted that Hon'ble Supreme Court of India in its judgment dated 02.03.2021 in Engineering Analysis Centre of Excellence (P) Ltd. vs. Commissioner of Income Tax (2021) 125 taxmann.com 42 (SC) has upheld the Hon'ble Delhi High Court judgment. It was submitted that in the case of Gracemac Corporation which stands amalgamated with MOL Corporation for the assessment year 2005-06, 2006-07 and 2007-08 the Co-ordinate Bench B at Delhi by order dated 16.12.2020 has allowed the appeals which have been further upheld by Hon'ble Delhi High Court by judgment dated 07.03.2022. The Ld DR supported the findings of Tax authorities below. 6.1 Giving thoughtful consideration to the matter on record, the Bench is of considered opinion that the revenue has been following a persistent approach in regard to assessee and its sister assessee subsidiaries of MS Corp holding sale of MS Retail Software Products to Indian Distributors as royalty under the Act as well as under DTAA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding 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. 7.2 While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. (supra) where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services, the Bench in its order dated 25.03.2022 held as under : "28. Considering the facts of the case in totality, in light of the Master Subscription Agreement, we are of the conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
