The Supreme Court has dismissed the Special Leave Petition (SLP) filed by the Commissioner Of Income Tax (International Taxation) challenging the non-taxability of payment received for providing access to computer software to member firms.
The bench of Justice B.R. Gavai and Justice K.V. Viswanathan upheld the Delhi High Court’s ruling in which it was held that licensing of software products of Microsoft in the Territory of India by the respondent-assessee was not taxable in India as Royalty under Section 9(1)(vi) of the Income Tax Act read with Article 12 of the Indo-US Double Tax Avoidance Agreement (DTAA).
Background
The appellant-department has filed the appeal against the order of the Income Tax Appellate Tribunal (ITAT).
The department contended that ITAT has erred in holding that licensing of software products of Microsoft in the Territory of India by the Respondent was not taxable in India as Royalty under Section 9(1)(vi) of the Act read with Article 12 of the Indo US DTAA.
The department contended that the Tribunal has failed to appreciate that the distribution model in the case of the respondent assessee involved making of multiple copies of the software clearly indicating transfer of copyright.
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The Delhi High Court relied on the dicison of Supreme Court in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr. in which it was held that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act.
The Delhi High Court ruled in favour of the assessee and against the department.
Case Title: Commissioner Of Income Tax (International Taxation)-2 Versus Gracemac Corporation
Case No.: Special Leave Petition (Civil) Diary No(S). 3081/2023
Date: 13/09/2024
Counsel For Petitioner: N Venkatraman
Counsel For Respondent: Nageswar Rao