INCOME TAX ACT, 1961

Section 90

Double taxation relief - DTAA between India and Singapore - Royalty under article 12(3) - Consideration received towards licensing software to Indian customers—Applicability of Explanation 4 to section 9(1)(vi)

Assessee based at Singapore received consideration from sale of software license. AO taxed the same as royalty under section 9(1)(vi). Held: Impugned transaction merely involved supply of the products on a license basis and not grant of rights (including any rights towards the copyright) in software/computer programme embedded within the product. Further, assessee licensing its software to its customers, did not 'make-available' any process to customers, who, in turn, used the process while carrying out their business. Accordingly, payments received on supply of software to end users or through the distributor did not fall within the definition of “Royalty” under Article 12(3) of DTAA between India and Singapore. Though Explanation 4 was added to section 9(1)(vi) by the Finance Act, 2012 with retrospective effect from 1-6-1976 to provide that all consideration for use of software would be assessable as “Royalty”. However, definition in the DTAA has been left unchanged and since provisions of DTAA were beneficial to assessee, then said provisions were to be applied and accordingly, consideration received by assessee on sale of copyrighted license was not taxable in the hands of assessee.

Relied:Director of Income Tax v. Infrasoft Ltd. (2014) 264 CTR (Del) 329 : 2014 TaxPub(DT) 0079 (Del-HC), Director of Income Tax v. Nokia Networks OY (2013) 358 ITR 259 (Del) : 2012 TaxPub(DT) 3208 (Del-HC), Nagravision S.A., C/o-Ernst & Young LLP v. The ACIT (International Taxation), Circle-2 (2) (2), 2020 TaxPub(DT) 2999 (Del-Trib) and Symantec Corporation, Pune v. Dy. CIT [ITA No.387/PUN/2017, dt. 5-4-2019]

REFERRED :

FAVOUR : In the assessee's favour.

A.Y. : 2013-14

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