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| The Tax Publishers2020 TaxPub(DT) 4316 (Mum-Trib) INCOME TAX ACT, 1961
Section 90
Assessee based at Finland had only granted right to distribute software products and not any right to reproduce or make copies of software product, in the absence of vesting of any right of commercial exploitation of Intellectual property contained in copyrighted article with transferee, amounts received by assessee from its distributors was clearly in the nature of sales revenue and could not be held as 'royalty' in its hands.
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Double taxation relief - Agreement between India and Finland - Royalty under article 12 - Payments received by non-resident assessee from distributors towards sale of off-the shelf software
Assessee, based at Finland, was engaged in developing and marketing specialized off- the-shelf software products. It received payments from the distributors for sale of off-the shelf software. AO taxed the same as royalty. Held: Definition of royalty as per article 12 of the India-Finland DTAA envisages payments received as consideration for the use of, or the right to use certain specific works which could include intellectual properties (such as copyright, patents, etc., software provided by assessee to its distributors was for the purpose of resale/distribution to end user customers and there was no right to use copyright embedded in said copyrighted article (i.e., software products). Thus, as the assessee had only granted right to distribute software products and not any right to reproduce or make copies of software product. Accordingly, in the absence of vesting of any right of commercial exploitation of Intellectual property contained in copyrighted article with transferee, amounts received by assessee from its distributors was clearly in the nature of sales revenue and could not be held as 'royalty' in its hands.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2012-13
INCOME TAX ACT, 1961
Section 90
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