The Tax Publishers2021 TaxPub(DT) 0387 (Pune-Trib)


Section 9(1) Article 12(3)

Where assessee, a non-resident company, not having any PE in India, sold its copy righted software licenses in India, whereby it did not transfer any right in respect of copyrighted article/computer but only the right to use the software was transferred, the receipts derived by assessee constituted its business income, and not income from royalty, therefore, the same was not liable to tax.

Income deemed to accrue or arise in India - Royalty - Assessee not having PE in India - Receipts from sales made through distributors/re-sellers, whether constitutes business income or royalty income

Assessee, a US resident, was selling its copyrighted software in India through its Indian arm and through distribution agreements entered into with distributors and retailers. It was the case of the revenue that this distribution brought forward royalty income on the sale of the software licences and thus subjected assessee to tax in India. On higher appeal, DRP upheld the views of the AO bereft the case of the assessee in earlier assessment years before ITAT which held that the said distribution was simply a sale of a product akin to a copyrighted article, thus, outside the scope of royalty. It was, however, canvassed by revenue that in the earlier years there was no distribution through distributors and retailers so the facts were different in the year of appeal. On higher appeal by the assessee. Held: The agreements with the distributors and retailers did not confer any use of licences or royalties and it was held to be sale of simple copyrighted article which was the software. So, there was no reason to read the verdict of the assessee's own decision of the earlier years just because the distribution network was done through distributors or retailers as the sum and substance of the agreement remained the same, viz. sale of a copyrighted article. Therefore, the income earned by the assessee from sale of software, either directly to the customers in India or through Distributors or Resellers constitute its business income, and not the Royalty income. As admittedly, the assessee did not have any Permanent Establishment in India, such income would not magnetize Indian taxation.


FAVOUR : In assessee's favour.

A.Y. : 2014-15



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