The Income Tax Appellate Tribunal (ITAT), Pune bench held that the income generated from the selling of software license could not be categorised as royalty considering the provisions of the Income Tax Act, 1961.
The Assessing Officer, while finalizing the assessment proceedings carried against the assessee, observed that Rs.86,05,13,407/- was accepted by the assessee towards income from the selling of the software license. As per his sense, it is an income in the form (nature) of ‘Royalty and consequently chargeable to tax as per the concerned provisions of the Income Tax Act, 1961.
Meanwhile ruling in the favour of the assessee after taking into account the precedents and the decisions of the Tribunal in the past years, Accountant Member R.S Syal and Judicial Member Partha Sarathi Chaudhari finally held that the receipt of the Software license amounting to Rs.86,05,13,407/- could not be charged to the heading of tax as Royalties under the DTAA.
“In the same manner, the amount will escape taxation as ‘Business profits’ under Article 7 also because of it not having any PE in India. Albeit Explanation 4 to section 9(1)(vi) is applicable to the year under consideration, but section 90(2) of the Act states that where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1), then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”
“In other words, the provisions of the Act or the DTAA, whichever are more beneficial to the assessee would apply. Coming back to the factual panorama, we find that the provision of the DTAA, being more beneficial than that of the Act would apply to make the receipt from the sale of software license as not chargeable to tax in India, the Tribunal said.”
