ATLASSIAN PTY LIMITED,BENGALURU V. DCIT, (INTERNATIONAL TAXATION), CIRCLE-1(1), BENGALURU

ITITA 363/BANG/2025

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The case involves Atlassian Pty Limited, a foreign company, appealing against the final assessment order by the Deputy Commissioner of Income Tax, which treated their software licensing receipts as royalty income taxable under the Income-tax Act and the India-Australia DTAA. The Tribunal examined whether the receipts from licensing software, which included non-exclusive, non-sublicensable, and non-transferable rights, constituted royalty. The Tribunal referenced previous rulings in similar cases, particularly the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd vs. CIT, which clarified that such receipts do not qualify as royalty if the license does not allow the licensee to exploit the copyright or take copies of the software.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 830569 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 21-01-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 25-02-2025
• Other Referred Cases: Engineering Analysis Centre of Excellence (P.) Ltd vs. Commissioner of Income-tax [432 ITR 471 (SC)]
• Laws Referred To: Income-tax Act, 1961, India - Australia Double Taxation Avoidance Agreement, Copyright Act, 1957
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOMNATH S UKKALI
• Assessee Lawyers: SURYANARAYANA
• Keywords: Set aside; Double taxation relief
• Section: 143(3); 142(1); 234B

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER IT(IT)A No. 363/Bang/2025 Assessment Year : 2022-23 M/s. Atlassian Pty Limited, Care of Atlassian India LLP, 3rd Floor, Sunriver, 11/1, 12/1, Embassy Golf Links Business Park, Domlur, Bengaluru – 560 071. PAN: AAPCA7076E Vs. The Deputy Commissioner of Income Tax, International Taxation, Circle – 1(1), Bangalore. APPELLANT RESPONDENT Assessee by : Shri Suryanarayana, Sr. Advocate Revenue by : Shri Somnath S Ukkali, CIT-DR Date of Hearing : 30-10-2025 Date of Pronouncement : 21-01-2026 ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER This is an appeal filed by the assessee challenging the final assessment order dated 24/12/2024 in respect of the A.Y. 2022-23 and raised the following grounds: “1. That the order dated 24 December 2024 issued under section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (\"the Act\") [DIN: ITBA/AST/S/143(3)/2024- 25/1071539442(1)] (hereinafter referred to as \"the impugned order\") passed by the Deputy Commissioner of Income Tax, Intl. Taxation Circle 1(1), BLR (\"Ld. AO\") is contrary to the facts of the case, the provisions of the Act, the India - Australia Double Taxation Avoidance Printed from counselvise.com Page 2 of 9 IT(IT)A No. 363/Bang/2025 Agreement (\"the DTAA\") and is therefore liable to be set aside. 2. That the Ld. AO/ Hon'ble Dispute Resolution Panel-1, Bangalore (\"DRP\") was not justified, and grossly erred in treating the receipts in the hands of the Appellant from licensing of software amounting to INR 271,64,19,250 as income in the form of 'Royalties' as defined in Article 12(3) of the DTAA, and consequently charging it to tax under Article 12(1) of the DTAA as well as the Act, in view of the following: (a) That the Ld. AO/ Hon'ble DRP erred in not appreciating the fact that the Appellant grants only non-exclusive, non- sublicensable and non-transferable license to its customers to use the software and therefore, there is no right to exploit the copyright in the software which is granted to customers. (b) That the Ld. AO/ Hon'ble DRP erred in considering granting of limited rights to modify its software under respective licensing agreement(s) as akin to providing access to customers of source code of the software. (c) That the Ld. AO/ Hon'ble DRP erred in concluding that the Appellant grants the copyright in the software in terms of section 14(a) and/ or 14(b) of the Copyright Act, 1957 to customers without appropriately appreciating the provisions of sectionl4(a) and/ or 14(b) of the Copyright Act, 1957 vis a vis the facts in the case of the Appellant. (d) That the Ld. AO/ Hon'ble DRP failed to appreciate that the present case of the Appellant is squarely covered by the order of the Hon'ble Income-tax Appellate Tribunal, Bengaluru in its own case for AY 2010-11 [IT(IT)A No.929/Bang/2019] and for AY 2021-22 [IT(ITA) No. 1138/ Bang/ 2023] as well as by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd vs. Commissioner of Income- tax [432 ITR 471 (SC)] and erred in holding that the facts are distinguishable on wholly untenable grounds. (e) That the Ld. AO/ Hon'ble DRP erred in disregarding a crucial principle of judicial discipline by not following the orders of the Hon'ble Income-tax Appellate Tribunal, Bengaluru in Appellant's own case for AY 2010-11 and AY 2021-22. 3. That the Ld. AO/ Hon'ble DRP failed to appreciate that the receipts not being in the nature of 'Royalties' and being Printed from counselvise.com Page 3 of 9 IT(IT)A No. 363/Bang/2025 subject to equalization levy in terms of the Finance Act, 2016, the income comprised therein, if any, is exempt from tax in India in terms of section 10(50) of the Act. 4. That the Ld. AO was not justified to levy interest amounting to INR 12,29,03,187 under section 234B of the Act. 5. That the Ld. AO erred in initiating proceedings under section 274 r.w.s. 270A of the Act relating to penalty. Each of the above ground of appeal is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend one or more of the above grounds of appeal at any time before or at the time of proceedings so as to enable the Hon'ble ITAT to decide these grounds according to facts and law.” 2. The brief facts of the case are that the assessee is a company engaged in the business of granting its customers a non-exclusive, non-sub- licensable & non-transferable license to use their software under an agreement entered with them. The assessee company is a foreign company and a resident of Australia. The assessee filed their original ITR on 18/10/2022 declaring a Nil income since the said receipts are not chargeable to tax in India. The case of the assessee was selected for complete scrutiny through CASS. Consequently, notice u/s. 142(1) was issued and during the assessment proceedings, the assessee had filed the copies of the software license agreement, cloud terms of service and reseller agreement. On going through the said documents, the AO concluded that the receipts are nothing but royalty and therefore proposed to add the said income as royalty. The assessee filed their further reply and relied on the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT reported in 432 ITR 471 and prayed not to levy tax on the receipts by treating the said receipts as royalty. The AO had arrived the said conclusion to treat the receipts as royalty for the reason that the assessee had parted with the source code and also on the basis of the confidentiality clause in the agreements, had treated the said receipts as Printed from counselvise.com Page 4 of 9 IT(IT)A No. 363/Bang/2025 royalty and therefore proposed to tax the said receipts as income as per section 9(1)(vi) of the Act and the respective DTAA with Australia. The AO also not accepted the plea that the issue is covered by the judgment of the Hon’ble Supreme Court and on that basis, the draft assessment order u/s. 144C(1) of the Act was made. The assessee filed their objections before the DRP on several grounds. The assessee also submitted before the DRP that this issue was covered by the decision of this Tribunal in the assessee’s own case for the A.Y. 2021-22 and prayed to allow the objections filed by the assessee. The Ld.DRP, instead of following the decision of the Tribunal in the assessee’s own case in respect of A.Y. 2021-22, had merely stated that a review application is pending before the Hon’ble Supreme Court against the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT reported in 432 ITR 471 and therefore the DRP had confirmed the draft assessment order and on that basis, directions were issued to the AO. The AO had also followed the said directions issued by the Ld.DRP and confirmed the addition under the head “Income from other sources” treating the receipts as royalty. 3. The assessee has filed this present appeal before this Tribunal challenging the said final assessment order dated 24/12/2024. 4. At the time of hearing, the Ld.Sr. Counsel submitted that the issue of taxability under the head royalty was decided by this Tribunal vide its order dated 25/08/2021 in IT(IT)A No. 929/Bang/2019 in respect of A.Y. 2010-11 and also in an order dated 28/02/2024 in IT(IT)A No. 1138/Bang/2023 in respect of the A.Y 2021-22 and submitted that the above said two orders considered the similar circumstances and therefore when there is no other different set of facts available before the AO, the receipts for giving the license could not be treated as royalty. The Ld.Sr. Counsel also submitted that this Tribunal had considered the principles laid down by the Hon’ble Supreme Court in its judgment reported in 432 ITR 471 in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT and rightly held that the receipts for giving the license would not be treated as royalty. The Printed from counselvise.com Page 5 of 9 IT(IT)A No. 363/Bang/2025 Ld.Sr. Counsel further submitted that the Ld.DRP had failed to appreciate the fact that the pendency of the review petition against the Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT judgment would not be a bar to decide the issue. The Ld.Sr. Counsel also filed the synopsis and also enclosed the order passed by the Hon’ble Supreme Court in the review application filed by the revenue against the Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT judgment in which the Hon’ble Supreme Court had dismissed the review application. The Ld.Sr. Counsel further submitted that another Special Leave Petition filed by the revenue in SLP(C)(Diary) No. 25154/2024 was also dismissed by the Hon’ble Supreme Court on 26/07/2024 by citing the dismissal order of the review petition filed by the revenue against the Engineering Analysis Centre of Excellence (P) Ltd judgement. The Ld.Sr. Counsel further submitted that again the revenue filed a review petition before the Hon’ble Supreme Court against the dismissal of the SLP in the case of Vodafone Idea Ltd. which was also dismissed by the Hon’ble Supreme Court vide its order dated 23/07/2025 in R.P. (Diary) No. 60886/2024. The Ld.Sr. Counsel also relied on the order of this Tribunal in IT(IT)A No. 1159/Bang/2023 dated 23/06/2025 for A.Y. 2021-22 in support of his submission that the assessee had not parted with their proprietary rights or has the access to its source code. The Ld.Sr. Counsel further submitted that in the above said order, this Tribunal had also held that the confidentiality clause in fact protects the rights of the corporate owner and does not give any further right to the user / distributor and therefore the AO cannot treat the payment received from licensing of software as royalty on the basis of the confidentiality clause. The Ld.Sr. Counsel also filed two volumes of paper books enclosing the various documents and submitted that the issue has already been covered and prayed to allow the appeal. 5. The Ld.DR relied on the order of the lower authorities and submitted that there is a confidentiality clause in the agreements and therefore necessarily the assessee has to be parted with the source code and therefore Printed from counselvise.com Page 6 of 9 IT(IT)A No. 363/Bang/2025 the receipt would be only treated as royalty and prayed to dismiss the appeal. 6. We have heard the arguments of both sides and perused the materials available on record. 7. As seen from the various documents furnished by the assessee, the assessee had granted only the license to use the software for which they received the charges but the AO had treated the said receipts as royalty in view of the fact that the agreements contains the confidentiality clause and therefore the source code is parted with and therefore the customers can make use of this software by using the said source code and they can make any number of copies of the original software and therefore the payments received by the assessee would be a royalty as per section 9(1)(vi) of the Act r.w. DTAA entered with Australia. On going through the various records submitted by the assessee, we find that the assessee had only granted the license to its customers for using the said software and for which the customers are paying amounts to the assessee company. Further, we have also considered the fact that the assessee had granted only non-exclusive, non-sub-licensable & non-transferable license to its customers to use the software and therefore there is no specific right granted to the customers to take copies of the said software to treat the said receipts as royalty. In order to treat the said receipts as royalty, it is essential that the customers would be allowed to take copies from the original software, otherwise it could not be treated as royalty. 8. Similar dispute was raised in respect of the A.Ys. 2010-11 and 2021- 22 and this Hon’ble Tribunal in its orders dated 25/08/2021 and 28/02/2024 in the assessee’s own case had held that the license fees received by the assessee would not be termed as royalty and therefore it should not be subjected to tax under the provisions of the Act. In coming to the above said conclusion, this Tribunal had relied on the judgment of the Printed from counselvise.com Page 7 of 9 IT(IT)A No. 363/Bang/2025 Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT reported in 432 ITR 471. 9. We have also perused the order of the Ld.DRP in which the Ld.DRP had observed that the department has filed a review petition against the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT and therefore not agreed to follow the earlier order of this Tribunal for A.Y. 2021-22 in IT(IT)A No. 1138/Bang/2023. 10. From the synopsis filed by the assessee, we find that the Hon’ble Supreme Court had affirmed the earlier judgment rendered by a Division Bench reported in 432 ITR 471 which shows that the judgement rendered in Engineering Analysis Centre of Excellence (P.) Ltd. was affirmed by the Hon’ble Supreme Court. We have also perused the dismissal order passed by the Hon’ble Supreme Court in SLP(Civil) (Diary) No. 25154/2024 dated 26/07/2024 in the case of Vodofone Idea Ltd in which the Hon’ble Supreme Court had relied on the rejection order passed by the Three member Judges in the review petition filed by the Revenue against the Engineering Analysis judgement. We have also gone through the order passed in the review petition filed by the Revenue against the dismissal of the Special Leave Petition in the case of Vodofone Idea Ltd in which the Hon’ble Supreme Court by an order dated 23/07/2025 had rejected the said review application. Therefore as on date, the judgment of the Hon’ble Supreme Court reported in 432 ITR 471 in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT has been affirmed by the Hon’ble Supreme Court by dismissing the review application filed by the revenue and also by dismissing the Special Leave Petition filed by the revenue against Vodofone Idea Ltd and also by dismissing the subsequent review application filed by the revenue. 11. We have also considered the order dated 23/06/2025 passed by this Tribunal in IT(IT)A No. 1159/Bang/2023 in which the similar issue was Printed from counselvise.com Page 8 of 9 IT(IT)A No. 363/Bang/2025 considered by this Tribunal and a detailed order has been passed by relying on the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT reported in 432 ITR 471. 12. We have also perused the earlier order of this Tribunal in assessee’s own case in IT(IT)A No. 1138/Bang/2023 dated 28/02/2024 in assessee’s own case for the A.Y. 2021-22 in which this Tribunal had followed the earlier order of the Coordinate Bench of this Tribunal in assessee’s own case and allowed the appeal filed by the assessee by holding that the license fees received by the assessee from its customers could not be treated as royalty. 13. By respectfully following the judgments of the Hon’ble Supreme Court as well as the orders of the Coordinate Bench of this Tribunal in assessee’s own case and also on the basis of the order of the another Coordinate Bench of this Tribunal dated 23/06/2025 in IT(IT)A No. 1159/Bang/2023, we are allowing the appeal filed by the assessee by holding that the license fees received by the assessee from its customers for using the software could not be treated as royalty and therefore the said receipts could not be subjected to tax under the provisions of the Act. 14. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 21st January, 2026. Sd/- Sd/- (PRASHANT MAHARISHI) (SOUNDARARAJAN K.) Vice President Judicial Member Bangalore, Dated, the 21st January, 2026. /MS / Printed from counselvise.com Page 9 of 9 IT(IT)A No. 363/Bang/2025 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order Assistant Registrar, ITAT, Bangalore Printed from counselvise.com "