DY CIT (INT TAX) 4(1)(2) MUMBAI, MUMBAI V. TRANS UNION LLC, USA

ITA 1474/MUM/2025

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The case involves the Income Tax Department's appeal against Trans Union LLC, a non-resident corporate entity, concerning the taxability of receipts from the supply of software licenses and related services under the India-USA Double Taxation Avoidance Agreement (DTAA). The core issue was whether these receipts qualify as 'royalty' and thus taxable in India. The Assessing Officer initially treated these receipts as royalty, referencing the provisions under section 9(1)(vi) of the Income Tax Act and the treaty. However, the First Appellate Authority reversed this decision, citing the Supreme Court's precedent in Engineering Analysis Centre of Excellence Private Limited, which found similar transactions not to be royalty. The Tribunal upheld the First Appellate Authority's decision, dismissing the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772305 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2021-2022
• Other Referred Cases: Engineering Analysis Centre of Excellence Private Limited vs. CIT & Anr. [2021] 432 ITR 471 (SC), Tata Consultancy Services Ltd. vs DCIT [2023] 154 taxmann.com 372 (Mumbai Trib.)
• Laws Referred To: India-USA Double Taxation Avoidance Agreement (DTAA), Indian Copyright Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAN VORA; NIKHIL TIWARI
• Assessee Lawyers: KRISHNA KUMAR
• Keywords: Double taxation relief

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP AND SHRI GIRISH AGRAWAL, AM ITA Nos. 1473 to 1475/Mum/2025 (Assessment Years: 2020-21 to 2022-23) Dy. CIT(International Taxation)- 4(1)(2) Room No. 625, 6th Floor, Kautilya Bhavan, BKC, G Block, Mumbai-400 051 Vs. Trans Union LLC 555 West Adams Street Chicago, USA-606 610 PAN/GIR No. AADCT 5588 L (Appellant) : (Respondent) Appellant by : Shri Rajan Vora & Shri Nikhil Tiwari Respondent by : Shri Krishna Kumar Date of Hearing : 13.08.2025 Date of Pronouncement : 25.08.2025 O R D E R Per Saktijit Dey, VP: The captioned appeals by the Revenue arises out of separate orders of learned Commissioner of Income Tax (Appeals), Mumbai (‘ld.CIT(A) for short), pertaining to assessment years (A.Ys.) 2020-21, 2021-22 and 2022-23. 2. The common issue arising in all these appeals is - whether the amounts received by the assessee from supply of software licenses and related services would qualify as ‘royalty’ and can be made taxable under the provisions of India-USA Double Taxation Avoidance Agreement (DTAA). 3. Briefly stated, the facts are, the assessee is a non-resident corporate entity incorporated in United States America (‘USA’) and tax resident of that country. As stated, Printed from counselvise.com 2 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC the assessee is part of a group engaged in the business of providing credit information and information management services. Further, it provides data/insights and information to help consumers and businesses make informed decisions. In the assessment years under dispute, the assessee had following receipts: Sr. No. Nature of Software Receipts during the year (in INR) A.Y. 2020-21 AY 2021-22 AY 2022-23 1 iCRS platform 12,29,22,049 11,27,92,214 14,40,09,951 2 Adviser platform 2,08,15,772 1,84,83,575 2,55,24,264 3 Decision center 12,41,91,624 6,22,60,284 - Total 26,79,29,445 19,35,36,073 16,95,34,215 4. In the return of income filed for A.Y. 2020-21, the assessee not being clear on the legal position on taxability of these receipts initially offered them as income in the return of income. However, in course of assessment proceeding, based on the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT & Anr. [2021] 432 ITR 471 (SC), the assessee made a revised claim that the receipts are not taxable as royalty in India in terms with India-USA DTAA. However, insofar as A.Ys. 2020-21 and 2022-23 are concerned, the assessee took the stand that the receipts are not taxable. 5. In course of assessment proceedings, the Assessing Officer (AO) called upon the assessee to justify its claim that the receipts are not in the nature of royalty, hence, not taxable in India. In response, the assessee filed detailed submissions to justify its claim. However, the A.O. was not convinced and he proceeded to treat the receipts as royalty both u/s. 9(1)(vi) as well as under the treaty provisions. While doing so, he also commented that the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra) would not cover the transactions under consideration. Further, he observed that since the Revenue has preferred review petition Printed from counselvise.com 3 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC against the aforesaid judgement of the Hon'ble Supreme Court, the issue has not reached finality. Hence, the receipts have to be made taxable in India. 6. Against such decision of the A.O., the assessee preferred appeals before learned First Appellate Authority. 7. After considering the submissions of the assessee in the context of the facts and materials on record, learned First Appellate Authority, having found that as per End-User License Agreement (EULA), the software licenses supplied by the assessee to customers in India are nothing but sale of computer software simpliciter, hence, not in the nature of royalty under the India-USA DTAA. Accordingly, following the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra), learned First Appellate Authority held that the receipts are not taxable as royalty under India-USA DTAA. Hence, he deleted the additions. 8. We have considered rival submissions and perused the materials available on record. The short issue arising for consideration is whether the receipts from supply of End- User Licenses to Indian customers are taxable as royalty under Article 12(3) of the India- USA DTAA. As could be seen from a reading of the assessment order, though, the A.O. has made an attempt to establish that the ratio laid down by the Hon'ble Supreme Court would not apply to facts of assessee’s case, however, he has miserably failed to do so. In fact, though, the assessee is a resident of USA and covered under India-USA DTAA, the A.O. has referred to the provisions of India-Singapore DTAA, which is not at all applicable. This shows non-application of mind by the A.O. Printed from counselvise.com 4 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC 9. Be that as it may, while deciding the issue, in the lead assessment year, i.e., A.Y. 2020-21, learned First Appellate Authority has held the receipts to be not in the nature of royalty under Article 12(3) of India-USA DTAA on the following reasoning: 6. Findings and Decision: 6.1 On a careful reading of the above submissions of the Appellant, the broad arguments of the Appellant can be categorized as follows: • The receipts earned by the Appellant from the software licenses are not chargeable to tax as 'royalty' as per the provisions of the India-USA DTAA • The nature of software licenses and rights granted by the Appellant as squarely covered factually by the Hon'ble Supreme Court's decision in its decision of Engineering Analysis (supra) • The AO has mis-interpreted the clauses of the license agreement and has arrived at erroneous conclusions • Each and every contention raised by the AO is bad in law and facts - as specifically rebutted by the Appellant I have gone through the detailed submissions filed by the Appellant along with the relevant factual set of documents filed by the Appellant before me. On perusal of the above submissions by the Appellant, I have set out my analysis and decision as follows: Applicability of the decision of the Hon'ble Apex Court in Engineering Analysis (supra): 6.2 The AO's main contention is that the case of the Appellant does not contain the same facts as analyzed by the Hon'ble Apex Court in Engineering Analysis (supra). This in my opinion is not a correct statement made by the AO. 6.3 It is seen that the Apex Court has analyzed four categories of software licenses. and I opine that the case of the Appellant clearly falls under Category 1 as covered by the Hon'ble Supreme Court (i.e., Computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer). Therefore, the AO is not correct in stating that only category 4 (i.e., software embedded in hardware) is the only category analyzed by the Apex Court. 6.4 Further, the Appellant in its submissions has drawn out a comparison on the facts of its case vis-à-vis the decision of the Apex Court in Engineering Analysis (supra). A summary of the same is captured below for easy reference. 6.5 In fact, the Appellant has brought out a comparison of the Apex Court's decision for each of the license agreements in the Appellant's case. For sake of brevity, I have captured the summary of the characteristics of the agreements in the Appellant's case vis-à-vis the Apex Court's decision: Printed from counselvise.com 5 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC Relevant terms of the agreement As per Engineering Analysis Centre of Excellence Private Limited iCRS software platform Adviser platform Decision center platform Terms of the license what is granted to TU the distributor only exclusive, transferable license to computer software TU CIBIL accepts non- transferable, exclusive right and license in India to use the Software in Object Code form only during the term of the agreement Clause 2.1 of the agreement TU CIBIL accepts non- transferable, exclusive right and license in India to use the Software in Object Code form only during the term of the agreement Clause 2.1 of the agreement The licensee accepts, a non- transferable, non-exclusive right and license to use within India, the licensed materials during the term of this agreement Clause 2.1 of the agreement Rights and ownership expressly stipulated that no copyright in the computer program TU CIBIL shall not acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights through this license Clause 2.3 of the agreement TU CIBIL shall not acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights in or to the licensed materials Clause 2.3 of the agreement TU CIBIL shall not acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights in or to the licensed materials Clause 2.3 of the agreement Nature extent rights granted Indian Co There is no further right to sub-license or transfer, nor is there any right to reverse- engineer, modify, reproduce in any manner otherwise than permitted by the license to the end-user TU CIBIL promises and agrees not to copy, distribute, transfer (by any means), display, sublicense, rent, reverse-engineer, decompile, or disassemble the Software or any part thereof, without the prior written consent of the Company Clause 2.2 of the agreement TU CIBIL promises and agrees not to copy, distribute, transfer (by any means), display, sublicense, rent, reverse- engineer, decompile, or disassemble the Software or any part thereof, without the prior written consent of the Company Clause 2.2 of the agreement The licensee promises and agrees not to copy, distribute, transfer (by any means), display, sublicense, rent, reverse- engineer, decompile, or disassemble the Software or any part thereof, without the prior written consent of the Company Clause 2.2 of the agreement Printed from counselvise.com 6 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC 6.6 I do find merit in the above comparison drawn by the Appellant to state that the facts as analyzed by the Apex Court is similar to that of the Appellant. This is seen from the relevant clauses of the license agreements of ICRS, Adviser and Decision center platform as furnished by the Appellant in its factual paper book of documents. Therefore, I am of the considered view that the Hon'ble Apex Court's decision is squarely applicable to the Appellant's case. 6.7 Granting of modification rights by the Appellant The AO has also raised some contentions in the assessment order that the Appellant has parted with modification/ adaptation rights to the respective licensees and therefore the Appellant has parted with the rights as contained in section 14(a) and section 14(b) of the Indian Copyright Act. I disagree with the argument of the AO that the Appellant has provided modification rights to the licensees. I base my conclusion on the following inferences: 6.8 At the outset, the Apex Court has held that there must be a transfer by way of license or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act 6.9 Further, the Apex Court has held that section 52 of the Copyright Act provides that making a copy of the software for utilization as well as a backup copy for temporary protection by the lawful possessor would not constitute infringement of copyright. 6.10 From a combined reading of section 14(a), 14(b) and 52(aa) of the Copyright Act, it is seen that merely because an adaptation of the software happens, it cannot amount to an infringement of the software license and therefore can never be said that copyright is provided by the licensor to the licensee. 6.11 Further, basis a reading of all the license agreements submitted by the Appellant the following commonalities arise (extracts of one agreement [Adviser] captured for brevity): • The licensee shall not acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights through this license 2.3. Except solely as explicitly set forth in this Agreement or to the extent otherwise required for a party's performance under this Agreement, nothing in this Agreement shall be construed, by implication or otherwise, to grant any other right or license to a party under any patent, Invention, copyright, or any other intellectual property right, now or hereafter owned, controlled by, or licensed to, the other party. Except solely as explicitly set forth in this Agreement, TransUnion CIBIL has not, and shall not, through this Agreement or otherwise, acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights in or to the Licensed Materials. Moreover, except for the express limited rights of usage granted to TransUnion CIBIL above, the entire right, title and interest in and to the Licensed Materials shall remain vested in Trans Union. • The licensee promises and agrees not to copy, distribute, transfer (by any means), display, sublicense, rent, reverse-engineer, decompile, or disassemble the Software or any part thereof, without the prior written consent of the Company 2.2 TransUnion CIBIL shall not copy (other than for back-up purposes), distribute, transfer (by any means), display. sublicense, rent, reverse-engineer, decompile, or disassemble the License Materials nor any part thereof, without the prior, written consent of Trans Union. The License does not include any rights to Third Party Software, unless Printed from counselvise.com 7 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC TransUnion explicitly otherwise grants such rights to Trans Union CIBIL in a written amendment that expressly sets forth the terms of any such license to Third Party Software. • The Source code is not granted access to the licensee 2.6 Trans Union is not required to deliver to Trans Union CIBIL the Source Code for the Trans Union Adviser Platform. 6.12 It would seem that the very wording/ language of the above clauses clearly evidence that the Appellant has not parted with any rights and the licensee cannot modify/ transfer/ sublicense/ reverse-engineer/ decompile/ disassemble. Further, it is also clearly stated that the copyright of the software is not acquired by the licensee through this agreement. 6.13 Further, the last few lines of the clause so relied by the AO states the following: .... Upon the mutual, written agreement of Licensor and Licensee, during the term of this Agreement, Licensor shall develop Modifications of the Software beyond those described in the immediately preceding sentence, as may be requested by the Licensee\" (emphasis supplied) Therefore, on a plain reading, it is seen that it is the licensor (Appellant) who has the right to modify the software being the legal and economic owner of the license. 6.14 Therefore, whenever a change in the software is required, the licensee can only request the licensor to do such modification and it is the licensor being the sole owner of the copyright/ Source Code be in a position to do such modification. Hence, modification undertaken by a licensor on a software owned by the licensor can in no way amount to a transfer of rights in a copyright to the licensee and the learned AO's reasoning fails in this regard. Merely because the modification as a word is included on a conservative basis to cover all types of situations and eventualities, it cannot be said that explicitly the licensee possesses the right to modify the software. This is affirmed by the Apex Court as well in its decision (in Paragraph No. 38 and 117). 6.15 Similarly the jurisdictional Mumbai Tribunal in the case of Tata Consultancy Services Ltd. vs DCIT [2023] 154 taxmann.com 372 (Mumbai Trib.) has held that the same shall not amount to copyright infringement and therefore not be liable to tax as royalty. Basis the above discussions, reading of the agreements and on perusal of the relevant paragraphs in the Apex Court's decision, I am of the view that the right to modify the software is not granted to the licensee and since the licensee is specifically restricted from making copies/ reproduce the license etc, it cannot be said that an infringement under the provisions of section 52(aa) of the Copyright Act occurs. Therefore, I do not concur with the conclusion reached by the AO on account of modification rights in the license agreements 6.16 I have also gone through the other contentions of the AO and have summarized the same along with my inference: Printed from counselvise.com 8 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC Contention raised by the AO Decision The agreements submitted by the Appellant are related party agreements and cannot be taken at face value (Page No. 5, Para No. 6.4 of the assessment order) I agree to the submissions made by the Appellant (as per Point No. 56 to 60 of the written submission of the Appellant) and disagree to the AO's contentions The license agreement for CRS mentions that it is an 'exclusive right and not an agreement with a ' exclusive right as analyzed by the Hon'ble Supreme Court Page No. 13, Para No. 8 of the assessment order passed for AY 2021- 22-1.e., subsequent AY I agree to the submissions made by the Appellant (as per Point No. 61 to non-70 of the written submission of the Appellant) and disagree to the AO's contentions The Apex Court's decision applies only to cases where software is embedded onto a hardware (like CD etc) and not a case as per the Appellant's case (Page No. 5, 6, Para No. 6.5 of the assessment order) Already opined in the Appellant's favor above in analyzing the Apex Court's decision to the Appellant's case The agreements show that the Appellant has parted with the rights as contained in section 14(a) and section 14(b) of the Indian Copyright Act and hence the licensee has the right to adapt/ modify the software as per the license agreements (Page No. 7. Para No. 6.8 of the assessment order) Already opined in the Appellant's favor above The iCRS agreement shows that it is not licensing of any off the shelf software but rather is towards development of customized software for TU CIBIL (i.e., the licensee) based upon ICRS Platform which is not covered under the Apex Court's decision (Page No. 10, 11, Para No. 7 of the assessment order passed for AY 2021-22-i.e., subsequent AY) I agree to the submissions made by the Appellant (as per Point No. 99 to 106 of the written submission of the Appellant) and disagree to the AO's contentions The agreements contain references to maintenance and support services and therefore, it not an off the software as covered by the Court's decision. Further, payment towards usage of portal as in the Appellant's case is not covered by the Apex Court's decision (Page No. 7. Para No. 6.8 of the assessment order) I agree to the submissions made by the Appellant (as per Point No. 107 to 129 of the written submission of the Appellant) and disagree to the AO's contentions The judgment of the Apex Court by agree to the submissions made by placing reliance on Singapore DTAA will not apply to USA DTAA and certain observations of the Court is not factually correct and the Revenue has preferred a Review Petition before the Apex Court (Page No. 13, Para No.7.2 of the assessment order) I agree to the submissions made by the Appellant (as per Point No. 130 to 133 of the written submission of the Appellant) and disagree to the AO's contentions Basis the above, given that the Apex Court's decision in Engineering Analysis (supra) applies to the Appellant's case, and further given that the Appellant is a tax resident of USA and therefore eligible to invoke the favorable provisions of the India-USA DTAA, I hold the following: Printed from counselvise.com 9 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC • The receipts earned by the Appellant from the software licenses are not chargeable to tax as 'royalty' as per the provisions of the India-USA DTAA • The nature of software licenses and rights granted by the Appellant as squarely covered factually by the Hon'ble Supreme Court's decision in its decision of Engineering Analysis (supra) Accordingly, the grounds of the Appellant in Ground No. 1 to 5 are allowed in favour of the Appellant in its entirety. 10. As could be seen from the aforesaid observations of learned First Appellate Authority, after analyzing the terms of EULA, the treaty provisions and other relevant facts and materials on record, he has recorded a categorical factual finding that what the assessee has supplied to the Indian customers is only software license and related services without transfer of any copy right. Referring to the terms of the license agreement, learned First Appellate Authority has observed that the licensee does not acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights through this licenses. The terms of the agreement further provide that the licensee agrees not to copy, distribute, transfer (by any means,) display, sublicense, rent, reverse-engineer, decompile, or disassemble the licensed materials or any part thereof, without the prior written consent of the company. Even, the license agreement is clear in its term that the source code access is not granted to the licensee. The allegation of the A.O. that the licensee has been granted modification right has also been answered by learned First Appellate Authority by stating that in terms with section 14(a) and section 14(b) of the Indian Copyright Act, there must be a transfer by way of license or otherwise of all rights mentioned in section 14(a) and section 14(b) of the Indian Copyright Act. He has also referred to section 52 of the Copyright Act which provides for making copy of the software for internal utilization as well as temporary backup protection in which event it would not constitute infringement of copyright. Printed from counselvise.com 10 ITA Nos. 1473 to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC 11. From the observations of learned First Appellate Authority, it can be seen that he has examined in detail each of the points raised by the A.O. and has rebutted them with cogent reasoning to establish that the issue is squarely covered by the ratio laid down by the Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Private Limited (supra). No material has been brought on record by the department to demonstrate that while providing the software licenses to the end users, the assessee has transferred the copyright as well. Therefore, in our considered opinion, the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra) squarely applies to the facts of the present case. Though, the A.O. was conscious about this position, however, he has made a futile attempt to bring the receipts to tax, which is otherwise not taxable. In view of the aforesaid, we do not intend to interfere with the well-reasoned order of learned First Appellate Authority. 12. In the result, the appeals by the Revenue are dismissed. Order pronounced in the open court on 25.08.2025 Sd/- Sd/- (Girish Agrawal) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 25.08.2025 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "