ACIT(International Taxation) Circle-1(2)(2), New Delhi V. Digital Route AB, Gurgaon

ITA 2905/DEL/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9547 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 24-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: D NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.2905/DEL/2018 ASSESSMENT YEAR: 2013-14 ACIT (INTERNATIONAL TAXATION) CIRCLE 1 (2) (2) NEW DELHI VS. DIGITAL ROUTE AB GURGAON C/O PWC & CO. BUILDING NO.10, 17 TH FLOOR, TOWER-C, DLF CYBER, GURGAON 122002 PAN NO. AAECD4628G (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDER DATED 31/01/2018 PASSED BY THE LD. COMMISSIONER OF APPELLANT BY SH. E. V. BHASKAR, SR. DR RESPONDENT B Y SH. K. M. GUPTA, ADVOCATE SH. MOHIT JAIN, CA DATE OF HEARING 28 .07.2021 DATE OF PRONOUNCEMENT 28 .07.2021 INCOME-TAX (APPEALS)-44, NEW DELHI [IN SHORT THE LD CIT(A)] FOR ASSESSMENT YEAR 2013-14, RAISING FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE B Y THE A.O AND IN HOLDING THAT THE REVENUE RECEIVED BY THE ASSESSEE FROM SUPPLY OF SOFTWARE IS NOT TAXABLE IN INDIA AS ROYALTY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D.CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD TRANSFER RED UNLIMITED, ASSIGNABLE, ENTERPRISE WIDE, WORDWIDE, PERPETUAL RIGHT AND LICENSE TO USE THE SOFTWARE. TH US THE PAYMENT IN LIEU OF SUCH TRANSFER WAS FULLY COVERED U/S 9(L)(VI) OF THE INCOME-TAX ACT, 1961 EXPLANATION 2 AND ARTICLE 12(3) OF DTAA. 3. THE APPELLANT CRAVES TO ADD, AMEND, MODIFY OR AL TER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TAX RESIDENT OF SWEDEN AND FILED ITS RETURN OF INCO ME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ON 31/03/2015 DECLARING TOTAL INCOME OF RS.3,68,95,442/-. THE RETUR N OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTIN Y ASSESSMENT AND STATUTORY NOTICES UNDER THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) WERE ISSUED AND COMPL IED WITH. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO SOFTWAR E LICENSE AGREEMENT WITH RELIANCE CORPORATE IT PARK LTD (I.E. CUSTOMER) FOR SUPPLY OF A STANDARD SOFTWARE APPLICATIONS AND PROVISION OF SERVICES THEREOF AND PURSUANT TO THIS AGREEMENT, THE ASSESSEE RECEIVED CONSIDERATION TOWARD SUPPLY OF SOFTWARE AMOUNTING TO RS.8,04,15,000/-AND TOWARDS TECHNICAL SERVICES AMOUNTING TO RS.3,68,95,442 /-. THE ASSESSEE OFFERED INCOME FROM SERVICES TO TAX AS FEE FOR TECHNICAL SERVICES, HOWEVER INCOME FROM SUPPLY OF SOFTWARE WAS NOT OFFERED TO TAX IN INDIA AS ACCORDING TO THE ASSESSEE, IN ABSENCE OF PERMANENT ESTABLISHMENT OF THE ASSESSEE SUCH INCOME WAS NOT TAXABLE IN INDIA. THE ASSESSING OFFICER HOWEVER WAS OF THE VIEW THAT RECEIP T TOWARD SUPPLY OF SOFTWARE WAS IN THE NATURE OF ROYALTY UNDER THE ACT (INDIAN INCOME-TAX) AS WELL AS UNDER DOU BLE TAX AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND SWEDEN. 3. THE LD. ASSESSING OFFICER REJECTED THE SUBMISSIO N OF THE ASSESSEE AND HELD THAT SUPPLY OF SOFTWARE WAS IN TH E NATURE OF ROYALTY BOTH UNDER THE INCOME-TAX ACT AS WE LL AS UNDER THE INDIA SWEDEN DTAA AND RAISED TAX AT THE RATE O F 10% UNDER ARTICLE 12 OF INDIA SWEDEN DTAA. ON FURTHER APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT, DELETED THE ADDITIONS OBSERVING AS UNDER: 5.7 IN THE INSTANT CASE, THE CUSTOMER ONLY HAD A N ON- EXCLUSIVE RIGHT AND IS NOT PERMITTED TO SUBLICENSE THE SOFTWARE EXCEPT FOR INTERNAL BUSINESS PURPOSES. THE APPELLANT CONTINUE TO BE THE SOLE AND EXCLUSIVE OWN ER OF THE RIGHTS TO SOFTWARE AND TO ITS SOURCE CODE, AND TO ALL INTELLECTUAL PROPERTY RIGHTS THERETO. IN VIEW OF TH E ABOVE DISCUSSION, IN ACCORDANCE WITH THE PRINCIPLE OF CON SISTENCY AND RESPECTFULLY FOLLOWING THE ORDER OF THE HONBLE DELHI HIGH COURT IN THE CASES REFERRED TO ABOVE, GROUNDS NO. 2-7 IS DECIDED IN FAVOUR OF THE APPELLANT. THE ADDITION MADE BY THE AO IS DELETED. 4. BEFORE US THE PARTIES APPEARED THROUGH VIDEO CONFERENCING FACILITY AND FILED ELECTRONICALLY DECISIO NS RELIED UPON. 5. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT ISS UE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P) LTD VS CIT REPORTED IN 432 ITR 471 (SC). THE LD. DR ALSO CONCEDED THAT ISSUE IN DISPUTE OF SUPPLY OF THE SOFT WARE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT. 6. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE. IN THE CASE, THE ISSUE IN DISPUT E IS WHETHER THE SUPPLY OF THE SOFTWARE BY THE ASSESSEE COMPANY IS TAXABLE AS ROYALTY UNDER THE DTAA BETWEEN TH E INDIA AND THE SWEDEN OR IT SHOULD BE A SALE SIMPLICITER , WHICH IS TAXABLE AS BUSINESS INCOME IF THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA. IN THE CASE THE ASSESSING OFFICER HAS TREATED THE SALE OF THE SOFTWARE AS ROYALTY TAXABLE IN INDIA. WE FIND THAT THE HONBLE SUPR EME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P) LTD (SUPRA) HAS HELD THAT THE AMOUNTS PAID BY THE RESIDENT INDIAN END-USERS/DISTRIBUTORS TO NO N- RESIDENT COMPUTER SOFTWARE MANUFACTURER/SUPPLIERS A S CONSIDERATION FOR RESALE/USE OF THE COMPUTER SOFTWA RE TO END-USER LICENSE AGREEMENT (EULA)/DISTRIBUTION AGREEMENTS IS NOT FOR PAYMENT OF THE ROYALTY FOR TH E USE OF COPYRIGHT IN THE COMPUTER SOFTWARE AND THAT SAME DOES NOT GIVE RISE TO ANY INCOME TAXABLE IN IN DIA. IN THE INSTANT CASE BEFORE US ALSO SOFTWARE LICENSE AGREEMENT BETWEEN THE ASSESSEE AND THE CUSTOMER WAS FOR USE OF THE SOFTWARE AND THEREFORE CORRESPONDING SUPPL Y OF THE SOFTWARE IS NOT IN THE NATURE OF THE ROYALTY TAXABL E IN INDIA AS PER DTAA BETWEEN INDIA AND THE SWEDEN. WE NOT E THAT THE LD. DR HAS ALSO FAIRLY CONCEDED THAT THE DISPU TE IS COVERED BY THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE CITED ABOVE. ACCORDINGLY, FOLLOWING THE DECI SION OF THE HONBLE SUPREME COURT (SUPRA), WE UPHOLD THE FIN DING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE. THE GROU NDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUN ORDER PRONOUN ORDER PRONOUN ORDER PRONOUNCED IN THE OPEN COURT. CED IN THE OPEN COURT. CED IN THE OPEN COURT. CED IN THE OPEN COURT. SD/- SD/- (KUL BHARAT) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 TH JULY, 2021 NEHA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI SL. NO. PARTICULARS DATE 1. DATE OF DICTATION : 28.07.2021 2. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFOR E THE DICTATING MEMBER: 28.07.2021 3. DATE ON WHICH THE DRAFT OF ORDER IS PLACED BEFOR E THE OTHER MEMBER: 28.07.2021 4. DATE ON WHICH THE APPROVED DRAFT OF ORDER COMES TO THE SR. PS/PS: 28.07.2021 5. DATE OF WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 28.07.2021 6. DATE ON WHICH THE FINAL ORDER RECEIVED AFTER HAV ING BEEN SINGED/PRONOUNCED BY THE MEMBERS: 28.07.2021 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON TH E WEBSITE OF ITAT: 28.07.2021 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9. DATE ON WHICH FILES GOES TO THE HEAD CLERK: 10. DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER: 11. DATE OF DISPATCH OF ORDER: