TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether consideration received from sale of software products through an independent reseller in India was taxable as business profits under Article 7 of the India-Japan Double Taxation Avoidance Agreement; (ii) Whether such consideration constituted royalty or fee for technical services under Article 12 of the India-Japan Double Taxation Avoidance Agreement; (iii) Whether tax was required to be deducted at source on remittances made to the applicant for the software supplied on a non-exclusive, non-transferable basis.
Issue (i): Whether consideration received from sale of software products through an independent reseller in India was taxable as business profits under Article 7 of the India-Japan Double Taxation Avoidance Agreement.
Analysis: The payment was held to arise from the use of copyrighted software and not from a mere sale of goods. The Authority followed its earlier ruling that a user of software necessarily uses the copyright embedded in it, and that the character of the receipt depends on that use. Since the receipts were treated as royalty, the claim that they were business profits under Article 7 did not survive.
Conclusion: The amount received through the independent reseller was not business income covered by Article 7.
Issue (ii): Whether such consideration constituted royalty or fee for technical services under Article 12 of the India-Japan Double Taxation Avoidance Agreement.
Analysis: The Authority held that the licence granted to end users enabled use of copyrighted software and that payments made by the reseller and by the customer both partook of the character of royalty. The receipts for updates and maintenance were also treated as royalty. No separate basis was accepted for treating the amounts as business income.
Conclusion: The payments received from sale of software products through the independent reseller in India constituted royalty under Article 12.
Issue (iii): Whether tax was required to be deducted at source on remittances made to the applicant for the software supplied on a non-exclusive, non-transferable basis.
Analysis: Once the consideration was characterised as royalty, the remittances attracted the obligation to deduct tax at source while making payment to the applicant. The Authority therefore answered the withholding question consistently with its finding on the nature of the receipt.
Conclusion: Tax was required to be deducted by the customers while making remittances to the applicant.
Final Conclusion: The receipts from the software transactions were treated as royalty and not business profits, and the withholding obligation was upheld on that basis.
Ratio Decidendi: Payment for the use of copyrighted software, including through a reseller or direct customer remittance, is royalty and not business income.
TaxTMI 
