2017 (4) TMI 1504 - HC - Income Tax

High Court grants condonation of delay & exemptions in Income Tax appeals, rules in favor of Assessee on key issues.

Commissioner Of Income Tax (International Taxation) – 1 Versus ASPECT Software Inc.

The High Court allowed the condonation of delay in re-filing appeals and granted exemptions in appeals under Section 260A of the Income Tax Act. It ... Payment for supply of customized software - treated as “royalty” under Article 12(3) of the Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9(1)(vi) - Indo-China DTAA - HELD THAT:- As decided in ERICSSON AB & ERICSSON RADIO SYSTEM AB & METAPATH SOFTWARE INTERNATIONAL LTD. [2011 (12) TMI 91 - DELHI HIGH COURT] consideration received by the Assessee for supply of product along with license of software to End user is not royalty under Article 12 of the Tax Treaty. Even where the software is separately licensed without supply of hardware to the end users (i.e. eight out of 63 customers), we are of the view that the terms. of license agreement is similar to the facts of Infrasoft Ltd' [2013 (11) TMI 1382 - DELHI HIGH COURT]. Accordingly, we hold that there was no transfer of any right in respect of copyright by the Assessee and it was a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article. Hence, the payment for the same is not in the nature of royalty under Article 12 of the Tax Treaty. The receipts would constitute business receipts in the hands of the Assessee and is to be assessed as business income subject to assessee having business connection/PE in India - This Court having reiterated the legal position in Commissioner of Income Tax, International Taxation -2 v. ZTE Corporation [2017 (1) TMI 1338 - DELHI HIGH COURT] - Decided in favour of assessee. Interpretation of Section 234B - HELD THAT:- Question has been answered in favour of the Assessee and against the Revenue following the decision in Director of Income Tax v. GE Packaged Power Inc. [2017 (1) TMI 1338 - DELHI HIGH COURT] - Decided in favour of the Assessee. Issues Involved:1. Condonation of delay in re-filing appeals.2. Exemption applications in appeals.3. Appeals under Section 260A of the Income Tax Act, 1961.4. Interpretation of 'royalty' under the Indo-US Double Taxation Avoidance Agreement.5. Interpretation of Section 234B of the Income Tax Act, 1961.Analysis:1. Condonation of Delay:The High Court allowed the applications for condonation of delay in re-filing the appeals, thereby addressing the issue of delay in the legal process.2. Exemption Applications:The Court granted exemptions in the appeals subject to just exceptions, ensuring fairness in the proceedings.3. Appeals under Section 260A:The appeals were filed by the Revenue against the orders of the Income Tax Appellate Tribunal for various Assessment Years. The Court admitted the appeals and framed questions of law for consideration related to the nature of transactions and interpretations of relevant tax provisions.4. Interpretation of 'Royalty':The main issue revolved around whether the payment for the supply of customized software constituted 'royalty' under the Indo-US Double Taxation Avoidance Agreement. The Court referred to previous judgments and held that the consideration for the software supply did not amount to royalty but was a purchase price for a copyrighted article. The Court relied on precedents and concluded in favor of the Assessee, stating that the impugned order suffered from no legal infirmity.5. Interpretation of Section 234B:The Court addressed the interpretation of Section 234B of the Income Tax Act, 1961, in light of previous decisions. Following precedents, the Court ruled in favor of the Assessee against the Revenue, dismissing the appeals without costs.In conclusion, the High Court's judgment delved into various legal aspects, including the nature of transactions, tax treaty interpretations, and statutory provisions. The Court's detailed analysis and reliance on precedents ensured a fair and just resolution of the appeals, ultimately deciding in favor of the Assessee on both key issues presented before it.