Appeal Allowed: Software Sales Income Not Royalty

The Tribunal allowed the appeal in favor of the appellant, ruling that income from software sales and associated support services should not be treated as royalty or fees for technical services. The AO's order was set aside, and the addition made to the appellant's income was deleted based on legal principles and precedents cited, including a Supreme Court judgment clarifying the tax treatment of such transactions.

---

---

Issues involved:
The appeal challenges the final assessment order passed by the ITO, Ward 1(1), International Taxation, Bangalore for the assessment year 2019-20 regarding the treatment of income from the sale of standard software and ancillary support services.

Assessment of Income:
The appellant, a company incorporated in the UK, filed a revised return admitting a total income of NIL and claimed a refund. The original return disclosed income from the sale of standard software to an Indian group company, with TDS deducted. The appellant claimed this income as not chargeable to tax in India under specific sections, citing a Supreme Court decision.

AO's Determination:
The AO treated 50% of the amount received as income in the hands of the appellant for technical services, considering it not only as payment for software but also for additional services like distribution, technical support, and customer services. The DRP upheld this view, directing the AO to adopt a break-up figure for TDS purposes due to the lack of a specific breakdown provided by the appellant.

Appellant's Arguments:
The appellant contended that the consideration for ancillary support services was integral to the sale of software products and should not be separately taxed as fees for technical services. They relied on various decisions, including a Supreme Court ruling, to support their position.

Tribunal's Decision:
The Tribunal noted a similar issue previously decided in favor of the appellant by a coordinate bench and referenced the Supreme Court's judgment, which clarified the tax treatment of software sales and ancillary services. Following these precedents, the Tribunal held that the receipts from software licenses and related support services should not be assessed as royalty or FTS income. Consequently, the AO's order was set aside, and the addition made was deleted.

Conclusion:
Based on the applicable legal principles and precedents, the Tribunal allowed the appeal in favor of the appellant, emphasizing that the income from software sales and associated support services should not be treated as royalty or fees for technical services.

---