Payments for data services involving software rights constitute royalty under section 9(1)(vi), taxable at 10% under section 115A(1)(b)(A).

ITAT Chennai held that payments received by assessee for providing data services to Indian company constituted royalty under section 9(1)(vi) as it involved transfer of right to use computer software. The assessee developed cloud database enabling customers to structure product data, and under agreement with Indian company, provided licensed data services for shopping application development. The tribunal found services fell under royalty definition involving transfer of rights to use computer software. CIT(A)'s direction to tax at 20% under section 206AA was set aside. ITAT directed AO to assess royalty income under section 115A(1)(b)(A) at 10% tax rate and verify Form 26AS for tax credit. Appeal allowed.

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Issues:
The judgment involves the assessment of royalty income received by the appellant from a company and the correct tax rate applicable to the income.

Assessment of Royalty Income:
The appellant, a Non-Resident company, filed its return of income for AY 2018-19, declaring total income and offering it to tax at 10% as per Sec. 115A(1)(b)(A) of the Act. The assessing officer processed the return without considering tax credit for TDS. The CIT(A) directed the AO to verify Form No.26AS and give credit for taxes. The CIT(A) held that the sum received by the appellant is taxable at 20% as deducted by the Indian payee, as the nature of income was not proven to be royalty. The appellant contended that the sum received was royalty income as per Sec. 9(1)(vi) of the Act, for the right to use computer software, supported by an agreement with the company. The Tribunal found that the services provided by the appellant to the Indian company fell under the definition of royalty as per Sec. 9(1)(vi) of the Act, and directed the AO to assess the royalty income at 10% as per Sec. 115A(1)(b)(A) and provide tax credit accordingly.

Tax Rate Applicability:
The appellant argued that the income received should be taxed at 10% as per Sec. 115A(1)(b)(A) of the Act, while the CIT(A) taxed it at 20% due to lack of evidence proving the nature of the income. The Tribunal, after considering the agreement between the parties and the nature of services provided, concluded that the income was indeed royalty, falling under the definition of Sec. 9(1)(vi) of the Act. Therefore, the Tribunal directed the AO to assess the royalty income at 10% as per Sec. 115A(1)(b)(A) and provide the appropriate tax credit.

Conclusion:
The Tribunal allowed the appeal filed by the appellant, setting aside the order of the CIT(A) and directing the AO to assess the royalty income received from the Indian company as per Sec. 115A(1)(b)(A) of the Act at a tax rate of 10%. The AO was also instructed to verify Form No.26AS and provide credit for the taxes deducted.

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