2024 (4) TMI 584 - AT - Income Tax

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

M/s. INDIX Corporation, C/o S. Venkatram & Co LLP. Versus The Income Tax Officer (International Taxation), Ward-2 (1), Chennai.

ITAT Chennai held that payments received by assessee for providing data services to Indian company constituted royalty under section 9(1)(vi) as it ... Royalty receipt - transfer of right to use a computer software - taxation @ 10% as per 115A(1)(b)(A) or @ 20% as per section 206AA - HELD THAT:- Assessee has developed a data base cloud Indix which enable the customers to structure crawled product data and a data-as-a-service business model for most consumer retail product categories. As per agreement between the assessee and M/s.Samsung R&D Institute India Bangalore Pvt. Ltd., the assessee had agreed to categories and integrates data services as shopping application of the Indian Company, whereby, the Indian Company would use Indix Data services to internally copy, store, reproduce and modify assessee’s licensed data for their shopping application. Integrating the Indix Data services into the shopping application and developing shopping application and also use a reasonable number of copies of documentation or materials provided solely in connection with the Indix Data services. From a combined understanding of the assessee’s services, as per agreement between the parties and as per provisions of Sec. 9(1)(vi) of the Act, it is clear that the services provided by the assessee to Indian company is in the nature of transfer of right to use a computer software and the consideration received is for the transfer of all or any right/s (including granting of license) to use of computer software owned by the assessee and thus, in our considered view, the services provided by the assessee to the India payee falls under the definition of royalty in terms of Sec. 9(1)(vi). Therefore, the assessee offering income as per Sec. 115A(1)(b)(A) of the Act @ 10% is in accordance with law. The Ld.CIT(A) without appreciating relevant facts and also not considering the agreement between the parties, simply directed the AO to assess sum received by the assessee @ 20% and thus, we set aside the order of the CIT(A) and direct the AO to assess royalty received by the assessee from Indian Company u/s. 115A(1)(b)(A) of the Act, and charge tax @10%. The AO is also directed to verify Form No.26AS of the assessee and give credit for the taxes - Appeal filed by the assessee is allowed. 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.