2021 (7) TMI 829

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....es of the case, and in law, the Ld. CIT(A) erred In deleting the addition made by the AO, and in holding that the revenue received by the assessee from supply of software is not taxable in India as royalty/s 9(l)(vi) of the Income Tax Act, as well as Article 13(3) of the India - France. 1.2 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred deleting the addition made by the AO, without considering Explanation 5 and G to section 9(l)(vi), which have been inserted by clarificatory amendments with retrospective effect. 1.3 Thatin the facts and in circumstances of the case, and in law, the Ld. CIT(A)erredin deleting the addition made by the AO, after erroneously considering the claimed adequacy o....

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....ware supplies. In this connection, assessment order of Alcatel-Lucent France for AY 2006- 07 is being fallowed, wherein after considering the facts and circumstances of the case, it was held that consideration towards software is taxable as royalty as per the Act and under the corresponding provisions of the India France DTAA. In the present proceedings also, the assessee filed detailed submissions as to why the software component of the telecom equipment supplies should not be treated as royalties both under the IT Act as well as the India-France DTAA. The submissions of the assessee are considered but cannot be accepted for the reasons as in earlier years and as such it is held that software supplied by the assessee is taxable as....

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.... used it to carry out their business activities. In this view of the matter, the AO felt that the consideration of supply of software amounted to royalty under Section 9(1)(vi) of the Income Tax Act. The CIT(Appeals) - to whom the assessee appealed and later the ITAT to whom the Revenue appealed concurrently held that the supply of embedded software (which was part of the hardware supplied to the assessee's customers by it) under consideration did not constitute royalty and, therefore, Section 9(1)(vi) was not attracted and for the same reasons, Article 13(3) of the DTAA was not involved. 5. We have noticed, at the outset, that the ITAT had relied upon the ruling of this Court in Director of Income Tax V. Ericsson A.B. (2012) 343 I....

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....is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an integral part thereof. On these facts, it would be useful to refer to the judgment of the Supreme Court in TATA Consultancy Services Vs. State of Andhra Pradesh (2004) 271 ITR 401 (SC), wherein the Apex Court held that software which is incorporated on a media would be goods and,therefore, liable to sales tax. Following discussion in this behalf is required to be noted:- "In our view, the term "goods" as used in A....

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....m as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes... In Advent Systems Ltd. v. Unisys Corpn, (925 F. 2d 670 (3rd Cir. 1991)), relied on by Mr. Sorabjee, the court was concerned with interpretation of uniform civil code which "applied to transactions in goods". The goods therein were defined as "all things (including specially manufactured goods) which are moveable at the time of the identification for sale". It was held : "Computer programs are the product o....

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....e High Court of Delhi has been upheld by the Hon'ble Supreme Court in a bunch of appeals in the case of Engineering Analysis Centre of Excellence Private Limited vide order dated 02.03.2021 and in the bunch of appeals the assessee is at Civil appeal No.10674 of 2016, 010673 of 2016 and SLP (C) No.28868 of 2016. The relevant findings of the Hon'ble Supreme Court read as under :- 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such dist....