TaxTMI 
TaxTMI 
2022 (4) TMI 966
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....poration ('Gracemac'), is a corporation incorporated in the USA and a Wholly Owned Subsidiary of MS Corp which got merged with MOLC with effect from 2ndOctober 2006. All the rights and obligations of Gracemac got merged into the affairs of MOLC. 2.2 'MS Corp' is the sole owner of intellectual property rights vested in Microsoft Software. It has granted exclusive license to manufacture and distribute Microsoft products to one of its wholly owned subsidiary M/s Gracemac (now merged with MOL Corporation, the assessee in this case), which, in turn granted non-exclusive rights to its wholly owned, subsidiary, Microsoft Operations Pte.Ltd., Singapore, ("MO Singapore"), to manufacture Microsoft Products in Singapore and distribute such products in Asia (excluding non-English-Ianguage products in China and Taiwan). M/s Microsoft Regional Sales Corporation(MRSC) has been appointed as a distributor of Microsoft products in Asia by MO, Singapore. 2.3 MS Corp entered into an agreement with Gracemac on lsl January 1999 and granted the following rights to Gracemac (Now MOL, the assessee): * exclusive license to manufacture and distribute Microsoft retail software products ....
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.... Infrasoft Ltd. case. The ld. AO observed in his order dated 19.02.2016 in para no. 7.8 as under :- "7.8 Regarding non-applicability of Infrasoft Ltd. Case, 220 Taxman 273 (2014), decision dated 22.11.2013 Similarly in a recent judgement in the case of Infra soft Ltd (ITA No. 1034/2009 dated 22-11-2013), the Hon'ble Delhi High Court has not adjudicated upon the grounds raised by the revenue relating to the applicability of the amended provisions of section 9(1 )(vi). The Court has broadly relied upon the Article 3(2) of the India-USA Treaty in deciding the issue in favour of the assessee. From the bare reading of the above Article it is evident that since the language of the definition under the Income Tax Act and DTAA are same, for the purpose of interpreting article 1 2(3) of the India USA treaty, Explanation 4 to the section 9(1}(vi) of the income Tax Act ought to be necessarily read by invoking article 3(2). Since the meaning of use of copyright right in the context of software taxation has been clarified bv Finance Act,2012 (which is not an extension of the scope of Royalty Provisions under the IT Act), both the contracting states to the DTAA convention have ....
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....ial precedents as the same is squarely applicable in the case of Appellant. 2.4 That on facts and in law, the Hon'ble DRP and the Learned AO failed to appreciate that the sale of software is a sale of 'Copyrighted Article' and not 'Copyright' and accordingly, the revenue from sale of software is in the nature of business income not taxable under Article 7 of India US tax treaty in the absence of the PE of the Appellant in India. 2.5 Without prejudice to the below mentioned grounds of appeal, the Hon'ble DRP and Learned AO erred on the facts of the case and in law, in determining the income of the Appellant for the subject Assessment Year at INR 33,73,74,00,209 thereby completely ignoring the fact that the payments received by the Appellant from licensing of manufacturing and distribution rights to MO pertaining to India was INR 20,24,24,40,125 only. 3. Taxability of the revenue from cloud services 3.1 That on facts and in law, the Hon'ble DRP and the Learned AO erred in observing that amount paid by MO to Appellant was for earning income from a source in India. 3.2 That on facts and in law, the Hon'ble DRP and the Learned AO erred in not....
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....ed 16.12.2020 has allowed the appeals which have been further upheld by Hon'ble Delhi High Court by judgment dated 07.03.2022. The Ld. DR supported the findings of Tax authorities below. 7.1 Giving thoughtful consideration to the matter on record, the Bench is of considered opinion that the revenue has been following a persistent approach in regard to assessee and its sister assessee subsidiaries of MS Corp holding sale of MS Retail Software Products to Indian Distributors as royalty under the Act as well as under DTAA between India and US. The assessment in the hands of present assessee was made on substantive basis while the protective assessment was in the hands of M/s Microsoft Regional Sales Corporation(MRSC). The assessments in the hands of Gracemac which stands amalgamated with the assessee stands set aside in regard to assessment years 2005-06, 2006-07 and 2007-08 by the co-ordinate Bench's judgment dated 16.11.2020 which have been further upheld by Hon'ble Delhi High Court by judgment dated 07.03.2022. The same were based on the principles of law that sale of software products does not give rise to royalty income as laid down by the Hon'ble Delhi High Court in Infrasoft....
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....nd storage of data or run the applications. 8.2 While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. (supra) where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services, the Bench in its order dated 25.03.2022 held as under : "28. Considering the facts of the case in totality, in light of the Master Subscription Agreement, we are of the considered view that the customers do not have any access to the process of the service provider i.e. the assessee, and the assessee does not have any access except otherwise provided in the master subscription agreement to the data of the subscriber. 29. In our considered opinion, all the equipments and machines relating to the service provided by the assessee are under its control and are outside India and the subscribers do not have any physical access to the equipment providing system service which means that the subscribers are only using the services provided by the assessee." 8.3 The Mumbai Tribunal in the case of DDIT v Savvis Communication Corporation [2016] 69 taxma....