AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 246
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.... Taxation, Gurgaon u/s. 144(c) (13) read with section 143(3) of the Income Tax Act, 1961. 2. At the outset it is pertinent to observe that the appeal was filed by the assessee under the name Microsoft Regional Sales Corporation, USA and the intimation has been submitted that the appellant assessee has changed name from Microsoft Regional Sales Corporation to Microsoft Regional Sales Pte. Ltd. and revised Memorandum of Appeal along with grounds of appeal have been filed. 3. The facts in brief are assessee is a company incorporated in U.S.A. and is a wholly owned subsidiary of M/s. Microsoft Corporation, U.S.A. ('MS Corp.'). The assessee has a branch office in Singapore. There was another wholly owned subsidiary of MS Corp. Gracemac....
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.... as taxable as royalty in India and the AO assessed the same in the hands of assessee on protective basis and in the hands of MOL Corporation (MOLC) on substantive basis. 3.1. Further the AO had considered the receipts from Cloud Services as user based on royalty observing that the Microsoft online subscription agreement mentions that the software underlying the service in each kind of model i.e. PAAS/SAAS/IAAS is license to the customer and not sold. The software is protected by patent, copyright and trade mark protections, therefore the AO held the payments made by the users as the consideration for the use or the right to use of such patents, Software and Cloud Infrastructure covering them in the definition of royalty both by clause 9 (....
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....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. Taxability of the revenue from cloud services 3. That on facts and in law, the Hon'ble DRP and the Learned AO has erred in not holding that the revenue earned by MRSC from cloud services amounting to INR 11,35,98,751 is taxable as Royalty in India without appreciating that the same is not in the nature of Royalty under the India -USA DTAA and is not taxable in India, Transfer of TPS credit 4. That on facts and in la....
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....as submitted that in the case of Gracemac Corporation which stands amalgamated with MOL Corporation for the assessment year 2005-06, 2006-07 and 2007-08 the Co-ordinate Bench B at Delhi by order dated 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. 6.1. 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.....
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....six other connected was relied to contend that subscription to the cloud computing services do not give rise royalty income. 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 view that the cloud base services do not involve any transfer of rights to the customers in any process. The grant of right to install and use the software included with the subscription does not include providing any copy of the said software to the customer. The assessee's cloud base services are though based on patents/copyright but the subscriber does not get any right of reproduction. The services are provided online via data centre located outside India. The Cl....