2022 (7) TMI 275

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....cts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') and the Ld. AO have erred in observing that amount paid by Microsoft Operations Pte Ltd. ('MO') to Appellant was for earning income from a source in India. 2.2 That on facts and in law, the Hon'ble DRP and the Ld. AO have erred in holding that the revenue earned and received from sale of software by MRSC amounting to INR 38,32,90,74,884 is taxable in India as "Royalty" in the hands of the Appellant without appreciating that the same is not in the nature of "Royalty" under Article 12 of the India - USA DTAA and is not taxable in India. 2.3 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP and the Ld. AO have 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 - USA DTAA in the absence of a Permanent Establishment of the Appellant in India. 2.4 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP and the Ld. AO have erred in law in not fo....

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....rcumstances of the case and in law, the Deputy Commissioner of Income Tax, Circle - 2(2)(1), International Taxation, Delhi ('Ld. AO') has erred in computing the total income of the Appellant at INR 2197,95,13,620 as against NIL income reported in the return of income by the Appellant. 2. Taxability of revenue from sale of software 2.1 That on the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') and the Ld. AO have erred in observing that amount paid by Microsoft Operations Pte Ltd. ('MO') to Appellant was for earning income from a source in India. 2.2 That on facts and in law, the Hon'ble DRP and the Ld. AO have erred in holding that the revenue earned and received from sale of software by MRSC amounting to INR 2037,46,16,031 is taxable in India as "Royalty" in the hands of the Appellant without appreciating that the same is not in the nature of "Royalty" under Article 12 of the India - USA DTAA and is not taxable in India. 2.3 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP and the Ld. AO have failed to appreciate that the sale of software is a sale of 'Copyrighted Article' an....

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....n initiating penalty proceedings under section 271(l)(c) of the Act against the Appellant. I.T.A. No. 1134/Del/2017 (A.Y 2013-14 3. Brief facts of the case are that, that MOL Corporation ('MOLC') is a company incorporated in the United States of America, having its registered office at C/o, Corporation Services Company, 2215-B, Renaissance Drive, Las Vegas, NV 89119, USA. Microsoft Corporation, USA,('MS Corp') is the ultimate parent entity of MOLC. Gracemac Corporation ('Gracemac'), a corporation incorporated in the USA and a Wholly Owned Subsidiary of MS Corp got merged with MOLC with effect from 2ndOctober 2006. All the rights and obligations of Gracemac got merged into the affairs of MOLC. '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, inturn, granted non-exclusive rights to its wholly owned subsidiary, Microsoft Operations Pte. Ltd., Singapore, ("MO Singapore"), to manufacture Microsoft Products in Singapore ....

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....is well settled law that, the sale of software product which will not giving rise to royalty income as held in the case of Delhi High Court in DTI Vs. Infra Soft Ltd. to (2014) 220 Taxman 273 and also in the decision of Hon'ble Supreme Court of India dated 02/03/2021 in the case of Engineering Investigation centre of Excellence Pvt. Ltd. Vs. Commissioner of Income Tax (2021) 125 Taxman.com 42(S.C). The ratios laid down in the above judicial pronouncements have been relied by the Coordinate Bench in the assessee's own case in ITA No. 1554/Del/2016 dated 13/04/2022 and decided the issue in favour of the assessee for Assessment Year 2012-13. 9. We have applied the above ratio laid down by the Hon'ble Supreme Court and also the Coordinate Bench of the Tribunal in assessee's own case for the Assessment Year 2012-13 in ITA No. 1554/Del/2016 dated 13/04/2022. Thus, we are also of the opinion that the sale of software product does not give rise to the royalty income. In the light of aforesaid, since there are no distinguishing facts with regard to present Assessment Year than the Assessment Year 2012-13, we allow the Ground No. 2 and its Sub Grounds of the assessee. 10. Ground No....