TaxTMI 
TaxTMI 
2024 (5) TMI 1572
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....024 (Delay) 3. Bearing in mind the disclosures made, the delay of 53 days in filing the appeal is condoned. 4. The application stands disposed of. ITA 282/2024 5. The Principle Commissioner of Income Tax ["PCIT"] impugns the judgment rendered by the Income Tax Appellate Tribunal ["ITAT"] dated 25 September 2023 and posits the following questions for our consideration:- A. Whether on the facts and circumstances of the case and in law, the ITAT erred in holding that the subscription payments received towards Cloud Services by the assessee is not taxable as Royalty income within the meaning of Article 12(3) of the India-Ireland DTAA as well as Section 9(1)(vi) of the Income-tax Act, 1961? B. Whether on the facts a....
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.... rendered in Engineering Analysis and in respect of software and whether subscription or a licence fee paid in respect thereof would fall within the ambit of royalty. 8. We deem it apposite to extract the following pertinent observations rendered in Engineering Analysis:- "179. The Revenue, therefore, when referring to "royalties" under the DTAA, makes a distinction between such royalties, no doubt in the context of technical services, and remittances for supply of computer software, which is then treated as business profits, taxable under the relevant DTAA depending upon whether there is a PE through which the assessee operates in India. This is one more circumstance to show that the Revenue has itself appreciated the differenc....
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....question will apply to all four categories of cases enumerated by us in para 3 of this judgment." 9. We additionally note that the aspect of royalty provisions being applicable to the provision of software services was one which was considered by us independently in SFDC Ireland Ltd. v. CIT, [2024 SCC OnLine Del 1702] as well as in our order dated 14 February 2024 in The Commissioner Of Income Tax - International Taxation -3 v. Salesforce.com Singapore PTE LTD. [ITA 144/2023]. 10. While dealing with this aspect in Salesforce.com Singapore, we had held as follows:- "8. It becomes pertinent to note that while dealing with a similar issue of whether subscription fee to a software could be viewed as royalty under Article 12 of th....
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....for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright i....
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....of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the DTAA. 92. The licencees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copyrighted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee Company, the licencee to whom the Assessee Company has sold/licenced the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition ....
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.... the DTAA. What the licencee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licencees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty." 13. The distinction between the transfer of a copyright as distinct from a mere right to use copyrighted material was again highlighted by the Supreme Court in Engineering Analysis Centre for Excellence Vs. CIT when it observed:- xxxx xxxx &nbs....