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Receipt from sale of software as an end user is not taxable as Royalty: ITAT

CA Adityavikram Banka

Receipt from sale of software as an end user is not taxable as Royalty: ITAT

ACIT,Circle-2(2),International Taxation, New Delhi Vs. Newspage Pvt Ltd (ITA 1992 / DEL / 2022)

Facts:

1. The appeal was filed by the Revenue against the order of the Ld.CIT(Appeals) for the Assessment Year 2012-13.

2. The primary issue under consideration was whether the consideration received by the assessee from Pepsico India Holdings Ltd. and ITC Limited for the sale of software licenses and provision of support and maintenance services and customization services constituted royalty/FTS within the meaning of Article 12(3) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).

3. Initially, the assessee filed an appeal with grounds challenging the taxability of these receipts as royalty/FTS.

4. Subsequently, the Revenue filed revised grounds challenging the same and also questioning the admission of certain claims by the Ld.CIT(A) without proper authorization.

5. The Ld.CIT(A) held that the receipts from the sale of software licenses and provision of services were not taxable as royalty/FTS based on the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT.

ITAT held as below:

1. No copyright was transferred by the assessee to the customers.

2. The terms of the agreements were similar to End User License Agreements, and merely authorizing or enabling a customer to use copyrighted software did not amount to transferring rights in relation to copyright.

3. The Ld.CIT(A) has rightly held that the receipts from the sale of software licenses and provision of services cannot be assessed as royalty/FTS.

4. Therefore, the appeal of the Revenue is hereby dismissed.

CA Adityavikram Banka
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