The Delhi Bench of ITAT ruled that the assessee, HP Services (Singapore) cannot be taxed for royalties under the Indo-Singapore DTAA for the purchase of the software from Microsoft Corporation.
The tax administration asserted that the transaction of selling computer software to its customers implicitly involves the making of several copies of the software clearly indicates a “transfer of copyright” and that, therefore, the consideration received for said transactions is equivalent to “royalty” in accordance with the law and the DTAA.
The assessee, on the contrary, asserted that the assessee purchased the software from “Microsoft Corporation” and, under the terms of the agreement with “Microsoft”, had no right to reproduce or make changes to the “ready-to-use software” and, consequently, the question of the transmission of a right by the Assessée to its clients does not arise.
The Tribunal bench consisting of Shri RK Panda, Accounting Member and Shri NK Choudhry, Judicial Member, observed that the Apex Court, at paragraph 173 of its judgment in Engineering Analysis Center of Excellence Pvt. Ltd (supra), clearly concluded that amounts paid by resident Indian end users/distributors to non-resident computer software manufacturers/suppliers, in consideration for the resale/use of the computer software through EULAs/distribution agreements , do not constitute the payment of royalties for the use of the copyright on the computer software.
While ruling in favor of the assessee, the Tribunal found that “since the question of law raised in these appeals was finally decided in favor of the assessee by the Supreme Court, no substantive question of law arises for review in this case. calls. It is also relevant to mention that the appellant had admitted before the ITA that the dispute in question had been decided in favor of the appraised by the Tribunal in previous years. Accordingly, these appeals are dismissed. »
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