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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI SAKTIJIT DEY, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- These two separate appeals by the Revenue are preferred against two separate orders of the CIT(A) – 43 & CIT(A) – 44, New Delhi dated 16.11.2016 & 28.02.2018 pertaining to Assessment Years 2012-13 and 2014-15 respectively.
Since common grievance is involved in both the appeals, they were heard together and are disposed of by this common order for the sake convenience and brevity.
The common grievance is that the ld. CIT(A) was not justified in holding that the revenue received by the assessee on account of granting various licences is not taxable as ‘Royalty Income’ and so also the amount received for conducting research activities, which are in the nature of various rights transferred by the assessee to its Indian customers for commercial use.
Briefly stated, the facts of the case are that the assessee is an internationally renowned university engaged in research, the provision of education, publishing and the provision of examination services.
During the year under consideration, it undertook these activities through three divisions. The three divisions are:
(i) The University itself which undertakes research and degree level education;
(ii) Cambridge University Press which publishes and distributes academic literature and journals; and (iii) Cambridge assessment which provides examination services, specifically related to the setting and marketing of internationally recognized examinations.
During A.Y. 2012–13, the assessee had receipts of Rs. 31,55,95,947/– and in A.Y to 2014–15, receipts were Rs. 51,86,82,807/– from providing examination related content, setting and marking of examination to schools /institutions.
The said receipts were added to the total income of the assessee by the Assessing Officer by alleging that the services rendered by the assessee are in the nature of Fees For Technical Services [FTS] as such services have been made available to schools/institutions as per Article 13(4)C of the India-UK DTAA.
Proceeding further, the Assessing Officer alternatively alleged that the receipts from examination related content, setting and marking of examinations is also taxable as Royalty Income under India- UK DTAA.
The assessee questioned the assessment order before the Ld. CIT(A) and strongly contented non-taxability of receipts as royalty.
The Ld. CIT(A) was convinced with the contention of the assessee and deleted the addition made by the AO by stating that the Assessing Officer has not provided any basis for taxability of receipts as royalty.
Before us, ld. DR strongly supported the findings of the AO but could not bring any distinguishing decision in favour of the revenue.
We have given thoughtful consideration to the orders of the authorities below. In our considered opinion, as per section 90 sub- section (2) of the Act, where India has executed a tax treaty, then, the non-resident assessee has the option of being taxed under the tax treaty to the extent its provisions are more beneficial and based upon provisions of India-UK DTAA, we have to consider the treatment given by the Assessing Officer in light of the relevant Article of India-UK DTAA.
Article 13(3)of India-UK DTAA, Royalty has been defined as :
“a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience;..”
A perusal of the afore-stated Article of the India- UK DTAA shows that the transaction shall fall under the ambit of Royalty only when payments are received from a buyer to exploit the underlying copyrights of an article or payment is made for information concerning industrial, commercial or scientific experience.
14. We have carefully considered the orders of the authorities below.
We are of the considered view that the impugned quarrel is now well settled by the decision of the Hon'ble Supreme Court in favour of the assessee and against the Revenue in the case of Engineering Analysis Center of Excellence Pvt Ltd. [2021] 432 ITR 471 wherein the Hon'ble Supreme Court, in a bunch of appeals, conclusively held as under:
“168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income-tax Act (section 9(l)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.
169 Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment.
The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set
aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed.”
13. In light of the above settled position, respectfully following the aforesaid decision of the Hon'ble Apex Court [supra], we find no reason to interfere with the findings of the ld. CIT(A) and direct the Assessing Officer to delete the impugned addition.
In the result, the appeals of the Revenue in ITA Nos.
778/DEL/2017 and 3422/DEL/2018 are dismissed.
The order is pronounced in the open court on 19.09.2022.