ATLASSIAN PTY LIMITED,BENGALURU vs. DCIT, (INTERNATIONAL TAXATION), CIRCLE-1(1), BENGALURU

ITITA 363/BANG/2025Status: DisposedITAT Bangalore21 January 2026AY 2022-239 pages
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What were the facts?

The assessee, M/s. Atlassian Pty Limited, an Australian company, filed an appeal against the final assessment order dated 24/12/2024 for Assessment Year 2022-23. The Assessing Officer (AO) treated receipts of INR 271,64,19,250 from software licensing as 'Royalties' under Article 12 of the India-Australia Double Taxation Avoidance Agreement (DTAA) and Section 9(1)(vi) of the Income-tax Act, 1961. The assessee contended that they granted only non-exclusive, non-sublicensable, and non-transferable licenses to use their software, not rights to exploit copyright or access source code. The AO's view was influenced by confidentiality clauses and the perceived parting with source code. The Dispute Resolution Panel (DRP) confirmed the AO's order, citing a pending review petition against a Supreme Court judgment. The assessee argued this was contrary to previous ITAT rulings in their own case and the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd.

What did the Tribunal hold?

The Tribunal allowed the appeal, holding that the license fees received by the assessee from its customers for using the software could not be treated as royalty. The reasoning was based on the Tribunal's consistent view in the assessee's own cases for AY 2010-11 and AY 2021-22, which relied on the Supreme Court's judgment in Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT (432 ITR 471). The Tribunal noted that the Supreme Court had subsequently affirmed this judgment by dismissing the review petition filed by the revenue and also a Special Leave Petition. The Tribunal found that the assessee had granted only a non-exclusive, non-sublicensable, and non-transferable license to use the software, without granting specific rights to make copies or exploit the copyright, which is essential for treating the receipts as royalty. The DRP's reliance on the pending review petition was disregarded in light of the Supreme Court's subsequent dismissals. The operative direction was to delete the addition made under the head 'Income from other sources' treating the receipts as royalty.

What were the issues?

1. Whether the receipts amounting to INR 271,64,19,250 from licensing of software are to be treated as 'Royalties' under Article 12(3) of the India-Australia DTAA and consequently taxable under Article 12(1) of the DTAA and Section 9(1)(vi) of the Income-tax Act, 1961, considering the nature of the license granted (non-exclusive, non-sublicensable, non-transferable) and the limited rights provided to customers, including modifications, without granting access to source code or copyright exploitation rights. Assessee's Contention: The receipts are not royalties as only a license to use the software was granted, not rights to exploit copyright. The limited modification rights do not equate to source code access. The issue is covered by the ITAT's decisions in their own cases for AY 2010-11 and AY 2021-22, and the Supreme Court's judgment in Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT. The pendency of a review petition against the Supreme Court judgment does not bar deciding the issue. Revenue's Contention: The AO relied on confidentiality clauses, implying source code was parted with, making the receipts royalty. The DRP relied on the pending review petition against the Supreme Court judgment.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 12(3),Section 12(1),Section 14(a),Section 14(b),Section 10(50),Section 234B,Section 274,Section 270A,Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.

For Appellant: Shri Suryanarayana, Sr. Advocate
For Respondent: Shri Somnath S Ukkali, CIT-DR

PER SOUNDARARAJAN K., JUDICIAL MEMBER

This is an appeal filed by the assessee challenging the final assessment order dated 24/12/2024 in respect of the A.Y. 2022-23 and raised the following grounds:

“1. That the order dated 24 December 2024 issued under section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 ("the Act") [DIN: ITBA/AST/S/143(3)/2024- 25/1071539442(1)] (hereinafter referred to as "the impugned order") passed by the Deputy Commissioner of Income Tax, Intl. Taxation Circle 1(1), BLR ("Ld. AO") is contrary to the facts of the cas

The order continues below.

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