COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2 vs. MENTOR GRAPHICS IRELAND LTD.

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ITA/44/2022HC DelhiDLHC01043089202110 March 2022Author: HON'BLE MR. JUSTICE MANMOHAN,HON'BLE MR. JUSTICE SUDHIR KUMAR JAIN2 pages
AI SummaryDismissed

What did the High Court hold?

The Delhi High Court held that judicial discipline mandates following the judgment and order of the Apex Court. The Court noted that the Revenue's counsel fairly stated that the questions of law raised in the present appeal were covered by the Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr. The mere filing of a review petition by the Revenue against the Supreme Court's order does not provide a ground for the High Court to deviate from following the binding judgment. Since the issues of law had been conclusively decided in favour of the respondent-assessee by the Supreme Court, no substantial question of law arose for consideration in the present appeal. Consequently, the appeal was dismissed. The operative direction was the dismissal of the appeal.

What were the facts?

The Revenue, Commissioner of Income Tax (International Taxation)-2, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order of the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘D’, dated July 9, 2020. The appeal pertains to Assessment Year 2014-15 and challenges the ITAT's deletion of an addition of Rs. 27,33,03,802/-. The Revenue argued that this consideration received by the assessee, Mentor Graphics Ireland Ltd., for the grant of a license for software use constituted royalty income under both the India-Ireland Double Taxation Avoidance Agreement (DTAA) and Section 9(1)(vi) of the Income Tax Act. The Revenue stated that the appeal was filed to keep the matter alive as the questions of law were covered by a Supreme Court decision.

What were the issues?

1. Whether, on the facts and circumstances and in law, the ITAT was justified in deleting the addition of Rs. 27,33,03,802/- by holding that the consideration received by the assessee on the grant of a license for the use of software is not Royalty income within the meaning of Article 12 of the India-Ireland DTAA? 2. Whether, on the facts and circumstances and in law, the ITAT was justified in holding that the consideration of Rs. 27,33,03,802/- received by the assessee on the grant of a license for the use of software is not Royalty within the meaning of Section 9(1)(vi) of the Act? Assessee's Contentions: The judgment does not record specific contentions made by the assessee. However, the ITAT's order, which is under challenge, deleted the addition, implying the assessee argued against the classification of software license fees as royalty. Revenue's Contentions: The Revenue contended that the consideration received by the assessee for the grant of a license for the use of software is royalty income, both under Article 12 of the India-Ireland DTAA and Section 9(1)(vi) of the Income Tax Act. The Revenue stated that the questions of law were covered by the Supreme Court decision in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr., (2021) SCCOnLine SC 159, and that the present appeal was filed to keep the matter alive while a review petition was pending.

Which sections of the Income-tax Act were involved?

Section 260A,Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
$~24 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 44/2022 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2 ..... Appellant Through: Mr. Sanjay Kumar, Advocate versus MENTOR GRAPHICS IRELAND LTD. ..... Respondent Through: Mr. Mayank Nagi, Advocate. CORAM: HON'BLE MR. JUSTICE MANMOHAN HON'BLE MR. JUSTICE SUDHIR KUMAR JAIN % 10.03.2022

O R D E R

Present appeal has been filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) for the Assessment Year 2014-15 challenging the judgment and order dated 9th

July, 2020 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘D’, New Delhi. The questions of law sought to be agitated by the appellant-Revenue in the present appeal are reproduced hereinbelow:- “A. Whether on facts and circumstances of the case and in law, the ITAT was justified in deleting addition of Rs.27,33,03,802/- by holding that consideration of Rs.27,33,03,802/- received by the assessee on grant of licence for use of software is not Royalty income within the meaning of Article 12 of India-Ireland DTAA?

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 15/06/2026 at 02:13:16

B. Whether on the facts and circumstances of the case and in law, the ITAT is justify in holding that consideration of Rs.27,33,03,802/- received by the assessee on grant of license for use of software is not Royalty within the meaning of section 9(1)(vi) of the Act?” that the appellant-Revenue has filed a review application will not be a ground for the High Court to not follow the binding judgment of the Apex Court. Consequently, as the issues of law raised in the present appeal have been conclusively decided in favour of the respondent-assessee by the Supreme Court, no substantial question of law arises for consideration in the present appeal. Accordingly, the same is dismissed.

MANMOHAN, J

SUDHIR KUMAR JAIN, J MARCH 10, 2022 js This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 15/06/2026 at 02:13:16

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