COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2 vs. M/S MOL CORPORATION

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ITA/100/2023HC DelhiDLHC01001482202216 February 2023Bench: HON'BLE MR. JUSTICE RAJIV SHAKDHER,HON'BLE MS. JUSTICE TARA VITASTA GANJU3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court closed the appeal, holding that no substantial question of law arises for its consideration. This decision was made with the caveat that if the appellant/revenue succeeds in a pending review petition, the parties will abide by the decision rendered therein. The Tribunal had previously ruled that neither income from licensing/sale of software products nor subscription fees for cloud services could be construed as royalty. The revenue's contention that the proposed questions were covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT led the High Court to conclude that the appeal did not present a novel legal issue for its determination. The operative direction was to close the appeal, subject to the outcome of the review petition.

What were the facts?

The appeal by the Commissioner of Income Tax (International Taxation)-2 (appellant/revenue) concerns Assessment Year 2012-13. It challenges an order dated 13.04.2022 passed by the Income Tax Appellate Tribunal (ITAT) in ITA 1554/Del/2016. The revenue sought condonation for a delay of 100 days in re-filing the appeal, which the assessee, MOL Corporation (respondent), did not object to. The High Court condoned the delay. The core of the appeal revolves around whether income from licensing software and cloud services constitutes royalty taxable in India.

What were the issues?

1. Whether the ITAT erred in holding that licensing of software products by MOL Corporation in India is not taxable as Royalty under Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the Indo-USA DTAA? The revenue contends that the ITAT's decision is covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The assessee's arguments are not recorded. 2. Whether the ITAT erred in holding that licensing of computer software is a copyrighted article and not a copyright, making the sale of software business income not taxable as royalty under Section 9(1)(vi) of the Income Tax Act, 1961, and not taxable under Article 7 of the India-USA DTAA due to the absence of a Permanent Establishment (PE) in India? The revenue argues this is covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The assessee's arguments are not recorded. 3. Whether the ITAT erred in holding that subscription received for Cloud Services is not taxable as Royalty income under the Income Tax Act, 1961? The revenue argues this is covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The assessee's arguments are not recorded.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

$~31 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 100/2023 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2

..... Appellant Through: Mr Sanjay Kumar, Sr. Standing Counsel.

versus

MOL CORPORATION

..... Respondent

Through: Mr Akshay Uppal, Advocate.

CORAM:

HON'BLE MR JUSTICE RAJIV SHAKDHER

HON'BLE MS JUSTICE TARA VITASTA GANJU

O R D E R %

16.02.2023

[Physical Hearing/Hybrid Hearing (as per request)] CM APPL. 7384/2023 [Application filed on behalf of the appellant seeking condonation of delay of 100 days in re-filing the appeal] 1. This is an application filed on behalf of the appellant/revenue seeking condonation of delay in re-filling the appeal. 2. According to the appellant/revenue, there is delay of 100 days. 3. Counsel for the respondent/assessee, says that he has no objection if the delay in re-filing the appeal is condoned. 4. Accordingly, the delay in re-filling the appeal is condoned. 5. The application is disposed of, in the aforesaid terms. ITA 100/2023 6. This appeal concerns Assessment Year (AY) 2012-13.

ITA 100/2023

page 1 of 3

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 29/05/2026 at 16:00:31

7.

This appeal assails the order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 13.04.2022 passed in ITA 1554/Del/2016. 8. The following questions of law are proposed by the appellant/revenue:

“A. Whether the Ld. ITAT erred in holding that licensing of the software products of Microsoft in the territory of India by Mol Corporation is not taxable in India as Royalty under Section 9(1)(vi) of the Income Tax Act, 1961 read with Article 12 of the Indo-USA DTAA?

B. Whether the Ld. ITAT erred in holding that licensing of computer is copyrighted article and not copyright and accordingly the sale of software is in nature of business income and not taxable as royalty under Section 9(1)(vi) of Income Tax Act, 1961 and absence of PE in India, it is not taxable under Article 7 of India-USA DTAA?

C. Whether the Ld. ITAT erred in holding that the subscription received towards Cloud Services is not taxable as Royalty income under the provisions of Income Tax Act, 1961?”

9.

As would be evident the first two questions of law [i.e., A and B] relate to income earned from licensing/sale of software while the third question [i.e., C] relates to subscription receipts against cloud services offered by the respondent/assessee. 10. The Tribunal has ruled that neither income earned from licensing/sale of software products nor subscription fee earned for providing cloud services, could be construed as royalty. 11. Mr Sanjay Kumar, senior standing counsel, who appears on behalf of the appellant/revenue, says that the proposed questions are covered by the judgment of the Supreme Court rendered in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT 432 ITR 471 (SC). ITA 100/2023

page 2 of 3 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 29/05/2026 at 16:00:31

11.1. We are also informed by Mr Kumar that a review petition has been filed which is pending consideration. 12. Accordingly, the appeal is closed as no substantial question of law arises for our consideration albeit, with the caveat that in case the appellant/revenue were to succeed in the review petition, parties will abide by the decision rendered therein.

RAJIV SHAKDHER, J

TARA VITASTA GANJU, J

FEBRUARY 16, 2023/ tr

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ITA 100/2023

page 3 of 3

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 29/05/2026 at 16:00:31

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