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

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ITA/101/2023HC DelhiDLHC01001483202216 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 arose for its consideration. This decision was made in light of the revenue's submission that the proposed questions of law were covered by the Supreme Court's judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The Court was informed that a review petition against the Supreme Court's decision was pending. The High Court's closure of the appeal was with the caveat that if the revenue succeeded in the review petition, the parties would abide by the decision rendered therein. The specific findings of the ITAT, which were being challenged, were that income from licensing software and cloud services was not royalty, but the High Court did not delve into these specific findings due to the pendency of the review petition. No issue was expressly left undecided, as the appeal was closed on procedural grounds.

What were the facts?

The appeal, filed by the Commissioner of Income Tax (International Taxation)-2 (the revenue), concerns Assessment Year 2013-14. It challenges an order dated July 5, 2022, passed by the Income Tax Appellate Tribunal (ITAT) in ITA 1134/Del/2017. The revenue sought condonation of delay in filing the appeal, which was granted with the assessee's consent. The core of the appeal revolves around the taxability of income derived by MOL Corporation (the assessee) from licensing software products and cloud services in India. The ITAT had previously ruled that such income was not taxable as royalty.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the licensing of software products in India by Microsoft Regional Sales Pte. Ltd. is 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. 2. Whether the 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. 3. Whether the subscription received for Cloud Services is taxable as Royalty income under the Income Tax Act, 1961. The revenue contended that the proposed questions of law are covered by the Supreme Court's judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The judgment notes that a review petition has been filed in that matter and is pending. The assessee did not record any specific arguments in the provided text.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

$~32 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 101/2023 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. 7385/2023 [Application filed on behalf of the appellant seeking condonation of delay of 4 days in filing the appeal] 1. This is an application filed on behalf of the appellant/revenue seeking condonation of delay in filling the appeal. 2. According to the appellant/revenue, there is delay of 4 days. 3. Counsel for the respondent/assessee, says that he has no objection if the delay in filing the appeal is condoned. 4. Accordingly, the delay in filling the appeal is condoned. 5. The application is disposed of, in the aforesaid terms.

ITA 101/2023

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 16:00:13

CM APPL. 7386/2023 [Application filed on behalf of the appellant seeking condonation of delay of 10 days in re-filing the appeal] 6. This is an application filed on behalf of the appellant/revenue seeking condonation of delay in re-filling the appeal. 7. According to the appellant/revenue, there is a delay of 10 days. 8. Counsel for the respondent/assessee, says that he has no objection if the delay in re-filing the appeal is condoned. 9. Accordingly, the delay in re-filling the appeal is condoned. 10. The application is disposed of, in the aforesaid terms. ITA 101/2023 11. This appeal concerns Assessment Year (AY) 2013-14. 12. This appeal assails the order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 05.07.2022 passed in ITA 1134/Del/2017. 13. 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 Microsoft Regional Sales Pte. Ltd. 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?”

ITA 101/2023

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 16:00:13

14.

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 received against cloud services offered by the respondent/assessee. 15. 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. 16. 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). 16.1. We are also informed by Mr Kumar that a review petition has been filed which is pending consideration. 17. 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, the parties will abide by the decision rendered therein.

RAJIV SHAKDHER, J

TARA VITASTA GANJU, J

FEBRUARY 16, 2023/ tr

Click here to check corrigendum, if any ITA 101/2023

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 16:00:13

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