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

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ITA/95/2023HC DelhiDLHC01001479202216 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 noted that the ITAT had ruled that neither income from licensing/sale of software products nor subscription fees for cloud services could be construed as royalty. The revenue's counsel argued that the proposed questions of law were covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The revenue also informed the court that a review petition was pending consideration. Consequently, the High Court closed the appeal, holding that no substantial question of law arose for consideration. However, the court added a caveat that if the revenue succeeded in the review petition, the parties would abide by that decision. The court did not decide the merits of the issues raised.

What were the facts?

The appeal concerns Assessment Year 2015-16 and challenges an order dated 07.06.2022 passed by the Income Tax Appellate Tribunal (ITAT) in ITA 7855/Del/2019. The appellant is the Commissioner of Income Tax (International Taxation)-2, and the respondent is MOL Corporation. The revenue filed the appeal with a delay of 65 days, which was condoned by the High Court. The core of the dispute revolves around whether income derived by MOL Corporation from licensing software products and from cloud services is taxable in India as royalty.

What were the issues?

1. Whether, on the facts and circumstances and in law, 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 contended that the ITAT's decision was erroneous. The assessee's arguments are not recorded. 2. Whether, on the facts and circumstances and in law, 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, in the absence of a Permanent Establishment (PE) in India, not taxable under Article 7 of the India-USA DTAA? The revenue argued that the ITAT's finding was incorrect. The assessee's arguments are not recorded. 3. Whether, on the facts and circumstances and in law, 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 argued that the ITAT's decision was wrong. 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

$~26 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 95/2023 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. 7379/2023 1. Allowed, subject to just exceptions. CM APPL. 7378/2023 [Application filed on behalf of the appellant seeking condonation of delay of 65 days in filing the appeal] 2. This is an application filed on behalf of the appellant/revenue seeking condonation of delay in filling the appeal. 3. According to the appellant/revenue, there is delay of 65 days. 4. Counsel for the respondent/assessee, says that he has no objection if the delay in filing the appeal is condoned. 5. Accordingly, the delay in filling the appeal is condoned. 6. The application is disposed of in the aforesaid terms. ITA 95/2023

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 15:58:39

ITA 95/2023 7. This appeal concerns Assessment Year (AY) 2015-16. 8. This appeal assails the order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 07.06.2022 passed in ITA 7855/Del/2019. 9. The following questions of law are proposed by the appellant/revenue:

“A. Whether on the facts and circumstances of the case and in law, 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 on the facts and circumstances of the case and in law, 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 on the facts and circumstances of the case and in law, 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?”

10.

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. 11. 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. 12. Mr Sanjay Kumar, senior standing counsel, who appears on behalf of ITA 95/2023

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 15:58:39

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). 12.1. We are also informed by Mr Kumar that a review petition has been filed which is pending consideration. 13. 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

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ITA 95/2023

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 15:58:39

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