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

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ITA/97/2023HC DelhiDLHC01004762202316 February 2023Bench: HON'BLE MR. JUSTICE RAJIV SHAKDHER,HON'BLE MS. JUSTICE TARA VITASTA GANJU2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court noted that the proposed questions of law pertain to the taxability of income from licensing/sale of software. The Tribunal had previously ruled that income earned from licensing/sale of software products could not be construed as royalty. The revenue argued that these questions are covered by the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The revenue also informed the court that a review petition concerning this matter is pending. Consequently, the High Court closed the appeal, finding no substantial question of law arising for its consideration. However, it included a caveat that if the revenue succeeds in the review petition, the parties would abide by that decision. No specific finding was made on the merits of the ITAT's decision.

What were the facts?

The appeal concerns Assessment Year 2011-12 and challenges an order dated 21.09.2022 passed by the Income Tax Appellate Tribunal (ITAT) in ITA 845/Del/2021. The dispute revolves around the taxability of income earned by MOL Corporation from licensing/sale of software products in India. The revenue, represented by the Commissioner of Income Tax (International Taxation)-2, is the appellant, and MOL Corporation is the respondent. The procedural history leading to this High Court appeal involves the ITAT's decision, which is now under challenge by the revenue.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether, on the facts and circumstances, the ITAT erred in holding that the 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. 2. Whether, on the facts and circumstances and in law, the ITAT erred in holding that the licensing of computer software is a copyrighted article and not copyright, thus classifying the sale of software as 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 contended that the proposed questions of law are covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The judgment does not record any specific contentions from the respondent (MOL Corporation) regarding these issues.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

$~28 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 97/2023 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)] 1. This appeal concerns Assessment Year (AY) 2011-12. 2. This appeal assails the order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 21.09.2022 passed in ITA 845/Del/2021. 3. The following questions of law are proposed by the appellant/revenue:

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

ITA 97/2023

page 1 of 2 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 16:00:22

4.

As would be evident, the questions of law [i.e., A and B] relate to income earned from licensing/sale of software. 5. The Tribunal has ruled that income earned from licensing/sale of software products could not be construed as royalty. 6. 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). 6.1. We are also informed by Mr Kumar that a review petition has been filed which is pending consideration. 7. 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 97/2023

page 2 of 2

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 16:00:22

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