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

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ITA/98/2023HC DelhiDLHC01001481202216 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 revenue contended that the proposed questions of law were 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 was pending consideration in that matter. Consequently, the High Court closed the appeal, holding that no substantial question of law arose for its consideration. However, the court added a caveat: if the revenue were to succeed in the review petition, the parties would abide by the decision rendered therein. The specific findings of the ITAT on the taxability of software licensing and cloud services as royalty were not re-examined by the High Court in this order, as the appeal was disposed of on the basis of the pending review petition.

What were the facts?

The appeal by the Commissioner of Income Tax (International Taxation)-2 (the revenue) concerns Assessment Year 2016-17. The revenue is challenging an order dated 07.06.2022 passed by the Income Tax Appellate Tribunal (ITAT) in ITA 7856/Del/2019. The ITAT had ruled that income from licensing/sale of software products and subscription fees for cloud services were not taxable as royalty in India. The revenue filed the appeal with a delay of 45 days, which was condoned by the High Court. The respondent is MOL Corporation (the assessee).

What were the issues?

The questions of law before the High Court are: 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 (Question A). 2. Whether the ITAT erred in holding that licensing of computer software is a copyrighted article and not 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 (Question B). 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 (Question C). The revenue contended that the proposed questions are covered by the Supreme Court judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The assessee did not record any specific arguments in the provided text. The ITAT had previously ruled that neither software licensing/sale income nor cloud service subscription fees constituted royalty.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

$~29 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 98/2023 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. 7383/2023 1. Allowed, subject to just exceptions. CM APPL. 7382/2023 [Application filed on behalf of the appellant seeking condonation of delay of 45 days in filing the appeal] 2. This is an application filed on behalf of the appellant/revenue for condonation of delay in filing the appeal. 3. According to the appellant/revenue, there is delay of 45 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 98/2023

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 15:59:52

ITA 98/2023 7. This appeal concerns Assessment Year (AY) 2016-17. 8. The challenge in this appeal is laid to the order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 07.06.2022 passed in ITA 7856/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. ITA 98/2023

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 15:59:52

12.

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). 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 98/2023

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 15:59:52

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