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

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ITA/99/2023HC DelhiDLHC01004763202316 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 Delhi High Court noted that the appeal was filed by the Revenue proposing specific questions of law. The Revenue's counsel submitted that these questions were covered by the Supreme Court's judgment in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT. The Court was also informed that a review petition concerning this matter was pending. Consequently, the High Court concluded that no substantial question of law arose for its consideration and closed the appeal. However, the Court stipulated that 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 adjudicated upon by the High Court in this order.

What were the facts?

The appeal concerns Assessment Year 2017-18 and challenges an order passed by the Income Tax Appellate Tribunal (ITAT) on August 31, 2022. The dispute revolves around whether income earned by MOL Corporation from licensing software products and from cloud services is taxable in India as royalty. The Revenue contends that the ITAT erred in its findings. The ITAT had previously ruled that neither the income from software licensing/sale nor the subscription fees for cloud services constituted royalty under the Income Tax Act and the India-USA Double Taxation Avoidance Agreement (DTAA). The Revenue argues that the proposed questions of law are covered by a Supreme Court judgment.

What were the issues?

1. Whether, on the facts 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 argues that the ITAT's decision is incorrect. The Assessee's arguments are not recorded. 2. Whether, on the facts and in law, the ITAT erred in holding that the licensing of computer software is a copyrighted article and not a copyright, rendering 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 contends the ITAT's finding is erroneous. The Assessee's arguments are not recorded. 3. Whether, on the facts 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 asserts the ITAT's conclusion is incorrect. 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

$~30 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 99/2023 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) 2017-18. 2. This appeal assails the order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 31.08.2022 passed in ITA 554/Del/2021. 3. 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?

ITA 99/2023

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 15:57:19

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?”

4.

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. 5. 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. 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 99/2023

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 15:57:19

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