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

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ITA/277/2017HC DelhiDLHC01088941201713 May 2022Bench: HON'BLE MR. JUSTICE MANMOHAN,HON'BLE MR. JUSTICE DINESH KUMAR SHARMA5 pages
AI SummaryDismissed

What did the High Court hold?

The Delhi High Court held that the appeals filed by the Revenue challenging the remand orders of the ITAT were infructuous. The Court noted that subsequent to the ITAT's remand orders, the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. Commissioner of Income Tax & Anr. confirmed the view taken by the Delhi High Court in DIT vs. Infrasoft Ltd. Furthermore, the ITAT, in its subsequent orders dated February 14, 2022, and April 13, 2022, had decided the issue of royalty by following the Supreme Court and Delhi High Court decisions. These subsequent ITAT orders had also dismissed appeals filed by the Revenue against the respondent/assessee on similar questions of law. Therefore, the appeals before the High Court, which sought a decision by the ITAT, were rendered moot.

What were the facts?

The Revenue (Commissioner of Income Tax - International Taxation - 2) filed appeals against remand orders passed by the Income Tax Appellate Tribunal (ITAT). The ITAT had remanded the matters to the Assessing Officer to decide afresh the issue of taxation of copyrighted articles (software) in light of the Delhi High Court's decision in DIT vs. Infrasoft Ltd. The Revenue contended that the ITAT should have decided the issue itself rather than remanding it. Subsequent to the ITAT's remand orders, the Supreme Court upheld the Delhi High Court's decision in Infrasoft Ltd. The ITAT and other authorities have since decided the matter based on these pronouncements. The Delhi High Court noted that the present appeals challenging the remand orders have become infructuous.

What were the issues?

1. Whether the ITAT erred in remanding the matter to the Assessing Officer for fresh adjudication on the issue of taxation of software as a copyrighted article, instead of deciding the issue itself, considering the Delhi High Court's decision in DIT vs. Infrasoft Ltd.? (Question of law) Assessee's Contention (Implicit in the ITAT's order): The assessee argued that the taxation of software should be treated as a sale of a copyrighted article under Article 12(3) of the Indo-US DTAA, and not as royalty, based on the Delhi High Court's decision in DIT vs. Infrasoft Ltd. The lower authorities had not benefited from this decision when passing their orders. Revenue's Contention: The Revenue argued that the ITAT should have decided the issue of royalty itself, rather than remanding the matter to the Assessing Officer to apply the Infrasoft Ltd. judgment.

Which sections of the Income-tax Act were involved?

Article 12(3)

AI-generated summary — verify with the full judgment below

$~26 to 30 * IN THE HIGH COURT OF DELHI AT NEW DELHI 26 + ITA 268/2017 THE COMMISSIONER OF INCOME TAX- INTERNATIONAL TAXATION -2 ..... Appellant Through: Mr.Kunal Sharma, Sr.Standing Counsel with Ms.Zehra Khan, Jr.Standing Counsel and Mr.Shray Nargotra, Advocate. versus MOL CORPORATION ..... Respondent Through: Mr.Nageswar Rao, Advocate with Ms.Deepika Agarwal and Mr.Akshay Uppal, Advocates. 27 + ITA 270/2017 THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -2 ..... Appellant Through: Mr.Kunal Sharma, Sr.Standing Counsel with Ms.Zehra Khan, Jr.Standing Counsel and Mr.Shray Nargotra, Advocate. versus MOL CORPORATION ..... Respondent Through: Mr.Nageswar Rao, Advocate with Ms.Deepika Agarwal and Mr.Akshay Uppal, Advocates. 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 15/06/2026 at 01:23:16

28 + ITA 277/2017 THE COMMISSIONER OF INCOME TAX- INTERNATIONAL TAXATION -2 ..... Appellant Through: Mr.Kunal Sharma, Sr.Standing Counsel with Ms.Zehra Khan, Jr.Standing Counsel and Mr.Shray Nargotra, Advocate. versus MOL CORPORATION ..... Respondent Through: Mr.Nageswar Rao, Advocate with Ms.Deepika Agarwal and Mr.Akshay Uppal, Advocates. 29 + ITA 278/2017 THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -2 ..... Appellant Through: Mr.Kunal Sharma, Sr.Standing Counsel with Ms.Zehra Khan, Jr.Standing Counsel and Mr.Shray Nargotra, Advocate. versus MICROSOFT REGIONAL SALES CORPORATION.... Respondent Through: Mr.Nageswar Rao, Advocate with Ms.Deepika Agarwal and Mr.Akshay Uppal, Advocates. 30 + ITA 279/2017 THE COMMISSIONER OF INCOME TAX- INTERNATIONAL TAXATION -2 ..... Appellant Through: Mr.Kunal Sharma, Sr.Standing Counsel with Ms.Zehra Khan, Jr.Standing Counsel and Mr.Shray Nargotra, Advocate. 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 15/06/2026 at 01:23:16

versus M/S MICROSOFT REGIONAL SALES PTE. LTD...... Respondent Through: Mr.Nageswar Rao, Advocate with Ms.Deepika Agarwal and Mr.Akshay Uppal, Advocates. CORAM: HON'BLE MR. JUSTICE MANMOHAN HON'BLE MR. JUSTICE DINESH KUMAR SHARMA O R D E R % 13.05.2022 Present batch of appeals has been filed by the revenue challenging the remand orders passed by the Income Tax Appellate Tribunal (‘ITAT’). The relevant portion of one of the impugned orders is reproduced hereinbelow: “18. In view of the above facts it is apparent that after rendering of the decision of the tribunal based on which the reopening has been initiated by revenue and addition has been made in the hands of the appellant, the decision of the Hon’ble Delhi high court in case of DIT V versus Infrasoft limited covers the issue in favour of the assessee. As the lower authorities did not have any benefit of the decision of the Hon’ble Delhi high court while deciding the issue about the taxation of copyrighted article i.e. the software being sold by the appellant but have solely relied upon the decision of the coordinate bench in case of M/s Gracemac Corporation, it would be in the interest of the Justice to set the whole issue back to the file of the Ld.assessing officer to decide it afreash after considering the decision of Hon’ble Delhi high court DIT versus Infrasoft Ltd (supra), applying it to nature of the software of the appellant, which covers the issue with respect to the sale of software holding that according to article 12(3) of the Indo US DTAA, is a sale of ‘copyrighted article’, and is not chargeable to tax as ‘royalty’. In view of the above, ground No.3 to ground number 4.13.4 of the appeal of the assessee are allowed with above direction.” 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 15/06/2026 at 01:23:16

Learned counsel for the appellant/revenue submits that the ITAT instead of remanding the matter to the Assessing Officer to decide the issue of royalty in accordance with the judgment of this Court in DIT versus Infrasoft Ltd. should have decided the issue itself. It is pertinent to mention that after passing of the impugned orders by the ITAT, the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. Commissioner of Income Tax & Anr., 2021 SCC OnLine SC 159 has confirmed the view taken by this Court in DIT versus Infrasoft Ltd. In any event, in pursuance to the impugned remand orders, the Assessing Officer, Dispute Resolution Panel (DRP) as well as ITAT have decided the matter. In fact, the ITAT in its subsequent order dated 14th February, 2022 followed its own coordinate bench decision dated 16th November 2020, which order now stands confirmed by orders this court dated 7th March, 2022 and 15th March, 2022. Similarly, ITAT in its order dated 13th April, 2022 (passed during the pendency of the present appeals) has not only followed the decision of the Supreme Court Engineering Analysis Centre of Excellence Pvt. Ltd (supra) but has also followed the decisions of this Court dated 15th March, 2022 and 7th March, 2022 whereby the appeals filed by the Revenue against the respondent/assessee on similar questions of law were dismissed. Consequently, keeping in view the subsequent orders dated 14th February, 2022 and 13th April, 2022 passed by the ITAT deciding the issue of royalty, this Court is of the view that the present appeals challenging the orders of remand and seeking a decision by the ITAT are infructuous. In 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 15/06/2026 at 01:23:16

fact, some of the cross-appeals filed by the respondent/assessee against the same impugned orders have today been dismissed as infructuous. MANMOHAN, J DINESH KUMAR SHARMA, J MAY 13, 2022 TS 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 15/06/2026 at 01:23:16

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