THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -2 vs. MICROSOFT REGIONAL SALES CORPORATION

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ITA/278/2017HC DelhiDLHC01088959201713 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 ITAT's remand orders 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 14th February 2022 and 13th April 2022, had already decided the issue of royalty in favour of the assessee, following the Supreme Court and Delhi High Court judgments. The High Court also observed that some cross-appeals filed by the assessee against the same impugned orders had been dismissed as infructuous. Therefore, the present appeals seeking a decision by the ITAT on the remanded issues were rendered moot.

What were the facts?

The Revenue (Commissioner of Income Tax - International Taxation - 2) filed a batch of appeals before the Delhi High Court challenging 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) sold by the assessee, considering the Delhi High Court's decision in DIT vs. Infrasoft Ltd. The Revenue contended that the ITAT should have decided the issue itself instead of remanding it. Subsequent to the ITAT's remand orders, the Supreme Court upheld the Delhi High Court's decision in Infrasoft Ltd. The ITAT, in later orders, decided the royalty issue in favour of the assessee, relying on the Supreme Court and Delhi High Court judgments. The High Court noted that some cross-appeals filed by the assessee against the same remand orders had already been dismissed as infructuous.

What were the issues?

1. Whether the ITAT erred in remanding the issue of taxation of copyrighted articles (software) to the Assessing Officer for fresh adjudication, instead of deciding the issue itself? (Question of law) Assessee's Contention: The judgment does not record any specific arguments made by the assessee regarding the ITAT's power to remand versus decide. However, the ITAT's order, as quoted, indicates that it was in the interest of justice to remand the matter to the Assessing Officer to consider the Delhi High Court's decision in DIT vs. Infrasoft Ltd. and apply it to the nature of the software sold by the appellant, which held that the sale of software is a sale of a 'copyrighted article' and not chargeable to tax as 'royalty' under Article 12(3) of the Indo-US DTAA. Revenue's Contention: The Revenue argued that the ITAT should have decided the issue of royalty itself, rather than remanding the matter back to the Assessing Officer to decide in accordance with the judgment of the Delhi High Court in DIT vs. Infrasoft Ltd.

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 01:24:16

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 01:24:16

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 01:24:16

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 01:24:16

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 01:24:16

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