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Income Tax Appellate Tribunal, “C’’BENCH: BANGALORE
Before: SHRI B. R. BASKARAN & SMT. BEENA PILLAI
Both the appeals filed by the assessee are directed against common order dated 21.1.2015 passed by Ld. CIT(A)-12, Bangalore and they relate to the assessment years 2008-09 & 2009-10. Since issue urged in this appeal is identical in nature, both the appeals were heard together and are disposed of by this common order for the sake of convenience.
IT(IT)A Nos.476 & 477/Bang/2018 Citrix Systems Asia Pacific Proprietary Ltd., Bangalore
Page 2 of 5 2. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the assessment of payments received by the assessee from its Indian customers in respect of licenses granted for use of copy righted computer software as royalty u/s 9(1)(vi) of the Income-tax Act,1961 ['the Act' for short].
The assessee company is a foreign company incorporated in Australia. The company is granting licenses for use of software programs. The assessee has entered into an agreement with independent Indian distributors for distribution and sale of its software licenses and hardware products in India. The assessee contended before the tax authorities that consideration received by it towards sale of software licenses in India is not taxable, since it does not have a Permanent Establishment in India.
The assessee company also filed an application before Authority for Advanced Ruling (“AAR”) for determining the taxability of consideration received by it from distributors towards sale of software programs in India. The AAR held that the consideration received by the assessee is royalty within the meaning of section 9(1)(vi) of the Act and also under Article 12 of DTAA entered between India and Australia. The AO also held the same view.
The assessee had received a sum of Rs.17.57 crores in assessment year 2008-09 and Rs.16.97 crores in assessment year 2009-10 towards sale of software licenses. Accordingly, the AO brought to tax the above said amounts in assessment years 2008- 09 and 2009-10 respectively. The Ld. CIT(A) also held that the above said payments constitute royalty in the hands of the assessee. Aggrieved, the assessee has filed these appeals before us.
IT(IT)A Nos.476 & 477/Bang/2018 Citrix Systems Asia Pacific Proprietary Ltd., Bangalore
Page 3 of 5 6. The Ld. A.R. submitted that the payments received on sale of software licenses have been held to be royalty by Hon’ble Karnataka High Court in the case of Samsung Electronics Co Ltd (345 ITR 494). However, the Hon’ble Delhi High Court has taken contrary view on the very same issue. The AAR also had expressed divergent views on the similar issue. He submitted that the decision rendered by the AAR in the assessee’s own case is reported as Citrix Systems Asia Pacific Ptyl Ltd (2012)(343 ITR 1)(AAR), wherein the AAR has taken the view that the impugned receipts are in the nature of “royalty”. However, the AAR had expressed a different view in the case of Dassault Systems, KK (2010)(322 ITR 125)(AAR), which is in the line expressed by Hon’ble Delhi High Court.
The Ld A.R submitted that the Hon’ble Supreme Court has consolidated all appeals arising from the orders passed by Hon’ble Karnataka High Court, Hon’ble Delhi High Court and the AAR. The Hon’ble Supreme Court has rendered its decision in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT (Civil appeal Nos.8733-8734 of 2018 dated 02.3.2021). The Ld. A.R. submitted that the decision rendered by AAR in the assessee’s case is referred in para 94 of the Hon’ble Supreme Court decision and in para 100, the Hon’ble Supreme Court has held that the decision rendered by the AAR in the assessee’s case does not constitute the law correctly and accordingly, it was set aside. Finally, the Hon’ble Supreme Court concluded that the software licenses sold by the assessee by way of distributor agreements/EULA (End user licence Agreements) do not create any interest or right in such distributor/End users, which would amount to the use of or right to use any copy right. Accordingly, it was held that the payment does not constitute royalty. Accordingly, the Ld. A.R. submitted that the assessments made by the A.O. in IT(IT)A Nos.476 & 477/Bang/2018 Citrix Systems Asia Pacific Proprietary Ltd., Bangalore
Page 4 of 5 both the years treating the payment received by the assessee on sale of software programmes as royalty are liable to be set aside.
We heard Ld. D.R. and perused the record. We notice that the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. has given its conclusion as under: “168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgement, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgement. 170. The appeals from the impugned judgements of the High Court of Karnataka are allowed, and the aforesaid judgements are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgements of the High Court of Delhi are dismissed.”
The Hon’ble Supreme Court has held that the payments received on sale of software licenses are not in the nature of royalty, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright under IT(IT)A Nos.476 & 477/Bang/2018 Citrix Systems Asia Pacific Proprietary Ltd., Bangalore
Page 5 of 5 12AA of India – Singapore DTAA. The Ld A.R submitted that the DTAA entered by India with Australia also contains similar provisions. Accordingly, following the decision rendered by Hon’ble Supreme Court in the above said case, we hold that the payments received by the assessee on sale of software licenses in India are not in the nature of “Royalty” as per the provisions of DTAA. As observed by Hon’ble Supreme Court in the above cited case, there is no requirement to apply provisions of sec. 9(1)(vi) of the Act to the instant case. Accordingly, We set aside the orders passed by Ld. CIT(A) on this issue in both the years and direct the A.O. to delete the income assessed as royalty in respect of sale of software licenses in both the years under consideration.