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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF AUGUST, 2025 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND INCOME TAX APPEAL NO. 715 OF 2023 BETWEEN:
PR. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), KORMANGALA, BANGALORE.
THE INCOME TAX OFFICER WARD-1(1), BANGALORE INTERNATIONAL TAXATION, KORMANGALA, BANGALORE. …APPELLANTS (BY SRI. E.I. SANMATHI, SR. STANDING COUNSEL AND SRI SUSHAL TIWARI, STANDING COUNSEL)
AND:
M/S. MICRO FOCUS MARIGALANTE LTD., THE LAWN, 22-30, OLD BATH ROAD, NEWBARY RG 14 IQN, BERKSHIRE UNITED KINGDOM, PAN: AAFCE4838G. …RESPONDENT (BY SRI. VISHAL KALRA, ADV. FOR SRI P.D. ANKUR, ADV.)
THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 13/03/2023 PASSED IN IT(IT)A NO.877/BANG/2022, FOR THE ASSESSMENT YEAR 2019-20. PRAYING TO 1). DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER
Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA
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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
QUESTIONS OF LAW AS MAY BE FORMULATED BY THE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 13/03/2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEES CASE, IN APPEAL PROCEEDINGS IN IT(IT)A NO.877/BANG/2022 FOR A.Y 2019-20 (ANNEXURE-A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.G.PANDIT AND HON'BLE MR. JUSTICE K. V. ARAVIND
ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE K.V. ARAVIND)
Heard learned senior standing counsel Sri.E.I.Sanmathi and learned standing counsel Sri.Sushal Tiwari for appellants and learned counsel Sri.Vishal Kalra for Sri.P.D.Ankur, learned counsel for respondent.
The Revenue has preferred this appeal, assailing the order dated 13.03.2023 in IT (IT)A 877/Bang/2022 for the assessment year 2019-20 passed by the Income Tax Appellate Tribunal, “A” Bench, Bangalore (for short “Tribunal”).
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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
The Revenue has raised the following substantial questions of law:
Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature by holding that the payment made to non-resident entities in respect of purchase of software was not royalty and that the same did not give rise to income taxable in India and therefore, the petitioners were not liable to deduct tax at source under section 195 of the Act?
(2) Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature in holding that the payments made to non-resident entities were not in the nature of royalty as defined in Explanation 2 to Section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement as well?
(3) Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature in not considering contents of agreements entered by assessee with Indian Entity which established that assessing authority rightly treated 50% of the amount received by assessee from Indian Company as FTS as per section 9 of the Act.?
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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
The respondent-assessee, a non-resident filed return of income for the assessment year 2019-20. The Assessing Officer completed the assessment by order dated 25.07.2022 holding that the income received on account of sale of software is taxable as Royalty, as per the provisions of the Income Tax Act and also India-UK Double Taxation Avoidance Agreement.
The Tribunal, on appeal by the respondent-assessee, following the judgment of the Hon’ble Supreme Court in the case of ENGINEERING ANALYSIS CENTRE FOR EXCELLENCE PRIVATE LIMITED v/s CIT AND ANOTHER reported in (2021) 432 ITR 472 (SC) held that the income received on sale of software is not taxable as Royalty.
Sri.Sushal Tiwari, learned Standing Counsel appearing for the appellant-Revenue submits that in addition to sale of software, the respondent-assessee has provided other ancillary services namely, periodical
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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
upgrading of the software, etc., and the said services are not charged. It is submitted that without these ancillary services, the software cannot be used. With this submission, learned counsel also submits that the judgment of the Hon’ble Supreme Court in ENIGNEERING ANALYSIS (supra) is not applicable to the facts of the present case.
Sri.Vishal Kalra, learned counsel appearing for the respondent-assessee submits that the services rendered after sale of software is not resulted in transfer of copyright in the software. Hence, the law laid by the Hon’ble Supreme Court in ENGINEERING ANALYSIS is squarely applicable.
Having considered the submissions of the learned counsel for the parties, the Assessing Officer has held that the income received on account of sale of software as Royalty. The Dispute Resolution Panel considering that after sales services were rendered held that the case is
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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
distinguishable and the judgment of the Hon’ble Supreme Court in ENGINEERING ANALYSIS is not applicable. The Tribunal, on detailed analysis of the agreement in question, by following its earlier order wherein the judgment of the Hon’ble Supreme Court in ENGINEERING ANALYSIS was applied, held that the income from sale of software is not taxable as Royalty.
We have considered the finding recorded by the Assessing Officer and the Dispute Resolution Panel to distinguish the judgment of the Hon’ble Supreme Court. From examination it is clear that the post sale services rendered by the respondent-assessee has not resulted in transfer of any right in the copyrighted article. Hence, the law laid down by the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS is applicable. The Tribunal rightly applied the judgment of the Hon’ble Supreme Court and held that the income from sale of software is not taxable as Royalty in India as per the provisions of the
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HC-KAR NC: 2025:KHC:33054-DB ITA No. 715 of 2023
Income Tax Act and India-UK Double Taxation Avoidance Agreement.
We find no substantial questions of law arising from the order of the Tribunal to entertain this appeal. Accordingly, the appeal is dismissed.
Sd/- (S.G.PANDIT) JUDGE
Sd/- (K. V. ARAVIND) JUDGE
MPK CT:bms List No.: 1 Sl No.: 0