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Facts
The assessee, Halliburton Worldwide GmbH, received IP Charges and revenue from software sales. The Assessing Officer (AO) treated these as 'Royalty' taxable under Section 9(1)(vi) read with Section 115A of the Income Tax Act. The assessee contended that the IP charges were taxable as royalty under Article 12 of the Indo-Swiss DTAA at 10% inclusive of surcharge and cess, and software sales were business profits not taxable in India due to the absence of a Permanent Establishment (PE).
Held
The tribunal upheld the CIT(A)'s decision, ruling that the 10% tax rate on royalty under the Indo-Swiss DTAA is inclusive of surcharge and education cess. It also held that the revenue from software sales constituted business profits, not royalty, and was not taxable in India as the assessee did not have a PE, citing the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd.
Key Issues
The key legal issues were whether the 10% tax rate on royalty under the Indo-Swiss DTAA includes surcharge and cess, and whether revenue from software sales constitutes royalty or business profits taxable in India in the absence of a PE.
Sections Cited
Section 9(1)(vi), Section 9(1)(vii), Section 115A, Section 250
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Income Tax Appellate Tribunal, DELHI BENCH “DB”NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI SANJAY AWASTHI
सुनवाईक�तारीख/ Date of hearing: 11.02.2026 18.02.2026 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PERSANJAY AWASTHI, ACCOUNTANT MEMBER:
The present appeal arises from order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”), dated 16.09.2025, passed by Ld. CIT(A)- Noida-2. In this case, the Ld. AO is seen to have held the receipts on account of IP Charges received from Halliburton Offshore Services Inc. amounting to Rs.77,66,43,479/- to be in the nature of “Royalty” u/s 9(1)(vi) of the Act, which has been held to be taxable u/s 115A of the Act. Notably the assessee had claimed such receipts to be in the nature of “Royalty” in terms of Article 12 of the Indo-Swiss DTAA. Furthermore, the AO is seen to have held the receipts on account of sale of software amounting to Rs. 709,34,733/- also as “Royalty” u/s 9(1)(vi) of the Act, which is taxable u/s 115A of the Act. Here also the assessee had claimed such receipts to be non-taxable in India in the absence of PE in terms of Articles 5 & 7 of the Indo Swiss DTAA.
1.1 Aggrieved with this action, the assessee approached the Ld. CIT(A) where he could succeed in full, with all the additions deleted.The relevant portions from the CIT(Appeals) order deserves to be extracted as under: - “5.1.1 Vide these grounds of appeal
, the appellant has contended that on the facts and circumstances of the case, the AO has erred in not appreciating that the provisions of the Double Taxation Avoidance Agreement override the provisions of the income Tax Act, 1961. The appellant has that the AO has erred in law in characterizing the revenue received on account of IP Charges received from Halliburton Offshore Services Inc. amounting to Rs.77,66,43,479/- as royalty under section 9(1)(vi) of the Act taxable u/s 115A of the Act, as opposed to the claim of the appellant that such receipts are in nature of royalty receipt in terms of Article 12 of Indo-Swiss DTAA. ……………… 5.1.3 I have carefully gone through the facts of the case, submissions of the appellant and case laws relied upon by the appellant. During the year under consideration, the appellant had received IP Charges of Rs.77,66,43,479/- from Halliburton Offshore Services Inc. and it has offered the same to tax as royalty receipt in terms of Article 12 of Indo-Swiss DTAA. The AO in the assessment order has taxed the same @ 10% u/s 115A of the Act. The appellant has argued that tax rate applicable as per Indo-Swiss treaty is also 10% but the same is inclusive of surcharge and education cess. 5.1.4 On critical examination of facts, it is noted that the appellant has no PE in India and this fact is not under dispute. Since, the appellant has no PE in India, the appellant is free to adopt beneficial rate of taxation as per DTAA or under the Income-tax Act in respect of IP charges received from Halliburton Offshore Services Inc. The appellant had offered the said receipts to be taxable under DTAA. Careful reading of provisions of DTAA between India and Swiss Government provides that royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or the fees for technical services. 5.1.5 Now, the issue comes that such tax of 10 per cent of the gross amount of the royalties or the fees for technical services will be 2 inclusive of surcharge and education cess or not. In this regard, reference is made to Article 2 of Indo-Swiss DTAA reads as under: “ARTICLE 2: Taxes covered-
1. The taxes to which this Agreement shall apply are: (a) in the case of India: the Income tax including any surcharge thereon, and f (b) in the case of Switzerland: the federal, cantonal and communal taxes on income (total income, income from capital, industrial and commercial profits, capital gains, and other items of income).
2. The Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1 of this Article.
3. In this Agreement, the term "Indian tax" means tax imposed by India, being tax to which this Agreement applies, the term "Swiss tax" means tax imposed in Switzerland, being tax to which this Agreement applies; and the term "tax" means Indian tax or Swiss tax, as the context requires, but the taxes in the preceding paragraphs of this Article do not include any penalty or interest imposed under the law in force in either Contracting State relating to the taxes to which this Agreement applies.
4. The competent authorities of the Contracting States shall notify to each other any significant changes which have been made in their relevant respective taxation laws.” It is thus evident from Article 2(1)(a) that the 10% rate is inclusive of the surcharge. Further, Article 2(2) clarifies the position in respect of education cess as the same was introduced after the Indo-Swiss treaty. As per Article 2(2), the Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the Agreement. Further, careful reading of the case laws relied upon by the appellant also support the stand of the appellant that tax shall not exceed 10 percent of the gross amount of the royalties or the fees for technical services. 5.1.6 In view of the above discussion and judicial precedents laid down by higher Authorities, it is construed that no tax over and above of 10% of the gross amount of the royalties or the fees for technical services is chargeable on receipts of Rs.77,66,43,479/- received by the appellant from Halliburton Offshore Services Inc. on account of IP Charges. Grounds of appeal
are allowed in favor of the appellant.” “5.2.1 Vide these grounds of appeal, the appellant has contended that on the facts and circumstance of the case, the AO has erred in law in 3 not appreciating that in the absence of PE in India, the business profits cannot be brought to tax in India. Further, the appellant has contended that the AO has erred in law in characterizing the revenue received on account of sale of software amounting to Rs.70,934,733 to be royalty under section 9(1)(vi) of the Act as opposed to the claim of the appellant that such receipts are business profits and not royalty under Article 12 of the DTAA between India and the Swiss Confederation. The appellant has alternatively contended that the AO has erred in characterizing the revenue on account of software sale amounting to INR 70,934,733 as fees for technical services under section 9(1 )(vii) of the Act as opposed to the claim of the appellant that its business profits in the absence of PE are not chargeable to tax in India………….. 5.2.3 During the year under consideration, the appellant has undertaken four contracts with Indian Companies. Out of these four contracts, two contracts were signed with Reliance Industries Limited, one contract with Oil India Limited and one contract with Norscot Drilling and Production Pvt. Ltd. The details of the contracts alongwith scope of work awarded to the appellant is as below:
1. Contract number 048/7594011 and Contract number MGA/440000341: The two contracts were signed between the appellant and Reliance Industries Limited wherein the scope of work awarded to the appellant was for supply of decision space desktop (DSD) and for supply of Software - Openwell Reporter, As per appellant’s submissions, the two contracts are non-exclusive, non-transferable, perpetual, irrevocable, royalty free, unlimited, worldwide, license to use the Software solely for Reliance's own internal business purpose (the "License") and the License granted shall not include the right to sublicense, resell (whether by duplication or otherwise) or otherwise transfer the Software under any circumstances, except as expressly permitted.
2. Contract number 7950005/LCP: This contract was signed between the appellant and Oil India Limited wherein, the scope of work awarded to the appellant was for supply of software/license for up gradation of existing landmark Software.
3. Contract number PO-NDPPL-MUM-P-1516-76: NorscotDrilling and Production Pvt. Ltd entered into a contract with the appellant wherein, the scope of work awarded to the appellant was for Provision of SK tabular advance package(EDM is a prerequisite includes Well Cat Prod. Drill, Tube Casing and Multax). As per the submissions of the appellant, EDM software provides a single platform for detailed operations and engineering workflows that can manage the broadest range of well data in one database, with robust data management tools and enterprise- grade security.” 5.2.4 I have carefully gone through the facts of the case, submissions of the appellant and case laws relied upon by the appellant. With respect to contracts signed with Reliance Industries Limited by the Appellant, it is noted that contracts were signed for providing license to use decision space desktop (DSD) software and Openwell Reporter software. On perusal of purchase order in respect of contracts signed with Reliance Industries Limited by the Appellant, it is noted that no copyright was transferred by the appellant. Similarly vide contract signed with Oil India Limited, the appellant has not transferred any copyright but supplied software/license for up gradation of existing landmark Software. On perusal of the purchase orders of Reliance Industries Limited and Oil India Limited it is noted that if the software maintenance service is required by Buyer from installation date, the buyer shall place separate work order with the affiliate of seller that is registered to operate in India. Thus, no AMC charges were included in the said purchase orders. On perusal of purchase order of Norscot Drilling & Production Pvt. Ltd., it is noted that the appellant had provided EDM software to the buyer. Purchase order is of one page wherein no terms and conditions are mentioned. As per appellant’s submissions, EDM software provides a single platform for detailed operations and engineering workflows that can manage the broadest range of well data in one database, with robust data management tools and enterprise-grade security. 5.2.5 From the above discussion, it is clear that revenue received by the appellant was neither for transfer of copyright nor it was fee for technical services as exclusive and non-transferable license enabling the use of a copyrighted product, if any, cannot be construed as an authority to enjoy any or all of them enumerated rights ingrained in a copyright. Further, it is noted that the issue is no more res-integra as the same has been decided by Hon’ble Supreme Court in the case ofEngineering Analysis Centre of Excellence (P.) Ltd. v. CIT (2021) 125 taxmann.com42/281 Taxman 19/432 ITR 471 wherein it was held that the amounts paid byresident Indian end-users/distributors to non- resident computer softwaremanufacturers/suppliers, as consideration for the resale/use of the computer softwarethrough distribution agreements, is not the payment of royalty for the use of copyrightin the computer software, and that the same does not give rise to any income taxablein India. 5.2.6 In view of the above discussion and following the ratio of decision of the Apex Court as discussed above, it is held that revenue received by the appellant from sale of computer software is business profit and the same is not taxable in India as the appellant does not have a PE in India. Hence, the addition of Rs.7,09,34,733/- made by the AO is deleted. Grounds of appeal
raised are allowed in favor of the appellant.” 1.2 Aggrieved with this order of Ld. CIT(A) the Revenue has approached the ITAT with the following grounds: -
1. Whether on the facts and in the circumstances of the case, the GIT (A) has erred in law by not considering the fact that the tax includes surcharge and has wrongly interpreted the Articles of DTAA and Income-tax Act by holding that 10% rate is inclusive of surcharge while computing income under Article 12 of the DTAA.
2. Whether on the facts and in the circumstances of the case, the CIT (A) has erred in law by overlooking that the activities carried out by the assessee did not fall in the exclusion clause of section 9(1)(vii) of the Act.
3. Whether on the facts and in the circumstances of the case, the CIT(A) has erred, in law in ignoring f activities and scope of work as per the contracts of the assessee in arriving at conclusion that the receipts of the assessee were not in the nature of technical service u/s 9(1)(vii) of the Act.
4. The Appellant craves leave to add, amend, alter vary and / or withdraw any or all the above grounds of appeal
.”
2. Before us, the Ld. DR read out various portions from the Ld. AO’s orders and supported the finding on facts.
2.1 Per contra, the Ld. AR relied on the findings in the Ld. CIT(A) order and also placed on record a judgment rendered by the Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. [2021] 125 taxmann.com 42 (SC). Incidentally this judgment has also been relied on by the Ld. CIT(A) (para 5.2.5 at page 18 thereon). The Ld. AR also relied on a coordinate bench order in the case of FCC Co. Ltd. [2022] 145 taxmann.com 649 (Del – Trib.), to canvass the point that levy of surcharge and cess over and above the taxable rate of 10% on “Royalty” and FTS is not permissible as per the tax treaty provisions.
We have considered the arguments of Ld. DR/AR and have gone through the records before us. It is seen that the ground no.1 is covered against the Revenue in terms of the clear finding given in the FCC Company Ltd. case (supra). It is clearly mentioned in para 9 of this order as under: - “9. Having considered rival submissions, in principle, we accept assessee's contention that levy of surcharge and cess cannot exceed the tax rate of 10% as per India - Japan DTAA. Article 12 of India - Japan tax treaty provides that the tax to be charged on royalty and FTS shall not exceed 10% of the gross amount of royalty or FTS. Article 2 of the tax treaty defines tax in India as income tax including any surcharge thereon. Therefore, article 12 read with article 2 of the tax treaty makes it clear that the rate of tax at 10% would encompass surcharge 6 and education cess as it is also in the nature of surcharge. Therefore, we hold that levy of surcharge and cess over and above the taxable rate of 10% on royalty and FTS is not permissible as per the treaty provisions. While coming to sue conclusion, we are well supported by the following decisions…………………” 3.1 Regarding the grounds 2 & 3 pertaining to the issue of license to use proprietary software, we support the funding of Ld. CIT(A) (supra), especially also following the judgment rendered by the Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (supra), whereby the issue has been decided as under: - “CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, 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.
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 judgment.”
Considering the discussion above, the three substantive grounds of Revenue are hereby dismissed. In the result, the appeal is dismissed.