MICROSOFT REGIONAL SALES PTE. LTD.,SINGAPORE vs. ACIT, CIRCLE 2(2)(1), INTERNATIONAL TAXATION, DELHI

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ITA 2125/DEL/2023Status: DisposedITAT Delhi17 October 2023AY 2020-21Bench: SHRI SAKTIJIT DEY (Vice President), DR. B.R.R. KUMAR (Accountant Member)5 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that revenue earned from cloud services is not taxable as royalty under domestic law or the India-USA DTAA. This decision aligns with previous rulings and the dismissal of the Revenue's SLP.

What were the facts?

The assessee, Microsoft Regional Sales Pte. Ltd., appealed an assessment order regarding the taxability of cloud services receipts as royalty. The assessee argued that this issue was settled by previous tribunal and Supreme Court decisions in their favor.

What were the issues?

The primary issue was whether receipts from cloud services constitute royalty under Indian tax law and the applicable DTAA. The assessee contended that prior judicial pronouncements settled this matter.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, DELHI BENCH :H: DELHI

Before: SHRI SAKTIJIT DEY, VICE- & DR. B.R.R. KUMAR

For Appellant: Shri Akshay Uppal, Adv
Hearing: 01.10.2023Pronounced: 17.10.2023

O R D E R PER SAKTIJIT DEY, VICE PRESIDENT: Captioned appeal by the assessee arises out of final assessment order dated 27.06.2023 passed under Section 143(3) read with section 144C(13) of the Income-Tax Act,1961 pertaining to assessment year

2020-21, pursuant to directions of learned Dispute Resolution Panel (DRP).

2.

The dispute in the present appeal is relating to taxability of receipts from Cloud Services as royalty both under the domestic law as well as under India-USA Double Taxation Avoidance Treaty (DTAA). At the very outset, learned counsel appearing for the assessee submitted that the issue is squarely covered by the decision of Hon'ble Supreme Court in case of Engineering Excellence (P) Ltd. vs, CIT – 432 ITR 47 (SC).

He further submitted that in assessee’s own case in past assessment years, the Tribunal has consistently held that the revenue earned from Cloud Services is not taxable as royalty either under the domestic law or under the treaty provisions. He submitted, even, Hon'ble Supreme Court has dismissed the special leave petition filed by the Revenue in assessee’s own case on identical issue, in assessment years 2015-16, 2010-11 and 2017-18. Thus, he submitted, the issue stands squarely covered in favour of the Revenue.

3.

Learned Departmental Representative, though, fairly agreed with the aforesaid submissions of the assessee, however, he relied upon the observations of the Assessing Officer and learned DRP.

4.

Having considered rival submissions and perused the materials on record, we find that this is a recurring issue between the assessee and the Revenue from assessment years 2010-11 onwards. Beginning from assessment years 2010-11 till assessment year 2019-20, the Tribunal has consistently decided the issue in favour of the assessee by holding that the Revenue earned from Cloud Services, cannot be treated as royalty.

The latest order passed by the Tribunal on the issue is for assessment years 2018-19 and 2019-20 vide and 1913/Del/2023 dated 19.01.2023. It is further observed, the decision of the Tribunal in assessment years 2010-11 and 2017-18 has been upheld by the Hon'ble High Court. Even, the Hon'ble Supreme Court has dismissed the Special Leave Petitions filed by the Revenue raising identical issue of taxability of revenue earned from Cloud Services as royalty in assessee’s case. The orders of Hon'ble Supreme Court in this regard are placed in the legal compilation filed before us. Thus, in our considered opinion, the issue stands squarely settled in favour of the assessee.

5.

In view of the aforesaid, we direct the Assessing Officer to delete the addition.

6.

In the result, the appeal is allowed.

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