ACIT Vs Informatica LLC (ITAT Bangalore)
Software Sale Not Royalty: Bangalore ITAT Follows Engineering Analysis, Rejects Revenue’s Plea Despite Review Petition
The Bangalore ITAT dismissed the Revenue’s appeal and reaffirmed that consideration received by a US software company from sale of software products and ancillary support services to Indian customers cannot be taxed in India as royalty or fees for technical services (FTS).
The assessee, a US-based software developer and distributor, had entered into agreements with Indian distributors, resellers and customers for supply of software products and support services. The Assessing Officer treated the receipts from software sales and support services as royalty/FTS taxable in India and completed the assessment accordingly.
The CIT(A) deleted the additions by following Tribunal orders in the assessee’s own cases for earlier years and relying upon the Supreme Court judgment in Engineering Analysis Centre for Excellence Pvt. Ltd. v. CIT (432 ITR 471), which held that payments for mere distribution or resale of software do not constitute royalty. The CIT(A) also held that ancillary support services were not taxable as FTS under the India–USA DTAA.
Before the Tribunal, the Revenue argued that the Supreme Court decision in Engineering Analysis had not attained finality because a review petition had been filed. However, the assessee pointed out that the Karnataka High Court had already upheld the Tribunal’s orders in its own case for other years and that the Supreme Court had subsequently dismissed the Revenue’s review petition on 11.05.2026.
The Tribunal observed that the Supreme Court had not only reversed the earlier Karnataka High Court rulings in Samsung Electronics and Synopsis International, but had also dismissed the review petitions, thereby confirming the finality of the law laid down in Engineering Analysis. Consequently, the receipts from software sales and support services could not be taxed as royalty or FTS in India. The Tribunal therefore upheld the CIT(A)’s order and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the revenue challenging the order of the NFAC, Delhi dated 04/09/2024 in respect of the A.Y. 2017-18.
