Dassault Systemes SolidWorks Corporation Vs ACIT (ITAT Mumbai)
DTAA Overrides Domestic Law – Tribunal Quashes Royalty Addition on ₹151.83 Cr Software Sales; ITAT Mumbai: Sale of Shrink-Wrapped Software Not Taxable as Royalty – Relief to Dassault SolidWorks
Background
- Assessee, a US tax resident, develops & markets 3D mechanical design software.
- Entered into distribution agreements with Indian resellers who buy software & resell to end-users.
- For AY 2022-23:
Offered ₹29.7 lakh as royalty income (taxed @10% under Act).
Offered ₹66.7 lakh as interest on IT refund (taxed @15% under DTAA).
Did not offer ₹151.83 Cr. received on sale of shrink-wrapped software, contending it was business income, not royalty.
AO’s Stand
- Following past assessments, AO taxed the ₹151.83 Cr. as royalty u/s 9(1)(vi).
- Relied on retrospective amendment to sec.9(1)(vi) & earlier orders.
Assessee’s Arguments
- No rights in copyright transferred; only resale rights to distributors.
- Resellers/end-users had no right to reproduce or sub-license.
- Receipts were not “royalty” under India–USA DTAA, and DTAA overrides domestic law.
- Tribunal & Bombay HC in assessee’s own earlier years (AY 2005-06 to 2021-22) held in its favour.
- Supreme Court in Engineering Analysis Centre of Excellence (432 ITR 471) finally settled law that such software sales are not royalty.
Tribunal’s Observations
- Issue already covered in favour of assessee by:
SC in Engineering Analysis (2021).
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