Ixia Technologies International Ltd. Vs ACIT (IT) (ITAT Kolkata)
Conclusion: Consideration received by assessee for use of or for granting the right to use a computer software would not amount to royalty as the amount received by assessee towards sale of software was on account of sale of ‘copyrighted article’ and not on transfer of any ‘copyright right’.Hence, the said sale proceeds could not be characterised as ‘Royalty’ as per Article 12 of the India-Ireland DTAA.
Held: Assessee-company was a non-resident foreign company. The principal line of activity of the company was design, development, marketing, sales and support including warranty and maintenance of advanced software-based test systems and integrated suites of testing applications which seek to optimize networks and data centres to accelerate, secure and scale the delivery of applications and services for worldwide customers outside of the United States. AO was of the view that the consideration received by a non-resident entity for the licensing of copyrighted article/software, i.e. consideration for use of or for granting the right to use a computer software amounted to royalty under Article 12(3) of the India-Ireland DTAA. It was held since assessee`s case was covered by beneficial provisions of the India-Ireland DTAA, hence the retrospective amendment made in the provisions of section 9(1)(vi), which provides that royalty would include consideration for transfer of all or any rights in respect of any right property, (including granting of software)etc, will not override the provisions of the India-Ireland DTAA. It was noted that the retrospective amendment made in the Act could not override, the provision of Treaty as laid down in the case of Director of Income vs Nokia Networks OY reported in 358 ITR 259 (Delhi HC) and CIT Vs Siemens Aktiongesellschaft reported in 310 ITR 320. Thus, the amount received by assessee towards sale of software was on account of sale of ‘copyrighted article’ and not on transfer of any ‘copyright right’. The right to use any copyright in the software was never transferred by the company in favor of the Indian customers. Hence, the said sale proceeds could not be characterized as ‘Royalty’ as per Article 12 of the India-Ireland DTAA.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal filed by the assessee, pertaining to assessment year 2013-14, is directed against a fair assessment order passed by the assessing officer under section 143(3) / 153(1) / 144C(13) of the Income Tax Act, 1961 (in short the Act) dated 10.12.2016, which incorporates the direction given by the Hon`ble Dispute Resolution Panel u/s 144C(5) of the Act, 1961, dated 28.11.2016.
2. The grievance raised by the assessee are as follows:
1. That on the facts and in the circumstances of the case the order passed by the learned Assistant Commissioner of Income Tax (International Taxation)-Circle-1(2), (hereinafter referred to as learned Assessing Officer) and the directions of the learned Dispute Resolution Panel (hereinafter referred to as learned DRP) are erroneous and bad in law.
2. That on the facts and in the circumstances of the case the A.O. erred in taxing revenue earned by company, being a non-resident, from sale of software to Indian customers as ‘royalty’ and the learned DRP grossly erred in confirming the action of the A.O.
3. That on the facts and in the circumstances of the case the A.O. and the ld. DRP failed to appreciate that sale of software is not ‘royalty’ within the provisions contained in Article 12 of the India-Ireland DTAA.
4. That on the facts and in the circumstances of the case both the A.O. and the Learned DRP had failed to appreciate the difference between ‘copy righted article’ and ‘copyright right’ while holding the software income to be in the nature of Royalty.
5. That the assessee craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated here in above, either before or at the time of hearing of this appeal.
3. However, in this appeal the assessee has raised a multiple grounds of appeal, but at the time of hearing, the Solitary grievance of the Assessee has been confined to the issue whether the consideration received by a non-resident entity for the licensing of copyrighted article/software, i.e. consideration for use of or for granting the right to use a computer software amounts to royalty under Article 12(3) of the India-Ireland DTAA?
4. The brief facts qua the issue are thatassessee company,“M/s Ixia Technologies International Limited” is anon-resident foreign company registered in Dublin, Ireland. The principal line of activity of the company is design, development, marketing, sales and support including warranty and maintenance of advanced software based test systems andintegrated suites of testing applications which seek to optimize networks and data centres to accelerate, secure and scale the delivery of applications and services for worldwide customers outside of the United States.Theassessee company has filed a return of income for A. Y. 2013-14, on 29/11/2013, disclosing total income at Rs. 33,13,930/- being the receipts from rendering technical services. Later on, the assesse filed revised return declaring total income at Rs. NIL, vide revisedreturn dated 30/03/2015. The assessee claimed that it did not have PE in India. taxguru.in The assessee had receipts from various activities in India, it claimed income from these activities to be nil as the income did not accrue and arise in India. The total receipts are as under:
