Payment received on account of supply of software products to independent third party re-sellers in India not royalties but business income

The applicant is a company incorporated in Japan and is engaged in the business of providing Products Lifecycle Management software solutions, applications and services. These software products are standardised and not customised or tailor-made. It markets its products in India through a distribution channel of third party re sellers comprising Value Added Re sellers (VAR) who resells the software to end-users.

The product is sold by the applicant to VAR at standard list price less discount. The VAR sells the product to the end-users at an independent price determined by them. The end-user enters into an End User License Agreement (^„EULA^?) with the applicant and the VAR for the product supplied. VAR gets the order from end-users and places a back-to-back order to the applicant. On acceptance of the order by the applicant, the applicant provides the license key via e-mail to the customer so that the customer will directly download the product through the web-link. The applicant has no presence in India whether through any employee or in the form of any office or place of business.

Question before AAR

Whether the payment received by the applicant from the sale of software products to independent third party re sellers will be taxable in India as business profits under article 7 of Indo- Japan Double Taxation Avoidance Agreement (DTAA) and will not constitute ^„royalties and fees for technical services^? per article 12 of DTAA?

Contentions of the applicant

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