Case Law Details
UT Starcom Inc Vs ACIT (ITAT Delhi)
ITAT Delhi held that the receipts from sale of software licenses are not in the nature of royalty income. Also held that, though, such income may be in the nature of business profit, however, no part of which can be attributed to the PE in India.
Facts- The assessee is a non-resident corporate entity and a tax resident of USA. The assessee is engaged, inter alia, in the business of developing and marketing of telecommunication equipments and related software.
AO noticed that, though, the assessee had receipts of Rs.7,34,95,361/- from certain Indian companies, however, the assessee had not offered such receipts to tax. When AO called upon the assessee to explain, why such receipts should not be treated as royalty income, the assessee submitted that it had sold the software along with hardware on outright sale. The assessee submitted that the software sold by the assessee is embedded in the hardware and only for the purpose of operating hardware. Therefore, it cannot be treated as royalty.
However, AO concluded that the receipts from transfer of right to use the software are in the nature of royalty. Further, he held that since the assessee had a branch office in India and the agreements with the Indian telecommunication companies have been signed in India by an employee of the branch office, the royalty income is connected to the branch office, which constitutes Permanent Establishment of the assessee in India. Thus, he held that the receipts would be taxable in India, as royalty income, both u/s. 9(1)(vi) read with section 115A/44D of the Act as well as under the India- USA DTAA, since, the assessee had a PE in India in terms of Article 5 of the treaty.
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