PCIT Vs Syna Media Limited (Karnataka High Court)
The Karnataka High Court, in the case of PCIT vs. Syna Media Limited, dismissed an appeal by the Income Tax Department, affirming that payments received by Syna Media Limited for software licenses and hardware were not taxable as royalty. This decision, concerning the assessment year 2021-22, was based on the premise that the agreements granted customers a non-exclusive and non-transferable license to use the software, but did not involve the transfer of any intellectual property rights (IPR). The court’s judgment aligned with the established legal principle that granting the right to use software, without the right to exploit its underlying copyright, does not constitute royalty income.
The dispute arose when the Assessing Officer (AO) classified approximately ₹14.27 crores received by the UK-based company as royalty under the India-UK Double Taxation Avoidance Agreement. The AO’s position was that these receipts, stemming from the supply of software licenses, hardware, and support services to various Indian customers, were taxable in India. However, the Assessee, Syna Media Limited, argued that these were not taxable under the provisions of the Income Tax Act, 1961.
The Income Tax Appellate Tribunal (ITAT) had previously ruled in favor of Syna Media Limited, noting that the agreements, such as the one with DEN Networks, clearly stated that the licenses were non-exclusive and non-transferable. The ITAT’s decision was consistent with its own earlier ruling on a similar issue for the same Assessee in a previous assessment year (2006-07).
