Case Law Details
CIT – International Taxation Vs DXC Technology Services Singapore Pte. Ltd. (Delhi High Court)
Introduction: The Delhi High Court recently ruled on an appeal filed by CIT – International Taxation-1 against DXC Technology Services Singapore Pte. Ltd. The appeal concerned the Assessment Year 2009-10 and focused on whether payments received for the sale/supply of software could be considered royalty under Article 12(3) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
Detailed Analysis: The dispute originated from the scrutiny-assessment of the respondent/assessee, leading to the inclusion of consideration received for the off-the-shelf sale of software in the taxable amount. The Assessing Officer (AO) treated this amount as royalty, resulting in an addition of Rs. 1,14,09,24,658/- to the taxable income.
However, the Tribunal, in its order dated 31.03.2022, disagreed with the AO’s interpretation. The Tribunal’s key finding was that the respondent/assessee had not transferred the copyright associated with the software, a crucial aspect in determining royalty. Citing the Supreme Court’s judgment in Engineering Analysis Centre of Excellence Pvt. Ltd. v CIT (432 ITR 471), the Tribunal concluded that the amount could not be considered royalty under Article 12(3) of the India-Singapore DTAA.
The Delhi High Court, in its assessment of the case, concurred with the Tribunal’s decision. Emphasizing the importance of the Supreme Court’s precedent and considering the factual findings, the court held that the impugned order did not warrant interference. The ruling affirms that payments received for the sale/supply of software in this context do not qualify as royalty under the applicable tax treaty.
Conclusion: The Delhi High Court’s decision serves as a precedent, clarifying the tax treatment of payments related to software transactions under the India-Singapore DTAA. This determination aligns with the legal position established by the Supreme Court and provides clarity on the scope of royalty in the context of software sales/supplies. As businesses navigate international tax implications, this case highlights the significance of specific treaty provisions and the need for a comprehensive understanding of legal nuances in cross-border transactions. The ruling contributes to the jurisprudence surrounding taxation of digital assets and intellectual property rights, offering guidance for future cases with similar considerations.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This appeal concerns Assessment Year (AY) 2009-10.
2. Via the instant appeal, the appellant/revenue seeks to assail the order dated 31.03.2022 passed by the Income Tax Appellate Tribunal [in short “Tribunal”].
3. The appellant/revenue has proposed the following question of law for consideration by this court:
“2.1 Whether on the facts and in the circumstances of the case and in law, the ld. ITAT is correct in holding that the consideration received by the Assessee from various entities on account of sale/supply of software is not royalty within the meaning of Article 12(3) of the Indo Singapore -DTAA?”
4. The record shows that the respondent/assessee was subjected to scrutiny-assessment which resulted in the consideration received qua off‑the- shelf sale of the software being brought to tax.
4.1. The addition made by the Assessing Officer (AO), in this regard, amounted to Rs.1,14,09,24,658/-. The AO construed the said amount received by the respondent/assessee as royalty.
5. The finding of fact returned by the statutory authority is that the respondent/assessee had not transferred the copyright it had qua the subject The Tribunal, with regard to the said issue, in our opinion, ruled correctly, in favour of respondent/assessee and concluded that the amount could not be treated as royalty within the meaning Article 12(3) of the India-Singapore Double Taxation Avoidance Agreement.
5.1. The Tribunal relied upon the judgment of the Supreme Court rendered in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. v CIT 432 ITR 471.
6. Having regard to the findings of fact and the enunciation of law by the Supreme Court in the aforementioned judgment, according to us, the impugned order does not require interference.
7. In our opinion, no substantial question of law arises for consideration. The appeal is, accordingly, closed.
8. Consequently, pending application is rendered infructuous.
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