Case Law Details
ACIT Vs Informatica LLC (ITAT Bangalore)
Software Sale Not Royalty: Bangalore ITAT Follows Engineering Analysis, Rejects Revenue’s Plea Despite Review Petition
The Bangalore ITAT dismissed the Revenue’s appeal and reaffirmed that consideration received by a US software company from sale of software products and ancillary support services to Indian customers cannot be taxed in India as royalty or fees for technical services (FTS).
The assessee, a US-based software developer and distributor, had entered into agreements with Indian distributors, resellers and customers for supply of software products and support services. The Assessing Officer treated the receipts from software sales and support services as royalty/FTS taxable in India and completed the assessment accordingly.
The CIT(A) deleted the additions by following Tribunal orders in the assessee’s own cases for earlier years and relying upon the Supreme Court judgment in Engineering Analysis Centre for Excellence Pvt. Ltd. v. CIT (432 ITR 471), which held that payments for mere distribution or resale of software do not constitute royalty. The CIT(A) also held that ancillary support services were not taxable as FTS under the India–USA DTAA.
Before the Tribunal, the Revenue argued that the Supreme Court decision in Engineering Analysis had not attained finality because a review petition had been filed. However, the assessee pointed out that the Karnataka High Court had already upheld the Tribunal’s orders in its own case for other years and that the Supreme Court had subsequently dismissed the Revenue’s review petition on 11.05.2026.
The Tribunal observed that the Supreme Court had not only reversed the earlier Karnataka High Court rulings in Samsung Electronics and Synopsis International, but had also dismissed the review petitions, thereby confirming the finality of the law laid down in Engineering Analysis. Consequently, the receipts from software sales and support services could not be taxed as royalty or FTS in India. The Tribunal therefore upheld the CIT(A)’s order and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the revenue challenging the order of the NFAC, Delhi dated 04/09/2024 in respect of the A.Y. 2017-18.
2. The brief facts of the case are that the assessee is a company incorporated in the USA and is engaged in the business of developing, manufacturing and distribution of software products. The assessee company entered into agreements with the distributors / resellers / customers in India for supplying the software products and ancillary support services. The assessee filed their return of income declaring a Nil income and also claimed a refund. The assessee’s case was taken up for scrutiny and notice u/s. 143(2) was issued. During the scrutiny proceedings the AO asked for the details about the various payments received during the year from India whether the same was recognized as income or not. The AO also sought for the details about the reasons for not offering certain income for taxation. The assessee company submitted the details and submitted that they have received income from the sale of software products and from the sale of support services and the same is not taxable in India as per section 5 r.w.s. 9 and 90 of the IT Act. The AO not accepted the said claim and passed a draft assessment order on 05/07/2019 proposing to treat the aggregate amount received by the assessee as royalty / fee for technical services taxable in India. Thereafter the AO had confirmed the draft assessment order by passing a final assessment order on 30/08/2019.
3. As against the said order, the assessee filed an appeal before the Ld.CIT(A), Bengaluru -12. Before the Ld.CIT(A), the assessee had submitted that the sale of software could not be treated as a royalty and the reliance made by the AO on the Hon’ble Karnataka High Court judgments in the case of CIT vs. Samsung Electronics Co. Ltd. and CIT vs. Synopsis International Old Ltd. is not correct since the said judgments were under challenge before the Hon’ble Supreme Court. The assessee had also raised several grounds on merits and also relied on the DTAA between India and USA and submitted that the sale of software and sale of support services could not be treated as royalty under the Article 12 of the DTAA and therefore prayed to allow the appeal. The Ld.CIT(A) had considered the issue and also relied on the Tribunal order in respect of the assessee’s own case for the A.Ys. 2015-16, 2016-17 and 2020-21, had concluded that the sale of software could not be treated as royalty and ancillary support services could not be treated as FTS. The Ld.CIT(A) had extracted the finding of this Tribunal in the assessee’s own case for the A.Y. 2015-16 which was given by relying on the earlier orders of this Tribunal for the A.Y. 2016-17. In the earlier order of this Tribunal, the Tribunal had relied on the judgment of the Hon’ble Jurisdictional High Court in ITA No. 7/2019 in the case of NICE Ltd. wherein the Hon’ble Jurisdictional High Court had relied on the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471 and on that basis, the Ld.CIT(A) had decided the appeal relating to the A.Y. 2017-18.
4. As against the said order, the revenue filed this appeal. The revenue also subsequently filed a revised grounds of appeal and challenged the order of the Ld.CIT(A) on the ground that the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471 was not accepted by the revenue and to that effect, a review application was filed before the Hon’ble Supreme Court.
5. At the time of hearing, the Ld.AR of the assessee submitted that the levy of tax on the sale of software products and the sale of support services as royalty and FTS was deleted by the orders of the Tribunal which was challenged by the revenue before the Hon’ble High Court and the Hon’ble High Court had also confirmed the orders of the Tribunal in I.T.A. Nos 672 of 2023 and 277 of 2024 vide orders dated 08/10/2025 and therefore the finding given by this Tribunal in respect of the very same issue and also in respect of the very same assessee has to be followed and prayed to dismiss the appeal. The Ld.AR further submitted that the pendency of the review application before the Hon’ble Supreme Court against the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471 is not a ground for taking a different view in the current year and also brought to our notice that the review application filed by the revenue against the said judgment was also dismissed by the Hon’ble Supreme Court on 11/05/2026. The Ld.AR further submitted that the Hon’ble Supreme Court had dismissed the review applications by following the earlier order dated 23/04/2024 passed in the review petition (C) Diary No. 35475 /2023.
6. The Ld.DR relied on the revised grounds of appeal filed by the assessee and submitted that the order of the AO may be sustained.
7. We have heard the arguments of both sides and perused the materials available on record.
8. We have perused the assessment order in which the AO had treated the sale of software products as royalty and also the sale of support services as FTS by relying on the Hon’ble Jurisdictional High Court judgments CIT vs. Samsung Electronics Co. Ltd. and CIT vs. Synopsis International Old Ltd. Subsequently, the Hon’ble Supreme Court had reversed the said judgments of the Hon’ble Jurisdictional High Court by way of a judgment in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471. The said judgment was later on affirmed by the Hon’ble Supreme Court by dismissing the review petition filed by the revenue.
9. The Ld.CIT(A) had followed the orders of this Tribunal in the assessee’s own case in respect of the other years which were given by following the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471. The said judgment of the Hon’ble Supreme Court had also attained its finality by dismissing the review petition filed by the revenue. Therefore as on today, the law declared by the Hon’ble Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471 has to be accepted and on that basis, the order of the Ld.CIT(A) in allowing the appeal filed by the assessee is in order and it requires no interference.
10. We therefore, deem it fit to dismiss the appeal filed by the revenue.
11. In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 10tth June, 2026.
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