Case Law Details
DCIT Vs Dassault Systems Biovia K.K. (ITAT Delhi)
Introduction: The recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi in the case of DCIT Vs Dassault Systems Biovia K.K. clarifies the taxability of income from the sale of software products under the India-Japan Double Taxation Avoidance Agreement (DTAA). The tribunal ruled that such income does not constitute royalty and is not taxable under Article 12 of the DTAA. Here’s a detailed analysis of the judgment.
Detailed Analysis: The appeal before the ITAT stemmed from the Revenue’s challenge against the Commissioner of Income Tax (Appeals)’s decision, where it was held that the consideration received by the assessee from Indian end customers for the sale of software products does not constitute royalty income. The Revenue contended that the income should be taxed under Article 12 of the India-Japan DTAA.
However, the ITAT upheld the CIT(A)’s decision, citing previous judgments and the settled legal principle established by the Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited Vs CIT. The tribunal noted that the sale of shrink-wrapped software does not qualify as royalty income, as it does not involve the transfer of rights in relation to copyright or the right of use in the copyright.
Furthermore, the ITAT highlighted that the Revenue itself accepted the non-taxability of similar receipts in previous assessment years, consistent with the Supreme Court’s ruling in the Engineering Analysis case. Based on these precedents and legal principles, the ITAT concluded that the income from the sale of software licenses subscription is not taxable as royalty under the India-Japan DTAA.
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