The dispute in ITA No. 714/DEL/2020 between the Deputy Commissioner of Income Tax, Circle-1(1)(1), International Taxation, New Delhi, and Avaya International Sales Ltd, Ireland, revolves around the tax treatment of payments received from software sales and automated services to Indian customers for the assessment year 2016-17.
Avaya International Sales Ltd, incorporated in Ireland and engaged in selling communication technology, contended that their earnings from software and services in India do not constitute ‘royalty’ or ‘fees for technical services’ (FTS) under the terms of the India-Ireland Double Taxation Avoidance Agreement (DTAA). The company argued that the software sold is a commercial product and not a licensable copyright, and that the automated services offered do not involve human intervention, thus falling outside the scope of FTS as defined by the DTAA.
The Income Tax Appellate Tribunal examined whether the receipts from software sales could be classified as royalties and if the automated services could be considered FTS under the DTAA. The tribunal noted prior judgments and international tax principles, eventually ruling that the software sales are not royalties and that the automated services provided do not qualify as FTS due to the lack of human intervention, aligning with the principles laid out in the India-Ireland DTAA.
The decision clarifies the tax obligations of foreign corporations in India regarding software sales and automated services, influencing how similar cases might be treated under international tax agreements. This ruling is significant for multinational corporations in the technology sector, providing a precedent on the interpretation of ‘royalties’ and ‘technical services’ within the context of DTAAs.
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