Case Number: ITA 845/DEL/2021
Appellant: MOL Corporation, USA
Respondent: ACIT, Circle- 2(2)(1), Intl. Taxation, New Delhi
Assessment Year: 2011-12
Result: 2011-12
Case Filed on: 2021-07-12
Order Type: Final Tribunal Order
Date of Order: 2022-09-21
Pronounced on: 2022-09-21
This appeal was filed by MOL Corporation, USA, against the order dated 26.03.2021 passed under section 144C(3) read with section 143(3)/254 of the Income-tax Act, 1961. The primary issue revolved around the taxability of revenue from the sale of software, which the Assessing Officer (AO) classified as ‘royalty’ income.
The appellant raised several grounds of appeal, summarized as follows:
The case was heard by the Delhi ‘D’ Bench of the Income Tax Appellate Tribunal (ITAT), with Shri Shamim Yahya, Accountant Member, and Shri Yogesh Kumar US, Judicial Member, presiding over the matter. The hearing was held on 11.08.2022, and the order was pronounced on 21.09.2022.
The appellant contested the AO’s classification of revenue from software sales as ‘royalty.’ The Tribunal referred to several judicial decisions, including the Supreme Court’s ruling in Engineering Analysis Centre of Excellence Private Limited vs. CIT, which established that revenue from software sales should not be treated as ‘royalty.’
The Tribunal also noted that in previous cases involving the appellant, the ITAT and the Delhi High Court had consistently ruled that such revenue does not constitute ‘royalty’ and should be treated as business income. These decisions were in line with Article 12 of the India-USA DTAA.
The Tribunal cited multiple decisions in favor of the appellant, including:
These rulings consistently held that the sale of software does not give rise to ‘royalty’ income and should be classified as business income, which is not taxable in the absence of a Permanent Establishment in India.
The appellant argued that the AO did not transfer the TDS credit claimed by MRS to MOL Corporation as directed by the DRP. The Tribunal directed the AO to examine this issue and pass an order according to the law.
The Tribunal also addressed the initiation of penalty proceedings under section 271(1)(c). Given the favorable rulings on the main grounds, the Tribunal found that the penalty proceedings were not justified.
The Tribunal concluded that the revenue from software sales should not be classified as ‘royalty’ and directed the AO to delete the related addition. The Tribunal also instructed the AO to resolve the TDS credit issue and ensure no incorrect demand is raised.
The order pronounced in the open court on 21st September 2022 was as follows:
Order pronounced in the open court on 21st September 2022
Sd/- Sd/-
(YOGESH KUMAR US) (SHAMIM YAHYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date: 21st September 2022
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. DRP
5. CIT(ITAT), New Delhi
Asst. Registrar, ITAT, New Delhi
MOL Corporation, USA vs ACIT: Taxability of Software Sale – Final Tribunal Order
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform