The case ITA No. 616/DEL/2021 involves KONY INC., a US-based software company, appealing against the final assessment order pertaining to the assessment year 2017-18. This legal scrutiny unfolds within the complex domain of international taxation, focusing particularly on the applicability of royalties under the India-USA Double Taxation Avoidance Agreement (DTAA) and the concept of Fees for Included Services (FIS).
KONY INC., engaged in providing multi-channel application development platforms globally, disputed the Indian tax authorities’ stance on the taxability of its software license sales to Indian customers. The authorities classified these receipts as royalties, contrary to the company’s interpretation under the respective DTAA.
The tribunal revisited the definition of ‘royalty’ under the India-USA DTAA, aligning its interpretation with landmark judgments and international practices. Emphasizing the non-exclusive nature of the software licenses and the absence of any transfer of proprietary rights to Indian customers, the tribunal ruled that such receipts could not be deemed royalties.
This ruling not only impacts KONY INC.’s tax liabilities but also sets a precedent for the taxation of software licenses in cross-border transactions between India and the USA. The decision provides clarity on the distinction between copyright usage and actual transfer of rights, which is critical for software companies operating under similar DTAAs.
The tribunal’s decision in favor of KONY INC. reaffirms the need for a nuanced understanding of international tax treaties and their practical implications on modern digital transactions. It underscores the evolving nature of digital goods and services in global trade laws.
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