This case concerns the appeal by MOL Corporation, USA against the order of the Assessing Officer under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961, following directions from the Dispute Resolution Panel (DRP) for Assessment Year 2017-18.
MOL Corporation, a US-based company and a subsidiary of Microsoft Corporation, is challenging adjustments made by the Indian Income Tax Department regarding revenues from software sales and cloud services deemed royalties and therefore taxable in India. The dispute focuses on the interpretation of royalty under the India – USA Double Taxation Avoidance Agreement (DTAA) and relevant Indian tax laws.
The primary contention revolves around whether the revenue from the sale of software and cloud services constitutes royalties. MOL Corporation argues that these transactions are sales of copyrighted articles, not transfers of intellectual property rights, and should be treated as business income, not royalty, exempt from taxation in India absent a permanent establishment. The case references several judicial precedents, including a landmark Supreme Court decision which the Income Tax Authorities are argued to have disregarded.
The Income Tax Appellate Tribunal (ITAT) in its decision, noted the consistent approach in the previous judgments involving similar issues, where revenue from software sales by entities under the Microsoft umbrella was not considered royalty. ITAT’s decision was influenced by the understanding that software sales do not confer akin rights that typically characterize royalties under the applicable DTAA provisions.
The ITAT sided with MOL Corporation, allowing the appeal and overturning the lower authority’s decision. This case highlights the complexities of international taxation and the interpretation of treaty provisions concerning royalties and business income.
ITA 554/DEL/2021: MOL Corporation, USA vs ACIT, Circle- 2(2)(1), Intl. Taxation, New Delhi
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