This appeal, filed by Qliktech International AB, a company incorporated in Sweden, against the order of the Ld. CIT(A)-43, New Delhi, dated 1.11.2018, pertains to the assessment year 2014-15. The core issue in the appeal is the treatment of receipts from the sale of software as ‘royalty’ under Article 12 of the India-Sweden Double Taxation Avoidance Agreement (DTAA) and Section 9(1)(vi) of the Income Tax Act, 1961.
The appellant, Qliktech International AB, engaged in the business of selling software products and rendering IT services, entered into an agreement with its subsidiary, QlikTech India Private Ltd., for the sale of shrink-wrapped software to end-users in India. The appellant filed its return of income declaring NIL income. However, the Assessing Officer (AO) held that the entire receipts amounting to Rs. 7,01,62,491 from the sale of software products were taxable as royalty.
The appellant argued that the sale of software should not be treated as royalty. It contended that the software sold was a copyrighted article and not a transfer of copyright itself. The appellant relied on the Tribunal’s decisions in its own cases for the preceding assessment years, where it was held that the sale of software does not constitute royalty.
The DCIT (International Taxation) contended that the receipts from the sale of software were taxable as royalty, citing that the product delivered was more than just off-the-shelf software, involving the implementation of a process and transfer of commercial or industrial information.
The appellant emphasized the distinction between the transfer of a copyright and the sale of a copyrighted article. The rights transferred were specific to the use of the copyrighted material and did not involve the transfer of the copyright itself.
The appellant argued that the amendments to Section 9(1)(vi) brought by the Finance Act, 2012, could not be unilaterally enforced in the context of the DTAA, citing the Delhi High Court’s decision in DIT vs. New Skies Satellite BV.
The Tribunal noted that the facts of the case were identical to the previous assessment years where it had been decided that the receipts from the sale of software did not constitute royalty. The Tribunal relied on its earlier decisions and the rulings of the Delhi High Court in similar cases to conclude that the consideration received by the appellant for the sale of software could not be treated as royalty under both the Income Tax Act and the India-Sweden DTAA.
The Tribunal allowed the appeal, setting aside the order of the Ld. CIT(A) and holding that the sale of software products by Qliktech International AB to its Indian distributors for further sale to end-users is not in the nature of transfer of ‘copyright’ and therefore, not taxable as ‘royalty’. This decision underscores the importance of distinguishing between the sale of copyrighted articles and the transfer of copyright rights in the context of software transactions.
Order pronounced in the open court on 20th October 2020.
Shri R.K. Panda, Accountant Member
Ms Suchitra Kamble, Judicial Member
Copy forwarded to:
Assistant Registrar, ITAT, New Delhi
Appeal by Qliktech International AB vs. DCIT (International Taxation) on Software Royalty Taxation
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