This case, ITA No. 1912/DEL/2022, reviews the income tax implications of cloud services revenue earned by Microsoft Regional Sales Pte. Ltd, argued to be non-royalty under the Income Tax Act, 1961 and the relevant Double Taxation Avoidance Agreements with the USA and Singapore.
The primary issue in this appeal is whether the cloud services revenue amounting to Rs. 544,41,77,571/- should be considered as royalty income taxable in India. The dispute arose from the interpretations by the Dispute Resolution Panel (DRP) and the Assessing Officer (AO) under sections 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
Judicial Member Saktijit Dey and Accountant Member Dr. B.R.R. Kumar delivered the ruling on January 19, 2023. The Tribunal addressed the complexities of international tax implications on cloud services and the procedural incongruities in the previous assessments. The ruling dissected the classification of cloud service payments and its implications under various tax treaties.
The Tribunal’s decision favored Microsoft Regional Sales, leading to the dismissal of the appeal for A.Y. 2018-19 as infructuous and allowing the appeal for A.Y. 2019-20. This case sets a significant precedent on the tax treatment of cloud computing revenues in India.
Order pronounced in the open court on 2023-01-19.
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