The legal battle between Attachmate Corporation, USA, and the Assistant Commissioner of Income Tax (ACIT), International Taxation, Circle-1(1)(1), New Delhi, concerns the taxation of software payments as royalties. The appeal, ITA No. 06/Del/2021, addresses the interpretation of payments received from Indian distributors and resellers for software licenses and ancillary support, classified as royalties by the taxation authorities for the assessment year 2017-18.
The Tribunal’s decision was influenced by prior rulings and the landmark judgment by the Supreme Court in the case of Engineering Analysis Center of Excellence Pvt. Ltd., which clarified the non-taxability of software payments under the definitions provided in various Double Taxation Avoidance Agreements (DTAAs). This judgment highlighted that such payments do not constitute royalties as they do not transfer any copyright usage rights to the distributors or end-users.
The Tribunal directed the Assessing Officer to delete the addition made under the assumption of royalty payments, aligning with the established precedents that such payments are not royalties if no right in copyright is transferred. This interpretation aligns with international tax treaties and provides clarity on the tax obligations of foreign entities involved in software distribution in India.
Decision: The Tribunal allowed the appeal by Attachmate Corporation, directing the deletion of the alleged royalty addition. The case sets a significant precedent for the taxation of software transactions in India and the interpretation of treaty provisions regarding royalties.
Order pronounced on the open court on 29/09/2022.
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