This case involves Perfetti Van Melle ICT & BV, represented by Sh. Deepak Chopra, Advocate, challenging the assessment of income as Royalty by the Assessing Officer under sections 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, relating to payments received for software licenses and ICT service charges taxed under the India-Netherlands Double Taxation Avoidance Agreement (DTAA).
Filing Date: 24th February 2021
Order Date: 28th February 2022
Judicial Member: Sh. Saktijit Dey
Accountant Member: Dr. B. R. R. Kumar
The appellant argued that the payments received for the use of SAP and Microsoft software should not be classified as Royalty under Article 12 of the India-Netherlands DTAA, emphasizing that the licenses provided did not transfer any ownership of copyright. The Departmental Representative, Mrs. Anupama Anand, contended that these payments qualify as Royalty as they involve the right to use the software, which is a copyright activity under the DTAA and the domestic law.
The Tribunal, in its final decision, supported the appellant’s stance, referencing the Supreme Court’s judgment in the case of Engineering Analysis Centre of Excellence Pvt. Ltd., which clarified the non-taxability of software payments as Royalty when there is no transfer of any right or interest that amounts to the use or right to use any copyright. The Tribunal overturned the earlier assessments and ruled in favor of Perfetti Van Melle ICT & BV.
This case is significant as it clarifies the tax implications of software license fees under the DTAA, influencing how multinational corporations structure their software and ICT service agreements with Indian entities to comply with the DTAA provisions and domestic tax laws.
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