INCOME TAX ACT, 1961

Section 90

Double taxation relief - Agreement between India and USA - Royalty under article 12(3) -

Assessee, based at USA, purchased a certain number of different software products and transferred some of them to the Indian group entity. AO taxed consideration received by assessee as royalty in terms of article 12(3) of Indo-US DTAA. Held: Assessee acquired only a limited right of user in respect of specific software products from PTC Inc. and two other vendors, which were in the nature of copyrighted articles. As such, there could not possibly be a situation of it passing on the copyright in them to its group entities. It hardly needs to be accentuated that no one can transfer a better right in a product than he himself has. Since assessee itself obtained only a limited access to the software products de hors the right to copy the same, the sequitur is that it could not have transferred anything more than that to its entities globally including India. Ergo, there could be no question of treating the amount received from the Indian entity on transfer of copyrighted articles as Royalty in the hands of the assessee within the meaning of article 12(3) of DTAA. Further, assessee did not have any permanent establishment in India, therefore, amount received could not be charged as business profits as well under DTAA.

Followed:Engineering Analysis Centre of Excellence (P) Ltd. v. CIT (2021) 432 ITR 472(SC) : 2021 TaxPub(DT) 1208 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

INCOME TAX ACT, 1961

Section 90

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