The Tax Publishers2021 TaxPub(DT) 0864 (Mum-Trib)

INCOME TAX ACT, 1961

Section 90

Software provided by assessee to its resellers/distributors was only for the purpose of resale/distribution to the end-user customer for use as a 'copyrighted article' (i.e., software product) with no right to use copyright embedded in the software, therefore, it could safely or rather inescapably be concluded that payments received by assessee from its distributors were in the nature of sales revenue and not 'royalty'.

Double taxation relief - Agreement between India and Finland - Royalty - Amounts received for distribution of specialized off-the-shelf software products.

Assessee based at Finland was engaged in development and marketing of specialized software products which were used in industries like building and construction, energy distribution and infrastructure management. In India, assessee marketed and distributed the specialized software products to the end-user Customers through a distribution channel consisting of subsidiary and a third party distributor. In order to distribute its software in India, assessee appointed Trimble Solutions India Private Limited (earlier known as Tekla India Private Limited) its wholly owned subsidiary as its non-exclusive resellers/distributors for the Indian territory. AO held that payments received by assessee for sale of specialized software and maintenance and support services (including upgrades) were in the nature of royalty. Held: Assessee exclusively owned all the Intellectual Property Rights (IPR's) in relation to the software, viz. 'Trimble software'. As per the respective 'agreements' entered into by the assessee with its resellers/distributors, the distributors did not use or had any right to use the copyright in the software programme. Accordingly, software provided by the assessee to its resellers/distributors was only for the purpose of resale/distribution to the end user customer for use as a 'copyrighted article' (i.e. software product) with no right to use copyright embedded in the software, therefore, it could safely or rather inescapably be concluded that payments received by assessee from its distributors were in the nature of sales revenue and not 'royalty'.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17



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