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IN THE HIGH COURT OF DELHI AT NEW DELHI
Manmohan, Dinesh Kumar Sharma, JJ.
Commissioner Of Income Tax International Taxation-2 - Appellant
Versus
Micro Focus Ltd. - Respondent
Income Tax Appeal No. 52 of 2022
Decided On : 15-03-2022
Income Tax - India-UK DTAA - Taxability of software receipts as royalty - Interpretation of Section 9(1)(vi) of the Income Tax Act, 1961 and India-UK DTAA
Fact of the Case:
The appellant filed an appeal challenging the judgment of the Income Tax Appellate Tribunal regarding the taxability of receipts from the sale of software as royalty under the India-UK DTAA.
Finding of the Court:
The court found that the questions of law raised in the appeal had been conclusively decided in favor of the respondent-assessee by the Supreme Court in a similar case, and therefore, no substantial question of law arose for consideration. The appeal was dismissed.
Issues: The issues revolved around the taxability of software receipts as royalty under the India-UK DTAA and the interpretation of Section 9(1)(vi) of the Income Tax Act, 1961.
Ratio Decidendi: The court applied the principle of judicial discipline, stating that the High Court is bound to follow the judgment and order of the apex Court till it is set aside, and dismissed the appeal based on the conclusive decision of the Supreme Court.
Final Decision: The appeal was dismissed as no substantial question of law arose for consideration in light of the binding judgment of the apex Court.
JUDGMENT
Manmohan, J . - Present appeal has been filed under Section 260a of the Income Tax act, 1961 (hereinafter referred to as 'act') for the assessment Year 2014-15 challenging the judgment and order dated 04th November, 2020 passed by the Income Tax appellate Tribunal, Delhi Bench 'D', New Delhi. The questions of law sought to be agitated by the appellant-Revenue in the present appeal are reproduced hereinbelow:-
'a. Whether on facts and circumstances of the case and in law, the ITaT erred in holding that receipts of the assessee from sale of software is not taxable as royalty under the India-UK DTaa?
B. Whether on the facts and circumstances of the case and in law, the ITaT was right in holding the Explanation 4 to Section 9(1)(vi) of the Income Tax act, 1961, would not apply to India-UK DTaa without considering the fact that Explanation 4 is reiteration of legislature view already expressed in Circular No.588 dated 2nd January, 1991 and Circular No.621 dated 19th December, 1991 which were issued prior to entry into force of India-UK DTaa?'
C. Whether the ITaT erred in not holding receipts of assessee as Royalty though as per Section 14(b)(ii) of India copyright act selling or giving on commercial rent any copy of computer programme is copyright?
D. Whether the ITaT erred in not appreciating that receipts by the assessee is ultimately due to use of software by end users and users use the software only as licensee?'
2. Learned counsel for the appellant fairly states that the aforesaid questions of law are covered by the decision dated 02nd March, 2021 passed by the Supreme Court in Engineering analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and anr., (2021) SCC OnLine SC 159.
3. He, however, states that the Revenue has preferred a review petition against the said order. He states that the present appeal has been filed to keep the matter alive.
4. Judicial discipline mandates that the High Court is bound to follow the judgment and order of the apex Court till it is set aside. The mere fact that the appellant-Revenue has filed a review application will not be a ground for the High Court to not follow the binding judgment of the apex Court.
5. Consequently, as the issues of law raised in the present appeal have been conclusively decided in favour of the respondent-assessee by the Supreme Court, no substantial question of law arises for consideration in the present appeal. accordingly, the same is dismissed.
The principle of judicial discipline mandates that the High Court is bound to follow the judgment and order of the apex Court till it is set aside.
The High Court upheld the ITAT's ruling that software receipts are not taxable as royalty under the India-UK DTAA, following binding Supreme Court precedent.
Payments for software deemed to be for copyrighted articles are not taxable as royalty, as established by precedent concerning copyright transfer under tax law.
The interpretation of the Income Tax Act, Indo US DTAA, and Copyright Act, 1957 in determining the taxability of software licensing in India.
A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use o....
Payments for software under licensing agreements do not constitute taxable royalty under Indian law, following precedent established by the Supreme Court.
Software licensing fees received by Indian distributors from foreign manufacturers do not constitute taxable royalty under the Income Tax Act and relevant treaties.
Licensing payments for software access do not constitute royalty and are not taxable under the Income Tax Act, affirming distinctions between rights of use and copyright transfer.
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