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IN THE HIGH COURT OF DELHI
Manmohan, Manmeet Pritam Singh Arora, JJ.
Microsoft Regional Sales Corporation, USA - Appellant
Versus
Deputy Director of Income Tax - Respondent
ITA 203 of 2017 & CM Appl. 18989 of 2022 and ITA 432 of 2019 & CM Appl. 20132 of 2019
Decided On : 19-05-2022
| Table of Content |
|---|
| 1. question of law regarding royalty on software (Para 1 , 2) |
| 2. appeals disposed as infructuous (Para 3) |
JUDGMENT
Manmohan, J. (Oral):
1. On 10th March, 2017, this Court had admitted the present batch of matters and framed the following question of law: "Whether in the circumstances of the case and placing reliance on the case of Director of Income Tax Vs. Infrasoft Ltd. [2014] 264 CTR 329, the remand on the question of royalty on shrink wrapped computer software was justified?"
2. Subsequently, in pursuance to the impugned remand orders, the Assessing Officer, Dispute Resolution Panel (DRP) as well as ITAT have decided the matter. In fact, the Income Tax Appellate Tribunal (`ITAT'), in remand proceedings has decided the issue of royalty in favour of MOL Corporation on 14th February, 2022 and M/S Microsoft Regional Sales Pte. Ltd.(MRSC) on 13th April, 2022 respectively.
3. In view of the subsequent orders passed by the ITAT, the present appeals are disposed of as infructuous.
The court determined appeals became irrelevant following favorable rulings on tax obligations by the Income Tax Appellate Tribunal.
Taxation of software sales classified as copyrighted articles is not subject to royalty under DTAA; remand for reassessment aligns with established legal precedents.
The court ruled that remand orders by the ITAT for reassessing royalty issues were appropriate and subsequent adjudications made the appeal infructuous.
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.
The main legal point established in the judgment is the application of the Supreme Court judgment in determining the classification of income under the 'royalty' definition.
Income from the supply of CAS and middleware products does not constitute 'royalty' under the Income Tax Act or the India-Swiss DTAA, as reaffirmed by the Supreme Court.
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