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DELHI HIGH COURT
MANMOHAN, MANMEET PRITAM SINGH ARORA
Commissioner of Income Tax-International Taxation-2 – Appellant
Versus
Mol Corporation – Respondent
| Table of Content |
|---|
| 1. taxation of software sales under indo-us dtaa. (Para 1 , 3) |
| 2. arguments on merits of itat remand. (Para 2 , 4) |
| 3. subsequent itat orders confirm prior decisions. (Para 5) |
| 4. appeal deemed infructuous. (Para 6) |
JUDGMENT
Manmohan, J. (Oral):
1. Present appeal has been filed by the Revenue challenging the remand order passed by the Income Tax Appellate Tribunal (`ITAT'). The relevant portion of the impugned order is reproduced hereinbelow:
"18. In view of the above facts it is apparent that after rendering of the decision of the tribunal based on which the reopening has been initiated by revenue and addition has been made in the hands of the appellant, the decision of the Hon'ble Delhi high court in case of DIT versus Infrasoft limited covers the issue in favour of the assessee. As the lower authorities did not have any benefit of the decision of the Hon'ble Delhi high court while deciding the issue about the taxation of copyrighted article i.e. the software being sold by the appellant but have solely relied upon the decision of the coordinate bench in case of M/s Gracemac Corporation, it would be in the interest of the Justice to set the whole issue back to the file
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 court determined appeals became irrelevant following favorable rulings on tax obligations by the Income Tax Appellate Tribunal.
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 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 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.
Payments for software under licensing agreements do not constitute taxable royalty under Indian law, following precedent established by the Supreme Court.
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