In ITA NO.6841/MUM/2017-ITAT- ITAT (Mumbai) holds that Microsoft Licenses do not fall under the category of Royalty or Copy Rights
Members Amit Shukla (Judicial) & S. Rifaur Rahman (Accountant) [01-03-2023]

Read Order: Atos IT Solutions v. DCIT (IT)-1(1)(2)

LE Correspondent

Mumbai, April 20, 2023: Allowing the claim of the assessee, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that Microsoft Licenses do not fall under the category of Royalty or Copy Rights.

Assessing Officer in the said case, had proposed the addition of Rs.7,55,89,549/- as fees received from Atos India being royalty as well as FTS. On the other hand, assessee contended that payments received by the assessee from Atos India are neither in the nature of ‘Royalties’ or ‘FIS’ under the Article 12 of the India-USA DTAA. The said payments are in the nature of ‘Business Profits’ under Article 7 of the India-USA DTAA and such business profits would have been taxable only if the assessee had a PE in India. But, since the assessee did not have PE in India, such receipts were not taxable in India.

The Tribunal observed that the license for usage of the copy righted products were with Microsoft only and the assessee had acquired global right and transferred the above said licenses to its group entities based on the requirements.

Reliance was placed on Engineering Analysis Centre of Excellence Private Limited v. The Commissioner of Income Tax & Anr [LQ/SC/2021/152], wherein Supreme Court held that “the amount paid by resident Indian end-user/distributors to non-resident computer software manufacturers/suppliers is not payment of royalty for use of copyright since the end-user/distributor does not get any of the rights under section 14 of the Copyright Act and does not get the right to reproduce a computer programme and exploit the reproduction by way of sale, transfer, license etc., which is at the heart of the definition of 'copyright' under the Copyright Act.”

Reliance was also placed on EY Global Services Ltd. v. ACIT [2022 441 ITR 54 (DEL)], In which the Delhi High Court held that “the payment received by EYGSL (UK) for providing access to computer software to its member firms of EY Network located in India, that is, EYGBS (India), does not amount to 'royalty' liable to be taxed in India under the provisions of the Income-tax Act, 1961 and the India-UK DTAA.”

Consequently, claim of the assessee was held to be proper and Assessing Officer was directed to delete the proposed addition.