In ITA No. 129/Bang/2023 – ITAT- Receipts from sale of software licenses with support services not Royalty, rules ITAT (Bangalore)
Members Chandra Poojari (Accountant) & Beena Pillai (Judicial) [18-05-2023]

Read Order: Cisco Systems International B.V v. The Deputy Commissioner of Income Tax

Chahat Varma

New Delhi, May 20, 2023: Partly allowing the appeal filed by Cisco Systems International B.V. (assessee), the Bangalore bench of the Income Tax Appellate Tribunal has held that the Commissioner of Income Tax (Appeals) had made an error in considering the receipts from the sale of software with support services as royalty.

Brief facts of the case were that the assessee, a company incorporated in the Netherlands, was involved in the manufacturing and sale of Cisco products, along with providing related support and services. The assessee contended that the Dispute Resolution Panel (DRP) and the Assessing Officer (AO) misinterpreted the provisions of the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and the Netherlands. The contention of the assessee was that the receipts from the sale of software licenses and support services should not be considered as income in the nature of royalty or fees for technical services (FTS). It was argued that the receipts were for the supply of copies of the software license, not for the provision of industrial, commercial, or scientific experience.

The Tribunal placed reliance on Engineering Analysis Centre of Excellence Private Limited v. The Commissioner of Income Tax & Anr [LQ/SC/2021/152], wherein the Supreme Court has held that the amounts paid by resident Indian end users/distributors to non-resident computer software manufacture/suppliers, as consideration for the resale/use of the computer software through EULAs /distribution agreements, is not the payment of ‘royalty' for the use of copyright in the computer software and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduce any TDS under section 195 of the Income Tax Act.