The Income Tax Appellate Tribunal Pune Bench has determined that there is no income tax payable on the sale of software licences, support, or maintenance because it is not a royalty under the India-Singapore Tax Treaty.
The assessee, BMC Software Asia Pacific Ltd., is a Singapore-based firm that is a Singapore tax resident; as a result, the assessee is a non-resident of India for income tax purposes. The assessee reported revenue of Rs.130,20,15,830/- from the sale of software licences as well as support, maintenance, and training services.
The AO issued a notice under sections 143(2) and 142(1) of the Act after conducting an investigation. According to the AO, the stated receipts are in the nature of royalties and are subject to taxation under section 115 of the Act or Article 12 of the India-Singapore DTAA. It was argued that the assessee did not possess the software licences and did not have access to change the source codes in software programming techniques, among other things.
The AO did not accept the assessee’s representations and found that the assessee’s receipts from the sale of software licences are taxable as royalties at a rate of 10% under Article 12 of the DTAA between India and Singapore.
The Coram, led by President R.S.Syal and Judicial Member S.S.Vishwanethra Ravi, found that the receipt of Rs.130,20,15,830/- from the sale of software licences and support services is not taxable under Section 9(1)(vi) of the Act, in accordance with Article 12 of the India-Singapore DTAA. As a result, the AO/ACIT (IT), Circle-1, Pune’s final assessment order dated 09-10-2019 is set aside, and the assessee’s main issue is accepted.