A mere cross charge of software for use in India, without transfer of copyright is not taxable in India: ITAT Delhi
GE Precision Healthcare LLC (ITA No.404/Del/2023)
- The assessee, a resident of USA, received an amount of Rs.10,66,35,790/- towards software licence fee cross charged to its affiliates in India. However, the software licence fee received as reimbursement from the affiliates was not offered to tax in India by the assessee.
- Assessing Officer held that the reimbursement of software licence fee is to be treated as income from other sources under section 56(1) of the Act and Article 23(3) of the tax treaty between India and USA.
- The assessee stated that the amount received, being in the nature of business income under Article 7 of India – USA DTAA, is not taxable in India in absence of a Permanent Establishment (PE).
ITAT Delhi held as below:
- The residuary provisions of Article 23 will not apply to items of income, which can be classified under other provisions of the tax treaty, but their taxability is subject to fulfillment of conditions mentioned therein.
- The receipts in dispute could have been characterized either as royalty income falling under Article 12 or business income under Article 7 of the tax treaty. However, in view of the ratio laid down in judicial precedents (decision of the Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. and the decision of Hon Bombay High Court in case of DIT Vs. Infrasoft Ltd, the income is not taxable as royalty.
- Alternatively, it could have been taxed as business income under Article 7 of the tax treaty. However, in absence of a PE, it cannot be taxed in India as business income too.
- Therefore, we direct the Assessing Officer to delete the addition.
The copy of the order is as under: