ITAT: Consideration Received for Sale of Software products is not Royalty income; not taxable in the hands of assessee in India [Read Order]

The Income Tax Appellate Tribunal (ITAT) Pune, has ruled that the sale consideration received for the sale of software products from the end-users, distributors, or resellers is business income and not Royalty income, and as such it is not taxable in India.

The assessee NortonLifeLock Inc.(earlier known as Symantec Corporation) is a company incorporated under the law of the USA and is a non-resident from the Indian Income Tax perspective. During the year under consideration, the assessee earned income from the sale of software licenses to third-party customers in India. They filed a return of income declaring a total income at Nil in response to the notice under section 148 of the Act. The assessee being a resident of the USA adopted the beneficial provisions of the India-USA tax treaty. In the 148 proceedings, the Assessing Officer requested the assessee to furnish details of software products sold by the assessee to Indian customers and asked to submit why the receipts from the sale of software licenses in India should not be taxable as Royalty. It was explained that the assessee has received amounts to an extent of Rs.19,69,76,597/- from the sale of software licenses to its end-user customers in India either directly or indirectly through authorized distributors, resellers,s or service provider. Further, it was stated no customization of the assessee’s software has been done at the customer’s end except for integrating the software with the existing system. But the AO insisted it be taxable as royalty in India.

Judicial Member S.S. Viswanethra Ravi and Vice President R S Syal allowed the appeals of the assessee and held, “On an examination of distributors agreement held the distributors, except for passing over the assessee products as acquired by them from the assessee, do not acquire any right or title in the intellectual property used in the software which always remains with the assessee and at no stage, the right to use the copyright in the software is licensed either to the distributor or the reseller. Thereby this Tribunal held the income earned by the assessee from the sale of software, either directly to the customers in India or through distributors or resellers constitutes its business income and not the Royalty income, and as such business income is not taxable in India as the assessee did not have any Permanent Establishment in India.”

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