|DATE:||(Date of pronouncement)|
|DATE:||February 14, 2012 (Date of publication)|
|Click here to download the judgement (solid_works_software_royalty.pdf)|
Software Royalty: View in favour of assessee should be followed
The assessee sold “shrink-wrap application software” called “Solidworks 2003” to customers in India and claimed that the same was “business profits” and not assessable to tax as it did not a PE in India. The AO held that the income was assessable to tax as “royalty” u/s 9(1)(vi)/ Article 12(3) though the Tribunal (for an earlier year) reversed it on the ground that the product was a “copyrighted article” and not “copyright“. Before the Tribunal, the department claimed that the earlier view should not be followed in view of Samsung Electronics 203 Taxman 477(Kar) while the assessee relied on Ericsson AB 204 Taxman 192 (Del). HELD by the Tribunal:
The department’s argument that Ericsson AB 204 TM 192 was confined to a case where the software was embedded to the equipment is not correct. The Court did hold that consideration paid merely for right to use cannot be held to be royalty and the ratio would also apply when “shrink wrap” software is sold. Where two views are possible, the view in favour of the assessee has to be preferred. This principle is applicable to non-resident assessees as well in view of Article 24(1) of the DTAA (non-discrimination) which provides that nationals of a Contracting State shall not be treated less favourably than the nationals of the other Contracting State.