ING Vysya Bank Ltd vs. DDIT (ITAT Bangalore)

DATE: (Date of pronouncement)
DATE: September 5, 2011 (Date of publication)

Click here to download the judgement (ING_oracle_software_royalty.pdf)

Fee for user of software taxable as “Royalty”

ING Computer Lease, Belgium, entered into a license agreement with Oracle Netherlands B.V pursuant to which Oracle agreed to provide licenses for user of the Oracle data base software and technical support services for the ING group for a one-time payment. ING Computer lease entered into a sub-licensing agreement with the assessee pursuant to which the assessee paid its share of the said fees. The AO & CIT(A) held that the amount paid by the assessee was assessable as “royalty” under the India-Switzerland DTAA and s. 9(1)(vi) and that the assessee ought to have deducted tax at source u/s 195 & 201. On appeal by the assessee, HELD dismissing the appeal:

While the license to use the “shrink wrapped” or “off the shelf” software does not involve transfer of intellectual property, it constitutes “royalty” u/s 9(1)(vi) and Article 12(3) of the DTAA because it is for “the use of and the right to use of intellectual property such as copyright of a literary, artistic or scientific work or any patent, trade mark, design or model, plan etc“. Thus, the consideration received by Oracle for use of its software constitutes “royalty” and the assessee ought to have deducted tax at source.

Note: While the contrary view in Velankani Mauritius 132 TTJ 124(Bang) {which in turn followed Motorola 95 ITD 269 (Del) (SB) & Sonata 6 SOT 700 (Bang)} was noted, it was not dealt with. For a full discussion of the law see TII Team Telecom & Is Income From Software Taxable As “Royalty”?

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