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Royalty - The Right to Use vs The Right to Transfer


The Income Tax Appellate Tribunal (ITAT) has recently set aside an order passed by the Commissioner of Income Tax (Appeals) (CIT(A)) on the ground that the CIT(A) overlooked the difference between right to use a copyright and the transfer of the copyright. The ITAT by coming to the conclusion of setting aside the previous order interpreted the India Australia Double Taxation Treaty and the arrangement undertaken wherein no rights were granted by the Appellant in respect of the software to the dealers in India. The ITAT relied on the recent Supreme Court case of Engineering Analysis Centre for Excellence Private Limited vs Commission of Income Tax & Ors on this aspect which provided that a non-resident would be taxed under the charging section 9 read with section 4 of the Income Tax Act, 1961 and the double taxation treaty on transfer of copyright via a license which imposes restrictions on the use of such copyrighted software. The license in the given case was not within the ambit of section 30 of the Copyright Act 1957 as it did not provide any interest in any rights specified under section 14(a) and 14(b) of the Copyright Act. The ITAT opined that the CIT(A) overlooked the difference between the right to use a copyright as against the transfer of the copyright and therefore the concerned transaction between the parties shall not be liable to be taxed under the Income Tax Act, 1961 read with the applicable double taxation avoidance agreement. Additionally, the ITAT held that the merely providing access to a software wherein a subject matter of copyright is embedded without the right to exploit the copyright does not amount to use or right to use the copyright.


[1] Citrix System Asia Pacific Proprietary Limited vs The Income Tax Officer ITA Nos.2431 & 2432/Bang/2018.