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May 2015

Non-resident -Taxability in India – Royalty – Section 9(1)(vi) – Income from supply of software embedded in hardware equipment or otherwise to customers in India – Does not amount to royalty –

By K. B. Bhujle Advocate
Reading Time 1 mins
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CIT vs. Alcatel Lucent Canada; 372 ITR 476 (Del):

The assessee, a non-resident, manufactured, traded in and supplied equipment and services for global system for mobile cellular radio. The assessee supplied hardware and software to various entities in India. The software licensed by the assessee embodied the process required to control and manage the specific set of activities involved in the business use of the customers. The software also made available the process to its customers, who used it to carryout their business activities. The Assessing Officer held that the consideration for supply of the software amounted to royalty u/s. 9(1)(vi) of the Incometax Act, 1961. The Tribunal held that the payment did not constitute royalty and, therefore, section 9(1)(vi) was not attracted and for the same reasons, article 13(3) of the DTAA s between India and France, Canada, Germany, China were not attracted.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“The income of the assessee from supply of software embedded in the hardware equipment or otherwise to customers in India did not amount to royalty u/s. 9(1)(vi).”

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