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CIT vs. Halliburton Export Inc (Delhi High Court)
July, 27th 2016

S. 9(1)(vi): Though in Infrasoft 220 Taxman 273 (Del) the impact of the amendment to s. 9(1)(vi) on the question whether consideration received for sale of pre-packaged software was “royalty” or “fee for technical services” or "business income" was not examined, it is not required to be examined because u/s 90 (3) provides that the Act prevails only if it is more beneficial compared to the DTAA

The Court had to consider whether the consideration received by the Assessee on sale of pre-packaged software was “royalty” or “fee for technical services” and was, therefore, not taxable as business income. HELD by the High Court dismissing the Department’s appeal:

(i) It is not in dispute that Article 12 (3) of the Double Taxation Avoidance Agreement (“DTAA”) between India and the United States of America (USA) is relevant for deciding the above issue.

(ii) The short question considered by the Court in Director of Income Tax v. Infrasoft Limited (2014) 220 Taxman 273 (Del) was whether the term “royalty” covered by Article 12 (3) of the DTAA would apply in the context of sale of pre-packaged copyrighted software. The Court stated that it has not examined the effect of the subsequent amendment to Section 9 (1) (vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial.

(iii) Section 90 (3) of the Act makes it clear in the context of an agreement (‘treaty’) for avoidance of double taxation, that it is only when the provisions of the Act are more beneficial to the Assessee the Act will prevail over the treaty. Conversely, where the provision of the treaty is more beneficial to the Assessee, the treaty would prevail over the Act. This legal position has been reiterated in Director of Income Tax v. Infrasoft Limited (supra) which was followed in dismissing the Revenue’s appeal in the Assessee?s own case for AY 2008-09 i.e. ITA No. 477 of 2014.


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