Bombay High Court The Commissioner Of Income Tax Ltu ... vs Reliance Industries Ltd on 23 July, 2024 2024:BHCOS:11775DB 31.ITXA576_2017.DOC Vidya Amin ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 576 OF 2017 WITH INCOME TAX APPEAL NO. 591 OF 2017 WITH INCOME TAX APPEAL NO. 2129 OF 2011 Commissioner of Income TaxLTU ... Appellant vs. M/s. Reliance Industries Ltd. ...Respondent Mr. Suresh Kumar for the appellant. Mr. Madhur Agarwal a/w. Mr. Ketan Dave, Mr. P.C. Tripathi i/b. A.S. Dayal & Associates for the respondent. _______________________ SOMASEKHAR SUNDARESAN, JJ. DATED: 23 July, 2024 _______________________ Oral Order (Per G. S. Kulkarni, J.) 1. These three appeals filed by the revenue under Section 260A of the Incometax Act, 1961 (for short "the Act") have raised a common question of law in the context of remittance made by the respondent/assessee to a foreign party in relation to the procurement by the assessee of software used in the business of the assessee. The revenue has held such payment to be liable to tax in India as royalties under the provisions of Section 9(1)(vi) of the Act. 2. At the outset, we may note that Income Tax Appeal(s) no. 576 of 2017 and 591 of 2017 have arisen from a common order dated 18 May, 2016 passed Page 1 of 11 23 July, 2024 31.ITXA576_2017.DOC by the Incometax Appellate Tribunal whereas Income Tax Appeal no. 2129 of 2011 has arisen from an order dated 26 November, 2010 passed by the Tribunal. As the appeals stand, the assessment years in question are 200405, 200708 and 200304 respectively. 3. In these appeals, the revenue has raised the following common question of law for consideration of the Court: "Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the payment for supply of software is not royalty in terms of Section 9(1)(vi) of the Act as Explanation 4 to Section 9(1)(vi) is not applicable retrospectively and no tax was required to be deducted by the assessee on such payment." 4. The facts are not in dispute. The assessee in the present case purchased software from a foreign entity based in Hongkong and Cyprus. The payments, which were made by the assessee to the foreign suppliers of such software, were considered by the revenue to be taxable in India as "royalties" under Section 9(1)(vi) of the Act and the same were treated as business expenditure, and for which, according to the Revenue, tax at source was required to be deducted under section 40a(i) of the Act. 5. As seen from the facts relevant to Income Tax Appeal No. 576 of 2017, the assessee had entered into Software License Agreements with Hewlett Packard Asia Pacific Ltd., Hong Kong (for short, "HP"). The assessee made an application to the Assessing Officer under Section 195 seeking remittance of Page 2 of 11 23 July, 2024 31.ITXA576_2017.DOC amounts to be paid in US$ without deduction of tax. The assessee contended that such payments being made by the assessee to the foreign suppliers did not amount to any royalty being paid. The Assessing Officer, however, was of the opinion that under such transaction, the assessee had only secured a licence to use the software and that the title or such interest in the software was not transferred to the payer/assessee. The Assessing Officer held that there was no question of sale of software, and that the payments made by the assessee for the import of software, were in the nature of royalty, as per the provisions of Sec