The Delhi Bench of the Income Tax Appellate Tribunal, in the case of Lucent Technologies International Inc v Dy CIT, adjudicated on the characterization of income with respect to software licences and has held such payments to be in the nature of business income.
Under a non-exclusive and non-transferable licence, Lucent supplied software to Indian mobile operators. The software was uploaded onto the handsets of the operators’ customers in order for them to have access to GSM facilities. The payments made by the operators to Lucent for the supply of software were alleged by the tax authorities to qualify as royalty payments and therefore liable for taxation in India. Relying on Motorola Inc, Ericsson Radio Systems AB and Nokia Networks OY v Dy CIT, the tribunal maintained that the transaction merely involved the transfer of a copy of the software. The operators only received a product in the form of software; there was no transfer of the intellectual property for the purpose of exploitation by the operators, in any manner whatsoever.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
