Introduction
The income tax treatment of cross-border software transactions has long been a contentious issue, with tax authorities often seeking to characterize software sale proceeds as royalty or fee for technical services (FTS) to bring them within the tax net. The instant case, Assistant Commissioner of Income Tax, International Taxation, Circle – 1(2), Bangalore v. M/s. Informatica LLC (IT(IT)A No. 2227/Bang/2024, Assessment Year 2017-18), provides a definitive resolution to such disputes in the light of the binding precedent set by the Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. v. CIT (432 ITR 471). This commentary analyzes the ITAT Bangalore Bench’s decision delivered on 10 June 2026, which dismissed the Revenue’s appeal and affirmed the CIT(A)’s order that software product sales and ancillary support services are not taxable as royalty or FTS under the Income Tax Act, 1961 (‘the Act’) or the India-USA Double Taxation Avoidance Agreement (DTAA).
Facts of the Case
The assessee, Informatica LLC, is a company incorporated in the United States of America, engaged in developing, manufacturing, and distributing software products. For the Assessment Year (AY) 2017-18, the assessee filed a return of income declaring nil income and claimed a refund. During scrutiny, the Assessing Officer (AO) required the assessee to explain why various receipts from India – from sale of software products and sale of support services – should not be recognized as income. The assessee contended that these receipts were not taxable in India under section 5 read with section 9 and section 90 of the Act.
The AO, however, passed a draft assessment order on 5 July 2019 proposing to treat the aggregate amount as royalty / FTS taxable in India. This was confirmed in the final assessment order dated 30 August 2019. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)], Bengaluru – 12, relying on the ITAT’s own orders for the assessee’s earlier years (AY 2015-16, 2016-17, and 2020-21) and the Supreme Court’s decision in Engineering Analysis, concluded that the sale of software cannot be treated as royalty and ancillary support services cannot be treated as FTS. The Revenue then appealed to the ITAT.
Reasoning of the ITAT
The ITAT’s reasoning is concise yet legally robust, and it directly addresses the core issues raised by the Revenue.
1. Binding Precedent of the Supreme Court
The Tribunal first examined the assessment order, which had relied on two judgments of the jurisdictional Karnataka High Court – CIT vs. Samsung Electronics Co. Ltd. and CIT vs. Synopsis International Old Ltd. – to characterize software sales as royalty. The Tribunal noted that those High Court decisions were subsequently reversed by the Supreme Court in Engineering Analysis Centre for Excellence Pvt. Ltd. v. CIT (432 ITR 471). The Supreme Court held that the sale of computer software, even when bundled with support services, does not constitute ‘royalty’ under the Act read with the DTAA. This is a watershed judgment that overruled earlier divergent High Court decisions.
The Tribunal emphasized that the Supreme Court’s judgment has attained finality. The Revenue had filed a review petition against the judgment, but that review was also dismissed by the Supreme Court on 11 May 2026, following the earlier order dated 23 April 2024 dismissing a similar review petition (Diary No. 35475/2023). Therefore, the Tribunal rightly rejected the Revenue’s revised ground that the judgment was “not accepted” by the department. A pending review does not suspend the binding force of a Supreme Court decision; once the review is dismissed, no scope remains for any alternative interpretation.
2. Consistency with Assessee’s Own Precedent
The CIT(A) had faithfully followed the ITAT’s orders for the assessee’s own case for AY 2015-16, 2016-17, and 2020-21. Those orders, in turn, relied on the Engineering Analysis judgment. The Tribunal noted that the Revenue had challenged those earlier orders before the Hon’ble High Court, and the High Court had confirmed the Tribunal’s orders in I.T.A. Nos. 672 of 2023 and 277 of 2024 vide orders dated 8 October 2025. This absolute consistency across multiple years underscores that the issue is no longer res integra. The Tribunal’s decision in the present appeal merely follows the well-settled law applicable to the very same assessee.
3. Rejection of Revenue’s Arguments
The Revenue’s reliance on a pending review petition was rejected as meritless. The Supreme Court’s decision is the law of the land, and its dismissal of the review reinforces its finality. The Tribunal also noted that the coordinate bench orders for earlier years had already decided the issue in favor of the assessee, and no fresh facts or legal developments justified a different outcome for AY 2017-18. The AO’s reliance on superseded High Court judgments was therefore wholly misplaced.
4. Scope of Royalty and FTS under DTAA
While the Tribunal did not engage in a fresh analysis of the DTAA provisions, it implicitly adopted the Engineering Analysis reasoning. That judgment clarified that ‘royalty’ under Article 12 of the India-USA DTAA does not cover payments for the sale of a copyrighted software product, because the purchaser acquires a copy of the software for personal use, not a transfer of copyright rights. Similarly, ‘fee for technical services’ requires the provision of technical knowledge or skill, whereas ancillary support services bundled with the sale are merely incidental to the product. Thus, the CIT(A) correctly deleted the additions.
Conclusion
The ITAT dismissed the Revenue’s appeal, holding that the CIT(A) had correctly applied the binding Supreme Court precedent in Engineering Analysis Centre for Excellence Pvt. Ltd. v. CIT and the consistent orders in the assessee’s own case. The order of the CIT(A) required no interference. This decision reinforces the settled principle that income from the sale of off-the-shelf software and accompanying support services is not taxable as royalty or FTS in India, either under the Act or the DTAA, provided the transaction does not involve a transfer of copyright rights.