Facts of the Case

  • The appeals involved Microsoft Regional Sales Corporation (USA) and MOL Corporation challenging orders passed by tax authorities.
  • The central issue concerned whether payments received for shrink-wrapped/off-the-shelf software should be treated as royalty income under the Income Tax Act.
  • Earlier, the High Court had admitted the appeals and framed a substantial question of law regarding reliance on the precedent in Infrasoft Ltd.
  • Pursuant to remand directions, the Assessing Officer, Dispute Resolution Panel (DRP), and ITAT re-examined the matter. 

Issues Involved

  1. Whether payments for shrink-wrapped computer software constitute royalty under Section 9(1)(vi).
  2. Whether the remand of the matter based on Infrasoft Ltd. was justified.
  3. Whether the appeals survive after subsequent adjudication by ITAT.

Petitioner’s Arguments

  • The assessees (Microsoft & MOL Corporation) contended that:
    • Payments for shrink-wrapped software do not amount to royalty, but rather sale of copyrighted articles.
    • Reliance was placed on judicial precedent including Infrasoft Ltd., which distinguishes between copyright and copyrighted article.
    • The remand proceedings were unnecessary in light of settled legal position.

Respondent’s Arguments

  • The Income Tax Department argued that:
    • Payments received for software should be treated as royalty income, taxable in India.
    • The remand proceedings were valid to re-evaluate the issue based on facts and law.

Court’s Findings / Order


  • The Court noted that:
    • After remand, the ITAT had already decided the issue in favour of the assessees:
      • MOL Corporation – Order dated 14 February 2022
      • Microsoft Regional Sales – Order dated 13 April 2022
  • In view of these subsequent developments:
    • The High Court held that nothing survives in the present appeals.
    • Accordingly, the appeals were disposed of as infructuous.

Important Clarification

  • The Court did not re-adjudicate the substantive issue of royalty.
  • The disposal was based on the fact that the ITAT had already granted relief, rendering the appeals redundant.
  • However, the case indirectly reinforces the continuing relevance of the Infrasoft principle regarding software taxation.


Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1961-DB/MMH19052022ITA2032017_183400.pdf

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