2019 (3) TMI 1705 - AT - Income Tax

Appeal Allowed: Software Receipts Not Royalty or Fees

M/s Shell Information Technology International BV Versus DCIT (International Taxation), 4 (2) (1), Mumbai

M/s Shell Information Technology International BV Versus DCIT (International Taxation), 4 (2) (1), Mumbai - TMI Issues Involved:1. Assessment of total income.2. Receipts towards access to use software and IT support services as income.3. Receipts towards access to use software held as 'royalty' under the India-Netherlands DTAA.4. Receipts towards IT support services held as 'Fees for Technical Services' (FTS) under the Act and India-Netherlands DTAA.5. Non-granting of credit for Tax Deducted at Source (TDS).6. Levying of interest under section 234B of the Act.Detailed Analysis:1. Assessment of Total Income:The appellant contested the assessment of total income at Rs. 1,80,29,88,734 against NIL total income offered in the return of income. The Tribunal did not need specific adjudication on this general ground.2. Receipts Towards Access to Use Software and IT Support Services as Income:The appellant argued that the payments received were reimbursements in the nature of cost allocation without markup and hence did not constitute 'income' under section 2(24) of the Act. The Tribunal noted that the appellant raised alternative grounds related to the use of software treated as 'royalty' under the India-Netherlands DTAA. Once these grounds (Grounds 3 & 4) were decided in favor of the appellant, Ground No. 2 would become academic.3. Receipts Towards Access to Use Software Held as 'Royalty' under the India-Netherlands DTAA:The appellant contended that payments received for access to use copyrighted software should not be construed as royalty taxable under Article 12 of the India-Netherlands DTAA. The Tribunal noted that similar grounds were raised in earlier years (A.Y. 2012-13 & 2013-14) and decided in favor of the appellant. The Tribunal followed the decision of the coordinate bench, which held that the payments did not amount to 'royalty' as defined under the DTAA. The Tribunal allowed Grounds 3 and 4 in favor of the appellant.4. Receipts Towards IT Support Services Held as 'Fees for Technical Services' (FTS) under the Act and India-Netherlands DTAA:The appellant argued that IT support services did not 'make available' any technical knowledge, experience, skill, know-how, or processes to the service recipient under Article 12 of the India-Netherlands DTAA and hence should not be subject to tax in India. The Tribunal noted that similar grounds were raised in earlier years and decided in favor of the appellant. The Tribunal followed the decision of the coordinate bench, which held that the receipts did not constitute FTS under the DTAA. The Tribunal allowed Grounds 5 and 6 in favor of the appellant.5. Non-Granting of Credit for Tax Deducted at Source (TDS):The appellant submitted that a rectification application was filed before the lower authorities, and appropriate credit for TDS was granted. Therefore, this ground was not pressed.6. Levying of Interest under Section 234B of the Act:The appellant contested the levy of interest under section 234B of the Act. The Tribunal noted that this ground was consequential in nature and did not need adjudication.Conclusion:The Tribunal allowed the appeal of the appellant, deciding Grounds 3, 4, 5, and 6 in favor of the appellant, and noted that Grounds 1, 2, 7, and 8 did not need specific adjudication or were not pressed. The order was pronounced in the open court on 05/03/2019.