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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether receipts from supply of software licence and hardware were taxable as royalty; (ii) Whether maintenance and support service receipts were taxable as fees for technical services.
Issue (i): Whether receipts from supply of software licence and hardware were taxable as royalty.
Analysis: The receipts arose from granting a non-transferable, non-exclusive right to use software and related hardware as part of an integrated system. The terms did not transfer any copyright or proprietary interest in the software, and the transaction was materially identical to the one earlier considered in the assessee's own case. The governing principle applied was that consideration for use of a copyrighted article, without transfer of rights in the copyright itself, is not royalty.
Conclusion: The receipts from supply of software licence and hardware were not taxable as royalty and the addition was deleted.
Issue (ii): Whether maintenance and support service receipts were taxable as fees for technical services.
Analysis: The support services were routine post-sale maintenance and monitoring services and did not make available any technical knowledge, skill, experience, know-how, or technical design to the Indian customers. The services also did not satisfy the treaty conditions for fees for technical services under Article 13 of the India-United Kingdom DTAA. The Tribunal followed its earlier view in the assessee's own case and applied the make available test.
Conclusion: The maintenance and support service receipts were not taxable as fees for technical services and the addition was deleted.
Final Conclusion: The assessee succeeded on the substantive transfer-pricing characterisation issues, and the appeal was allowed.
Ratio Decidendi: Payment for a non-exclusive software licence and related support services is not taxable as royalty or fees for technical services where no copyright rights are transferred and no technical knowledge is made available to the recipient under the applicable treaty.
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