Tax Tribunal: DTAA provisions prevail on royalty, FTS, design expenses. Section 195A grossing up unwarranted.

The Tribunal held that payments for software licenses and IT support services were not taxable as royalty under the DTAA. Training charges to entities in different categories of countries were found taxable or non-taxable based on FTS clauses. Design expenses to entities in various countries were not taxable due to DTAA provisions. Repairs and maintenance payments were taxable to entities in certain countries. Grossing up of payments under section 195A was deemed unwarranted. Section 206AA did not override DTAA provisions. The appeals of the assessee were partly allowed, emphasizing adherence to DTAA provisions and international tax principles.

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Issues Involved:
1. Non-deduction of tax on payments for software licenses and IT support services.
2. Non-deduction of tax on training charges paid to various entities.
3. Non-deduction of tax on design expenses.
4. Non-deduction of tax on repairs and maintenance payments.
5. Grossing up of amounts paid under section 195A of the Income Tax Act.
6. Applicability of section 206AA of the Income Tax Act to non-residents.

Detailed Analysis:

1. Non-deduction of Tax on Payments for Software Licenses and IT Support Services:
The Tribunal held that the purchase of software by the assessee, being a copyrighted article, is not covered by the term "royalty" under section 9(1)(vi) of the Act. The assessee did not acquire any copyright, and thus, the payments were not taxable as royalty under the DTAA between India and Singapore. The Tribunal referred to the decision in John Deere India Pvt. Ltd., where it was held that the amended definition of "royalty" under the domestic law cannot be extended to the definition under DTAA if the term "royalty" in DTAA has not been amended. Therefore, the assessee was not liable to deduct tax for payments made for the purchase of software.

2. Non-deduction of Tax on Training Charges Paid to Various Entities:
The Tribunal categorized the countries into three categories based on their respective DTAAs:
- Category I: Countries with no FTS clause in DTAA (e.g., Malaysia, Thailand, Indonesia, UAE, Saudi Arabia). Payments to entities in these countries were not taxable as FTS or business income in the absence of a PE.
- Category II: Countries with FTS clause but without "make available" condition (e.g., China, Denmark, Italy, Germany). Payments to entities in these countries were taxable as FTS, and the assessee was liable to deduct tax.
- Category III: Countries with FTS clause and "make available" condition (e.g., Singapore, USA, Switzerland, Sweden). Payments for training that did not transfer technology were not taxable, and the assessee was not liable to deduct tax.

3. Non-deduction of Tax on Design Expenses:
The Tribunal held that the payments for design expenses to entities in Indonesia (Category I) were not taxable as there was no FTS clause in the DTAA. For payments to entities in Switzerland and Singapore (Category III), the Tribunal upheld the CIT(A)'s decision that the "make available" condition was not satisfied, and thus, the payments were not taxable.

4. Non-deduction of Tax on Repairs and Maintenance Payments:
The Tribunal held that payments to Tetra Philippines Inc (Category I) were not taxable as there was no FTS clause in the DTAA. For payments to an entity in China (Category II), the Tribunal held that the payments were taxable, and the assessee was liable to deduct tax.

5. Grossing Up of Amounts Paid Under Section 195A:
The Tribunal upheld the CIT(A)'s decision that there was no evidence that the assessee had agreed to bear the tax liability of the foreign companies. Therefore, the provisions of section 195A should not have been applied, and the grossing up of payments was not warranted.

6. Applicability of Section 206AA to Non-residents:
The Tribunal held that the provisions of section 206AA could not override the provisions of DTAA. The beneficial provisions of DTAA would prevail, and there was no requirement to deduct tax at the higher rate specified in section 206AA in the absence of PAN of the deductees.

Conclusion:
The appeals of the assessee were partly allowed, and the appeals of the Revenue were dismissed. The Tribunal provided detailed reasoning for each issue, emphasizing the importance of DTAA provisions and the conditions under which payments to non-residents are taxable. The decisions were aligned with precedents and legal principles governing international taxation and the interpretation of tax treaties.

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