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Issues: (i) whether royalty and fee for technical services were taxable on receipt basis instead of accrual basis; (ii) whether consideration for supply of software constituted royalty; (iii) whether the consortium arrangement constituted an association of persons; (iv) whether income from offshore supply and offshore services was taxable in India; (v) whether the transfer pricing adjustment was sustainable; and (vi) whether interest from NTPC was taxable.
Issue (i): whether royalty and fee for technical services were taxable on receipt basis instead of accrual basis
Analysis: The issue had already been decided in the assessee's own case for earlier years. The earlier decision treated royalty and fees for technical services under the applicable treaty as taxable on actual receipt, and the same view was followed for the years under consideration because the facts were identical and no distinguishing feature was shown.
Conclusion: The issue is decided in favour of the assessee, and royalty and fees for technical services are taxable on receipt basis.
Issue (ii): whether consideration for supply of software constituted royalty
Analysis: The earlier orders in the assessee's own case, read with the binding principle that payments for mere use or supply of standard software do not automatically amount to royalty, were followed. The Court also relied on the settled position that software supplied under limited licence terms, without transfer of copyright rights, does not constitute royalty.
Conclusion: The issue is decided in favour of the assessee, and the software receipts are not taxable as royalty.
Issue (iii): whether the consortium arrangement constituted an association of persons
Analysis: The arrangement showed separate and identifiable scopes of work, separate invoicing, separate receipts, no sharing of profits or losses, and no joint management. Joint and several liability to the project owner was treated as a protective contractual feature and not as proof of a common venture. The absence of the essential ingredients of a common design to earn income and pooled business activity negatived the status of an AOP.
Conclusion: The issue is decided in favour of the assessee, and no association of persons came into existence.
Issue (iv): whether income from offshore supply and offshore services was taxable in India
Analysis: The offshore supply issue was held covered by the earlier decision in the assessee's own case and by the principle that income from offshore supply completed outside India is not taxable in India merely because the project also had onshore elements. The treaty protocol and the earlier binding decisions were applied, and the existence of a taxable nexus in India was not accepted for the offshore supply component.
Conclusion: The issue is decided in favour of the assessee, and the offshore supply receipts are not taxable in India.
Issue (v): whether the transfer pricing adjustment was sustainable
Analysis: The adjustment was based on an ad hoc markup, despite the assessee having explained the reconciliation differences arising from receipt basis accounting and the different nature of reporting by Indian associated entities. The earlier order held that, absent defects in the transfer pricing study and in view of comparable benchmarking already accepted in related transactions, an ad hoc adjustment was not warranted.
Conclusion: The issue is decided in favour of the assessee, and the transfer pricing adjustment is deleted.
Issue (vi): whether interest from NTPC was taxable
Analysis: Interest awarded on the arbitration claim was treated as incidental to the underlying business claim and not as independent taxable income in the relevant year. The earlier decision in the assessee's own case was followed on the footing that the receipt did not represent taxable income in the absence of a taxable nexus.
Conclusion: The issue is decided in favour of the assessee, and the interest from NTPC is not taxable.
Final Conclusion: The consolidated order applies earlier binding decisions to the identical facts for the years under consideration, grants relief on the substantive tax issues, and leaves only consequential matters to be given effect by the Assessing Officer.
Ratio Decidendi: Where the contractual arrangement shows separate scopes of work, separate consideration, no profit-sharing or common management, and no transfer of copyright rights in software, the receipts are not taxable as royalty or as income of an association of persons, and offshore receipts completed outside India are not taxable merely because they arise in a larger composite project.
Tax treatment of software, offshore supply, and consortium income turns on receipt basis, no royalty, and no AOP findings.
Royalty and fee for technical services were treated as taxable on receipt basis under the applicable treaty, following the assessee's earlier years where identical facts were found. Consideration for supply of software was held not to constitute royalty because the software was supplied under limited licence terms without transfer of copyright rights. The consortium arrangement did not amount to an association of persons, as the parties had separate scopes of work, separate invoicing, no profit-sharing or common management, and only contractual joint liability. Offshore supply receipts were held not taxable in India, transfer pricing adjustments based on an ad hoc markup were deleted, and interest from NTPC was treated as not taxable in the relevant year.
Taxability on Cash vs. Accrual Basis - royalty and fees for technical services - Software receipts not constituting royalty - Association of Persons - Offshore supply not taxable in India - Ad hoc transfer pricing adjustment - Interest on arbitration award - Limitation ground rendered infructuous Taxability on receipt basis under DTAA - Royalty and fees for technical services - Taxability on Cash vs. Accrual Basis - HELD THAT: - The Tribunal followed the coordinate Bench decision in the assessee's own case for A.Y. 2009-10 [2024 (6) TMI 1553 - ITAT MUMBAI] which had held that under Article 12 of the India-Germany DTAA the relevant expressions used are "paid" and "payments of any kind received", and therefore royalty and fees for technical services become taxable only upon payment. That view had also been noticed as having been accepted in the assessee's own case in earlier years by the Bombay High Court. In the absence of any distinguishing feature in the years under appeal, the same position was applied. [Paras 5] The Assessing Officer was directed to tax royalty and fees for technical services on receipt basis and not on accrual basis. Software royalty - End-user licence restrictions - whether consideration received from supply of software was taxable as royalty either under the Act or under the India-Germany DTAA? - HELD THAT: - Following the earlier order in the assessee's own case A.Y. 2009–10 [2024 (6) TMI 1553 - ITAT MUMBAI] the Tribunal accepted that the software supplied was standard software, licensed on a non-exclusive and non-transferable basis, with restrictions against reverse engineering, commercial exploitation and other incidents of copyright transfer. The earlier Bench had also applied Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT] holding that such payments do not amount to consideration for use of copyright. As the factual position was found identical, the receipts from software supply could not be characterised as royalty. [Paras 6] The software receipts were held not taxable as royalty, and the Assessing Officer was directed to give effect accordingly. Association of Persons - Consortium arrangement - HELD THAT: - The Tribunal adopted the earlier finding that the parties had come together only for the limited purpose of tender participation and performance of distinct and independent scopes of work. There was no joint management, no joint execution, no sharing of profits or losses, and each party raised separate invoices and received separate consideration for its own work. The clause of joint and several liability in favour of DMRC was treated only as a contractual safeguard for the employer, particularly since the members had inter se indemnity and the MOU expressly disclaimed creation of any partnership, joint venture or other business entity. On those features, the essential ingredients of an Association of Persons were held absent. [Paras 7] It was held that no Association of Persons came into existence between the assessee and Siemens Ltd. Offshore supply taxability in India - Protocol to Article 7 of India-Germany DTAA - taxability of Income from offshore supply of goods undertaken by the assessee - HELD THAT: - The Tribunal upheld the earlier view that, notwithstanding a single overarching contract, the parties' respective roles and consideration were separately identified and invoiced, and the assessee's role was confined to offshore components. The Tribunal also noted the prior finding that no AOP existed and that there was no PE in India. Relying on Ishikawajima Harima Heavy Industries Ltd [2007 (1) TMI 91 - SUPREME COURT] and the Protocol to Article 7 of the India-Germany DTAA, it accepted that profits from direct offshore supply by the foreign enterprise were not attributable to any Indian presence and were therefore not taxable in India. The reliance placed by the Revenue on Vodafone International Holdings BV [2012 (1) TMI 52 - SUPREME COURT] was rejected as being in a different context. [Paras 8] The Assessing Officer was directed not to tax the income arising from offshore supply of goods. Transfer pricing adjustment - Arm's length price determination - adhoc adjustment @10% by taking 10% mark-up on the value of international transaction - HELD THAT: - The Tribunal followed its earlier order [2024 (6) TMI 1553 - ITAT MUMBAI] holding that the difference between the assessee's figures and those reported by the Indian associated enterprises was explained by the assessee being taxable on receipt basis under the treaty, whereas the Indian entities reported transactions on accrual basis and also reported all categories of transactions. In that situation, without finding any defect in the assessee's transfer pricing study and without determining the arm's length price by applying the prescribed rules and methods, the TPO could not resort to an ad hoc mark-up. The Tribunal further noted that where the same transactions in the hands of the Indian associated enterprises had already been benchmarked and accepted, a different ad hoc approach in the assessee's case was unsustainable. [Paras 9] The ad hoc transfer pricing adjustment was deleted. Interest on arbitration award - Business income in absence of PE - Taxability of interest from the NTPC arbitration award in the current year in the assessee's hands - HELD THAT: - Following the earlier order in the assessee's own case, the Tribunal held that the interest awarded in arbitration did not represent an independent debt claim arising in the current year but formed part of the arbitration award itself. It also accepted the earlier finding that, in the absence of a PE in India, such receipt was not taxable. The prior Bench had referred to CIT vs. Govinda Choudhury & Sons [1992 (4) TMI 8 - SUPREME COURT] and Islamic Investment Co [2002 (3) TMI 3 - BOMBAY HIGH COURT] while dealing with the character of such interest. [Paras 10] Interest on the NTPC arbitration award was held not chargeable to tax. Final Conclusion: Following the coordinate Bench decisions in the assessee's own case on identical facts, the Tribunal held that royalty and fees for technical services were taxable on receipt basis, software receipts were not royalty, no AOP existed, offshore supply income was not taxable in India, the ad hoc transfer pricing adjustment was unsustainable, and interest on the NTPC arbitration award was not taxable.