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Issues: (i) Whether receipts from sale of software were taxable as royalty under the Income-tax Act and the India-Ireland Double Taxation Avoidance Agreement. (ii) Whether receipts from standard automated support services were taxable as fees for technical services, and whether the issue required fresh factual examination on the question of human intervention.
Issue (i): Whether receipts from sale of software were taxable as royalty under the Income-tax Act and the India-Ireland Double Taxation Avoidance Agreement.
Analysis: The issue stood covered by the decision of the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that payments made for resale or use of computer software through end-user or distribution arrangements do not amount to royalty for use of copyright. On that footing, the software receipts could not be brought to tax as royalty.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Issue (ii): Whether receipts from standard automated support services were taxable as fees for technical services, and whether the issue required fresh factual examination on the question of human intervention.
Analysis: The existing findings did not rest on a proper examination of the relevant evidence on human intervention and expert input. The nature of the services required a factual determination by the Assessing Officer after considering the governing principles laid down in Bharti Cellular. The matter was therefore restored for fresh adjudication.
Conclusion: The issue was remanded to the Assessing Officer and the assessee obtained relief for statistical purposes.
Final Conclusion: The software royalty addition failed on merits, while the support-services issue was sent back for reconsideration, resulting in partial relief to the assessee and rejection of the Revenue's challenge.
Ratio Decidendi: Consideration for mere use or resale of software without transfer of copyright is not royalty, and whether services constitute technical services depends on a factual inquiry into human intervention and the evidence supporting it.
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