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.

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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.

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