TaxTMI 
TaxTMI 
2018 (9) TMI 62
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....rming the order u/s 201(1)/201(1A) by the TDS Officer. Your appellant submits that the order of the CIT(A) is incorrect in law and in facts and that the order u/s.201(1)/201(1A) ought to be cancelled. 2. The learned CIT(A) erred in holding that payment of US $ 1,00,000 to Fair Isaac is covered by the meaning of "royalty" as defined in section 9(1)(vi) of the Income Tax Act (Act) and also under Article 12(3) of the Treaty for Avoidance of Double Taxation between India and USA (Treaty) and thereby holding that the same is liable to withholding tax u/s.195 of the Act and under the Treaty. Your appellant submits that the payment of US $ 1,00,000 to Fair Isaac was for non exclusive and non transferable licence for use of software and the same is not covered by the meaning of the "royalty" both under the Act and under the Treaty and the same is not liable to tax under the Act and under Article 7 of the Treaty and therefore the provisions of section 195 were not applicable and accordingly the order of TDS Officer u/s.201(1)1/201(1A) ought to be cancelled. 3. The learned CIT(A) erred in holding that the payment of maintenance fees of US $ 15,000 to Fair ....
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....ternational Corpn. 27.12.2008 50000 Licence fees The assessee on being called upon to explain that having failed to withhold tax while making the aforesaid remittances why it may not be treated as being an assessee in default under Sec. 201 of the Act, submitted as under: (I) M/s Marsh Canada Ltd: It was submitted by the assessee that the reinsurance premium was received by the aforesaid foreign company viz. M/s Marsh Canada Ltd outside India and was not received in India. Since the aforementioned foreign company viz. M/s Marsh Canada Ltd. did not carry on any operations in India, hence in the absence of any income having accrued or arisen to it in India under Sec. 9 of the Act, no liability was cast upon it to deduct tax at source under Sec. 195 while remitting the aforesaid amount. Alternatively, it was submitted by the assessee that even if the re-insurance premium paid by the assessee to M/s Marsh Canada Ltd. was to be considered as taxable in India under Sec. 9 of the Act, the taxability of the same would be governed by the India-Canada DTAA. In the backdrop of its aforesaid contention it was submitted by the assessee that as per the India- Canada tax treaty ....
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....lty". Alternatively, it was further submitted by the assessee that as M/s Fair Isaac International Corporation did not have a PE in India, hence the remittance made by the assessee to the said foreign concern being the latters business profits under Article 7 of the India-USA Tax Treaty could not be brought to tax in India. In the backdrop of the aforesaid facts it was the claim of the assessee that as the income of M/s Fair Isaac International Corporation was not liable to be taxed in India, hence no tax was deducted at source by the assessee at the time of making the remittance of the aforesaid amount. (iii) That as regards the remittances of US $ 15,000 made by the assessee to M/s Fair Isaac International Corporation towards 'maintenance fees', it was submitted by the assessee that the same pertained to the annual maintenance and support services provided by M/s Fair Isaac International Corporation for the "Blaze advisor" software which was purchased by the assessee company from the said foreign concern. It was submitted by the assessee that as the maintenance services rendered by M/s Fair Isaac International Corporation did not "make available" technology etc., therefo....
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....ance fees and training fees being incidental to the software licence were also not liable to tax in India as business profits. As regards the balance payment of USD 3974.71 it was submitted by the assessee that as the same were towards reimbursement of pocket expenses which included air tickets, meals, hotel and lodging etc. which were reimbursed at actual cost and were not in the nature of income, thus the same were not liable for being brought to tax in India. 4. The A.O after deliberating on the contentions of the assessee was however not persuaded to be in absolute agreement with the same. Being of the view that the remittance of USD 100,000 made by the assessee to M/s Fair Isaac International Corporation towards 'license fees' was by way of "royalty" and thus taxable in India, the A.O held a conviction that the assessee remained under a statutory obligation to have deducted tax at source under Sec. 195 on the said amount. Observing, that the assessee had neither withheld the tax while making the remittance nor obtained a certificate for non-deduction of tax at source under Sec. 197 of the Act the A.O held the assessee as being in default within the meaning of Sec. 201 of th....
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.... ld. A.R that as the consideration paid by the assessee was not for use of copyright but for acquiring the copyrighted article i.e. software, therefore, the lower authorities failing to appreciate that the same was not covered by the definition of "Royalty" both under the Act and the India-USA tax treaty had erred in holding that the assessee had failed to withhold tax while making the remittance of the said amount. It was further submitted by the ld. A.R that as there was no transfer of right to use the copyright, hence the payment made by the assessee was not covered by the meaning of "royalty" as appearing in Sec. 9(1)(vi) of the Act. The ld. A.R further averred that the lower authorities had erred in holding the remittance of "maintenance fees" of USD 15,000 by the assessee to M/s Fair Isaac International Corpn. as being in the nature of "fees of included Services" as defined in the India-USA Tax Treaty and therein holding the assessee as being in default for failing to withhold tax while making the remittance of the said amount. It was averred by the ld. A.R that as the aforesaid payment was not chargeable to tax in India under the India-USA tax treaty, hence the lower authori....
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....remittances made to M/s Fair Isaac International Corpn. for grant of licence to use its copyrighted software viz. "Blaze advisor" software for its internal business purpose only, hence no obligation was cast upon the assessee to withhold tax on the said amount. The ld. A.R further adverting to the remittances made by the assessee to M/s Fair Isaac International Corpn. towards "training fees" and "maintenance fees" submitted that as the same were incidental to the software receipts, thus the same would assume the same character as that of software receipts and would be liable to be taxed accordingly. The ld. A.R in order to drive home his aforesaid contention relied on the order of the ITAT Delhi Bench "F" in the case of Infrasoft Ltd. Vs. ADIT, Circle 2(2), Delhi (2009) 125 TTJ 53 (Delhi). Still further, the ld. A.R in support of his contention that the remittances made by the assessee to M/s Fair Isaac International Corpn. for providing maintenance and other support services to customers in India were not taxable as "royalty" in terms of Sec. 9(1) as well as Article 12 of India-USA tax treaty, relied on the order of a coordinate bench of the Tribunal viz. ITAT Delhi "C" in the cas....
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....nse enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of India-USA DTAA. Rather, where the purpose of the license or the transaction is only to restrict the use of the copyrighted product for internal business purpose of the licensee, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. We thus, finding ourselves to be in agreement with the contention advanced by the ld. A.R that as the assessee had only been granted a non-exclusive and non-transferable license to use the copyrighted article i.e "Blaze advisor" software by M/s Fair Isaac International Corpn. which had retained with itself the copyrights of the same, therefore, the amount received by the licensor viz. M/s Fair Isaac International Corpn. from the assessee did not give rise to any royalty income within the meaning of Article 12(3) of the India-USA tax treaty. We find that our aforesaid view stands fortified by the judgment of the Hon'ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329 (Del), wherein it has been held tha....
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....e software provided by Fair Isaac International Corpn. did not "make available" any technology to the assessee, hence the payment made for providing such services was not covered within the meaning of "fees of included services" as defined in the India-USA Tax Treaty. Still further, we are also of the view that as M/s Fair Isaac International Corpn. did not have a PE in India, hence its business profits from rendering the maintenance services also could not be brought to tax in India under Article 7 of India-USA Tax Treaty. We may herein observe that our aforesaid view stands fortified by the order of the ITAT Delhi Bench "F" in the case of Infrasoft Ltd. Vs. ADIT, Circle 2(2) (I.T), New Delhi (2009) 125 TTJ 53( Del). In the aforementioned order the Tribunal had observed that as the maintenance charges were incidental to the software receipts, hence the same being of a similar character as that of software receipts were thus liable to be taxed accordingly. We may herein observe that the aforesaid order of the Tribunal had thereafter been approved by the Hon'ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 263 CTR 329 (Delhi). We further find that following the a....