TaxTMI 
TaxTMI 
2019 (10) TMI 909
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....acts and circumstances of the case & in law, the Ld. DRP/ AO erred in making an addition of Rs. 1,42,77,485 received on account of International Private Leased Circuit CIPLC) charges by stating that link charges constitute as Fee for Technical/ Included Services ('FTS/ FIS') as well as Royalty under section 9 the provisions of the Act read with the provisions of Article 12 of the India-USA Double Taxation Avoidance Agreement ('the DTAA'). 3. That the Ld. DRP/ AO grossly erred on facts and in law in making an addition to the returned income in respect of support and maintenance fees, amounting to Rs. 2,20,77,105, by stating that the receipts on account of support and maintenance fees being ancillary and subsidiary to the enjoyment of right to use the software are taxable as FIS under para 4(3) of Article 12 of the DTAA. 4. That the Ld. DRP/ AO grossly erred on facts and in law in making an addition to the returned income in respect of service fees, amounting to Rs. 3,44,68,220, by stating that the receipts on account of service fees being ancillary and subsidiary to the enjoyment of right to use the software are taxable as FIS under para 4(3) of Article 12 of the....
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....ce no technical knowledge is made available and the same would not constitute royalty also since the services would not constitute use or right to use any process. However, disregarding the same, Ld. AO opined that the said services would constitute Fees for included services as well as royalty under Article 12 of DTAA read with Section 9(1)(vi) as held in AYs 2007-08 to 2010-11. The other two receipts were also held to be taxable as Fees for Technical Services under para 4(a) of Article 12 of the Treaty, as held in earlier years. 4. The Ld. DRP following directions given in AYs 2009-10 to 2011-12 upheld the taxability of all the three items. Consequently, final assessment order was passed on 28/11/2016 assessing total income at Rs. 752.34 Lacs. Aggrieved, the assessee is under further appeal before us. 5. As noted in the opening paragraphs, we find that all the issues have been dealt with by the co-ordinate bench of this Tribunal for AYs 2009-10 to 2011-12 common order dated 30/08/2019. The relevant portion of the order, for ease of reference, could be extracted in the following manner: - 19. We have further noted that DRP has also relied upon the decision of Raymond Ltd. (su....
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....milarly the non-resident parties have not provided use of any process to the assessee, which are of patentable nature having exclusive ownership rights. The assessee was not concerned with any of the process involved in transmission or connectivity of call data. The only concern of the assessee was transmission of call data beyond the boundaries of India to the person in USA to whom call was made. ------- 10.15 Further the assessee in support of the proposition that amendment under section 9(1)(vi) of the Act by finance Act 2012 has no bearing on the provisions of DTAA has relied on the decision of the Hon'ble Delhi High Court in the case of New Sky Satellite BV, (supra) in ITA 473/2012. In the instant case also the assessment year involved is 2002-2003, and thus the Explanation-5 and 6 and Memorandum of Explanation cannot be brought into action as there has not been any corresponding change in the definition of the term royalty in the DTAA between India and the USA. Accordingly, we are of the opinion that under the DTAA, the restricted meaning of the royalty shall continue to operate despite the amendment in law. ----------- 10.16 As far as the assessee is concerned,....
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....d subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.' 21. Since in the call connectivity and transmission from end of the Indian Territory at Mumbai to the termination of call in USA, no technical knowledge has been made available to the assessee, respectfully following the decision of the Tribunal in the case of Bharti Airtel Ltd. (supra), we hold that payment for the services of call transmission through dedicated bandwidth provided by the non-resident parties to the assessee, cannot be termed as Fee for Technical services under the treaty also, in the hands of the recipients." 21. The Mumbai Tribunal in Interroute Communication Ltd. vs. DDIT (supra) held as under: 9. Essentially, the role played by the interroute facility is connecting the call to the end operator, and, in that sense, it works like a clearing house. Similarly, in the case of incoming calls, calls originating from Europe and USA, which are to end ....
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....t. 13(4)(c) of the India-UK DTAA, not only the services should be of technical in nature but such as to result in making the technology available to the person receiving the technical services. We also agree that merely because the provision of the service may require technical input by the person providing the service, it cannot be said that technical knowledge, skills, etc. are made available to the person purchasing the service. As to what are the connotations of 'making the technology available to the recipient of technical services', as is appropriately summed up in protocol to Indo-US DTAA, "generally speaking, technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology." In the case before us, no services are made available in the sense that the recipient of service is enabled to apply the technology, and do the same work without recourse to the service provider. There is no transfer of technology here, and in that sense technical services are not made available. Undoubtedly, the services rendered by the assessee requires technical inputs, but that alone, as we have seen above, does not bring it in t....
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....ngements,(vii) TCS was expressly prohibited from adapting, modifying merging, revising, improving, translating, upgrading, enhancing and creating derivative works of the software for any purpose, including error correction or any other type of maintenance. 24. In the return of income the assessee claimed that income arising from the sale of software was not taxable in India as the same was not covered within the definition of 'Royalty'. The assessing officer treated the said consideration for the right to use the copyright of software and accordingly proposed to tax the income from sale of software as 'Royalty', under the Income tax Act and India USA tax treaty. On objections before DRP, the action of the assessing officer was upheld. 25. The learned AR of the assessee submits that the assessing officer treated the sale of software as 'Royalty', by taking view by virtue of retrospective amendment introduced in Explanation 4 in the definition of 'Royalty' under section 9 (1)(vi) of Income tax Act by virtue of Finance Act 2012. The assessing officer failed to appreciate that there was no corresponding change introduced in the definition in the term 'Royalty' under the India USA t....
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....e ld DR submits that the amendment is clarificatory in nature. In support of his submission the learned DR of the revenue relied upon the decision of honourable Karnataka High Court in case of Samsung Electronics Co Ltd (2009) (185 Taxman 313). 28. We have considered the rival submission of the parties and perused the material available on record. The In the return of income, the assessee has shown a receipt of Rs. 4.05 crore on account of supply of software to TCS. The assessee claimed that said software is the nature of Shrink Wrapped Software and no use or right to use any copyright or intellectual copy right in the software was granted to the TCS. The TCS was provided a copyrighted article; the said arising of said software is not taxable in India as the same is not covered by the definition of Royalty under India-US Tax Treaty. The Assessing Officer treated the said receipt for the use of copyright and proposed to tax in the form of sale of software as Royalty under India-US Tax Treaty. The DRP upheld the action of Assessing Officer. We have gone through the licence agreement wherein the assessee granted licence to TCS in accordance with the term and condition of the agree....
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....evant part of decision of Hon'ble Delhi Court is extracted below: "98. We are not in agreement with the decision of the Karnataka High Court in the case of Samsung Electronics Co. Ltd (supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copy....
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.... the equipment on which software is installed, (e) any programme used in conjunction with software supplied, (f) use of element of the software supplied in any combination other than those specified in the documentation, (g) use of software supplied with computed hardware, operating stem or other supporting software other than those specified in the documentation. Accordingly the support and maintenance services rendered by assessee work only in connection with the software supplied and ancillary and subsidiary as well as inextricably and essentially linked to software supplied. 32. In the return of income the assessee claimed that said receipt were not taxable in India under India US tax treaty. The assessing officer in the draft assessment held that support and maintenance fees were ancillary and subsidiary to enjoyment of 'right to use' of the software for which royalties being paid and hence proposed to tax the amount as FIS in term of Article 12(4)(a) of India US tax treaty. The learned DRP rejected the objection of assessee and confirm the view taken by assessing officer. 33. The learned AR of the assessee submits that assessee, being tax resident of USA is eligible for b....
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....ided support and maintenance services linked with the software supplied. Accordingly, the taxability of such services is dependent on the taxability of software supplied. As we have held that the receipt earned on sale of software is not taxable under Article 12 of India-US Tax Treaty, therefore, the services the receipt from support and maintenance services are also not taxable under 12(4)(b) of India US Tax Treaty. In the result, this ground of appeal is allowed. 38. Ground No. 5 relates to taxability of service fee as FTS. During the year under consideration, the assessee rendered certain services to TCS. The services comprised of in Geneva health check for retail instances (Geneva billing system performance tuning) and other professional and consultancy services. These services were claimed to have been subcontracted by assessee to Indian entity CIM on a principal to principal basis. In the return of income the assessee claimed that the said receipt are not taxable in India under the India US tax treaty. However the assessing officer in the assessment order held that services are ancillary and subsidiary to the enjoyment to use the software for which royalties being paid an....
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....ied. In our view, unless the services satisfy the make available test, the same cannot be taxed as FIS. Further, mere fact that provision of service may require technical input by the person providing services does not per se mean the technical knowledge. In our view, the receipt on account of support and maintenance services are not taxable under Article 12 as the services do not make available technical knowledge, experience, skill, know-how or process or consist of any development and transfer of any design. In the result, ground no.5 of the appeal is allowed. Since facts are stated to be pari-materia the same in this AY, applying the aforesaid decision of the Tribunal, we delete impugned three additions made by Ld. AO. Ground Nos. 2 to 4 of the appeal stands allowed. 6. In ground No.5, the assessee is contesting the levy of interest u/s 234B by relying upon the decision of Hon'ble Bombay High Court rendered in DIT V/s NGC Network Asia LLC (313 ITR 187). We find that similar issue, in the aforesaid decision of the Tribunal has also been dealt with in the following manner: - 42. Ground No. 6 relates to levy of interest under section 234B of the Act. The learned AR of the as....