TaxTMI 
TaxTMI 
2019 (10) TMI 909
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....turned income of Rs. 44,11,290. 2. That in the facts 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 u....
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....stomers in India. However, the said service would not qualify as Fees for included services since 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....
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....y the non-resident parties only and therefore it cannot be said that the consideration paid was for use of equipment by the assessee. Similarly 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 D....
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....kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and 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. Es....
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.... that recipient of service is enabled to perform the same service without recourse to the service provider. As held by this Tribunal, in the case of C.E.S.C. Ltd. v. Dy. CIT[2003] 87 ITD 653 (Kol.) (TM), "....in order to be covered by the provisions of Art. 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 serv....
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....smit network or otherwise distribute, transfer or make available the software in any manner to the third party, (vi) the Software was to be used for internal purpose only and was not allowed to use the software to provide services through a service bureau or other arrangements,(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 int....
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....43/Delhi/2011). 27. On the other hand the learned AR for the revenue supported the order of lower authorities. The ld. DR for the revenue further submits that the software supplied by the assessee is not a copyrighted article. On the point of the issue of amendment in section 9(1)(vi) the 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 r....
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....was also held that consideration received by assessee on grant of licence for use of software is not Royalty within the meaning of Article 12(13) of India- US Tax Treaty. The decision relied by ld. DR in Samsung Electronics (supra) has been distinguished by Hon'ble Delhi High Court in DIT vs. Infrasoft Ltd. (supra). The relevant 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 qualitative....
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....modification of customisation if the software is not made by the assessee list of any software other than software supplied by assessee, (b) any software other than the software supplied by the assessee, (c) incorrect or unauthorised use of the software supplied by the assessee or operation is not in accordance with the documentation, (d) any fault in 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 '....
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....assessing officer and the direction of the DRP. The ld. DR for the revenue further submits that this ground of appeal is linked to the Ground No.3. 37. We have considered the submission of both the parties produce the orders of authorities below. We have also deliberated on various case laws relied by lower authorities and the learned AR of the assessee. We have noted that the assessee provided 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. Th....
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....rvices are ancillary and subsidiary to the application or enjoyment or right, property or information for which payment is received or make available technical knowledge, experience, skill no-how or process or consist of development and transfer of a technical plan or technical design. We have noted that the assessee has claimed that services rendered are ancillary and subsidiary and inextricably essentially linked with the software supplied. 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. Grou....