TaxTMI 
TaxTMI 
TaxTMI 
2019 (3) TMI 1705
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....der section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-2, (hereinafter referred to as the 'Hon'ble DRP') on the following grounds, each of which are without prejudice to one another: On the facts and circumstances of the case and in law, the learned AO based on the directions of the Hon 'ble DRP: General 1. Erred in assessing the total income at Rs. 1,80,29,88,734 as against Rs. NIL total income offered in return of income by the Appellant. Receipts towards access to use software and IT support services does not constitute 'income' 2. Erred in holding that the payments received by the Appellant constitutes 'income' without appreciating that the appellant works only on cost - only arrangement and the receipts were reimbursements being in the nature of cost allocation without markup and hence does not constitute 'income' under section 2(24) of the Act; Receipts towards access to use software held as 'royalty' under the India-Netherlands DTAA 3. Erred in construing the payme....
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....rder of lower authorities below. 4. We have considered the submissions of the ld. representatives of the parties and have gone through the orders of the lower authorities and the order passed by coordinates bench of the Tribunal in earlier years. Ground No.1 is general and does not need any specific adjudication. 5. Ground No.2 relates to receipts towards access to use software and IT support services being reimbursement of cost. We have noted that the assessee has raised alternative ground of appeal in ground no.3 & 4 which relates to use of software treated as 'Royalty' under the IndiaNetherlands Double Taxation Avoidance Act (DTAA) which is claimed as covered in favour of assessee in assessee's own case for A.Y. 2012-13 & 2013-14 on the basis of decision of Tribunal in earlier orders. Thus, in our view once the ground no. 3 & 4 is decided in favour of assessee, hence, ground no. 2 would become academic. 6. The ld. AR of the assessee submits that ground no. 3 & 4 are covered in favour of assessee in assessee's own case for A.Y. 2012-13 & 2013-14 in ITA No. 2192 & 2193/M/2017 dated 24.10.2018. 7. On the other hand the ld DR for the revenue supported the order of the autho....
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....ghts are not given then, there is no copyright in the computer programme or software Here in this case of the conditions mentioned in section 14 of the Copyright Act is ápp1icable as held by the learned CIT(A); and is also is evident from the terms of MSA, because no such rights has been given by the assessee to the IT Service providers. 14. Further by making use or having access to the computer programs embedded in the software, it cannot be held that either WIPRO/IBM are using the process that has gone into the software or that they have acquired any rights in relation to the process as such. The software continues to be owned by the assessee and what WJPRO/IBM is getting mere access to the software. The source code embedded in the software has not been imparted to them. Hence, there is no use or right to use of any process as held by the learned AO. Hence, the finding of the learned CIT(A) that the payment in question cannot be reckoned as "royalty" is factually and legally correct and the same is upheld. 15. Apart from that now there are various decisions of Hon'ble High Court including that of Hon'ble Delhi High Court in case of DIT vs. Infrasoft Ltd., rep....
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....re is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has is necessary to invoke the royalty definition. Viewed from this angle, a nonexclusive and non-transferable licence 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 DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent The parting of intellectual property rights inherent in and attached to the software period in favour of the licensee/ customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any furthe....
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....frasoft. The licence agreement between the Assessee Company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software The licence agreement stipulates that upon termination of the agreement for any reason, the licensee shall return the software including supporting information and license authorization device to Infrasoft. Xx xxxx xxxxx xxw xxxxxx xxm w xxx. 94. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being....
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....d again in the case of Principal CIT us M. Tech India Put Ltd (supra) and again in the decisions of Alacatel Lucent, Canada, reported [2015] 372 ITR 476, wherein Hon'ble Delhi High Court relying upon its earlier two decisions in the case of DIT us Ericson, [2012] 343 ITR 470 and DIT vs M/s Nokia Networks, reported in 358 ITR 259 (Del) concluded that, when assessee supplies the software which is incorporated on CD, it has applied only a tangible property and payment made for acquiring such a property cannot be regarded as payment by way of royalty. The relevant observation of the High Court in Alcatel Lucent (supra) in this regard reads as under: "We have noticed, at the outset, that the ITAT had relied upon the ruling of this Court in Director of Income Tax V. Ericsson A.B. (2012) 343 ITR 470 wherein identical argument with respect to whether consideration paid towards supply of software along with hardware - rather software embedded in the hardware amounted to royalty. After noticing several contentions of the revenue, this Court held in Ericsson A.B. (supra) as follows: 54. It is difficult to accept the aforesaid submissions in the facts of the present case. We have alrea....
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.... susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or (In case of painting) or computer discs or cassettes, marketed would become "goods". We see no difference 4dveen a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. TAXPUNDIT.ORG Sale is not just of the media which by itself has very little value. The software and the media and case laws in favour of the assessee including that of the Delhi High Court on several occasions, we are inclined to follow the decision and proposition laid down by the Hon'ble Delhi High Court. Thus, in view of the finding given above, we uphold the order of the CIT(A) that the payment received by the assessee for sums amounting to Rs. 3,75,25,2911- does not amount to "royalty" within the meaning of Article 12(4) of Indo-Netherland DTAA and accordingly, the same is not taxable in India. Since, admittedly, the assessee has no PE in India; therefore, same cannot be taxed as business income under Article 7. ....
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....ments to the DTAA. While TV Today, supra note 22 recognizes that the question will have to be decided and the submission argued, Verizon, supra note 23 cites no reason for the extension of the amendments to the DTAA. As regard the decision of Hon'ble Bombay High Court in the case of CIT vs Siemens Aktiongesellschaft (supra), referred to by d CIT DR, the kmb1e Delhi High Court has also dealt with this point and made distinction that the issue and situation before the Hon'ble Bombay High Court was materially different and also the term 'royalty' was not defined in the German DTAA. 17. Thus, we hold that for all the years the payments received by the assessee from WIPRO/IBM in pursuance to the MSA cannot be treated as "royalty" under Article 12(4) of the India-Netherland DTAA. Thus, the matter is decided in favour of the assessee and against the revenue." 10. Since, the coordinate Bench of the Tribunal has decided the identical issue in favour of the assessee in assessee's own case for the A.Ys. 2006-07, 2007-08 and 2008-09 discussed above, we respectfully following the decision of the co-ordinate Bench decide this issue in favour of the assessee. Accordingly, Gr....
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....nvoice amount (INK) 1 Accenture Service 35,28,131 2 Hazira LNG Private Limited 5,30,186 3 IBM India Pvt. Ltd. 3,56,55,244 4 Logica CMG Pvt. Ltd. 26,68,790 5 Sheel India Markets Private Limited 19,45,00,903 6 Shell MRPL Aviation Fuels & 32,88,714 7 Wipro Technologies 9,45,19,881 Grand Total 33,46,91,849 12. The AO held that the use of technological knowhow and software are covered under the provisions of section 9(1)(vi) of the Income Tax Act and also under article 12(4) of the Act India-Netherlands DTAA. The AO further held that the payments have been received for providing specialized technical inputs and services rendered by the assessee will be covered under the definition of fees for technical services and accordingly added the said amount to the income of the assessee. 13. The assessee challenged the action of the AO by raising Ground Nos. 5, 6 and 7. 14. Before us, the Ld. counsel for the assessee submitted that Mumbai Bench of the ITAT has decided the issues raised vide ground No. 5, 6 and 7 of the appeal in favour of the assessee in assessee's own case for the A.Y. 2009- 10 and 2011-12. Since, the identical issue has been decided by the....
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....y is to provide support services through a central team in the area of Information Technology to the Applicant and to its other subsidiaries in the world. The provision of support services by the French company would 'itself make available, the technical knowledge/ experience to the Applicant. In Porfetti Van Melle Holdings B.V1 this Authority held the view that the expression 'in available only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilize the knowledge or knowhow in future on his own". Here, information technology relating to design, engineering, manufacturing and supply of electric equipment that help in transmission and distribution of power, commissioning and servicing of distribution system is provided to the Indian entity Which is applied in running the business of the Applicant and the employees of the Applicant would got equipped to carry on the systems on their own without reference to the French Company, when the IT Agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and ....
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....by SITI BV to WIPRO under the Services Agreement (copy of which is enclosed in the paper book of the assessee) and from the same Article 3 is reproduced below: Article 3 - Provision of Services SITI BV shall provide the IT Service Provider with the service." Further, 'Service' has been defined in Article I - Definitions as 'the combined Subservices provided by S/TI BV to the IT Services Provider wider this Agreement, which Sub-services include the (if Services, the STO Services and she provision by S/TI BV to the IT Service Provider and Service Personnel of access to and/or use -of GI software and/or Optional Software.... 11. Further, SITI BV is company incorporated in The Netherlands. SITI BV is a tax resident of The Netherlands eligible to claim the benefits, conferred by the Double Taxation Avoidance Agreement entered into between India and The Netherlands (Treaty'). Section 90 of the Act read with the Circulars and several judicial precedents issued thereunder provide that a non-resident taxpayer is eligible to be assessed as per the provisions of the Act or as per the provisions of the relevant double taxation avoidance agreement, whichever is more bene....
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....e' contained in Article l3(4)(c) of the treaty has not been satisfied In the given facts and circumstances of the case Hon'ble Delhi High Court vide Para 8 to 13 held as under: - "8. Before we go on to examine the findings of the Tribunal it would be pertinent to refer to article 13 of the DTAA to the extent it is relevant :- "ARTICLE 13- Royalties and fees for technical services- 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that Stale; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) In the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4 (a) and (c) of this Article,- (i) during the first five years for which this Convention has effect; (aa) 15% of the gross amount of such royalties or fees for technical services when the....
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....urance intermediary (broker) and was a tax resident of United Kingdom. Further, that it was a recognized broker by the financial services authority of United Kingdom, it was also an admitted position that the assessee did not maintain any office in India and mat it had a referral relationship with J B Boda reinsurance (Broker) Pvt. Ltd of Mumbai and that J B. Boda was duly licenced by the Insurance Regulatory & Development Authority to transact reinsurance business in India 11 The Tribunal also observed as under. - "27. In the illustrative transaction, New India Insurance Co. Ltd in India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (....
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....nsurers. The intermediation fee which is another word for brokerage is paid separately by the originating insurance in India to J.B. Bodo, the international reinsurance brokers like the assessee and other intermediaries, based on a mutually agreed ratio which accounts for their relative contribution in the reinsurance process. 12. Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as 'fees for technical services'. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the "make available" clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case. 13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such no substantial question of law arise....