TaxTMI 
TaxTMI 
2020 (4) TMI 127
X X X X Extracts X X X X
X X X X Extracts X X X X
....sal of the details in return of income furnished, it was noticed that assessee had received Rs. 59,66,099/- from Sandvik Asia Private Limited (SAPL) on account of IT support services which are receipts for providing restricted access to in house developed production systems such as GSS and related applications. Apart from the aforesaid receipts, assessee had also received licence fee, and technical fee which were offered to tax at 10% including receipts of exports and raw-materials. The assessee was thereafter asked to show cause as to why the total receipts should not be considered as taxable income of the assessee, to which assessee made the submissions inter-alia contending that the IT support service fee is not taxable in India as per the provisions of Double Taxation Avoidance Agreement (DTAA) between India and Sweden. The submissions made by the assessee were not found acceptable to the AO. AO was of the view that the payments received by the assessee constitute 'Royalty' and Fee for Technical Services (FTS) as per Sec.9(1)(vi) and Sec.9(1)(vii) of the Act, respectively, as well as the Article 12(3) of DTAA between India and Sweden. He was further of the view that the servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication provided to the tooling division of Sandvik Asia Private Limited ('SAPL') in India as Royalty within the meaning of Article 12 of the India-Sweden Double Taxation Avoidance Agreement ('DTAA'). It is prayed that the addition made by the Ld. AO and confirmed by the Ld. DRP, be deleted. 3. Ground 3 On the facts and circumstances of the case, and in law, the Ld. DRP has erred in confirming the action of Ld. AO in taxing the receipts of INR 26,31,487 towards provision of maintenance services for production system (GSS) to the tooling division of SAPL, as Fees for Technical Services ('FTS') within the meaning of Article 12 of the India-Sweden DTAA read with India- Portugal DTAA (via protocol). It is prayed that the addition made by the Ld. AO and confirmed by the Ld. DRP, be deleted. 3. Before us, at the outset, Ld.A.R. submitted that the issue in ground No.1 is general in nature and therefore requires no adjudication. 4. Grounds 2 and 3 being inter-connected are considered together. 5. With respect to ground Nos.2 and 3, Ld.A.R. submitted that identical issue arose in assessee's own case for earlier years before the Tribunal for A.Ys. 2010-11, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....within the definition of 'Royalty' u/s. 9(1)(vi) of the Act. No relief was allowed in the first appeal. However, the Tribunal held that the amount received by the assessee under the licence agreement for allowing the use of the software was not Royalty either under the Act or under the DTAA. The Revenue approached the Hon'ble High Court, which held that the consideration received by the assessee for grant of licence for use of software was not taxable as 'Royalty' within the meaning of Article 12(3) to the DTAA between India and USA and hence accepted the assessee's claim on the basis of the relevant DTAA. 5. Au contraire, the Hon'ble Karnataka High Court in CIT Vs. Samsung Electronics Co. Ltd. (2012) 345 ITR 494 (Kar.) has held that import of shrink wrapped software/off-the-shelf software from non-resident company under software licence agreement, whereby a licence is granted to the assessee for taking copy of the software, store the same in the hard disk of the designated computer and to take a back up copy while the ownership of the copyright continues to vest in the supplier, is nothing but Royalty under the provisions of section 9(1)(vi) of the Act as well as under Article 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 4.- For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. 9. It is evident from a bare perusal of the Explanation 4, which has been inserted with retrospective effect from 01-06-1976, that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software including granting of license. With this amendment, the legislature has made it overt and that too with retrospective effect that any consideration for the use or right to use of computer software in any form including a mere granting of a license will be considered as 'Royalty' in the hands of recipient u/s.9(1)(vi) of the Act. The hitherto controversy on the taxability of the income, as Business income or Royalty income, from allowing the use of computer software in any form under the Act has been put to rest by the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsideration as the same have been made effective w.e.f. 1.4.2016. 11. Now we turn to examine the taxability of the amount in the hands of the assessee under the DTAA. Relevant part of Article 12 of the DTAA with Sweden runs as under: "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. Notwithstanding the provisions of paragraph (1) such royalties and fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. 3. (a) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experien....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tc., what in the extant case has happened is that the assessee simply permitted SAPL to use the software for its limited internal business purpose only. No further right was granted to SAPL to deal with the copyright of the software. As there is no transfer of any right in respect of the copyright by the assessee to SAPL, going by the definition of the term `Royalties' given in Article 12 (3), the consideration so received cannot be construed as `Royalties' under the DTAA. 14. The ld. DR invited our attention towards the judgment of the Hon'ble Karnataka High Court in Samsung (supra), which also considered Article 12 of the DTAA between India and the USA and eventually held that the payment for use of software constituted Royalty under the DTAA. 15. The assessee under consideration is not governed by the jurisdiction of the Hon'ble Karnataka High Court. The Hon'ble Supreme Court in CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) has held that when two interpretations are possible, ordinarily the Court would interpret the provision in favour of a tax-payer, and against the Revenue. Similar view has been reiterated in a series of judgments including Manish Maheshwari Vs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ount was also towards giving access to the GSS software, but the assessee could not substantiate the same with any cogent evidence or material. Even the concerned international transaction has also been reported by the assessee as `GSS maintenance charges'. Thus, it turns out that the assessee received Rs. 38.97 lakh from SAPL not for giving access to any software but only for maintenance of existing software. 19. The AO has treated such amount in the nature of 'Fees for technical services'. Section 9(1)(vii) of the Act defines the term 'fees for technical services' as per Explanation 2 as under :- `For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 20. On going through the above Explanation, it is patently deciphered that any consideration, inter alia, fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A. The relevant part of the term 'fees for included services' has been defined in the Article 12(4) of the DTAA between India and Portuguese, which is as under : - `For the purposes of this Article "fees for included services" means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services:....(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 which enables the person acquiring the services to apply the technology contained therein.' 22. A careful circumspection of the relevant part of the definition of the expression 'fees for included services' in Article 12 of the DTAA with Portuguese discloses that any consideration to qualify as fees for included services must necessarily result into making available technical knowledge, experience or skill etc. to the recipient of the service. The term 'make available' has been judicially interpreted by the Hon'ble ....