TaxTMI 
TaxTMI 
2019 (12) TMI 1315
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....erred to as the' Appellant' or 'Trimble Corporation') respectfully craves to prefer an appeal against the order passed under Section 144C(13) read with Section 143(3) of the Income-tax Act, 1961 ('the Act') by the Deputy Commissioner of Income-tax (International Taxation) - 4(1)(2), Mumbai (hereinafter referred to as the 'AO') dated 31 August 2017 (received on 8 September 2017) in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - 2, Mumbai (hereinafter referred to as the 'DRP') on the following grounds: General Ground 1. On the facts and circumstances of the case, the learned Aa has erred in determining the total taxable income of the Appellant for the subject AY at Rs. 10,04,18,820 as against 'Nil' income reported in the return of income filed by the Appellant for the subject AY; Invalid service of notice under Section 143(2) of the Act 2. On the facts and circumstances of the case, the learned AO has erred in not validly serving the notice under Section 143(2) of the Act within the time-Iimit prescribed under Section 143(2) of the Act; Time-barring ass....
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....ully submits that the above grounds of appeal are independent and without prejudice to each other. The Appellant further prays that any other relief as the Hon'ble ITAT may deem fit be granted. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal, to enable the Hon'ble ITAT to decide the appeal according to law." 2. Briefly stated, the assessee which is a foreign company incorporated in Finland is engaged in the business of developing and marketing specialized off-the-shelf software products which are used in industries like building and construction, energy distribution and infrastructure management. In India, the assessee markets and distributes the specialized software products to the end user customers through a distribution channel consisting of its subsidiary and a third party distributor. Return of income for A.Y 2010-11 was filed by the assessee company on 31.03.2012, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 3. During the course of the assessm....
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....raft assessment order could have been passed latest by 30/08/2015, which not having been passed within the said stipulated time period was thus barred by limitation. In support of its aforesaid claim the assessee had filed with the A.O a copy of the "despatch register‟ obtained from the office of the AAR. Rebutting the aforesaid claim of the assessee, it was observed by the A.O that as the withdrawal order dated 17/02/2015 of the AAR was received by the jurisdictional CIT(IT)-4, Mumbai for the first time on 29/08/2016, therefore, as per the provisions of Clause (viii) of Explanation 1 to Sec. 153 of the Act, the assessment could be validly framed upto 31/10/2016. Also, it was observed by the A.O that merely providing a copy of the "despatch register‟ that was obtained by the assessee from the office of the AAR could not be taken as a proof of service of the AAR‟s order. On the basis of his aforesaid deliberations, the A.O rejected the claim of the assessee that the draft assessment order was barred by limitation. 4. On merits, the assessee drawing support from the terms and conditions of its respective "agreements‟ with its non-exclusive resellers/distrib....
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.... subject of copyright did not necessarily involved a transfer of the copyright. Accordingly, it was the claim of the assessee that the right acquired by the transferee from the sale of the software was to use the "copyrighted article‟ (i.e software product) and not the "right to use‟ the copyright embedded in the software. In order to support its aforesaid claim, the assessee also relied on Para 14.4 of the OECD Commentary. As such, it was the claim of the assessee that the payments received by the assessee from its distributors for sale of a copyrighted article did not tantamount to "royalty‟ under the provisions of India-Finland tax treaty. As regards the exigibility to tax of the amounts received by the assessee from its distributors, it was submitted by the assessee that as the term "royalty‟ has been defined under Article 12 of the India-Finland tax treaty, therefore, the insertion of "Explanation 4‟ to Sec. 9(1)(vi) of the Act, vide the Finance Act, 2012 w.r.e.f 01.06.1976 cannot be read into the India-Finland tax treaty by resorting to Article 3 of the India-Finland tax treaty. As such, it was submitted by the assessee that the beneficial provis....
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..... Further, the A.O observed that the doctrine of updating construction was required to be applied to the tax treaty and to the terms appearing in the tax treaty which not having been expressly defined in the treaty were to be understood with the changing environment. 5. Further, it was observed by the A.O that the assessee had also provided software upgrades, maintenance and support services with regard to its software, viz. "Trimble software" to the distributors, who in turn provided the same to the end user customer, as and where such end user customer had entered into a maintenance agreement with the distributors. It was observed by the A.O that the assessee during the year was in receipt of a payment of Rs. 2,22,46,237/- towards maintenance and support services (including upgrades). It was the claim of the assessee that as the payments received for software upgrades, maintenance and support services with regard to its software were not for transfer of any right in the copyright of the article, therefore, the same could not be held as "royalty‟ under the India-Finland tax treaty as well as under the Act. However, the A.O rejected the aforesaid claim of the assessee. Obs....
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....id not find any infirmity in the same and rejected the objection of the assessee. 8. After receiving the order of the DRP under Sec. 144C(5), dated 31.07.2017, the A.O vide his final assessment order under Sec. 144C(13) r.w.s 143(3), dated 31/08/2017, therein treating the amounts received by the assessee from its distributors for sale of specialized software of Rs. 7,81,72,583/- and maintenance and support services (including upgrades) of Rs. 2,22,46,237/- as being in the nature of "royalty‟, therein included the same in the total income of the assessee and determined its income at Rs. 10,04,18,820/-. 9. The assessee being aggrieved with the order of the A.O under Sec. 144C(13) r.w.s 143(3), dated 31/08/2017, has carried the matter in appeal before us. The ld Authorised Representative (for short "A.R‟) for the assessee after arguing at some length submitted that he was not pressing Ground of appeal No. 2. As per the concession of the Ld. A.R, the Ground of appeal No. 2 is dismissed as not pressed. As regards the validity of the assessment order, it was submitted by the ld. A.R that the same having been passed beyond the extended time limit prescribed in clause (vi....
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...."B" in Color Craft vs. ITO-16(2)(4), Mumbai [2016] 68 taxmann.com 409 (Mum). 10. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the claim of the ld. A.R that the draft assessment order having been passed by the A.O under Sec. 144C(1) r.w.s 143(3), dated 26/10/2016 was beyond the prescribed time limit envisaged in clause (viii) of Explanation 1 to Sec. 153 of the Act. As observed by us hereinabove, it was though initially canvassed by the ld. A.R before us that as orally confirmed by the A.O the order of withdrawal of AAR was received by the revenue on 20/02/2015. However, as the ld. A.R on being called upon to substantiate his said claim had failed to do so, therefore, he had thereafter not stressed upon the same any further. Apart therefrom, as the aforesaid claim of the ld. A.R is absolutely unsubstantiated and no attempt has been made to support the same by way of an "affidavit‟ as required by Rule 10 of the Appellate Tribunal Rules, 1962, therefore, the same even otherwise does not merit to be taken cognizance by us. We shall now advert to the claim of the ld. A.R that as per the "despatch register....
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.... stipulated time limit envisaged in clause (viii) of the Explanation 1 to Sec. 153 of the Act. We shall now advert to the alternative claim of the ld. A.R, that as the counsel for the revenue was present at the time of pronouncement of the order by the AAR on 17/02/2015, therefore, it could be safely be concluded that the revenue was aware of the said order of withdrawal of the AAR. We find that the ld. A.R in support of his aforesaid contention had relied on the order of the Hon'ble High Court of Delhi in the case of CIT-7 Vs. Odeon Buildes Pvt. Ltd. (2017) 393 ITR 0027 (Delhi) (FB). In our considered view, the ld. A.R had on the basis of incomplete facts raised the aforesaid claim. On a perusal of the order of the Hon‟ble High Court which was delivered in context of filing of an appeal u/s 260A, it was observed, that though the date of pronouncement of the order can safely be taken as the date on which the revenue was aware of the order, but then for the purpose of commencement of limitation the time taken by the counsel for the revenue to obtain a copy of the order will have to be excluded. In the case before us, the ld. A.R had failed to lead necessary material as regards....
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....tual properties from any other person. For the sake of clarity, Article 12 of the India- Finland tax treaty is reproduced as under : "ARTICLE 12 Royalties and Fees for Technical Services 1. Royalties or 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 or 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 beneficial owner of the royalties is a resident of the other Contracting State, 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, and films or tapes for television or radio broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment,....
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....alties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement." 13. As is discernible from the records, we find, that the assessee company as per the terms and conditions of its respective "agreements‟ with its non-exclusive resellers/distributors for the Indian territory, viz. (i). M/s Trimble Solutions India Private Limited, WOS of the assessee company; and (ii). M/s DowCoMax Services India Limited, had merely granted to the said distributors the right to distribute the copyrighted article (i.e software products) and not the copyright in the said article. In fact, we find that the assessee exclusively owned all the Intellectual Property Rights (IPR‟s) in relation to the software, viz. "Trimble software". As per the respective "agreements" entered into by the assessee wi....
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....e purpose of resale/distribution to the end user customers and there was no right to use the copyright embedded in the said copyrighted article (i.e software products). In our considered view, as the assessee had only granted the right to distribute the software products and not any right to reproduce or make copies of the software product, therefore, in the absence of vesting of any right of commercial exploitation of the Intellectual property contained in the copyrighted article (i.e software products) with the transferee, the amounts received by the assessee from its distributors was clearly in the nature of sales revenue and could not be held as "royalty‟ in its hands. In sum and substance, we find that as the right acquired by the transferee from the sale of the software was to use the "copyrighted article‟ (i.e software products) and not the right to use the copyright embedded in the software, therefore, the payments received by the assesee from its distributors could not be stamped as "royalty‟ in the hands of the assessee. We also find substance in the claim of the ld. A.R that as per the Copyright Act, a transfer of the copyrighted article (i.e the softwa....
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....ation of the Agreement at any time by a Contracting State any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Agreement applies. As such, if a particular term has been specifically defined in the tax treaty, then the amendment to the definition of such term under the Act would have no bearing on the definition of such term in the context of the convention, unless the tax treaty is also correspondingly amended. In our considered view, a country which is a party to the tax treaty cannot unilaterally alter its provisions. In fact, an amendment to the provision of the treaty can be made bilaterally after entertaining deliberations from both the countries who signed it. Accordingly, if there is no amendment to the provisions of the tax treaty but there is some amendment adverse to the assessee in the Act, which provision has been specifically defined in the tax treaty or there is no reference in the tax treaty to the adoption of such provision from the Act, then such amendment will have no effect on the tax treaty. On a perusal of the IndiaFinland tax t....
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.... provided software upgrades, maintenance and support services with regard to its software to the distributors, who in turn provided the same to the end user customers who had entered into a maintenance agreement with the distributors. The assessee during the year had received an amount of Rs. 2,22,46,237/- from its distributors towards maintenance and support services (including upgrades). On a perusal of the records, we find, that the assessee would grant to its distributors a right of new official sub-release i.e a modification to a licensed software product which would incorporate the correctness and provide a functional or performance improvement. Also, the assessee would grant to its distributors a right of new official main release i.e an update to the existing software product with enhanced features, which the customers would prefer instead of buying new licensed software. Accordingly, the end user customers by entering into a maintenance agreement could access and download the updates offered by the assessee. As the payments received by the assessee towards distribution of sub-releases and main releases were also for a right to provide a copyrighted article i.e software upd....
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....he assessee is partly allowed in terms of our aforesaid observations. ITA No. 6482/Mum/2012 A.Y 2011-12 21. We shall now advert to the appeal of the assessee for A.Y 2011-12. The assesee has assailed the impugned order on the following grounds of appeal before us : "Based on the facts and circumstances of the case, Trimble Solutions Corporation (hereinafter referred to as the' Appellant' or 'Trimble Corporation') respectfully craves to prefer an appeal against the order passed under Section 144C(13) read with Section 143(3) of the Income-tax Act, 1961 ('the Act') by the Deputy Commissioner of Income-tax (International Taxation) - 4(1)(2), Mumbai (hereinafter referred to as the 'AO') dated 31 August 2017 (received on 8 September 2017) in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - 2, Mumbai (hereinafter referred to as the 'DRP') on the following grounds: General Ground 1. On the facts and circumstances of the case, the learned Aa has erred in determining the total taxable income of the Appellant for the subject AY at Rs. 15,95,09,620/- as against 'Nil' income repo....
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....alty proceedings under Section 27I(l)(c) of the Act. The Appellant respectfully submits that the above grounds of appeal are independent and without prejudice to each other. The Appellant further prays that any other relief as the Hon'ble ITAT may deem fit be granted. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal, to enable the Hon'ble ITAT to decide the appeal according to law." 22. Briefly stated, the assessee company had filed its return of income for A.Y 2011-12 on 28.03.2013, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 23. During the course of the assessment proceedings it was observed by the A.O that the assessee in order to facilitate distribution of its software in India had appointed its wholly owned subsidiary company viz. M/s Trimble Solutions India Private Limited (earlier known as Tekla India Pvt. Ltd.), vide an "agreement‟ dated 28.01.2008 AND M/s DowCoMax Services India Limited, vide "agreement‟ dated 23.06.2008....
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.... assessment order was barred by limitation. 25. On merits, the A.O, vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 26.10.2016, being of the view that the payments received by the assessee for sale of specialized software of Rs. 9,31,88,908/- and towards maintenance and support services (including upgrades) of Rs. 6,63,20,712/- were in the nature of royalty, proposed to include the same in the scope of the total income of the assessee, vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 26/10/2016. 26. Objections filed by the assessee before the DRP viz. (i). that, the draft assessment order having been passed by the A.O beyond the extended time period envisaged in clause (viii) of Explanation 1 to Sec. 153 was thus bared by limitation ; (ii). that, the payments received by the assessee for sale of specialized software of Rs. 9,31,88,908/- had wrongly been assessed as "royalty‟ by the A.O; and (iii). that, the payments received by the assessee towards maintenance and support services (including upgrades) of software of Rs. 6,63,20,712/- were wrongly held by the A.O as being in the nature of royalty, were however re....