TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 191
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....el for the assessee. 3. Ground No. 1 is general in nature and needs no separate adjudication. 4. Ground No. 2 relates to revenue earned from supply of soft ware taxed as 'royalty'. 5. Briefly stated, the facts of the case are that the assessee is engaged in the following activities: - Hardware sale revenue - Software licensing revenue - Professional services revenue - Implementation services revenue and - Maintenance services 6. Out of the above revenues received, the assessee has offered to tax only receipts on account of professional services in the tax return filed by it to be taxed @ 15% in terms of Article 12 of the DTAA between India and USA. All the receipts have not been offered to tax by the assessee. 7. Considering the past history of the assessee and taking a leaf out of the past assessment orders, the Assessing Officer treated the Revenue earned from supply of software as 'royalty'. 8. This issue was the bone of contention between the assessee and the revenue in the past Assessment Year, so much so that the quarrel travelled upto the Hon'ble High Court of Delhi wherein the Revenue was in appeal against the order of the Tribunal, where the Tribunal ha....
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....ITA No. 909/2015 and Ors was seized with the following substantial question of law: "(i) Did the ITAT fall into error in holding that the transaction in question, i.e., supply of customized software was not "royalty" under Article 12 (4) of the Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9 (1) (vii) of the Income Tax Act, 1961, in the circumstances of the case. (ii) Did the ITAT fall into error in its interpretation of Section 234 (B) of the Income Tax Act, 1961, in the circumstances of the case." 11. The relevant findings of the Hon'ble High Court read as under: "6. That batch of appeals has been decided by the Court by its decision in The Commissioner of Income Tax International Transaction -2 v. ZTE ITA Nos. 909/2015, 28/2016, 861/2016, 944/2016, 4/2017, 6/2017 Page 5 of 7 Corporation 237 (2017) DLT 572 (DB). The questions that arose in the aforementioned batch of appeals also involved the questions that arise in the present batch of appeals. The questions were answered in favour of the Assessee and against the Revenue. 7. The first issue is whether the payment for supply of customized software would be treated as "royalty" under Article 12(....
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.... Ltd. Hence, the decisions relied by the learned CITDR in the case of Samsung Electronics and Gracemac Corporation (supra) does not help the case of the Revenue, as we are under the Jurisdiction of the Hon'ble Delhi High Court. 42. In view of the above, respectfully following the decision of Hon'ble Jurisdictional High Court in the case of Ericsson A.B. (supra) and Infrasoft Ltd. (supra), we hold that the consideration received by the Assessee for supply of product along with license of software to End user is not royalty under Article 12 of the Tax Treaty. Even where the software is separately licensed without supply of hardware to the end users (i.e. eight out of 63 customers), we are of the view that the terms. of license agreement is similar to the facts of Infrasoft Ltd' (supra). Accordingly, we- hold' that there was no transfer of any right in respect of copyright by the Assessee and it was a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article. Hence, the payment for the same is not in the nature of royalty under Article 12 of the Tax Treaty. The receipts would constitute bu....
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.... DTAA, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. Article 5(2) deals with various instances resulting in PE. Article 5(3) deals with cases or facts which do not result in PE. One of the exceptions under Article 5(3) is maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise. The assessee has contended that its activities in India are of preparatory or auxiliary character and, hence, there is no PE in India. The revenue, on the other hand, has contended that the business of the assessee is already set up in India and, hence, there cannot be any 'preparatory' and the sale activity undertaken is the main business activity and cannot be regarded as 'auxiliary' nature. As regards the fixed place of business in India, it is contended by the assessee that the business place of Aspect India is not under the control or at the disposal of the assessee and, hence, there is no fixed PE. The revenue, on the other hand, has conte....
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....hat the installation or assembly project or supervisory activities should be in connection with the building site or construction. In the present case, there is no dispute that the assessee does not carry on business in India through a building site or construction. Consequently, we are of the view that there is no installation PE of the assessee in India. Dependent Agent PE: Article 5(4) of India - USA Treaty deals with the Dependent Agent PE. It reads as under: Notwithstanding the provisions of paragraphs 1 and 2 where a person-other than an agent of an independent status to whom paragraph 5 applies -is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the firstmentioned State, if: (a) He has and habitually exercises in the first-mentioned State an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph; (b) He has no such authority but habitually....
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....ndia to customers and those done 67 through channel partners. It is contended that the assessee has not demonstrated that it identifies customers and make sales. The statement recorded from the Director, sales of Aspect India is stated to be contrary to the claim of the assessee that Aspect India only acts as a communication channel between the assessee and the customers. Similarly, the assessee's claim that majority of sales are made to channel partners is stated to be factually incorrect since information on all the channel partners, date of agreement and sales made through them is not submitted. It is argued that copy of 'I Approve' system has not been submitted by the assessee for factual verification. Considering these facts, we are of the view that both the revenue and the assessee have not been able to demonstrate the existence or otherwise of the 'dependent agent PE'. In the absence of proper information in this regard, we are unable to decide whether the assessee has a 'dependent agent PE' in India. We accordingly, set aside the issue of 'dependent agent PE' and restore to the assessing officer for fresh consideration. 15. As mentioned elsewhere, the above mentioned bun....