TaxTMI 
TaxTMI 
2021 (6) TMI 3
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....eceipts were not offered for tax. The assessee contended that the aforesaid amounts are merely reimbursements of expenditure by SCA India to the assessee. The assessee has supplied SAP Licence, consultancy services and IT support services on cost to cost basis without any mark up. The Assessing Officer rejected the contentions of the assessee and made following additions: S. No Particulars Amount In Rs. 1 Receipts from SAP licence Charges held as Royalty 1074950/- 2 Receipts From Consultancy services held as free for Technical services (FTS) 28141234/- 3 Receipts From IT Support Services held as FTS/Royalty 16440532/- Aggrieved by the draft assessment order dated 06/12/2018, the assessee filed objections before the DRP. The DRP vide directions dated 29/04/2019 rejected the objections of the assessee and confirmed the additions. The DRP while rejecting assessee's objections placed substantial reliance on the directions of DRP in AY 2015-16. The DRP observed that the facts in the impugned assessment year are identical to the facts in assessment year 2015-16. The Assessing Officer passed the impugned order in line with the directions of the D....
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....licences are provided to SCA-India on cost to cost basis without any mark up being charged." There is no, and perhaps rightly so, challenge to the factual element of its being a cost to cost reimbursement received by the assessee. What learned Departmental Representative contends is that if the Indian entity was to be directly supplied this licence by the actual product vendor supplying it to the assessee, the tax withholding by Indian entity would have come into play, and that tax withholding has been avoided by routing the purchase through the assessee. That issue, whether right or not, has no bearing on taxability of an income in the hands of the assessee. We reject this argument. As regards learned DRP's reliance on a decision of the coordinate bench in the case of AMD Research and Development Centre India Pvt. Ltd. (supra), we can only say that it was a case in which the coordinate bench came to the conclusion that the payment for a software licence to the group company was not on "cost to cost basis", as evident from the coordinate bench observations to the effect that "In the absence of these details as well as the basis of allocation of cost of software applications/lic....
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....ed by the English company was part of the expenses incurred by it. The learned Court upheld the said finding. The learned Bench was pleased to hold that sharing of expenses of the research utilised by the subsidiaries as well as the head office organisation would not be income which would be assessable to tax. A similar view was taken in Stewarts & Lloyds of India Ltd.'s case (supra). We are in respectful agreement with the view expressed by the Delhi and Calcutta High Courts. 7. In view of the above discussions, as also bearing in mind entirety of the case, we hold that the receipt of software licence fees by the assessee, from its Indian subsidiary, is reimbursement of software licence fees paid by the assessee to a third party, and, therefore, it cannot constitute income taxable in the hands of the assessee. As this income is not taxable under the domestic law provisions in India, we see no need to deal with the other aspects of the matter with respect to non-taxation of this income under the provisions of the Indo Swedish tax treaty. We leave it at that." The Revenue has not brought before us any distinguishing factor or contrary decision. Since, the facts are p....
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....service to the AE", and that "when project implementation tools are provided to the employees of the AE, they are enabled to employ these tools in implementing their own project," these observations are factually incorrect inasmuch as the assessee's representative is executing the work and is the key person at the factory site who is doing all the needful and inasmuch as there is no mention anywhere of developing these tools and handing over the same to the recipient of services. In any case, just because the Indian entity is interacting with the project leader and getting inputs from him does not mean that the Indian entity is transferred the technology of being a project leader of this type and next time Indian entity can perform similar services without recourse to the same-which is the core test for the fulfillment of 'make available' clause. We are unable to approve the stand of the authorities below on this point. In our considered view, in the light of the discussions above, the make available clause is not satisfied, in the course of rendition of services by the assessee, and, as such, the consultancy fees of Rs. 1,97,94,209 cannot be brought to tax, in the hand....
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....ovement in income generating capacity and incidental skill development is wholly irrelevant for this purpose. The authorities below have been thus swayed by considerations not germane in this context. So far as these services being incidental to SAP system being the reason for taxation under article 12(4)(a) is concerned, we have noted that providing support services for SAP implementation is a small part of the services and in any case what article 12(4)(a) covers is the services which "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" and the information technology services, as set out in Annexure B to the agreement, cannot be described as ancillary and subsidiary to the SAP system. At best, a small part of these services could fall in that category, but that payment is not even separately identified. These things apart, 12(4)(a) would come into play when the assessee receives a payment in the nature of royalties under article 12(3) and the services ancillary and subsidiary to the application or enjoyment of that right, payment for which is described in article 12(3). In oth....