TaxTMI 
TaxTMI 
2021 (9) TMI 1177
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.... erred on the facts and in law and erred in confirming the action of the Income Tax Officer (TDS), LTU, Mumbai('TDS Officer') in holding that the payments made by the Appellant to Shell International BV ('SIBV') towards license fee for use of HR software (pursuant to Service Order 2) constitutes 'royalty' under section 9(l)(vi) of the Act and Article 12 of India-Netherlands tax treaty. 1.2 On the facts and in the circumstances of the case, the learned CIT(A) failed to appreciate that the payment made by the Appellant was for the "use of copyrighted article' as compared to 'use of copyright' and accordingly, such payments cannot be considered as 'royalty'. Ground No. 2: Payments towards Ongoing support services treated as royalty under the Act / Article 12 of the India-Netherlands tax treaty 2.1 On the facts and in the circumstances of the case, the learned CIT(A) has erred on the facts and in law and erred in confirming the action of the TDS Officer in holding that the payments made towards Ongoing support services (pursuant to Service Order 2) towards updation and maintenance of the common HR platform constitut....
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....e (HR) help desk support services/and (2) Service Order 2 for Shell People On-going basic charges with SIBV." 6. The AO accepted the submissions for Service Order 1. However for Service Order 2, he rejected the assessee's plea. AO concluded as under:- " In the light of the above discussion, assessee's claim that it has acquired mere user right in copyrighted article and thus the payments in question are not to be considered as royalty, is not tenable. As there is transfer of copyright right between the assessee and the SIBV, the payments made by the assessee to the SJBV for use of license fall under the purview of 9( l)(vi) of the Income Tax Act, as royalty payment, and hence chargeable to tax in India. The Hon'ble High Court of Karnataka in the case of CIT Vs Samsung Electronics Ltd. & Others (ITA No. 2808 of 2006 & Others) decided the similar issue and held that payment for payment to non-resident for software is 'royalty'. Further through Finance Bill, 2012, the explanation 48s 5 are inserted with retrospective effect from 01/06/1976 to clause [vi] to sub-section (1) of Section 9 of the Act, which are as follows: Explanation....
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....action. Against the above order assessee is in appeal before us. 8. We have heard both the parties and perused the record. Ld. Counsel of the assessee submitted that issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT 125 taxmann.com 42. 9. Per contra Ld. DR submitted that the above Hon'ble Supreme Court decision may be applicable only up to AY 2009-10 to 2011-12. However, for AY 2012-13, the Hon'ble Supreme Court decision is not applicable. The Ld. DR has summarized his submissions as under:- "The appeals of the assesse arise from a consolidated order u/s 201(1} & 201(1A) rws 195 of the I T Act 1961 dated 28th March 2013. The AO has held the payments made in pursuance to Service Order 2 to M/s Shell International B V, a Netherlands company, as Royalty. These payments fall into two categories (a) license fee for use of HR software developed and maintained by Shell International BV (b) fee for ongoing support services related to the HR software. The AO concluded that the payments under Service Order 2 on the basis of Explanation 4 to s....
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....cal services.] 3. The competent authorities of the States shall by mutual agreement settle the mode of application of paragraph 2. [4. 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 experience] 5. For purposes of this Article, "fees far technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is received; or (b) make available technical knowledge, experience, skiti, know-how or processes, or consist of the development and transfer of a technical plan or technical design. [6. .............
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....issue before this Court. .................. In this regard, it is humbly submitted, that the decision of Hon. Jurisdictional High Court is binding on all the authorities below. Earlier Orders in the case of the assesse : The assessee had submitted the order of Hon. Mumbai Tribunal in ITA No 926 & 927/Bang/2022 dated 8.1.2018. Your honor, it is humbly submitted that this order pertains to AY 2009-10 and 2010-11 and not to post amended periods whereas the present appeal is for AY 2012-13. Decision of Hon. Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd [2021] 125 taxmann.com 42 (SC)]. Your honors may kindly see that the Hon. Apex Court has held that the payments in pursuance to "168.........distribution agreements/End User License Agreements in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi) alongwith explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assesses, have no appli....
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....od in view of the retrospective amendment of insertion of Explanation 4 to Section 9(l)(vi) of the Act and in this regard, it cannot be said that the said decision would be applicable for the post amendment period. It is humbly submitted, that the written submissions may be taken on record and may kindly be considered in the order for appeal for AY 2012-13." 10. In the rejoinder, Ld. Counsel of the assessee submitted that the decision pointed out by the Ld. DR is not at all applicable that the same has been duly considered by the Tribunal in the other cases and the same is found to be not at all tenable. The Ld. Counsel's submissions in this regard are summarized as under:- " The issue in appeal relates to remittances made by Shell India Markets India Private Limited ('SIMPL' or 'the Appellant') to Shell International BV ('SIBV') towards HR Shell People Support (license fees and support services for HR software) where the Ld. TDS officer has held that remittances are in the nature of Royalty as per the Act as well as under the Double Taxation Avoidance Agreement ('DTAA') the Ld. TDS Officer has inter alia relied on the decision o....
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....rm 'royalty'. However, where a term is specifically defined in the DTAA, one needs to refer to the meaning ascribed to such term as per the DTAA and not as per the Act. In case of India-Netherlands DTAA. the term royalty is defined in the DTAA and the same is required to be referred without making reference to its definition under the Act. Reliance is also placed on the decision of the Hon'ble Delhi High Court in the case of New Skies Satellite BV, wherein the court has held that unless the DTAA is amended jointly by both the parties, amendments made by the Finance Act, 2012 would not affect the meaning of the term 'royalties' as mentioned in Article 12 of India-Thai land tax treaty and India-Netherlands tax treaty. The Hon'ble Mumbai Bench of the Tribunal in the case of Reliance Jio Infocomm Ltd dealt with the issue of importing the meaning of a term which is not defined in a tax treaty from the domestic law by virtue of Article 3(2) of the India-Singapore tax treaty. The Tribunal observed that when the expression 'royalty' is a defined expression under the applicable tax treaty, there cannot be any occasion to invoke Article 3(2) ....
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..... The Hon'ble Supreme Court has elaborately examined the issue and has decided the issue in favour of the assessee. The Hon'ble Supreme Court has set aside the decision of Hon'ble Karnataka High Court in the case of Samsung Electronics Company Ltd. (supra), which has been relied upon by the AO. We may gainfully refer to the concluding portion of Hon'ble Apex Court order in that case as under:- "Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof, which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-re....