TaxTMI 
TaxTMI 
2022 (5) TMI 673
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.... upholding the total income of the Appellant at Rs 2,59,12,200 as against the returned income of Rs 9,17,792. Taxability of sale of software products 2. erred in upholding that the income earned by the Appellant from sale of software products of Rs 1,30,74,292 is taxable in India as 'royalty' under Section 9(1 )(vi) of the Act and under Article 12 of the India- Singapore Tax Treaty. Taxability of provision of software related support services 3. erred in upholding that income earned by the Appellant from provision of software related support services ofRs 1,19,20,121 is taxable in India as 'Fees for Technical Services' under Section 9(l)(vii) of the Act and under Article 12 of India-Singapore Tax Treaty. 4. erred in upholding that income earned by the Appellant from provision of software related support services of Rs 1.19220.121 is taxable in India as 'royalty' under Section 9(l)(vi) of the Act and under Article 12 of India-Singapore Tax Treaty. Levy of education cess 5. erred in levying education cess amounting to Rs 77,737 without appreciating the fact that the tax rate under Article 12 of the India- Singapore Tax Tr....
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.... 6. The Assessing Officer, however, did not accept the claim of the assessee. Relying upon certain judicial precedents, including, the decision of Hon'ble Karnataka High court in case of CIT Vs. Samsung Electronic Pvt. Ltd. he held that the amount received by the assessee towards sale of software products and provision of software related maintenance services is in the nature of royalty, both under section 9(1)(vi) of the Act as well under Article 12(3) of the India - Singapore DTAA. Further, he held that the amount received by the assessee towards provision of software related maintenance services, as otherwise, is also in the nature of FTS both under Section 9(1)(vii) as well as Article 12(4)(b) of the India - Singapore Tax Treaty. Accordingly, he added back the amount of Rs.2,59,12,204/- to the income of the assessee while completing the assessment. 7. The aforesaid decision of the Assessing Officer was also upheld by learned Commissioner (Appeals) while deciding assessee's appeal. 8. Learned counsel for the assessee submitted, the amount received on sale of software and provision of software related maintenance services cannot be treated as royalty under Article 12(3) ....
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....apore is a wholly owned subsidiary of MSTR US and is responsible for distribution and maintenance (upgrading, defect correction and hotline) of MSTR software for customers in Asian markets. It also offers consulting, system integration and education services to its customers. * MSTR Singapore enters into agreements with Indian distributors/ partners on principal to principal basis. The appeals has been grouped into four categories, out of which the below two are relevant: * The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. * The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, nonresident suppliers or manufacturers and then reselling the same to resident Indian end-users. 2 Relevant extracts from Agreement: MICROSTRATEGY END USER LICENSE AGREEMENT: "4. RIGHTS AND RESTRICTIONS 4.1 Subject to Licensee's compliance with this Agreement MicroStrategy grants Licensee a nonexclusive, non-transferable license, without th....
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....ter and you may not make Samsung Software available over a network where it could be used by multiple computers at the same time. You may make one copy of the Samsung Software in machine readable form for backup purposes only; provided that the backup copy must include all copyright or other proprietary notices contained on the original. ..... 2. RESERVATION OF RIGHTS AND OWNERSHIP. Samsung reserves all rights not expressly granted to you in this EULA. The Software is protected by copyright and other intellectual property laws and treaties. Samsung or its suppliers own the title, copyright and other intellectual property rights in the Samsung Software. The Samsung Software is licenced, not sold. 3. LIMITATIONS ON END USER RIGHTS. You shall not, and shall not enable or permit others to, copy, reverse engineer, decompile, disassemble, or otherwise attempt to discover the source code or algorithms of, the Software (except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation), or modify, or disable any features of, the Software, or create derivative works based on the Software. You may not rent, lease, lend, sublice....
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.... metadata created by the Products for outsourcing, or provide any access to the Products through a service bureau, time-sharing or ASP agreement (e) Market or demonstrate any pre-release Software("Beta") in the Territory. 1.5 Reseller and End Users acquire no ownership rights in or title to the Products. The Products are licensed and not sold. No use of the terms "sell" or "resell" in or in connection with this Agreement shall be deemed to imply otherwise. MicroStrategy and its licensors retain all ownership rights in and title to the Products." Category 2: "Other Responsibilities You agree: ..... 2. that your rights under this Agreement are not property rights and therefore, you can not transfer them to anyone else or encumber them in any way. For example, you can not sell your approval to market our Programs or your rights to use Trademarks; 3. Not to assign or otherwise transfer this Agreement, your rights under it, or any of its approvals or delegate any duties, other than to a Related Company, unless expressly permitted to do so under this Agreement." .... "7. Patents, Copyrights and Intellectual Property Rights. You agree that you do not and shall n....
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.... submitted, while providing such services, the assessee has not made available any technical knowledge, skill, knowhow or experience which would enable the party to use it independently without requiring the aid and assistance of the assessee. He submitted, the provision of Article 12(4) of India - Singapore Treaty are identical to Article 12(4) of India - USA Treaty. He submitted, in the Memorandum of Understanding to the Indian - USA Tax Treaty, it has been explained that Article 12(4), includes only certain technical and consultancy services. He submitted, technical services, in this context, have been interpreted as service requiring expertise to a particular technology; consultancy services have been interpreted to mean advisory services. He submitted, while explaining Article 12(4)(b) in the Memorandum of Understanding to the Indian - USA Tax Treaty, it has been said that only those services, which make available experience, skills, know-how or processes or consist of the development or transfer of the technical plan or technical design qualify as included services or technical services. He submitted, Memorandum of Understanding explaining the provision of section 12(4) of In....
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....are related maintenance services. The first issue which arises for consideration is, whether the amount received by the assessee towards sale of software products and software related maintenance services can be treated as royalty under Article 12(3) of India - Singapore Tax Treaty. In case, it does not come within the ambit of royalty as defined under the Treaty, there is no need to go into the provisions of the Act. On a perusal of the assessment order it is noticed that the Assessing Officer has not factually examined the nature of transaction between the assessee and the Indian Customers. The Assessing Officer relying upon certain judicial precedents has straightway assumed that the assessee has sold a copyright. However, neither the sample agreement nor any other material available on record demonstrate that the assessee has transferred/sold the use or right to use a copyright and not copyrighted article. 15. On the contrary, the facts on record clearly demonstrate that what the assessee has sold is copyrighted article and not the copyright. It is also observed, while treating the payment received by the assessee as royalty, the departmental authorities have been greatly in....