TaxTMI 
TaxTMI 
2023 (4) TMI 844
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....wer Watson project. The above services are provided by the assessee in pursuance of the agreements entered with Atos India. 3. The return of income filed by the assessee and however, it has not reported the above receipts and offered to tax. The Assessing Officer observed that taxes are deducted at source at the time of payments. He also observed that as per the 26AS statement, the taxes were deducted on a total receipt of Rs..5,55,75,255 /- @10.55% on an average and the TDS of Rs..58,67,358 was claimed in the return of income as refund. The Assessing Officer observed that since no income was offered to tax, during the assessment proceedings, assessee was asked to explain why the same should not be taxed as royalty and/or Fee for Technical Service (FTS). 4. In reply, assessee submitted that it has received payments from Atos India towards (a) Recharge of costs pertaining to Microsoft licence fees, in this regard, it was informed that Atos group has entered into a central agreement with Microsoft to obtain licenses for the use of Microsoft products. As per this agreement assessee being USA based entity, invoices various Atos entities for their use of the Microsoft products.....
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....ecome one of the leading European IT companies by 2004 after Atos SA acquired and integrated Sema Group. Origin, and (b) Due to the acquisition and integration that has taken place, the knowhow rights, and experience of the former Atos, Origin, Atos Origin and Sema Groups that have been acquired and developed by them due to their years of operation in the field of Information Technology are provided to the Group companies including Atos India who carry out contract works as a representative of Group Atos Origin. 7. Accordingly, Assessing Officer proposed the addition of Rs..7,55,89,549/- as fees received from Atos India being royalty as well as FTS. 8. Aggrieved assessee filed the objections before DRP and filed the detailed submissions as under: - "3.4.5 From the definition of the term "Royalty" as provided in Explanation 2 to section 9(1)(vi) of the Act and Article 12(3) of the India-USA DTAA, it is evident that the definition as given in the Acts much wider in scope as compared to the provisions of the India-USA DTAA. Therefore, the taxability or otherwise of the amounts paid by Atos India to the assessee is discussed/examined in terms of the provisions o....
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....r in the main memory or hard drive of a computer, or in any other medium." 3.4.8 The assessee would also like to support its above contention by placing reliance on the following decisions: Baan Global B.V. [2016] (ITA No. 7048/M/2010) (Mum.) Reliance Industries Limited [2016] (ITA No. 2529/M/2008) (Mum.) DIT vs. Ericsson AB [2012] (343 ITR 470) (Del.) DIT v. Nokia Networks OY [TS-700-HC-2012 (Del.)] Infrasoft Ltd. Vs. ADIT [2009] (28 SOT 179) (Del.) Sonata Information Technologies Ltd [2006] (103 ITD 324) (Bang.) Motorola Inc. v. DCIT [2005] (95 ITD 269) (Del.) (SB) Dassault Systems K.K., In Re [2010] (229 CTR 105) (AAR) 3.4.9 As per the assessee, the principle enunciated in the above decisions is that the payment for right to use the software was not for any copyright in the software but only acquisition of the copyrighted article and the same, therefore, could not be considered as Royalty within the meaning as provided in the DTAA. The above propositions also gain support from the Commentaries on the provisions contained in Article 12 of the OECD Model Convention 3.4.10 It has been....
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....3.4.15 Without prejudice to the above, it is further claimed that even if the services are considered to be in the nature of technical or consultancy services, the assessee does not make available any skill, know how, technical knowledge, etc. which enables Atos India to apply the technology contained therein on its own. 3.4.16 The assessee has relied on the Memorandum of Understanding (MoU) to the India-USA DTAA to explain Article 12 and its applicability in detail. Relevant paragraphs of this MoU are reproduced below: "Paragraph 4 (in general) ....... Under paragraph 4, technical and consultancy services are considered included services only to the following extent.... (2) as described in paragraph 4(b). if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. ..........(Emphasis supplied) "Paragraph 4(b) ...............Generally speaking, technology will be considered "made available" when the....
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....herein it has been held that payment for services similar to that of the assessee do not fall within the meaning of concept of 'make available under the DTAA: ADIT vs. WNS North America Inc [2013] (ITA No. 2944/Mum/2012) (Mum) Sandvik Australia Pty Ltd Vs DDIT (2013] (141 ITD 598) (Pune) Ernst & Young Pvt. Ltd, in Re [2010] (323 ITR 184) (AAR) Endemol India Pvt. Ltd, in Re [2013] 261 CTR 117 (AAR) Bharati AXA General Insurance Co. Ltd, in Re [2010] (326 ITR 477) (AAR) Invensys Systems Inc, in Re [2009] (317 ITR 438) (AAR) 3.4.22 The assessee submits that, in the instant case, the services provided by the assessee to Atos India do not make available technical knowledge, knowhow, experience, etc. Hence, they do not qualify as FIS under Article 12(4) of India-USADTAA. 3.4.23 In light of the above, payments received by the assessee from Atos India are neither in the nature of "Royalties" or "FIS" under the Article 12 of the India-USA DTAA. The said payments are in the nature of Business Profits under Article 7 of the India-USA DTAA. Such business profits would have been taxable only if the assessee had a PE in ....
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.... facts, the claim of the appellant that the above transaction does not fall under the definition of royalty as per Article 12(3) of the India US DTAA is not found acceptable. Even the reliance placed by the assessee on IRS guidelines of USA is not found relevant as the software have not been sold to Atos India. Same is the situation with reliance placed by the assessee on the decision in the case of Tata Consultancy Services (supra). 3.10.5 The consideration is not found to be with reference to sale of MS licenses. It is noted that the amount clearly falls within the realm of royalty, being an amount charged for access to the software which is being owned and maintained by the assessee company. It is held that the amount represents royalty, both as per Section 9(1)(vi) of the IT Act as well as Article 12(3) of the India US Treaty. 3.10.6 The objection raised by the assessee on this issue is not found to be correct and is dismissed. 3.11 Co-ordination services relating to Tower Watson project: The nature of service has been detailed above. Further, the agreement between the two parties with respect to this service has been examined. The assessee has claime....
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....al property rights granted to company solely for the purpose of providing the services hereunder but only to the extent such license and rights are granted in the Prime Contract if performance of services requests the use of specific software or tools owned by company or its client, subcontractor (a) shall not modify, alter, change, adapt or create derivative works based upon such software and tools, or any part thereof; (b) shall not sell, assign, pledge, sub-license, lease, deliver or otherwise transfer such software and tools and (c) shall not disclose to any third party or permit any third party to have access to, or use or copy such software and tools. 3.11.4 Although the access to the assessee's intellectual property rights is limited to performance of the service with reference to contract with Tower Watson, it is admittedly utilised for the purpose of the Atos India's business. The fact remains that Atos India has been allowed use of the intellectual properties of the assessee company for its own business activities and such intangibles are clearly in the nature of "copyright of scientific work" or "patent, trademark, design, model, plan, secret formula or ....
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....essee had hired a consultant for developing standardized processes for organizing an event, the Hon'ble ITAT held the payment to be fee for technical service in terms of India UK DTAA wherein the requirement of make available was satisfied. The Bench held that; In the instant case the assessee has hired for conducting research in respect of the appropriate structure for the IPL and makes recommendation to BCCI accordingly. It is required to provide the Constitution of the IPL, the authority of the governing Council, the structure of IPL, tournament rules and regulation, the franchisee tender document, the franchisee agreement, necessary franchisee regulation and the IP implementation budget. According to the agreement the intellectual property rights remains with the board of control for Cricket in India. Even assessee could not point out that why make available test has not been satisfied in this event by providing all the rules and regulations of IPL, standard operating procedures of matches, copies of the franchisee agreement various documentation/contracts etc which shall remain with the BCCI Therefore, in the instant case the BCCI is enabled to absorb and apply th....
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.... above, the facts in the present case are totally different. 3.12 In light of the above discussion, the DRP holds that all the services rendered by Atos US fall within the ambit of Article 12 of th India US DTAA as royalty/fee for technical services and are liable to tax in India. The objection raised by the assessee is not found acceptable and is dismissed." 10. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - "1. That on the facts and in the circumstances of the case and in law, the Learned Deputy Commissioner of Income-tax (International Taxation) 1(1)(2), Mumbai (the Learned AO') and the Dispute Resolution Panel (the DRP) erred in holding the sum of Rs.7.55.89.550 as 'Royalty under Section 9(1)(vi) of the Income-tax Act, 1961 (the Act) and Article 12 of the Double Taxation Avoidance Agreement (the DTAA') entered into between India and France. 2. That on the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in holding the sum of Rs. 7.55.89.550 as 'Fees for Technical Services' under Section 9(1)(vii) of the Act and Article 12 of the DTAA. 3. That o....
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....ned in product profiles and they are granted access to the apps and services of the product on which the product profile is based) 3. Visual Studio 3.1 Visual Studio 2010 professional (An integrated development environment which is used to develop computer programs, as well as websites, web apps, web services and mobile apps) 4. Project and Visio 4.1 Project 2010 Pro (A project management software product designed to assist a project manager in developing a schedule, assigning resources to tasks, tracking progress, managing the budget, and analyzing workloads) 4.2 Project 2010 Standard 4.3 Visio 2010 Pro (A software product which helps in creating professional diagrams, flow charts etc.) 4.4 Visio 2010 Standard 5. Windows Server 5.1 Windows Server 2008 Enterprise (Windows Server is the platform for building an infrastructure of connected applications, networks and web services) 5.2 Windows Server 2008 Standard 6. Forefront 6.1 Forefront Threat Management Gateway 2010 Standard (An integrated security gateway comprising of firewall, antivirus program, etc.) 6.2 Forefront Threat Management Ga....
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....payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 2.6 Article 12(3)(a) brings within the ambit of the definition of royalty, a payment made for the use of or the right to use a 'copyright of a literary, artistic or scientific work. Thus, only those payments that allow a payer to use/acquire a right to use a copyright in a literary, artistic or scientific work are covered within the definition of royalty. 2.7 Basis the above definition of royalty, it is important to understand the meaning of the term 'copyright'. Since the term copyright is not defined under the provisions of the Act, one would have to take recourse to the provisions of the Copyright Act, 1957 (Copyright Act'). 2.8 As per section 14 of the Copyright Act, 'copyright' means the exclusive right to do any of the acts specified therein, viz., to reproduce the work, to issue copies of the work to public, to make any translation or adaptation of the work, etc. Unless any of the exclusive rights or a combination thereof as stated under section 14 of the Copyright Ac....
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.... computer hardware owned by the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. 47. In all these cases, the "licence" that is granted vide the EULA, is not a licence in terms of section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in sections 14(a) and 14(b) of the Copyright Act, but is a "licence" which imposes restrictions or conditions for the use of computer software. Thus, it cannot be said that any of the EULAS that we are concerned with are referable to section 30 of the Copyright Act, inasmuch as section go of the Copyright Act speaks of granting an interest in any of the rights mentioned in sections 14(a) and 14(b) of the Copyright Act. The EULAS in all the appeals before us do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid position will suffice. If an Eng....
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....orporated in the United Kingdom (UK) purchased software from third-party vendors by way of a licence for the use of the same by the member firms of the group. The payment received by the UK company from its members was for the use of computer software loaded on its server by the creation of a standard facility for which access was granted to all the member firms of the group. The UK company had also entered into a contract with the member firms to provide support services including procurement services in respect of external software licenses for member firms' internal business use. The Hon'ble Delhi High Court relied upon the decision of Hon'ble Supreme Court in the case of Engineering Analysis (supra) and held that the payment received by the UK entity for providing access to computer software to its member firm in India does not amount to 'royalty under the provisions of the Act and the India-UK DTAA. Relevant extract from the decision is reproduced hereunder for ready reference: "13. A reading of the above judgment would clearly show that for the payment received by EYGSL (UK) from EYGBS (India) to be taxed as "royalty", it is essential to show....
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....ing to Microsoft License Fee from Atos India should not be treated as royalty/FIS under the India-USA DTAA and the addition made by the Ld. AO in relation thereto deserves to be deleted. 3. Services relating to Tower Watson Project: Facts: 3.1 The Appellant (formerly known as Siemens IT Solutions and Services, Inc.) had entered into a Master Services Agreement as of 01.02.2011 with Towers Watson Pennsylvania Inc. (Tower Watson) for provision of information technology and related services (including a Service Desk) to Tower Watson Entities (kindly refer pages 165-352 of the paperbook). In view of the said agreement, Atos India had agreed to provide information technology services (IT services) to Tower Watson India. 3.2 As part of the IT Services to be provided by Atos Group to Tower Watson Group (inter-alia including IT services from Atos India to Tower Watson India), a Service Desk facility was to be provided to Tower Watson employees for dealing with IT incidents faced by them. The said Service Desk is maintained by the Appellant in the USA for the entire Tower Watson Group and serves as a Single Point of Contact (SPOC) to deal with all inciden....
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.... of a technical plan or technical design. 3.6 In this regard, attention is invited to the Memorandum of Understanding ("MOU") entered into by the Indian Government with the Government of the USA in relation to the India-USA DTAA to explain Article 12 and its applicability in detail. Relevant paragraphs of this MoU are reproduced below: "Paragraph 4 (in general) ........ Under paragraph 4, technical and consultancy services are considered included services only to the following extent. ......... (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. .... "Paragraph 4(b) Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, ....
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....nder Article 12(4) of India-USA DTAA. 3.10 In support of the above contentions, the Appellant wishes to place reliance on the decision of Hon'ble Pune Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. v. DDIT: ITA No. 93/PN/2011, wherein the Hon'ble Tribunal held that Information Technology (IT) support services such as help desk, etc. for solving IT related problems provided by an Australian company to its Indian subsidiary had not "made available" any technical knowledge or expertise to the Indian company and therefore, were not covered by para 12(3)g) of India-Australia DTAA. Relevant extract from the decision is reproduced hereunder for ready reference: "9.... The assessee is providing help desk and user administration services, ie., IT support and advisory services for solving any IT related problems faced by the users as well as user administration services such as addition of new user/deletion of any existing users in the system. ..... 13. We find that the expression "making available" is very much important to decide in which contracting state the amount received for rendering the services relating to the technical ....
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....e services in 3CB. Further, he brought to our notice agreement relating to service desk services and specifically the Clause 8.4 of the above services and submitted that these are all support services rendered by the assessee to Atos India and prayed that these services are rendered by the assessee which will fall under royalty as well as FTS. Therefore, he relied on the orders passed by the DRP/AO. 13. Considered the rival submissions and material placed on record, we observe that the assessee has provided two services to its subsidiary in India for the execution of sub-contract with Tower Watson India. It is important to note that the services provided by Atos India to Tower Watson India are independently charged to tax as business receipt. For execution of services to Tower Watson by Atos India is based on the Global contract executed by the Assessee and Tower Watson Pennsylvania Inc. In order to execute the above sub-contract the assessee has provided certain additional services like allowing them to subscribe the Microsoft products and common services in the nature of Help desk facility to be provided to the employees of Tower Watson employees for dealing with the IT incide....
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....ed by EYGSL (UK) from EYGBS (India) to be taxed as "royalty", it is essential to show a transfer of copyright in the software to do any of the acts mentioned in section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as "royalty". 14. In the present case, the EYGBS (India), in terms of the Service Agreement and the MOU, merely receives the right to use the software procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as royalty' as held by the Supreme Court in Engineering Analysis Centre (supra). In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the soft....