TaxTMI 
TaxTMI 
2023 (4) TMI 844
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.... 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. Accordingly, assessee has recovered payments from Atos India for....
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....d 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 of the India-USA DTAA, the same being more beneficial to the assessee, in accordance with secti....
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....liance 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 claimed that regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer's hard drive or random access memory or making an archival copy is a....
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....y 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 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, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(....
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....[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 India. Since the assessee did not have PE in India, such receipts were not taxable in India. 9. DRP after considering the submissions of the assessee observed that it is an established position that the taxability and character of an item has to be determined in accordance with the contents of the Indian Income Tax Act and the provisions of the Treaty between India and USA. Any internal guidance issued by a particular country cannot be a b....
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....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 claimed that the amount has been received for providing a service desk for authorised users of Atos India with reference to services rendered by Atos India to Tower Watson. Such service desk requests include request for data, system or application access. 3.11.1 The facts of the case have been carefully examined. The assessee has entered into a Master Services Agreement with M/s Tower Watson Pennsylvania Inc. (hence forth Tower Watson) on a global basis. Since both these companies operate at global le....
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....ools 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 process, or information concerning industrial, commercial or scientific experience". 3.11.5 It is also noticed that the service desk setup by the assessee is with reference to enabling the employees of Atos India to render the services in the requisite manner. In addition to the access to the intellectual property rights of the assessee company, there is a close interaction between the personnel of the assessee and the Atos India employees which result in making available of technical knowledge, skill, experience and process. It ....
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....nt 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 the information and the advice provided by the appellant to it for conducting such sporting events. Thus, when all this documentation and material is provided to the BCCI it is able to use such know how and documentation generated from provision of the services of the appellant independent of the services of the appellant in future. It is too naive to say that in absence of IMG services BCCI on its own cannot hold IPL tournament. Merely because the BCCI has entered into a contract for conducting further events does not lead to the conclusion that the informatio....
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....national 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 on the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in not considering that the sum of Rs. 7.55,89.550 is in the nature of "Business Profits" under Article 7 of the DTAA, not taxable in India as the Appellant did not have a Permanent Establishment in India under Article 5 of the DTAA. 4. That on the facts and in the circumstances of the case and in law, while calculating the tax liability of the Appellant, the Learned AO has erred in levying surcharge and education cess on the rate prescribed under the Article 12 of the DTAA. 5 That on the facts and in the ....
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....reating 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 Gateway Web Protection Service 7 Exchange, Sharepoint and Bizztalk 7.1 Exchange Server 2010 Standard (Microsoft Exchange Server is a mail server and calendaring server developed by Microsoft which primarily focuses on sending, receiving and storing email messages. In addition to managing messaging traffic, Exchange Server provides several other collaboration features, like calendaring, and tight integration with other Microsoft Office applications.) 7.2 Sharepoint Server 2010 (Sharepoint Server by Microsoft helps in creating public websites, collaboration platforms, etc.) 8 SQLServer 8.1 SQL Server 2008 standard, (A software product with the primary function of storing and retrieving data as request....
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....ct, 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 Act are transferred by the copyright holder, it cannot be said that the use or right to use the copyright has been granted. 2.9 Thus, payment made for acquiring the right to use any copyrighted product, wherein the payer does not get any of the 'exclusive right' as stated in section 14 of the Copyright Act, does not amount to payment made for the use or right to use the 'copyright' in the product and therefore, shall not be covered within the scope of "royalty". 2.10 In the present case, the payment made by Atos India to the Appellant is towards licenses for Microsoft's software products which are standard off-the shelf products. The only right that Atos India (the end-user of Microsoft products) gets is a right to use the Microsoft products, which are akin to "copyrighted ....
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....st 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 English publisher sells 2000 copies of a particular book to an Indian distributor, who then resells the same at a profit, no copyright in the aforesaid book is transferred to the Indian distributor, either by way of licence or otherwise, inasmuch as the Indian distributor only makes a profit on the sale of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way of licence or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterised as royalty ....
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.... 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 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 EYGSI (UK) from the thi....
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....n 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 incidents, problems and service requests relating to IT Services. A detailed description of the Service Desk is provided at page 347 of the paperbook. In view of the above, Atos India made payments to the Appellant for use of the Appellant's Service Desk by authorized personnel of Tower Watson India. 3.3 The primary purpose of the Service Desk is to restore normal service for Tower Watson India personnel as quickly as possible. The IT related service requests/incidents are raised by Tower Watson India personnel on the Service Desk facility which is maintained by Atos USA ie. the Appellant. Once a service request is raised, the Appellant deals with all the IT incidents raised by Tower Watson India so as to resume IT services for them. However, in case a physical visit to the customer's site is required to resolve an issue, Atos India provides such onsite services to Tower Watson India. It may be noted that the services are rendered by the Appellant directly ....
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....n of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. ........." (Emphasis supplied) 3.7 As per the meaning of the term 'make available' explained in the MoU, technology will be considered as made available' when the person acquiring the service is enabled to apply the technology. In other words, when the recipient of services is able to make use of technical knowhow, experience, etc. without recourse to the service provider in future, in such a case, such technical knowhow, experience, etc. could be considered to be made available to the service recipient. In this regard, attention is also invited to the landmark decision of the Hon'ble Karnataka High Court in the case of CIT & Ors vs De Beers India Minerals (P) Ltd.: [2012] 346 ITR 467 (Kar), wherein, while discussing the concept of "make available", the Court held as under: "......... if the assessee is abl....
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....nt received for rendering the services relating to the technical know-how is to be taxed. The expression "make available" is used in the context of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. ..... 16. In the present case, as per the terms of the agreement between the assessee company and Sandvik Asia Ltd., does not support the case of the Revenue that the assessee's case is covered in clause (g) of para 3 to Article 12 of the India Australia Treaty as the assessee has not made available any technical knowledge or expertise to the recipient Indian company. In our opinion, the assessee has only provided the back-up services and IT support services for solving IT related problems to its Indian subsidiary. Hence, unless and until the services are not made available, same cannot be taxable in India. We, therefore hold that the services rendered by assessee ....
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....employees for dealing with the IT incidents faced by them. Let us deal with the above issues separately. 14. The assessee has entered into global contract with Microsoft License fees and kept the ownership with them. Based on the above contract, the assessee has entered into separate agreement with the Atos India for recharge of costs pertaining to usage of the above licenses by Atos India. Accordingly, based on the usage of the Licenses the assessee has charged the same to Atos India as per the above said agreement. The assessee has filed copies of above said agreement entered with Atos India and relevant invoices raised to Atos India. Ld AR took us through the above said agreement and invoices to highlight that the assessee has charged only to the extent the Atos India has made request for usage of the approved Microsoft Licences as per their requirements. The invoices are raised based on the actual utilization of the Licences. The revenue authorities treated the above said services as Royalty or FTS. On careful consideration, we observe that the License for usage of the copy righted products are with Microsoft only and the assessee has acquired global right and transferred the ....
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.... copyright in the software, the same would not fall within the ambit of the term 'royalty' as held by the Supreme Court in Engineering Analysis Centre (supra). ... 16. The submission of the learned counsel for the Revenue that the judgment of the Supreme Court in Engineering Analysis Centre (supra) cannot be applied because it confines itself only to the four categories mentioned in paragraph 4, also cannot be accepted. Though the Supreme Court was on facts considering the four categories of cases that arose in the appeals before it, it has laid down the law for general application. The law, as laid down, by the Supreme Court, when applied to facts of the present case, squarely covers the same in favour of the petitioners. ... 18. In view of the above, the Impugned Rulings dated 10-8-2016 passed by the learned AAR are set aside and it is held that the payment received by EYGSL (UK) for providing access to computer software to its member firms of EY Network located in India, that is, EYGBS (India), does not amount to 'royalty' liable to be taxed in India under the provisions of the Income-tax Act, 1961 and the India-UK DTAA." 16. From the above, it is clear ....