TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 875
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....porate entity and a tax resident of United States of America (USA). As stated, the assessee is engaged in healthcare business for the General Electric (GE) group, and is a global medical device provider that designs, develops, manufactures and distributes diagnostic imaging and clinical system, products and services for drugs discovery, bio-pharmaceutical manufacturing, and cellular technologies, imaging agents used during medicinal scanning procedures, and a range of healthcare Information Technology (IT) solutions. 5. In the assessment year under dispute, the assessee received income in the nature of Fee for Technical Services (FTS)/Fee for Included Services (FIS) amounting to Rs. 3,32,12,204/-, which was offered to tax in India under section 9(1)(vii) read with section 115A of the Act. The assessee also received an amount of Rs. 10,66,35,790/- towards software licence fee cross charged to its affiliates in India, namely, Wipro GE Healthcare Pvt. Ltd., GE BE Pvt. Ltd. and GE India Industrial Pvt. Ltd. However, the software licence fee received as reimbursement from the affiliates was not offered to tax in India by the assessee. In course of assessment proceedings, the Assessing ....
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....ntre of Excellence Pvt. Ltd. Vs. CIT (432 ITR 471) and the decision of Hon'ble Delhi High Court in case of DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329. 8. He submitted, once the receipts are not in the nature of royalty, it can only be treated as business income under Article 7 of the tax treaty and in absence of PE in India, it is not taxable. He submitted, though, the receipts are purely in the nature of business income, however, the departmental authorities have wrongly treated it as income from other sources under section 56 of the Act read with Article 23(3) of the tax treaty. He submitted, in the first show-cause notice, the Assessing Officer himself wanted to treat the receipts as royalty income. However, being conscious of the fact that the amount cannot be treated as royalty income in view of the decision of Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd., he proceeded to invoke section 56 of the Act read with Article 23(3) of DTAA only for the purpose of bringing to tax an otherwise non-taxable receipt. 9. Strongly contesting the reasoning of the departmental authorities in not treating the receipts as business income, learned counsel ....
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....not automatically be treated as other income and brought under section 56(1) of the Act or Article 23(3) of DTAA. In this context, he drew our attention to Article 21 of the UN Model Commentary. Thus, he submitted, the amount cannot be treated as other income under section 56(1) of the Act read with Article 23(3) of the tax treaty. In this context, he relied upon the following decisions: i. Husco International Inc. Vs. ACIT [2021] 133 taxmann.com 196 (Pune - Trib.) ii. CSC Technology Singapore Pte. Ltd. Vs. ADIT, 19 taxmann.com 123 (ITAT-Delhi) iii. JCIT (OSD) Vs. Merrill Lynch Capital Market Espana SA SV, 112 taxmann.com 119 iv. Bangkok Glass Industry Co. Ltd. Vs. ACIT, 34 taxmann.com 77 (Madras HC) v. Mc Kinsey & Company (Thailand) Co. Ltd. Vs. DDIT, 36 taxmann.com 375 (ITAT - Mumbai) 12. Learned Departmental Representative strongly relied upon the observations of departmental authorities. 13. We have considered rival submissions in the light of the decisions relied upon and perused materials on record. The lis between the parties is regarding the nature and character of the receipts from sublicensing of software licences by assessee to its Indian Associated Enterpris....
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....service income which constitutes 21% of its overall revenue from operations. During the subject year, 97% of this software income was earned by the AE through sale of software services to the assessee. iv. Thus, through the software sub-licensed by the assessee to the AE on a per-user per-month basis, sales are made back to the assessee. 16. On going through the aforesaid reasonings of the Assessing Officer, it is very much clear that the Assessing Officer has accepted the position that the assessee buys software licenses from third party vendors and sublicenses them to its affiliates. He has also observed that by using the sublicensed software the affiliates carry on their business activity and generate income from services provided to the assessee. From the aforesaid observations of the Assessing Officer, two facts are very much clear. Firstly, the assessee is not the owner and manufacturer of the software, and secondly, the licenced softwares are used as business tools by the affiliates to generate service income from the assessee. If that is the case, we fail to understand how the receipts from sublicensing of softwares can be treated as other income under section 56(1) of t....
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.... it cannot be said that the receipt from sublicensing of software is not in course of assessee's business activity, hence, cannot be characterized as business income. Further, from the details available on record, it is observed that sublicensing of software is not an one off activity but an activity carried on with regularity, continuity and frequency. Therefore, in our view, it cannot be treated as a passive activity. 18. Reverting back to the issue, whether the receipts can be recharacterized as other income as envisaged under section 56(1) of the Act and Article 23(3) of the Act, it is very much clear, as per the provisions of domestic law, an item of income, which does not fall under any specific heads of income, such as, salary, house property, business and profession and capital gain, will fall under the residuary head 'income from other sources' as per section 56(1) of the Act. Similarly, Article 23(3) of the tax treaty provides for taxation of residuary items of income which are not dealt with in the other Articles of the tax treaty. In the facts of the present appeal, admittedly, the item of income sought to be taxed is the receipts from sublicensing of software licences....