TaxTMI 
TaxTMI 
2023 (8) TMI 912
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....ition of income from distribution of software licenses and providing support services as royalty 1. The order passed by the learned Deputy Commissioner, on aspects agitated in the appeal, is void, bad in law, ultra vires and contrary to the provisions of law and facts as the same is passed without considering the ruling of the Supreme Court as well as the directions issued by the Hon'ble DRP. 2. The learned Deputy Commissioner erred in taxing income of Rs. 2,88,87,790 as royalty under section 9(1)(vi) of the Act as well as Article 12 of the India-Sweden Tax Treaty. 3. The learned Deputy Commissioner erred in not appreciating the fact that the amount of Rs. 2,88,87,790 comprises of four components which is tabulated as under: Sr. No. Nature of Income Amount (in Rs. ) 1. Software licenses 2,44,86,771 2. Support Services 36,37,596 3. Hardware 7,43,728 4. Freight expenses 19,693 Total 2,88,87,787 4. The learned Deputy Commissioner erred in not appreciating the fact that the income earned by the appellant towards software license amounting to Rs. 2,44,86,771 is not taxable as royalty und....
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....i) Even on facts, this panel is of the view that the so-called support services are not limited to simple maintenance instead, in the totality of circumstances, availing the services are absolutely vital for the buyer to use the software. There does not appear to be any case where a buyer has purchased the software without the services to be offered by the assessee under the guise of support services. 14. The observation of the Hon'ble DRP is purely surmise and conjecture and is not based on any material on record. Levy of surcharge and education cess 15. The learned Deputy Commissioner erred in levying surcharge and education cess on the tax payable on income chargeable to tax at the rate of 10% as per Article 12(2) of the India-Sweden Tax Treaty. Interest under section 234B 16. The learned Deputy Commissioner erred in levying interest of Rs. 1,84,460 under section 234B of the Act. Interest under section 234D 17. The learned AO erred in levying interest under section 234D of the Act. Interest under section 244A 18. The learned AO erred in not correctly granting the interest under section 244A of t....
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....,87,787/-. Assessing Officer observed that based on the submission made by the Assessee, it was noticed that the Assessee has not offered the above said receipts to tax. Accordingly, show-cause notice was issued to the assessee. 7. In response assessee by relying on various case laws of various courts submitted that Hon'ble Supreme Court held by deciding the issue of taxability of software into four different categories i.e., 1. Computer software directly purchased by Indian end-users from foreign suppliers/ manufacturers; 2. Computer software purchased by Indian distributors/ resellers from foreign suppliers; 3. Computer software purchased by foreign distributors/ resellers from foreign suppliers for resale/distribution in India to Indian distributors/ end-users; and 4. Computer software, embedded in the hardware and sold by foreign suppliers to Indian distributors/ end users as a bundled software. 8. The assessee submitted that IAR Systems holds the copyright, trade secrets, and any other intellectual property rights which subsist in the Licensed Product and all copies thereof. No title or other rights in the Licensed Product shall pa....
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....assessee had earned income from distribution of software licenses and provision of support services. This fact was submitted before the learned Assessing Officer during the course of the assessment proceedings by letter dated 25 November 2020 and 22 March 2021. A copy of the letter dated 22 March 2021 has been submitted in the paperbook filed with the Hon'ble Panel (refer page No. 61 to 67 of the DRP set filed). However, inadvertently the assessee had not submitted the letter dated 25 November 2020 in the paperbook filed before the Hon'ble Panel. The assessee now encloses the said letter dated 25 November 2020 as Annexure 1. • Further, while passing the Draft Assessment Order dated 22 April 2021 for the captioned AY 2018-19. the learned Assessing Officer has inter-alia reproduced the submission dated 22 March 2021 filed by the assessee (on page 02 to 13 of the DRP set filed) but has not given any finding with respect to the income earned by the assessee from "provision of support services" and instead taxed the entire receipts receipt of Rs. 2,88,87,787/- earned during the year as "Royalty" without appreciating the fact the "provision for support services" can ....
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.... 15 Xylem Water Solutions India Pvt. Ltd. 225,780 - 225,780 Total income 24,486,771 3,637,596 743,728 19,693 28,887,787 12. By analyzing the above chart, Ld. DRP held that the above receipts are chargeable to tax under Fee for Technical Services (in short "FTS") as per section 9(1)(vii) of the Act and as per India-Sweden DTAA article 12(3)(b). 13. Further, Ld. DRP rejected the submissions of the assessee for extension of India-Portugal DTAA in view of protocol of India-Sweden DTAA and MFN status granted thereon, the restrictive definition of FTS is found in India-Portugal DTAA with the observation that as per section 90(1) above said protocol is not being notified in the official gazette by the Parliament of India. 14. Subsequent to the order of the Ld. DRP, Assessing Officer passed the final Assessment Order dated 31.01.2022 and Ld. AR submitted that Assessing Officer while passing the final Assessment Order reproduced his finding in draft Assessment Order and finally at Page No. 31 of the final Assessment Order he mentioned in Para No. 11 that this order is passed as per the directions of the Ld. DRP and observ....
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.... is a secret process which is used in the data processing and the payment is made for using the secret process and hence the payment should be considered as Royalty. Further, the Assessing Officer provided another "Without prejudice view" stating that the software can also be considered as a scientific equipment and the payment made for the use of the scientific equipment is taxable as Royalty. The Ld. DRP in its observations has also discussed another view stating that the entire bundle of software and subsequent or concurrent maintenance is an extended exercise of providing technical services and therefore the payment is taxable as Fee for Technical Services (FTS). While giving this view of holding the payment as FTS, the Ld. DRP did not discard the previous three views including the primary view of the Assessing Officer noted in detail in the Draft Assessment Order. Rather, the Ld. DRP categorically rejected the Objections of the Ld. DRP. 10.4 Further, it is to be mentioned that the section 144C(11) of the Act states that "No direction under sub-section (5) shall be issued unless an Assessing Officer on such directions which are opportunity of being heard is given to th....
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....essment proceedings" and in view of the same, it is to be seen that the views taken by the Assessing Officer and the Ld. DRP are to be read in conjunction with each other as neither have contradicted nor discarded the view of the other authority. 10.7 Since, the facts for the A.Y.2019-20 in the assessee's case are similar to A.Y.2018-19, it is hereby requested that the above factual report and submissions may be considered for the both the assessment years, while presenting the view of the Department before the Hon'ble ITAT." 16. Further, Ld. DR brought to our notice order passed by ITAT Bangalore bench in the case of Yokogawa India Ltd., v. ACIT in ITA.No. 1715/Bang/2016 dated 08.03.2021 in which bench has remitted the issue back to the file of the Assessing Officer to consider the findings of the Ld. DRP and passed the order, accordingly, he relied on the above order and prayed that even in this case the issue may be remitted back to the Assessing Officer for passing the proper order as per law. 17. In the rejoinder, Ld. AR submitted that it is fact on record that Ld.DRP has given a categorical finding that the case laws relied by the Assessing Officer in t....
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.... final Assessment Order in which he has made submissions that the order passed by him is analyzing the various issue which are without prejudice views which Ld. DRP has not rejected. He is of the view that the final Assessment Order passed by him is as per section 144C(13) of the Act. After considering the submissions of both the parties, we are of the view that Assessing Officer has not followed the directions of the Ld. DRP and the directions of the Ld. DRP are very clear and Assessing Officer has not bothered to atleast classify the income earned by the assessee under the head FTS as per the directions of the Ld. DRP and royalty. He proceeded to complete the final Assessment Order based on his own analysis made by him in draft Assessment Order which is clearly a violation of not following the directions of the higher authorities and also the provisions of section 144C(13) of the Act. At the time of hearing, Ld. DR heavily relied on the decision of the ITAT Bangalore in the case of Yokogawa India Ltd., v. ACIT (supra) in which the bench has remitted the issue back to the file of the Assessing Officer/TPO to redo the assessment by following the directions of the Ld.DRP. We observe....