2023 (11) TMI 1102

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....earned Dispute Resolution Panel (DRP). 2. The only dispute arising in the present appeal relates to addition of reimbursement of expenses from the India subsidiaries as royalty. 3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in United States of America ('USA') and a tax resident of USA. As stated by the Assessing Officer, the assessee is engaged in providing translation and localization solutions worldwide. It also provides content services and testing services to its customers globally. The assessee has also a subsidiary in India with whom the assessee has entered into an agreement, in terms of which, the Indian subsidiary provides back office support services to the assessee, for which, Indian sub....

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....le in India. After verifying the details furnished by the assessee and the submissions made, the Assessing Officer, ultimately, concluded that assessee's claim that the receipts are cost-to-cost reimbursement of software licence expenses is unacceptable, since, as per the agreement, the assessee has received markup of 16.87%. Accordingly, he treated the receipts on account of reimbursement of cost of software licences as royalty income, both under the domestic law as well as treaty provisions and brought it to tax, while framing the draft assessment order. 5. Against the aforesaid decision of the Assessing Officer, the assessee raised objections before learned DRP. However, learned DRP did not interfere with the decision of the Assessing O....

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....g the Indian entity is shrink- wrapped software licences purchased from third party vendors, wherein, the assessee has no intellectual property rights ('IPR'). He submitted, the third party vendors are the actual owner of the copyright in the software and that has not been transferred to the assessee. He submitted, when the assessee itself is not having ownership over the copyright in the software, there is no question of assessee transferring use or right to use of copyright to its subsidiaries. Thus, he submitted, the cost received by the assessee, being towards sale of copyrighted articles, is not taxable as royalty income under the treaty provisions. In support of his contention, learned counsel relied upon the decision of the Hon'ble S....

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....er the Departmental Authorities have brought on record any material to establish that the reimbursement of cost to the assessee is inclusive of markup, nor at the time of hearing before us, learned Departmental Representative could place any evidence on record to demonstrate that the reimbursement of cost includes element of markup. Therefore, in our view, the cost-to-cost reimbursement of price paid towards software cannot be treated as royalty. 10. Even on merits also, the assessee has a strong case. As could be seen from the facts on record, the assessee has brought shrink-wrapped softwares, such as, Microsoft Windows, MS Officer etc. from third party vendors and distributed amongst other group entities located in various countries. Thu....