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2024 (5) TMI 160
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....d by the Appellant. Accordingly, the said order is bad in law being in violation of section 144C(10) of the income-tax Act, 1961 (Act) and deserves to be quashed. 2. That without prejudice to the above, the Ld. AO has erred in law, in disregarding and mis-interpreting the fact that the sum received by the Appellant towards software licensing fees was in the nature of consideration for a copyrighted article and not copyright. 3. That the Ld. AO has erred in law, in disregarding various judicial precedents (including the judgement of Hon'ble Apex Court) wherein it has been settled that consideration for supply of copyrighted article does not tantamount to Royalty under the provisions of the Double Taxation Avoidance Agreement (DTAA'). 4. That the Ld. AO has erred on facts and in law, in alleging software licensing fee as 'Royalty though he could not factually demonstrate that the licensee namely M/s Reliance Jio Infocomm Limited (RJIL") had any rights to make copies of the software or to commercially exploit the rights in such software as envisaged in the Copyright Act, 1957. 5. That the Hon'ble DRP has erred in law and on facts, in....
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....laimed credit of TDS/refund of Rs. 52,62,769/- on account of tax deducted at source by its customers in India. The case of the assessee was selected under CASS for scrutiny on the reason "High Ratio of Refund to TDS u/s 195". Statutory notices were issued and served upon the assessee electronically through the ITBA Portal which was duly complied with. In its reply, the assessee stated that the impugned receipts are not taxable in India as the underlying services do not fall within the purview of Royalty/ Fees for technical services/Fees for Included Services ("FTS/ FIS") under Article 12 of India-USA DTAA and therefore shall qualify as business income of the assessee which is not chargeable to tax in the absence of PE of the assessee in India. 3.1 During the assessment proceedings, the Ld. Assessing Officer ("AO") after analysing the Software License Agreement and disregarding the submissions/reply filed by the assessee arrived at a conclusion that the impugned receipts pertaining to supply of software (including AMC services) are taxable as FTS. Accordingly, he proposed an addition of Rs. 4,94,29,858/- as FTS income of the assessee for the following reasons recorded by him in t....
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....ensing and service income. b) Pursuant to the software license agreement, the assessee granted a nonexclusive, non-transferable license to the said client to use and operate the software relating to transmission control protocol and video optimisation solution in India subject to the terms and conditions and restrictions specified in the Agreement. c) The client has no right whatsoever to modify, alter, decompile, translate or disassemble any source code of the software. The source code and underlying algorithm of the software are the assessee's proprietary trade secrets. d) In order to enable the client to effectively use and operate the software, the assessee will provide free annual maintenance contract services for a period of one year and thereafter such AMC services shall be optional. e) The assessee shall implement optimisation solution into production network of the client with the technical specifications in the Software License Agreement. The services provided under this Agreement include installation/implementation of the software (including testing, production cut over and transition to operations) and onsite support services eith....
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....ot taxable in India in absence of any permanent establishment of the assessee in India." 3.3 After considering the submissions of the assessee along with the material on record, the Ld. DRP vide its directions dated 17.05.2022 observed that the Software License Agreement dated 20.02.2017 captures two distinct transactions namely, a) supply and license of certain software and b) provision of AMC services to the licensee and hence rejected the assessee's contention that both the transactions are inextricably related and integrated with each other under Article 12 of the India-USA DTAA. 3.4 The Ld. DRP by placing reliance on the decision of the Hon'ble Supreme Court in the case of Centre of Excellence Pvt. Ltd. vs. CIT (2022) 3 SCC 321 and considering the terms of the Software Licence Agreement concluded in para 2.5 of its directions/ order that software licence fee will not constitute royalty income but business income under Article 7 of India- USA DTAA which is not taxable in India in the absence of PE of the assessee. 3.5 As regards the AMC charges, the Ld. DRP held the same to constitute FTS/FIS within the meaning and scope of Article 12(4)(b) of India-USA DTAA recording ....
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....ementation and commission as provided in the Roles and Responsibilities Matrix. It is seen that under such maintenance support services, the assessee as Licensor is seen to provide various services to the users for its products including providing of patches, updates, upgrades etc; 24*7 support on phone, email, Web based, remote access; option available to licensee to create unlimited support Portal login IDs etc. The Agreement mandates that the Licensor shall provide the highest level of support for various types of offerings. The customer / user thus obtains access to the assessee's live and online technical support resources for various support services and processes in relation to incident management, problem management, change management process/service requests, service operation, release management, configuration management, investigation, diagnosis, resolution and recovery, incident closure etc. 2.8 The technical support services in relation to the assessee's products clearly require technical expertise which is rendered by the assessee. These services involving human intervention and skill entail application of the technology contained therein to enable the us....
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....2601/Kol/2018 that income from such services is taxable as Fees for Technical Services in India even if the technical services were performed outside the country since the payment for the same is not for the process but for the results of testing which is used in India. Further, in Metro & Metro, Agra vs. Assessee (I.T.A. No. 393/Agra/2012), Hon'ble Agra Bench of ITAT observed as under- 20. The principle of law, as clearly discernable from the observations made by Hon'ble Delhi High Court in Bharati Cellular's case (supra), is that the word technical services appearing in Explanation 2 to Section 9 (1) (vii) would also have to be construed as involving a human element. In other words, when services have no human element involved, such services cannot be treated as 'technical services' for the purposes of Section 9(1)(vii). 21. In Siemens case (supra), however, the coordinate bench went much beyond what was held by the Hon'ble Courts above. The coordinate bench has concluded that, "Thus if a standard facility is provided through a usage of machine or technology, it cannot be termed as rendering of technical services. Once in this case i....
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....led to follow the directions of the Hon'ble DRP and hence the assessment order passed by the Ld. AO in violation of the direction of the Hon'ble DRP is nullity in the eyes of law and deserves to be quashed. The Ld. AR further submitted that the Ld. DRP's directions have also been taken into consideration by Hon'ble Jurisdictional Delhi High Court in assessee's own case in Openwave Mobility Inc. vs. DCIT (W.P(C) 13659/2022) while addressing the writ application filed by the assessee against the lower tax withholding certificate issued by the Ld. AO for AY 2023-24. On the basis of this order of the Hon'ble Delhi High Court, a Nil withholding certificate was issued by the Ld. AO following the direction of the Hon'ble DRP and the decision rendered by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra). The Ld. AR relied on the observations of the Ld. DRP contained in para 2.5 of its order. 5.1 As regards AMC charges, the Ld. AR submitted that the AMC services provided by the assessee are ancillary and subsidiary to the licensing of software. Since such services are simply an extension of the original transaction (being supply of the s....
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....ining provided is incidental to the supply of software product and relied upon certain judicial precedents in support thereof. 7. We have heard the Ld. Representative of the parties and perused the material on records. It is an undisputed fact that during the relevant AY, the assessee is a tax resident of USA and has opted to be governed by the provisions of India-USA DTAA. Also, the assessee does not have a PE in India. The assessee had entered into a Software Licensing Agreement for supply and license certain Software and Service Level Agreement (forming part of Software Licence Agreement) to provide AMC services to Reliance/Jio/ RJIL. During the relevant AY, the assessee received software licensing fee of Rs. 4,35,39,550/- and AMC charges of Rs. 58,90,308/- aggregating to Rs. 4,94,29,858/-. So far as the issue relating to the taxability of Software Licensing Fee of Rs. 4,35,39,550/- is concerned, we observe that the Ld. DRP has examined this issue in detail and recorded its observation finding in para 2.5 of its order reproduced below:- "2.5 As regards the first set of transactions namely supply and license of software, the licensor grants the licenses to use and ope....
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....sidered the relevant findings of the Ld. DRP for AY 2019-20 and observed as under:- "10. The petitioner's case is, that in terms of the aforementioned Software Licensing Agreement, it granted a non-exclusive and non-transferable license to RJIL, to use and operate the software concerning Transmission Control Protocol and Video Optimisation Solution in the territory of India. 10.1 As consideration, the petitioner receives licensing fees from RJIL. 11. Inter-alia, the petitioner's claim is, that RJIL has only been allowed to use the licence software and that the rights qua the same have not been transferred. It is, thus, the petitioner's submission, that it is not liable to tax the license fee received from RJIL. 12. In support of its submission, the petitioner relies upon the order dated 17.05.2022 passed by the Dispute Resolution Panel-2 ["DRP"] with regard to Financial Year (FY) 2018-2019 [AY 2019-2020]. 13. In particular, our attention has been drawn to the following observations made by the DRP: - "2.4 The submissions have been examined along with the materials on record. It is seen that the Software License Agree....
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.... Engineering Analysis Centre of Excellence Private Limited v. CIT (2022) 3 SCC 321. 15. Mr Zoheb Hossain, who appears on behalf of the respondents/revenue cannot but accept, that the concerned officer who passed the impugned order would have to take into account, the observations made by DRP in its order dated 17.05.2022, as also consider the impact of the judgment rendered by the Supreme Court in Engineering Analysis. 16. In our view, the aforementioned aspects will require consideration. 17. Accordingly, the impugned order dated 29.04.2022 is set aside, with the direction that the application filed by the petitioner will be decided afresh. 17.1 The concerned authority will hear the Authorized Representative (AR) of the petitioner. 17.2 For this purpose, the AR of the petitioner will appear before the concerned authority on 16.01.2023, at 11:00 AM. 17.3 The concerned authority will be at liberty to hear the AR of the petitioner via video-conferencing. 18. While disposing of the application, the concerned authority will bear in mind, the order dated 17.05.2022 passed by the DRP, and the ratio of the judgment rendered by....
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....icensee to create unlimited support portal login IDs. To facilitate control of License keys, all of these IDs should not have access to Software license keys. 5) Any onsite support if required by Licensee will be provided by Licensor at no additional costs to Licensee. 6) Licensor warrants that the Software shall always be up and running during AMC to meet Licensee's requirements. 7) A product expert from Licensor shall visit Licensee once every quarter lo guide Licensee about the best possible use of the Software. 8) All third parties software provided or included in Software are also covered 9) Licensee has option to buy AMC on annual basis. 10) The Licensor shall at least 10 days prior to the end of each annual AMC period, provide Licensee with written notice that the annual AMC period is ending, and Licensee shall have two (2) weeks after receipt of the written notice to notify Licensor of its intent to renew AMC for an additional annual period. If Licensee notifies its intent to renew AMC for an additional annual period then Licensee will issue a PO/WO for such renewal of additional annual AMC period within ninety (90) days from such notification. In the ....
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....the assessee under the license agreement for allowing use of the software was not 'royalty' either under the Income-tax Act or under DTAA. We also hold that the other receipts on account of maintenance charges and training fees being incidental to the software receipts assume the same character as that of software receipts and the same are liable to be taxed accordingly." 10.4 Having said so, we will now also consider the alternative plea taken by the assessee. In our view, even the test of 'make available' under Article 12(4)(b) of the India-USA DTAA is not satisfied given the facts of the present case. Maintenance services comprise of troubleshooting, software updates, patches etc. and technical support by e-mail, fax etc. and the training services are for acquainting with the operation / use of software. These activities, in our view, do not qualify as 'make available' within the meaning of the expression contained in Article 12(4)(b) of the India-USA DTAA. The meaning of the expression 'make available' has been derived from umpteen numbers of judicial precedents as well as Protocol to the India-USA DTAA. If we consider the terms of the AMC under the Software Licence ....