TaxTMI 
TaxTMI 
2025 (3) TMI 705
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....ough various grounds are tabulated below - Issue AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 General Ground No.1 Ground No.1 Ground No.1 Ground No.1 Receipts from General Business Support Services ('BSS') does not constitute 'income' Ground No.2 Ground No.2 Ground No.2 Ground No.2 Receipts from General BSS does not qualify as Fees for Technical Services ('FTS') Ground No.3 & 4 Ground No. 3 & 4 Ground No. 3 & 4 Ground No. 3 & 4 Receipts towards access to SUN (software) application does not constitute income Ground No.5 -- Ground No. 9 Ground No. 9 Receipts towards access to SUN (software) application does not qualify as Royalty Ground No.6 & 7 -- Ground No. 10 to 12 Ground No. 10 to 12 Receipts towards Global Standard Accounting Package (GSAP) maintenance charges does not constitute income Ground No.8 -- Ground No. 13 Ground No. 13 Receipts towards GSAP maintenance charges does not qualify as Royalty Ground No.9 -- Ground No. 14 Ground No. 14 Receipts towards GSAP Go Live charges/ Go- Live true up does not constitute income Ground No.1....
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....ment order of the AO, before the DRP who confirmed the addition made by the AO towards BSS services based on the AAR Ruling. The DRP also confirmed the treatment of usage charges of SUN Maintenance Software and treatment of cost allocation for GSAP license and Go-Live application as royalty. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO as per the directions of the DRP. Treatment of BSS as FTS 4. We heard the parties and perused the material on record. With regard to treatment of BSS as FTS in the hands of the assessee the ld. AR submitted that the issue is squarely covered by the decision of the Co-ordinate Bench in assessee's own case for AY 2009-10 in ITA No. 1253/Mum/2014 dated 10.09.2024 since the facts for the year under consideration are identical. Accordingly, the ld. AR submitted that the decision of the Co-ordinate Bench is application for the year under consideration also. The ld. DR did not controvert the submissions of the ld. AR. We notice that the Co-ordinate Bench while considering the identical issues for AY 2009-10 has held that "10. We have heard the rival submissions and perused the materi....
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....) that the payment made by the applicant to SIPCL for availing the General BSS under the CCA would constitute income in the hands of SIPCL and is in the nature of fees for technical services within the meaning of Article 13.4 (c) of the DTAC between India and UK; and not in the nature of royalty within the meaning of the term in Explanation 2 to Clause (vi) of Section 9(1) of the Act and under Article 13 of DTAC, while we rule on Que. No. (iii) & (iv). Based on answer to Que. No. (i) & (ii) that the payment received by SIPCL is chargeable to tax in India and the declaration provided by SIPCL that it does not have a Permanent Establishment (PE) in India in terms of Article 5 of DTAC, we rule that the applicant is under obligation to withhold tax under section 195 of the Act. " 11. Pursuant to the said ruling SIMPL had filed a Writ Petition before the Hon'ble Jurisdictional High Court challenging the validity and legality of the order passed by the Hon'ble AAR and the Hon'ble High Court (in Writ Petition No. 10788 of 2012 vide order dated 01.03.2024), quashed the order of the Hon'ble AAR as being not sustainable by law and by holding that the payment received by the ....
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....tograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic 4. For the purposes of paragraph (2) of this Article, and subject to paragraph (5), of this Article, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provisions of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph (3)(a) of this Article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment de....
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.... A perusal of the list of services relate to managerial services not involving anything of a technical nature. The AAR has discussed the services appearing in the CCA and has concluded that these activities in a retail business are at the core of retail marketing and hence advice tendered in taking a decision of commercial nature is a consultancy service. The AAR has further considered the definition of the word 'Consultancy' as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word 'Consultancy' appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature. The reading of the Article clearly indicates that the consultancy service must be which makes available technical knowledge, etc. Sub-para (c) to Article 13(4) restricts such services to those which make available technical knowledge or consist of development and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, cle....
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....iolation of the treaty. 9. Having regard to the fact that the term is required to be understood in the context in which it is used, "fee for technical services" could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with "technical" is "involving or concerning applied and industrial science". 10. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. 11. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person....
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.... Thus Petitioner is correct in contending that the AAR has proceeded on conjectures and surmises to render the finding in the impugned order. 21. The AAR has further held that the services are made available to Petitioner since while providing General BSS, SIPCL works closely with the employees of the applicant and supports/advises them. It is held that Petitioner is able to use the know how/intellectual property generated from the General BSS independent of the service provider and hence the services under the agreement are clearly made available to Petitioner. In order to understand the import of the words 'made available' as used in the context of Article 13(4)(c), it will be useful to refer to a decision of the Karnataka High Court in CIT, Central Circle v. De Beers (Supra). Paragraph 22 reads as follows: "22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, knowhow and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an endur....
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....f FTS under the India-Singapore DTAA, the services would have to satisfy the 'make available' test and such services should enable the person acquiring the services to apply the technology contained therein. "18. As mentioned elsewhere, the agreement is effective from 01.01.2010 and we are in Assessment Years 2018-19 and 2019- 120.[sic.....20]. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2010? 19. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e, the assessee. 20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advan....
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.... technical in nature per Article 13 of DTAA between India and UK and therefore, would not be taxable in India; b) That this Hon'ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari and/or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records and papers of the Petitioner's case and after examining the legality and validity thereof quash and set aside the impugned order dated 17.01.2012 passed by the Authority in AAR No. 833/2009, in the case of the Petitioner and further." 28. It is made clear that that the Department is at liberty to take necessary steps as available to it in law including as to whether the subject will be covered under Article 7 of the DTAA. We express no opinion. In such proceedings, if taken, the time taken in the present proceedings will stand excluded for the purpose of limitation. 12. From the above it is observed that the Hon'ble High Court has categorically held that the services rendered by the assessee are not in the nature of technical service and are merely managerial in nature, though in the case of SIMPL, the s....
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....unt received towards maintenance of computer software is not a payment of royalty since the charges paid are towards use of copyrighted item and not for the use of copyright itself. Therefore the ld AR argued that the provisions of section 9(1)(v) is not applicable as has been held by the AO. Our attention in this regard was drawn to the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT (2021) 125 taxmann.com 42 (SC). 7. We in this regard notice that a similar issue has been considered by the Hon'ble Jurisdictional High Court in the case of CIT(LTU) vs. Reliance Industries P. Ltd. (2024) 164 taxmann.com 10 (Bom.) by placing reliance on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.(supra). The relevant observations of the Hon'ble High Court is extracted below - "6. We have heard the Learned Counsel for the parties. We have been taken through the impugned orders passed by the Tribunal. 7. The Tribunal considering the provisions of the IT Act, as also the position in law as laid down in various decisions has observed that th....
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....d by the High Court were assailed before the Supreme Court. It is also required to be noted that similar issues had arisen before the Delhi High Court interalia in the case of DIT v. Ericsson A.B [2011] 16 taxman.com 371/[2012] 204 Taxman 192/343 ITR 470 and DIT v. Nokia Networks OY [2012] 25 taxmann.com 225/212 Taxman 68/358 ITR 259 (Delhi) The Delhi High Court however took a view contrary to the view taken by the High Court of Karnataka. The Supreme Court examined the issues as arising from the decisions of both the High Courts in the case of Engineering Analysis Centre of Excellence (P) Ltd (supra). The Supreme Court in its decision rendered in the said case upheld the view taken by the Delhi High Court in interpreting such transactions in the context of Section 9(1)(vi) of the Act. The Supreme Court held that considering the provisions of DTAA, there was no obligation on the persons mentioned in Section 195(1) of the Act to deduct tax at source as the distribution agreements, in the facts of the case did not create any interest or right in such distributors/end users, which amounted to the use or right to use any copyright. It was held that the provisions of Section 9(1)(vi) of....
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....approach of the Assessing Officer in the present case was against the correct position in law as held by the Tribunal, and now also endorsed by the Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd (supra). In this view of the matter, we are in agreement with Mr. Madhur Agarwal that these four Appeals would not give rise to the question of law as noted by us hereinabove." 8. In assessee's case the payments are made towards cost allocation of of SUN Maintenance Software and GSAP maintenance charges therefore we are of the view that the ratio laid down by the Hon'ble Supreme Court and the Jurisdictional High Court are applicable to assessee also. Therefore respectfully following the said decisions we hold that the amount received towards cost allocation of SUN Maintenance Software and GSAP maintenance charges cannot be treated as royalty and the addition made in this regard is not sustainable. Ground No.6,7 & 9 raised by the assessee in this regard are allowed. Ground No.5 & 8 on the same issue has become academic and left open. Treatment of cost allocation pertaining to GSAP Go-Live and access of GSAP application as Royalty 9. During the year under ....
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....ith explanation 4 thereof, and Article 3(2) of the DTAA. Further, the expression "copyright" has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the AAR in Citrix Systems Asia Pacific Pty Ltd. (supra) does not state the law correctly and is the aside. 11. From the perusal of above finding, it is clear that the if the definition of Royalty as contained in the DTAA is more beneficial to the assessee then the same should only be applied as per section 90(2) of the Act. The term "Royalty" as per Article 13(3) of the DTAA between India and UK reads as under - 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan....