TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 760
X X X X Extracts X X X X
X X X X Extracts X X X X
....has erred both on facts and in law by stating in its order that appellant has in past always considered payment received as Fees for Technical Services under Article 12 of the India- Ireland DTAA and u/s 9(1)(vii) of the Act. 1.3 Learned CIT(A) has erred both on facts and in law by ignoring the fact that nature of product assessee company is selling is an email security program and apart from a right to use the computer software programme by the end-user himself, there is no further right to sub-licence or transfer, nor is there any right to reverse- engineer, modify, reproduce in any manner otherwise than permitted by the licence to the end-user. 1.4 Learned CIT(A) has erred both on facts and in law by ignoring the fact that what is granted to the distributor is only a non-exclusive, non-transferable licence to resell computer software, and no copyright in the computer programme is transferred either to the distributor or to the ultimate end user. 1.5 Ld CIT(A) has erred both on facts and in law by ignoring the fact that what is paid by way of consideration by the distributor in India to the foreign, non-resident manufacturer or supplier, is the price of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad a receipt of Rs. 52,71,32,336/- from Inflow Technologies Pvt Ltd, India('distributor') and Rs. 40,43,08,060/- from Ivalue Infosolutions Pvt Ltd, India (distributor) on account of the sale of software products. There is a tripartite sub-distributor agreement between Websense BV and Websense International Limited ('assessee, now Forcepoint Technologies International Ltd.) with respective distributors. These receipts are claimed as business income neither accruing nor arising in India, as there is no PE in India. 7. The Assessing Officer held vide his order dated 27.05.2022 that the receipts arising from the sale of software product to the Distributor, who, in turn resold to different end users, be taxable in India as Fee for Technical Services (FTS) under Article 12(3)(b) of the India-Ireland DTAA, and additionally taxable u/s 9(1)(vii) of the Income-tax Act, 1961. Accordingly, the amount of Rs. 93,14,40,396/- was taxed 10% as per Article-12 of the India-Ireland DTAA and u/s 9(1)(vii) of the Income-tax Act, 1961. 8. The appeal before the CIT(A) failed and hence the aggrieved assessee is before us. 9. The ld. counsel for the assessee vehemently contended that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....national Financial Systems PTE Ltd 158 Taxmann.com 632 and Tagit [P] Ltd 159 taxmann.com 93 Para 13. 15. The ld. counsel for the assessee further argued that in the preceding years, sale of software has been considered as sale per se only and has been accepted by the department. For the instant year, software as FTS has been considered only on the basis of the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence 125 taxmann.com 42. The ld. counsel for the assessee emphasized that there is no estoppel in law and relied upon the decision of the ITAT Delhi in the case of Honda Motorcycle and Scooter India Pvt Ltd at page 440 of the Paper Book. The ld. counsel for the assessee further informed that in the subsequent years, equalization method has been adopted. 16. On the other hand, the ld. DR argued that the assessee is only providing software solutions and not off the shelf software. It is the say of the ld. DR that the assessee is providing professional services to its clients. The ld. DR further submitted that in the case of Bharti Cellular [supra], human intervention exists. He also relied on the decision of the ITAT, Delhi in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the AO that SaaS means rendering of technical service is not justified. We would rather agree with the assessee that the AO, conscious of the fact that receipts from sale of software could not be taxed as 'Royalty' in India, after the land mark judgment in Engineering Analysis Centre of Excellence 432 ITR 471 (SC), the AO tried to recharacterized the receipts as FTS under the Act. We would also agree with the assessee that there is no human intervention involved in the software sold in India, taking the receipts of the assessee outside the ambit of technical services, in line with the decisions of the Delhi High Court in Bharti Cellular 319 ITR 139 (Del) PB 378 PB 386 & 388 as confirmed by Hon'ble Supreme Court 330 ITR 239 (SC), wherein it was held that the technical services described in Section 9(1)(vii) read with explanation 2 would have to mean services rendered by human and that at the time of delivery of service there had to be a human interface. 22. We also find on page 20 of the assessment order that the AO has held that the customers of the assessee "are paying for the unique IP that is provided by the algorithms developed by the assessee that delivers actionabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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". 11. 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. 12. 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 who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Act as there is no human intervention. This finding that it is a "service" has not been upheld by the Hon'ble Supreme Court of India only the factual issue as to whether there was human intervention was set aside to AO. Under such circumstances, the question of taking a contrary view that it is not a "technical services", but a case where the FTO had granted the assessee a right to use a process and the payment is for 'royalty' cannot be countenanced. Applying the binding decision of the Hon'ble Jurisdictional High Court we have to hold that the payment cannot be termed as covered by Explanation 2 read with Section 9(1)(vi) of the Act. On this ground alone the order of the First Appellate Authority has to be upheld. The charge that the payment in question is FTS u/s 9(1)(vii) excludes the possibility of the payment being royalty under section 9(1)(vi) of the Act. Both these sections deal with different set of facts situation which cannot co- exist. 27. The Revenue reliance on the decision of Kotak Securities Limited 383 ITR 1 (SC) does not come to the rescue of the AO as the hon'ble Supreme Court has hinted at modern day scientific and technological developmen....