TaxTMI 
TaxTMI 
2026 (1) TMI 468
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....cts relevant for assessment year 2015-16 are taken up for adjudication and the decision rendered thereon shall apply mutatis mutandis for assessment years 2016-17 and 2017-18 also, in view of identical facts, except with variance in figures. 3. Though the Assessee has raised several grounds of appeal before, the only effective issue to be decided is as to whether the amounts received from Airlines by the Assessee constitute Royalty chargeable to tax as per the provisions of section 9(1)(vi) of the Act and as per Article 12 of India Netherlands Double Taxation Avoidance Agreement (DTAA) or not. 4. We have heard the rival submissions and perused the materials available on record. The Assessee is a tax resident of Netherlands. The Assessee is a technology solutions provider to the airline industry. The company markets and distributes travel related products and services to airlines which include airline decision support applications and implementation and support services for Sabre software packages. For rendering the above mentioned services, the Assessee primarily makes use of software hosted on its vendors servers located outside India. The Assessee had entered into Master Ag....
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.... Indian customers as Royalty taxable u/s 9(1)(vi) of the Act instead of FTS u/s 9(1)(vii) of the Act. There was no occasion for the Assessee to make its submissions for nontaxability of receipts as Royalty under the India -Netherlands Treaty in assessment year 2015-16. However, we find that in assessment year 2016-17, the Assessee made duly its submissions for non-taxability of Royalty both under the domestic law as well as under the Treaty. In assessment year 2016-17, the Learned AO held the receipts from Indian customers to be taxable as Royalty both under the domestic law as well as under the Treaty. The Learned AR fairly stated that the taxability of receipts from Indian customers as Royalty under the domestic law is not disputed by him. He submitted that the receipts from Indian customers, though treated as Royalty, would not be taxable under the India-Netherlands Treaty. He drew our attention to Article 12 of India -Netherlands Treaty wherein under clause 4, the term Royalties is defined. For the sake of convenience, the same is reproduced below:- "Article 12(4) - The term "royalties" as used in this Article means payments of any kind received as a consideration for ....
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.... is, however, clarified that no additional Subscription Fees will be payable for any such extension since figures of Passengers Boarded as furnished in Exhibit-4, already reflect the number of total passengers of both Customer and Jet Lite (India) Ltd. 5.4. Sabre Retention of Rights Unless otherwise agreed in a Work Order, Sabre retains exclusive ownership of all worldwide Intellectual Property Rights in the System(s) and Documentation, including any derivative work, modification, update or version thereof. Sabre and its suppliers reserve all rights in and to the System and Documentation not expressly granted to Customer in this Agreement. 5.5. Express Restrictions The System(s) and its structure, organization, and source code constitute valuable trade secrets of Sabre. Customer agrees not to without Sabre's prior, written consent; (i) modify, adapt, alter, translate or create derivative works from a System; (iii) sublicense, lease, rent, or loan a system to any third party; (iv) reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code for a System; or (v) otherwise use or copy the System except as expressly al....
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....n services including those that are provided or procured by Sabre on behalf of the Customer. .................. 2. Usage Rights and Restrictions a. Usage Rights : Effective upon the date on which the System is made available for Customer's use, and provided that Customer is and remains in compliance with the terms of the Agreement and this Work Order, Sabre grants to Customer a personal, limited, revocable, non-exclusive and nontransferable right, during the term of this Work Order, to (i) access and use the System via the Internet or direct telecommunication link solely for Customer's internal airline operations, and (ii) use the associated Documentation in support of Customer's authorized use of the System. The Documentation will be provided via the Sabre Community Portal website. b. Express Restrictions on Use: In addition to the restrictions contained in the Agreement, Customer agrees not to (i) copy, re-sell, reproduce, distribute, republish, download, post, frame or transmit in any form or by any means, or allow another to use or access the Systems, (ii) transmit any data to the System that contains software viruses or other harmful or dele....
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....e grant of a right to exploit or bring into effective use. A mere advantage or benefit derived from a service provided cannot possibly be countenanced to fall within the meaning of the expression's "use" or "right to use" as they appear in Article 12. What we seek to emphasise is that the use of a service while equipment or process remains with and in the control of the provider cannot attract process or equipment royalty provisions. Similarly, merely because an equipment or process comes to be deployed or used in the course of providing a service would not attract Article 12. This since no dominion or control came to be granted or transferred." 8. As per the definition of Royalty given in the Treaty, the Assessee should have given the Secret Process or Formula to the Customers in India, which is factually not done in the instant case before us. Reliance in this regard has been rightly placed by the Learned AR on the decision of the Hon'ble Delhi High Court in the case of DIT vs New Skies Satellite BV reported in 382 ITR 114 (Del) wherein the relevant operative portion is reproduced hereunder:- "29. The Revenue argues that critical aspects of this judgment, primaril....
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..... This confusion was brought about by a difference in the punctuation of the definitions in the DTAAs and the domestic definition. For greater clarity and to illustrate this difference, we reproduce the definitions of royalty across both DTAAs and sub clause (iii) to Explanation 2 to 9(1)(vi). Article 12(3), Indo Thai Double Tax Avoidance Agreement: '3. The term "royalties" as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.' (Emphasis Supplied) Article 12(4), Indo Netherlands Double Tax Avoidance Agreement '4. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of li....
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....& Paper Mills Ltd. AIR 1929 PC 38 An illustration of the aid derived from punctuation may be furnished from the case of Mohd. Shabbir (supra) where Section 27 of the Drugs and Cosmetics Act, 1940 came up for construction. By this section whoever "manufactures for sale, sells, stocks or exhibits for sale or distributes" a drug without a license is liable for punishment. In holding that mere stocking shall not amount to an offence under the section, the Supreme Court pointed out the presence of comma after "manufactures for sale" and "sells"and the absence of any comma after "stocks" was indicative of the fact "stocks" was to be read along with "for sale" and not in a manner so as to be divorced from it, an interpretation which would have been sound had there been a comma after the word "stocks". It was therefore held that only stocking for the purpose of sale would amount to an offence but not mere stocking. 57. However, the question, which then arises, is as follows. How is the court to decide whether a provision is carefully punctuated or not? The test- to decide whether a statute is carefully (read consciously) punctuated or not- would be to see what the consequence woul....
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....he appellant had relied upon the commentary issued by the OECD on the aforesaid model DTAA and particularly, referred to the following amendment proposed by OECD to its commentary on Article 12, which reads as under: '9.1 Satellite operators and their customers (including broadcasting and telecommunication enterprises) frequently enter into transponder leasing agreements under which the satellite operator allows the customer to utilize the capacity of a satellite transponder to transmit over large geographical areas. Payments made by customers under typical transponder leasing agreements are made for the use of the transponder transmitting capacity and will not constitute royalties under the definition of paragraph 2; these payments are not made in consideration for the use of, or right to use, property, or for information, that is referred to in the definition (they cannot be viewed, for instance, as payments for information or for the use of, or right to use, a secret process since the satellite technology is not transferred to the customer). As regards treaties that include the leasing of industrial, commercial or scientific (ICS) equipment in the definition of roya....
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....ties in the service of the payer, activities for which the payee uses his own proprietary rights, know-how, etc., while not letting or transferring them to the payer.' 77. The Tribunal has discarded the aforesaid commentary of OECD as well as Klaus Vogel only on the ground that it is not safe to rely upon the same. However, what is ignored is that when the technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTAAs should be followed by the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act. . . . ** ** ** 78. There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., [139 ITR 806 (Guj.)] at Pages 820-822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] ....
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....unctions performed by the Transponder, the analogy could be drawn to the facts of the instant case before us. One of the essences of this judgement is that any amendment made in the domestic law cannot be read automatically into the Treaty for the purpose of taxability of Royalty or otherwise. 9. The third limb of the definition of Royalty under the treaty speaks about information concerning industrial, commercial or scientific experience. To explain the same, the Learned AR rightly placed reliance on the decision of this Delhi Tribunal in the case of Salesforce.com Singapore Pte vs DDIT (IT) reported in 137 taxmann.com 3 (Del Trib) dated 25-3-2022 wherein the relevant operative portion is reproduced hereunder:- "13. We have given thoughtful consideration to the contentions of the ld. DR and have duly considered the written submissions. In our understanding of the facts, the assessee provides web-based online access to its customer's data hosted on servers located in data centers maintained by the assessee outside India. The assessee does not have any data centers in India and hence it cannot be considered to have a fixed place of business in India. The assessee nei....