AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 373
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....re to its distributors in India. The assessee filed its return of income for AY 2022-23 declaring income of Rs. 18,94,08,000/- and claimed refund of Rs. 2,14,64,110/-. The income from sale of software licenses was not offered to tax by the assessee, as according to the assessee, the said revenue is not taxable in India under the India-Denmark Double Taxation Avoidance Agreement (DTAA). The stand of assessee is that the income from sale of off the shelf software licenses constitutes business income and since the assessee has no Permanent Establishment (PE) in India as per Article 5 of the DTAA, the business income of the assessee is not subject to tax in India. Whereas, the Assessing Officer (AO), while passing the Draft Assessment Order (DAO), held that the software is not off-the-shelf software but is customized to the needs of end users, and the assessee exercises comprehensive control over operations of the distributors, including fixation of prices. The distributor is not at liberty to select the resellers. The products are sold in India through resellers certified by the assessee. Thus, the AO concluded that the assessee has a Dependent Agent Permanent Establishment (DAPE) ....
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....ring to Clause 2.8 of the agreement, the ld. Counsel submits that the relationship between the assessee and the distributor is one of independent contractors acting for their own account and neither party is authorized to make any commitments or representations, express or implied, on behalf of the other, unless authorized to do so in writing. This clearly establishes a principal-to-principal relationship and independent contractor status. The assessee does not restrict the distributors from selling products and services of its competitors. The ld. Counsel furnished a table giving the names of distributors in India, their total turnover, purchases made from the assessee and the percentage of such purchases to total turnover, to substantiate that the products of the assessee constitute only a minuscule part of the distributors' total turnover. 4.1. With regard to alleged price control by the assessee, the ld. Counsel submits that Clause 3.3 of the agreement clearly explains that the assessee does not restrict the distributor from setting its own resale price. The only restriction imposed by the assessee is that the product shall not be sold beyond the maximum resale price. The ld....
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.... exercises control over pricing. With regard to appointment and selection of resellers, the ld. DR submits that the assessee controls the selection of resellers through its certification program. The certification is entirely within the domain of the assessee and issuance of certificate is at the sole discretion of the assessee. The ld. DR reiterated the findings of AO and the DRP and prayed for upholding the assessment order and dismissing appeal of the assessee. 6. We have heard the submissions made by rival sides and have examined the orders of the authorities below. We have also considered the decisions and documents on which the ld. Counsel for the assessee has placed reliance. The assessee, during the relevant period, has inter alia earned revenue from sale of software licenses in India. The assessee sells its software licenses through the following chain: Assessee ↓ Distributor ↓ Reseller ↓ End user 7. The revenue earned by the assessee from sale of licensed software was not offered to tax in India as, according to the assessee, the said revenue is exempt under the India-Denmark DTAA. On the other hand, the stand of Revenue is, the i....
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.... at pages 21 to 51 of the paper book. 9. Clause 2 of the agreements deals with the appointment of the distributor. The relevant excerpts from Clause 2 of the agreement are as under: "2.1 Milestone appoints the Distributor as a non-exclusive authorized distributor of Milestone Products subject to the terms and conditions of the Agreement. The Distributor purchases and sells the Products in its own name and for its own account, risk and costs. 2.2. Milestone grants the Distributor and the Distributor hereby accepts non-exclusive, limited sales rights to sell defined categories of Products in the Territory to Resellers subject to the terms of this Agreement. The Distributor may also sell in the Territory. Basic Products to non-authorized resellers in accordance with Milestone's White Resellers Policy, which may be amended from time to time. xxxxxx 2.7 The Distributor is not granted any rights of exclusivity, neither in terms of the Products nor for Territories, and Milestone reserves the right to appoint other distributors or for Milestone to sell directly to Resellers, White Resellers, End-users, OEM-Partners and other third parties. 2.....
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....utors. In the instant case as well, the assessee sells software to its distributors and does not dictate the pricing of the software to be charged by the distributors from resellers/end users, except for prescribing the condition that the price should not exceed the maximum retail price. 12. Clause 14 of the agreements allow the Distributor to sell the products of competitors. Thus, the assessee in any manner does not jeopardize the interest of distributors in selling the products of other suppliers. The assessee has furnished a chart highlighting the total revenue of the Distributors vis a vis the products of the assessee purchased by the Distributors. The said chart is reproduced herein below: S.No Name of the Distributors Total Turnover (in INR mn) Amount of purchase from Appellant (in INR mn) Purchases as a percentage of total turnover 1. Anixter India P. Ltd. 3208.1 6.88 0.21% 2. Canon India P. Ltd. 23,638 13.98 0.06% 3. Inflow Technologies P. Ltd. 20,621 1.85 0.0009% 4. Solus Securities Systems P. Ltd. 235.085 0.15 0.06% 5. Resideo International (India) P. Ltd. 3066.7 19.81 0.65% 6....
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.... sold by the assessee is tailor-made. In this regard, it would be relevant to refer to the excerpt from the website of the assessee on which the AO has placed reliance:- "Build the solution you need There is no one-size-fits-all when it comes to video technology. Every operation is different, with needs constantly evolving. That's why XProtect's Nexible open platform architecture makes it such a future-proof Investment. You can adapt and scale your video solutions as well as update them with the latest analytics and Al technologies. * 13,000+ supported cameras and other devices * Extensions include Smart Wall and Smart Map *1,000+ compatible third-party integrations A perusal of the above excerpt from the website shows that nowhere does it state that the assessee provides tailor-made software solutions. It only indicates that the software of the assessee is flexible and adaptable to the requirements of end users with regard to scalability and updates incorporating the latest analytics and AI technologies. In simple words, the software has broad spectrum to meet the requirements of different categories of End users. 15. The ....