TaxTMI 
TaxTMI 
2025 (6) TMI 2122
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....ted as Royalty - Rs. INR 34.10 Crore Ground no 5 (without prejudice ground) Credit for TDS on accrual basis when the income has been sad to as an actual basis - short TDS of Rs. 5.64 crores Ground no 6 to 11 TP grounds Ground no 12 Penalty u/s 271G Ground no 13 Levy of interest u/s 234B Ground no. 14 Initiation of penalty proceedings under Section 271(1)(c) Additional GOA Additional Grounds 1 & 2 Filed on 06 March 2020 (basis Vendata) Additional Grounds filed on 24 Nov 2022 (basis Roca Bathroom) 3. Ground No.12 & 13 are being dismissed as pre-mature and ground No. 13 is consequential in nature. 4. At the outset, it had been stated that all the issues raised from ground No. 2-11 are squarely covered by the decision of the Tribunal for the earlier years and some of the issues are also covered by the decision of the Hon'ble Bombay High Court in the case of the assessee. Even the AO has merely followed earlier years only. Copies of the decisions of the Tribunal have been filed alongwith the chart and it had been submitted that in the order for A.Y. 2009-10 dated 07/06/2024, all these issues have been discussed in detail. 5. Ld. DR also admitted that....
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....igh Court has considered the various ITAT decisions in assessee's own case and the stand of the assessee has been upheld that the receipt is to be taxed on actual receipts. Therefore, the AO is directed not to bring tax the income on account of royalty and ITS on accrual basis but to tax the same on receipt basis. After considering the submissions and decisions of the Tribunal and the Hon'ble Bombay High Court in the case of the Tribunal, this issue is decided in favour of the assessee that income on account of Royalty and FTS can be taxed only on receipt basis. 80. Even otherwise Article-12 of India-German tax treaty used the word "paid, payments of any kind received and payments of any amount". The Article 12 of India-Germany Tax Treaty which has been reproduced below: - "ARTICLE 12-Royalties and fees for technical services - 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. ..... 3. The term "royalties' as used in this Article means payments of any kind received as a consideration for the use ........... ....
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.... ground No. 3 & 4, the facts are that the assessee received amount of Rs. 29,64,46,087 as consideration for supply of software to Siemens Ltd. and its other affiliate entities. 10. It has been stated that the software supplied forms an integral part of the equipment supplied and, therefore, partakes the character of supply of equipment and mere supply of equipment without the software would amount to supply of incomplete machinery, as the machinery cannot function without the software. The software supplied by the assessee can only be used on the equipment / hardware supplied by the assessee. Therefore, it has been stated that these software have no other utility except on its own equipments. The ld. AO like in the previous years has alleged that consideration for supply of software could be considered as 'roylaty' under the Act as well as tax treaty. This issue has been decided in favour of the assessee in the earlier years, the details of which are as under :- AY ITA No. Date of Order 2006-07 8094/Mum/2010 06.05.2014 2005-06 1174/Mum/2010 30.05.2014 2004-05 4502/Mum/2009 18.05.2012 2003-04 2520/Mum/2008 09.07.2010 2002-03....
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....e rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee had not separately sold software but it was part and parcel of the equipment supplies to M/s Siemens Limited. The case of the assessee is that it should be taken at "Business Profits as per Article 7 to DTAA between India and Germany. On the other hand the Department wants it to be considered as falling under Article 13, being the royalty. We have to decide whether the sum of Rs. 5.29 crores is to be considered as "Business profits" or "royalty. The Special Bench of the Tribunal in the case of Motorola Inc. Vs. DCIT (2005) 95 ITD 269 (Delhi) (SB) has considered this aspect and held that "the payment made to the assessee for use of software in the equipment did not amount to royalty either under the Income- tax Act or the DTAA. " The facts involved in the instant case are akin to those considered by the Special Bench in the afore-noted case. The Learned Department Representative could not point out any distinguishing feature in the facts of the instant case vis-a-vis that decided by the Special Bench. Respectfully following the view taken by the Special Bench in this as....
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....s or manufacturers and then reselling the same to resident Indian end- users. - The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end- users. - The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users 14. The Hon'ble Supreme Court held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software, is not payment of royalty for the use of copyright in the computer software and that the same does not give rise to any income taxable in India in all the categories of transactions mentioned above. 15. Before us comparison between facts of the case and the terms and conditions which have been submitted to the Id. AO during the assessment proceedings for later assessment years vis-a-vis the conclusions outlin....
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....ll of the Samsung Software (including all component parts, the media and printed materials, any upgrades, this EULA) and you may not retain any copies of the Samsung Software. The transfer may not be an indirect transfer, such as a consignment. Prior to the transfer, the end user receiving the Samsung Software must agree to all the EULA terms. The Supplier shall grant the Purchaser the right to transfer the right to use granted to it to a third party. In such case, an agreement is to be concluded with the third party by which the third party shall not be granted any rights of use over and above those granted by the Supplier to the Purchaser. 5 "2. License Grant The Program is owned by IBM or an IBM supplier, and is copyrighted and licensed, not sold. Licensee receives a license to the Programs from Assimil8 Limited through a sublicensing agreement between IBM and Assimil8 Limited, Assimil8 Limited grants Licensee a nonexclusive license to (1) use the Program up to the Authorized Use specified in the PoE (2) make and install copies to support such Authorized Use, and (3) make a backup copy, all provided that a. Licensee has lawfully ob....
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....ations on Reverse Engineering, Decompilation, and Disassembly - You may not reverse engineer, decompile, or disassemble the SOFTWARE PRODUCT, except and only to the extent that such activity is expressly permitted by applicable law nothwithstanding this limitation." The Purchaser shall not change, reverse engineer or reverse compile the Software Products and shall not extract any parts thereof. Furthermore, the Purchaser shall not remove any alphanumeric identifiers, markings and Copyright notices from the data carriers and shall copy such in their unchanged form. The above provisions shall apply analogously to all associated documentation. 6. BACKUP COPY- After installation of one copy of the SOFTWARE PRODUCT pursuant to this EULA, you may keep the original media on which the SOFTWARE PRODUCT was provided by Microsoft solely for backup or archival purposes. If the original media is required to use the SOFTWARE PRODUCT on the COMPUTER, you may make one copy of the SOFTWARE PRODUCT solely for backup or archival purposes. Except as expressly provided in this EULA, you may not otherwise make copies of the SOFTWARE PRODUCT or the printed materials accompanying ....
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.... the assessee holding that supply of software cannot be subject to taxation as royalty under India-Germany DTAA. Accordingly, grounds No. 3 & 4 are allowed. 15. Ground No.5 has been stated to be infructuous because they have already held that income by way of royalty and FTS would be assessed on cash / receipt basis. Accordingly, ground No. 5 is dismissed. 16. Now coming to the issue of transfer pricing adjustment, the facts are that assessee had received royalty for technical know-how and fees for technical assistance from Indian Associated Enterprises ('Indian AEs). In this regard the Indian AE's have withheld tax at source at 10% for the payments made to the assessee under the provisions of Tax Treaty. The assessee filed its return of income and Form No. 3CEB on receipt/cash basis. 17. The assessee had given detailed functions, assets and risks analysis in accordance with Rule 10B and Rule 10C of the Income-tax Rules, 1962 (the Rules); based on which a comprehensive economic analysis was undertaken to review the arm's length nature of its international transactions in its Transfer Pricing Study Report. Further, it had been stated that the India AEs earned Ne....
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.... Indian AEs in the Form 3CEB if the value disclosed by the assessee in its return of income. The assessee had explained that the difference is for the reason that assessee accounts the amount on receipt basis whereas the Indian AE's reports the transaction on accrual basis and this assessee has been doing in accordance with the provisions of the tax treaty. It is important to note here that, this position has also been upheld by the Hon'ble Bombay High court in assessee's own case that it should be taxed on receipt basis. It was for this reason amounts recorded by the Indian AE cannot be the same. Apart from that, the assessee reports only those transactions that are subject to tax in India, Le., element of Fees for Technical Services only, whereas Indian AEs report all the transactions like purchase/sale of goods, provision and availing of services, reimbursement/recovery of expenses whether income/ expense. It is thus quite natural that there would be differences in the transactions reported by the assessee and the AE's. Once this fact has been brought on records and assessee has given this explanation for reconciliation, then this cannot be the reason or the grou....