TaxTMI 
TaxTMI 
2024 (4) TMI 1414
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....) without having authority to issue the said notice. 2. Ground 2: Holding income from sale/ distribution of off-the-shelf software to the tune of INR 58,48,511 as taxable income in the hands of Assessee Without prejudice to Ground of Objection 1, the learned AO has erred in law and facts in treating the income from sale/ distribution of off-the shelf software as royalty under the Act read with Article 12 of the IndiaSingapore Double Tax Avoidance Agreement ('DTAA') and making additions amounting to INR 58,48,511 without considering the Assessee's claim of treating receipt from sale/ distribution of off- the shelf software as non-taxable receipt under the Act. 3. Ground 3: Holding Management fees to the tune of INR 34,11,68,364 as taxable income in the hands of Assessee. Without prejudice to Ground of Objection 1, the learned AO has erred in law and facts in treating management/service fee as fees for technical services under the Act read with Article 12 of the India-Singapore DTAA and making additions amounting to INR 34,11,68,364 without appreciating that the services do not make available any technical knowledge, experience, skill, ....
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....ame stand dismissed. Ground No. 2: Holding income from sale/ distribution of off the shelf software to the tune of INR 58,48,511 as taxable income in the hands of assessee: 4. During the financial year 2019-20 the assessee has earned income from sale of software of Rs. 58,48,511/- and claimed the same as exempt as per Article 12 of India-Singapore DTAA. The assessing officer vide show cause notice dated 21.09.20222 asked the assessee to explain why the said income should not be treated as royalty and tax accordingly. In response the assessee submitted that it has earned income from sale of off-the-shelf software to customers in India amounting to Rs. 58,48,511/-. The assessee explained that it buys such licences of software in bulk and sells them to end-users or resellers in India. The assessee has also placed reliance on the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. Vs. CIT (2021) 125 taxmann.com 42 (SC). After referring the aforesaid decision of the Hon'ble Supreme Court the assessee submitted that the income earned from sale of softwares to Indian customers is not taxable as royalty, since, in the case of the assess....
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....xempt as per Article 12 of India-Singapore DTAA. The assessee buys such licences of software in bulk and sells them to end users or reseller in India. The end users were granted only a limited right to use the software without any right to sublicense or reproduce the software. The Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. Vs. CIT (2021) 125 taxmann.com 42 (SC) held that if the distributor is only granted a non-exclusive, non-transferable license to re-sell computer software and no copyright in the computer programme is transferred either to the distributor or to the ultimate end users, the payments made towards grant of license for use of software is not taxable as royalty under the provisions of tax treaties (DTAA). The Hon'ble Supreme Court in the aforesaid judgement has divided software vendors in 4 categories as under: "a. Category 1- cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. b. Category 2- cases wherein resident Indian companies act as distributors or resellers, by purchasing computer software from foreign, non-r....
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....of Excellence (P) Ltd. Vs. CIT (2021) 125 taxmann.com 42 (SC) the AO has not brought any material on record to substantiate that income received from distribution of copies of software by the assessee was amount to sale of copy right or use or right to use of copy right therefore, following the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. Vs. CIT (2021) 125 taxmann.com 42 (SC) as discussed above we find merit in the submission of the assessee, accordingly this ground of appeal of the assessee is allowed. Ground No. 3: Holding Management fees to the tune of INR 34,11,68,364 as taxable income in the hands of assessee: 8. During the year under consideration the assessee has earned income from Management Service Fees to the amount of Rs.34,11,68,364/- and claimed the same as exempt as per Article 12 of India-Singapore DTAA. On query the assessee explained that it has entered into an agreement w.e.f 01.02.2018 with T.D. India and pursuant to which the assessee has rendered the following management/business support services to TD India and earns income on account of the same: "a. Strategic business advisory services - ....
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....ned in Article 12 of India-Singapore DTAA. However, the AO was of the view that assessee has made use of information and processes in the form of expert professional services in the nature of commercial use of experience, therefore, the same was characterised as fees for included services/technical services as per the definition given in the I.T. Act, 1961 and the DTAA between India and USA. Therefore, in the draft assessment order the assessing officer treated the aforesaid receipt of Rs.34,11,68,364/- from customers in India as fees for included services/technical services to be taxed @ 10% under the treaty. 9. During the course of appellate proceedings before us the ld. Counsel at the outside submitted that identical issue on similar fact has been adjudicated by the coordinate bench of the ITAT in the case of the assessee itself for A.Y. 2019-20 on 21.08.2023 vide ITA No. 2367/Mum/2022. The ld. Counsel has also referred the copy of agreement placed in the paper book giving the details of services rendered by the assessee company and explained that the services do not 'make available' any technical knowledge, experience, skill, know how or processes, which enables the person a....
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....e said agreement. A perusal of Schedule-B shows that for performing the services described in Schedule-A, the assessee shall be compensated at cost + mark up @ 7.5%. We find that the Assessing Officer has held that management fee received by the assessee for rendering services is in the nature of FTS. Article12(4) of India - Singapore DTAA defines the expression FTS. For the sake of ready reference clause -4 of Article 12 is reproduced herein under:- "4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) Make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) Consist of the development and transfer of a technical plan or technical design, ....