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2019 (10) TMI 877 - AT - Income TaxIncome accrued in India - taxability of IPLC as fees for technical services/ fees for included services (FTS/ FIS) and ‘Royalty’ under the Income tax Act and India US tax treaty - HELD THAT:- Payment made by the assessee is only in respect of standard services provided by AT&T and Spinet, which cannot be held to be ‘Royalty’. Only those payment, when it made for scientific work, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, which is absolutely missing in the present case. The payment in the present case is not for a payment for a scientific work nor there any patent, trademark, design, plan or secret formula or process for which the payment made. The service is connectivity to the telecom operators in the call end jurisdiction. The facility is a standard facility which is used by other telecom companies as well. Therefore, the action of the assessing officer, which was upheld by ld. DRP, in treating the receipt as fee for FIS/ FTS or for the Royalty is not justified. In the result the ground No. 2 of the appeal is allowed. Taxability of income from sale of shrink- wrapped software as ‘Royalty’ - HELD THAT:- The receipt on account of sale of copyrighted/Shrink Wrapped Software is not taxable as per Article 12(14) of India-US Tax Treaty. Further, the receipt is also not taxable under the provisions of Income-tax Act as the assessee is eligible for beneficial provision of India-US Tax Treaty in term of section 90(2) of Income-tax Act. Moreover, after the amendment introduced in Explanation (4) in definition of Royalty under section 9(1)(6) by Finance Act, 2012, there is no corresponding change made in definition in term of Royalty under India-US Tax Treaty. Therefore, in view of the aforesaid discussion, the ground no.3 of the appeal is allowed in favour of assessee. Taxability of support and maintenance services as FIS - HELD THAT:- We have noted that the assessee provided support and maintenance services linked with the software supplied. Accordingly, the taxability of such services is dependent on the taxability of software supplied. As we have held that the receipt earned on sale of software is not taxable under Article 12 of India-US Tax Treaty, therefore, the services the receipt from support and maintenance services are also not taxable under 12(4)(b) of India US Tax Treaty. In the result, this ground of appeal is allowed. Taxability of service fee as FTS - HELD THAT:- Fees for included services is defined in Article 12(4) of India-US Tax Treaty, wherein ‘Fees for included services’ means payment of any kind to any person in consideration for rendering of any technical or consultancy services (including through the provision of services of technical or other personnel’ if services are ancillary and subsidiary to the application or enjoyment or right, property or information for which payment is received or make available technical knowledge, experience, skill no-how or process or consist of development and transfer of a technical plan or technical design. We have noted that the assessee has claimed that services rendered are ancillary and subsidiary and inextricably essentially linked with the software supplied. In our view, unless the services satisfy the make available test, the same cannot be taxed as FIS. Further, mere fact that provision of service may require technical input by the person providing services does not per se mean the technical knowledge. In our view, the receipt on account of support and maintenance services are not taxable under Article 12 as the services do not make available technical knowledge, experience, skill, know-how or process or consist of any development and transfer of any design. In the result, ground no.5 of the appeal is allowed. Levy of interest under section 234B - HELD THAT:- Assessee is a foreign company and tax resident of USA and as per section 195 of the act taxes deductible at source on all its received and accordingly the assessee was not liable to pay advance tax. Therefore we direct the assessing officer to recompute the tax by following the decision of the jurisdictional High Court in case of NGC network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] .
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