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2022 (5) TMI 855 - AT - Income TaxIncome deemed to accrue or arise in India - consideration received towards use of the software as taxable as Royalty u/s.9(1)(vi) of the Act as well as under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Netherland - appellant company granted the software license fee on non-exclusive non-transferable basis during the license term - contentions of the appellant that such payment cannot be characterized as Royalty as the payment is made for purchase of standard software, not for use of ‘copyright itself’ - HELD THAT:- The title, the ownership and all rights in patents, copyrights and trade secrets and other software contained does not get transferred to the customer. The Courts as well as OECD commentary on Article 12 of the DTAA recognized the distinction between “copyrighted article” and “copyright right” in the programme and software which incorporates a copy of the copyrighted programme. Any payment made for acquisition of copy of the software is held not to be Royalty. Even the Hon’ble Delhi High Court in the case of DIT Vs. Infrasoft Ltd.[2013 (11) TMI 1382 - DELHI HIGH COURT] held to the same effect. Whereas the Hon’ble Karnataka High Court in the case of Samsung Electronics Co. Ltd. [2011 (10) TMI 195 - KARNATAKA HIGH COURT] and CIT Vs. Synopsis International Old Ltd. [2013 (2) TMI 448 - KARNATAKA HIGH COURT] held to the contrary. The reasoning given by the Hon’ble Karnataka High Court has been disapproved by the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. [2021 (3) TMI 138 - SUPREME COURT] Thus fee for grant of software license cannot be taxed in India. Since we have held that the subject transaction of receipt of consideration for grant of software license is held not to be Royalty under the provisions of Income Tax Act, 1961, the question of consideration of the issue under the provisions as per DTAA between India and Netherland does not arise. Thus, ground of appeal No.1 filed by the assessee stands allowed. Software maintenance fees, consultancy services fees and training services fees held to be “Fees for Technical services” - HELD THAT:- Software maintenance fees, consulting charges and training fees which are incidental to software license fee, assumes same character as that of software license fee. In relation to ground of appeal No.1 in the preceding paragraphs, we have held that the consideration received towards software license fee cannot be termed as “Royalty”. Hence, what follows from this, is that even the software maintenance, consulting charges and training fees which are incidental to software maintenance fee cannot come within the purview of FTS within clause 5 of Article 12 of the treaty. Our view is fortified by the judgment of Hon’ble Delhi High Court in the case of Datamine International Ltd. Vs. ADIT [2016 (3) TMI 540 - ITAT DELHI], BHARATI AXA GENERAL INSURANCE CO. LTD [2010 (8) TMI 8 - AUTHORITY FOR ADVANCE RULINGS] AND CITRIX SYSTEMS ASIA PACIFIC PTY. LIMITED, [2012 (2) TMI 258 - AUTHORITY FOR ADVANCE RULINGS] - We, therefore, hold that software maintenance fees, consultancy services fees and training services fees cannot be held to be “Fees for Technical services”. Thus, grounds of appeal no. 2 to 5 stands allowed. Short credit of deduction of tax at source - HELD THAT:- This ground of appeal no.6 is restored to the file of AO with a direction to allow tax as per the information contained in Form No.26AS and in accordance with provisions of section 199 of the Income Tax Act, 1961. Thus, ground of appeal no.6 is allowed for statistical purposes. Bringing to tax the difference between the receipts as per Form No.26AS and receipts credited to Profit & Loss Account rejecting the explanation of the appellant that the difference had arisen due to difference in rate applied for conversion - HELD THAT:- We find from reading of the orders of the lower authorities that the explanation rendered by the appellant is not supported by any material on record. In order to meet the ends of justice, we remand the matter to the file of the Assessing Officer with direction to produce the necessary evidence in support of the explanation offered by the appellant company reconciling the difference between the amount shown in Form No.26AS and the amount shown in the Profit & Loss Account. Thus, the ground of appeal no.6 stands partly allowed.
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