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2023 (4) TMI 844 - AT - Income TaxIncome accrued in India - Assessee has received an amount from the services rendered to Atos India Cost recharge of Microsoft license fees - royalty and / or Fee for Technical Service (FTS) - India-USA DTAA - Assessee acquired global license and allowed the group entities to use the above Licenses on the basis of requirements and billed them according to their usage - reliance placed by the assessee on the IRS guidance rejected - HELD THAT:- Taxability and character of an item has to be determined in accordance with the contents of the Indian Income Tax Act and the provisions of the Treaty between India and USA Assessee has provided two services to its subsidiary in India for the execution of sub-contract with Tower Watson India. It is important to note that the services provided by Atos India to Tower Watson India are independently charged to tax as business receipt. For execution of services to Tower Watson by Atos India is based on the Global contract executed by the Assessee and Tower Watson Pennsylvania Inc. We observe that the License for usage of the copy righted products are with Microsoft only and the assessee has acquired global right and transferred the above said Licenses to its group entities based on the requirements. Whether this transaction falls under the category of Royalty or FTS is the issue. Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd [2021 (3) TMI 138 - SUPREME COURT] held that Microsoft Software products are sold to end users by Microsoft Corporation and whatever the license which are routed through the middle man, the Microsoft does not grant any right or interest, least of all, a right or interest to reproduce the computer software. Further such reproduction is expressly interdicted and expressly stated that no vestige of copyright is at all transferred either to the distributor or to the end user. Therefore, it does not fall in the category of Royalty or copyright. Assessee has acquired the global license and allowed the group entities to use the above Licenses on the basis of requirements, the assessee has billed them according to their usage by properly documenting the usage and charged to them. As held in the decision of Hon’ble Supreme Court and Hon’ble Delhi High Court, the Microsoft Licenses are not falling under the category of Royalty or Copy Rights under the definition of respective categories. Hence the claim of the assessee is proper and we direct the Assessing Officer to delete the proposed addition in this regard. Service desk provided by the assessee to the employees of Tower Watson to monitor the IT related glitch - As per the terms of agreement, the engagement clause clearly indicate that the assessee engages the services of Atos India to perform the services in accordance with the scope, delivery schedule, services levels and other essential factors as detailed in the services schedule (schedule no 2) of the sub contract agreement. The services provided by the assessee to the group entity are separate and nothing to do with the separate sub contract awarded to the Atos India, which is independent contract. The service desk services are provided to all the group entities to enable the common services provided to the Watson Group employees and there is nothing on record to indicate any independent service provided to Atos India or IT enabled services which gives knowledge made available to Atos India - services provided by the assessee is separate and it only collected the related cost to maintain the service desk. Therefore, it is a receipt which will fall under the Article 7 of the treaty. Hence, the addition proposed and sustained by the Ld.DRP are beyond the scope and accordingly Assessing Officer is directed to delete the same. Decided in favour of assessee.
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