2023 (11) TMI 1186 - AT - Income Tax

Income taxable in India - sale of off the shelf software considered treated as royalt y - HELD THAT -This issue is no more res integra as the quarrel has been settled by the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd. 2021 (3) TMI 138 - 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 through EULAs/distribution agreements is not the payment of royalty for the use of copyright in the computer software. Revenue from sale of off the shelf software to two new companies which were not there in the earlier - Since the ld. counsel for the assessee has fairly conceded that the revenue from these two companies are not covered by the agreement and the agreements are also not available therefore these companies may be taxed in the hands of the assessee as royalty - we direct the AO to consider revenue from these two companies as royalty and tax as per the relevant provisions of the Act. Receipts for use of telecom bandwidth facility - considered as royalty and /Fees for technical services - India-Singapore DTAA - HELD THAT - As decided in Planetcast International Pvt Ltd 2023 (8) TMI 30 - ITAT DELHI no corresponding amendment in line with the amendment brought to section 9(1)(vi) of the Act has been made to Article 12(3) of India-Singapore DTAA. Therefore in absence of any such amendment widening the scope of expression royalty under the treaty provisions the amendment made to section 9(1)(vi) of the Act cannot be automatically brought or imported to Article 12(3) of India- Singapore DTAA as the treaty provisions have to be construed strictly in accordance with the language used in the provision. Thus we hold that the receipts from internet bandwidth charges cannot be treated as royalty income under Article 12(3) of India-Singapore DTAA. Accordingly we direct the Assessing Officer to delete the addition. Receipts from providing information technology related support services- considered as royalty and/fees for technical services - India Singapore DTAA requires that services should be such that enable the person acquiring the services to apply the technology contained therein - claim of the assessee is that the services do not result in transmitting technical knowledge - HELD THAT - We find that under identical situation this Tribunal in the case of Planetcast International Pte Ltd 2023 (8) TMI 30 - ITAT DELHI had held that while running the services the assessee has not made available any technical knowledge experience skill in terms of Article 12(4)(b) of the DTAA and as such receipts in question were not FTS liable to tax in India. Thus we are of the considered view that payments received from Mphasis Ltd were not covered by Article 12(4) of the India Singapore DTAA. This addition is accordingly directed to be deleted.

Summary

Issues Involved:
1. Sale of off-the-shelf software considered as royalty.
2. Receipts for use of telecom bandwidth facility considered as royalty/fees for technical services.
3. Receipts from providing information technology-related support services considered as royalty/fees for technical services.

Summary:

Issue 1: Sale of Off-the-Shelf Software Considered as Royalty
The Tribunal addressed the issue of whether the sale of off-the-shelf software constitutes royalty. Citing the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt Ltd (432 ITR 471), it was concluded that payments by resident Indian end-users/distributors to non-resident software manufacturers/suppliers for the resale/use of software through EULAs/distribution agreements do not constitute royalty. The Tribunal followed this precedent, affirming that such transactions are not taxable as royalty under Section 9(1)(vi) of the Income Tax Act read with Article 12 of the Indo-US DTAA. However, for revenue from two new companies, Mphasis Finsource Ltd and Mphasis Software and Services [India] Limited, the Tribunal directed the Assessing Officer to consider these as royalty due to the absence of relevant agreements.

Issue 2: Receipts for Use of Telecom Bandwidth Facility Considered as Royalty/Fees for Technical Services
The Tribunal examined whether receipts from the use of telecom bandwidth facilities should be considered as royalty or fees for technical services. Referring to the earlier decision in Planetcast International Pvt Ltd (152 Taxmann.com 422), the Tribunal held that the amendment to Section 9(1)(vi) of the Act cannot be imported into the treaty provisions without a corresponding amendment to the DTAA. Consequently, the receipts from internet bandwidth charges were not treated as royalty income under Article 12(3) of the India-Singapore DTAA, and the addition was deleted.

Issue 3: Receipts from Providing Information Technology-Related Support Services Considered as Royalty/Fees for Technical Services
The Tribunal addressed whether receipts from providing IT-related support services should be classified as royalty or fees for technical services. The Tribunal found that the services did not result in transmitting technical knowledge, experience, or skills as per Article 12(4)(b) of the India-Singapore DTAA. Citing the decision in Planetcast International Pte Ltd (152 taxmann.com 422), the Tribunal concluded that the services did not make available any technical knowledge, and thus, the receipts were not FTS liable to tax in India. The addition was accordingly deleted.

Conclusion:
The appeals were decided as follows:
- ITA No. 2142/DEL/2016 - Allowed
- ITA No. 572/DEL/2017 - Allowed
- ITA No. 573/DEL/2017 - Partly Allowed
- ITA No. 199/DEL/2018 - Partly Allowed

The order was pronounced in the open court on 10.10.2023.