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2022 (5) TMI 673 - AT - Income TaxTaxability of sale of software products - receipts as royalty and Fees for Technical Services (FTS) - sale of copyrighted article v/s copyright - income earned by the Appellant from sale of software products and software related support services as taxable in India as ‘royalty’ under Section 9(1 )(vi) of the Act and under Article 12 of the India- Singapore Tax Treaty - assessee submitted, the amount received on sale of software and provision of software related maintenance services cannot be treated as royalty under Article 12(3) of the India – Singapore Tax Treaty, as, what the assessee has sold is a copyrighted article and not copyright. - HELD THAT:- Undisputedly, during the year under consideration, the assessee had sold certain software products to customers in India and has also provided software related maintenance services. The first issue which arises for consideration is, whether the amount received by the assessee towards sale of software products and software related maintenance services can be treated as royalty under Article 12(3) of India – Singapore Tax Treaty. In case, it does not come within the ambit of royalty as defined under the Treaty, there is no need to go into the provisions of the Act. On a perusal of the assessment order it is noticed that the Assessing Officer has not factually examined the nature of transaction between the assessee and the Indian Customers. The Assessing Officer relying upon certain judicial precedents has straightway assumed that the assessee has sold a copyright. However, neither the sample agreement nor any other material available on record demonstrate that the assessee has transferred/sold the use or right to use a copyright and not copyrighted article. What the assessee has sold is copyrighted article and not the copyright. It is also observed, while treating the payment received by the assessee as royalty, the departmental authorities have been greatly influenced by the decision of Samsung Electronics Pvt. Ltd. [2011 (10) TMI 195 - KARNATAKA HIGH COURT]. However, the issue is no more res integra in view of the decision of Hon’ble Supreme court in case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021 (3) TMI 138 - SUPREME COURT] - Since, the factual matrix clearly reveals that the assessee has sold a copyrighted article and not the copyright, the ratio laid down by the Hon’ble Apex Court in the decision referred to above would squarely apply. Accordingly, we hold that the amount received by the assessee from sale of software and provision of software related services cannot be treated as royalty under Article 12(3) of the India – Singapore DTAA. Insofar as the issue of treating the amount received towards provisions of software related services as FTS, we have noticed that the Assessing Officer has not brought any cogent material on record to demonstrate that while providing the software related maintenance service, the assessee has made available any technical knowledge, knowhow, skill etc. so as to enable the recipient of such service to use it independently in exclusion of the assessee. Therefore, in our considered opinion, the conditions of Article 12(4)(b) of the Treaty are not satisfied. That being the factual position emerged on record, the amount received cannot be treated as FTS. Therefore, the addition made is deleted. Levy of education cess on the ground that as per the definition of tax under Article 2, being in the nature of surcharge, would be included in the tax rates prescribed in the Treaty - HELD THAT:- We are of the view that the issue has become, more or less, academic, since, we have deleted the additions made by the Assessing Officer. However, the Assessing Officer is directed to compute the tax liability strictly in terms with the Treaty provision
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