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Energy Solutions International (India) Pvt. Ltd. Versus Dy. Commissioner of Income tax, Circle – 2 (2) , Hyderabad.

2016 (5) TMI 808 - ITAT HYDERABAD

Purchase of software - royalty payment - Held that:- As the assessee buys software from its “AE” and only facilitates the installation of these software in the premises of the customers will not be treated as “royalty”. Hence, these transactions can only be treated as ‘purchase of software’. - Decided in favour of assessee

TDS u/s 195 - Disallowance towards payment made towards fees for annual maintenance services - TDS liability - Held that:- The assessee has made the payment of AMS .....

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assessee against a common order of the learned Commissioner of Income-tax(Appeals) - 5, Hyderabad, dated 26/10/2015 for AYs 2004-05, 2005-06, 2009-10 and 2010-11. As identical issues are involved in these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience. 2. Briefly the facts of the case are that the assessee is a company engaged in the business of providing consulting services, software solutions and support services in the field .....

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from its group companies due to non deduction of tax u/s 195 of the Act treating the remittances towards Royalty . 4. On an appeal, the CIT(A) confirmed the disallowance made by the AO. When the assessee carried the matter in appeal to the ITAT, the ITAT vide its order dated 10th February, 2010 had remitted the matter back to the file of AO for fresh consideration. 5. Based on the orders of the Tribunal, the AO passed the order u/s 143(3) r.w.s. 254 of the Act reiterating the disallowance made t .....

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DTAA, Income Tax Act, Copyright Act and judicial verdicts that the payment would constitute 'royalty' within the meaning of Article 12(3) of the DTAA and the provisions of 9(1)(vi) of the Act. The definition of royalty' under clause 9(1)(vi) of the Act is broader than the definition of royalty' under the DTAA. It is clear that the payment made by the appellant to the non-resident supplier would amount to royalty. In view of the said finding; it is clear that there is obligation o .....

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he systems of the various oil and gas companies in India, in the course of distribution of software products. The business model of assessee is explained below: • The customers, based in India, place a purchase order with the appellant, which inter alia consists of: a) Supply of software (either PLS/PLM/PLT), generally used by oil / gas manufacturing / distribution companies to track the oil flow, leak detection, and management of inventory across their distribution network from a central l .....

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dware key or the soft key in relation to the above software is directly provided by the AE to the users/ clients in India. • Further, the End User License Agreement ('EULA'), needs to be accepted by the customer directly before installing the software on its machine. • The appellant does not have any access to either the source code or into the actual programming codes present in the software product. • Neither the appellant nor the end user customers in India obtain any r .....

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t source. The Ld. AO was of the view that the payments were made to acquire the right to apply the software for developing software for sale in India and hence it should be categorized as royalty paid to foreign company requiring tax deduction at source under section 195 of the Act, which has been upheld by the Ld. CIT(A). It is pointed out by the ld. AR that despite submissions made before the AO, the Ld. AO had wrongly understood that the assessee imported licenses specific for development of .....

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hence the provisions of section 195 does not apply in the present case by Ld. AO in assessee's own case 7.3 Ld. AR submitted that in the case of the assessee itself, for AY 2007-08 and AY 2008-09, on a similar issue relating to whether payments to the assessee towards purchase of software could amount to royalty, the Hon ble ITAT by its order in ITA No 1736/Hyd/2012 dated January 6, 2012 appreciated the facts put forth by the assessee and remanded the matter back to the Ld. AO to reconsider .....

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ted as royalty and deleted the disallowance for non-deduction of tax at Source under section 4o(a)(i) of the Act. 7.4 It is submitted that though the Ld. CIT(A) has given reference to the above-mentioned orders of the Hon ble ITAT and the Ld. AO for AY 2007-08 and AY 2008-09, he has failed to appreciate the same, and has misconceived the said order and has stated that the Ld. AO passed an adverse order after the directions of the Hon ble ITAT, whereas the Ld. AO had passed favorable order deleti .....

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ing should equally apply in the assessee's case. 7.6 It is submitted that similarly, the Hon ble co-ordinate Bench of the Hyderabad ITAT has, in the cases of Bartronics India Ltd (168 TTJ 595) (Hyd) and Infotech Enterprises Limited (63 SOT 23) (Hyd), also held that payment towards purchase of software cannot be treated as royalty. 8. The ld. DR relied on the order of CIT(A). 9. We have considered the rival submissions and perused the material facts on record as well as the orders of revenue .....

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ate bench of this Tribunal has already confirmed this transaction as purchase and dismissed the revenue s contention that these were royalty after analyzing the business module of AE . The relevant observations of the coordinate bench are as under: 8. We have considered the submissions of both the parties and perused the material on record. As pointed out by the ld. AR, the orders passed by AO in 2007-08 and 2008-09 have been placed in the paper book vide pages 114 to 122, wherein the AO accepte .....

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then, the same consideration should also be extended to the same transaction in the case of AE i.e. ESI US . In the present case, income towards sale of software to the Indian AE cannot be treated as Royalty . Hence, the addition made by the AO towards Royalty is deleted. 9.2 Considering the business module and following the decision of this coordinate bench of this Tribunal in the case of ESI Inc., as well as the stand of the revenue by taking two distinct views on the similar transactions, we .....

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ade towards fees for annual maintenance services amounting to ₹ 3,96,352/-. 11. As regards disallowance towards payment made towards fees for annual maintenance services, the AO made an observation that the tax was not deducted on technical services rendered by the nonresidents to the assessee company as indicated in the tax audit report at Col. No. 17(f). He, therefore, added the amount of ₹ 3,96,352/- to the income of the assessee in accordance with the provisions of section 40(a)( .....

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