TMI Blog2017 (7) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... in connection with the exploration/extraction of mineral oils in India, the Assessing Officer was not right by applying 15% of rate by applying decision of Advance Authority Ruling in case of Ishikawajima Harima Heavy Industries Co. Ltd. v. DIT [2004 (10) TMI 87 - AUTHORITY FOR ADVANCE RULINGS] as the facts of the said case is different from that of the present appeals. Thus, for subsequent years the issue of permanent establishment is not in question and hence the applicability of the judgment of ONGC is very much necessary as all these activities which assessee took are coming under the purview of Section 44BB. AO is therefore, directed to tax the income of the assessee as per Section 44BB for A.Y. 2003-04, 2004-05, 2005-06, 2006-07 and 2008-09. Needless to say the assessee be given the opportunity to hear before the Assessing Officer. - I.T.A. No. 573/DEL/2006, I.T.A. No. 2486/DEL/2006, I.T.A. No. 2952/DEL/2007, I.T.A. No. 4615/DEL/2007, I.T.A. No. 1180/DEL/2012, I.T.A. No. 1179/DEL/2012 - - - Dated:- 12-7-2017 - SHRI R. S. SYAL, VICE PRESIDENT AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER Appellant : Sh. Anuj Arora, CIT DR Respondent : Sh. Tapas Ram Misra, Adv, Sh. Shas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer observed that the software supplied by the Respondent is available off the shelf for any person and accordingly held that supply of software is not considered to be in the nature of 'royalty' as defined in Article 12 of India-US DTAA. The Assessing Officer further observed that the title of goods (being software) was to pass outside India. However, owing to the fact that the installation and commissioning of the software was required to be carried in India, it was held that a part of the income from supply of software along with income from installation and training from software (calculated on notional basis) was taxable in India. The Assessing Officer held that 5% of the contract value (or actual value of installation, if separately quantified in the contract) pertains to installation and commissioning of software and accordingly brought it to tax @ 15% as 'fee for included services' as provided in Article 12 of India-US DTAA. It was further held that 10% of the contract value of the software (or actual value of installation, if separately quantified in the contract) was in relation to the training of employees of the Indian customers and same was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 21,86,930/- Total Tax Liability ₹ 33,43,017/- 5.2 The CIT (A) observed that the Assessing Officer had brought to tax the income from sale of software without examining the fact as to whether the Respondent had a PE in India. The CIT (A) observed that the Assessee did not have any office in India and that its activities are not covered by the deeming fiction of Article 5(2) of India-US DTAA. Accordingly, it was held by the CIT (A) that the Assessee did not have a PE in India and in the absence of PE, the business profits from sale of software could not be brought to tax in India. The CIT (A) also relied on the judgment of Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 and that of Delhi Bench of ITAT in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 296 and held that the sale of software by the assessee was in the nature of sale of goods. The CIT (A) thereafter held that since the goods were sold by the Assessee outside India, income from such sale could not be brought to tax in India. The addition of ₹ 24,08,514/- made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -04, the Assessing Officer made similar additions to that of previous Assessment Year on the services rendered in relation to installation and commissioning and providing training to the employees of the Indian companies to use the software. The Assessing Officer held that income from providing software on rental basis is in the nature of 'fee for included services' as provided in Article 12 of India-US DTAA and taxed income from renting of software at the rate of 15%. Accordingly, the assessment for the A.Y. 2003-04 was completed with following additions: Taxable income as per Return of Income NIL Add: Income from sale of software (2% of contract value) Income from fee from included services (taxed at corporate tax rate applicable to a foreign company) -Installation and commissioning as a part of sale of software (5% of contract value) -Income from training services (included with sale of software) -Income from training service (standalone contract) -Income from rental of software -Income from HOS ₹ 16,25,444/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT (A). However, it was held that income from such services ought to be taxed under section 44BB of the Act and not at the rate of 15% as levied by the AO. Income earned by the Assessee from contract with Halliburton Offshore Services Inc. was not pressed by the Assessee before the CIT (A) and addition to the tune of ₹ 1,45,38,153/- was accordingly, confirmed by the CIT (A). 6.3 The Ld. DR heavily relied upon the assessment order. The Ld. DR further submitted that in Assessment Year 2006-07, in contract with Precision Drilling, the receipts for rental of proprietary software have been held by the CIT (A) (page 6-8 of CIT (A)'s order), after giving elaborate reasons, to be royalty receipts. The assessee has not challenged such decision of the CIT (A) in Assessment Year 2006-07, it is therefore prayed by the Ld. DR that the rental receipts in this Assessment Year 2003-04 (as well as in other AYs where applicable) be held to be taxable as royalty. The Ld. DR submitted that three relevant contract for rental income are at para 2.2, 2.6 and 2.7 of the Assessment Order for this Assessment Year 2003-04. The Ld. DR further submitted that it is undisputed that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said table is equivalent to training provided by the assessee to its customers in India. For the sake of abundant clarity it also is pointed out that training is specifically stated at serial nos. 37 to 41 as quoted in the judgment of ONGC by the Hon'ble Supreme Court. Further, as stated earlier, training would in any case be covered since the Hon'ble Supreme Court has broadened the scope by emphasizing pith and substance and ancillary works. Thus it is clear that the entire scope of work/activity of the assessee, viz supply of software, its installation commissioning which is in India, training of the customers for use of software wherein the training of the customers for use of software wherein the training is also in India, rental receipts from software rented out to Indian concerns, are all covered by the said judgment (supra) of the Hon'ble Supreme Court. Therefore, the Ld. DR prayed that the entire receipts of the assessee be brought to tax u/s. 44BB. In any case, and without prejudice, all the services rendered in India, including that of installation commissioning and training be brought to tax u/s. 44B. The Ld. DR further submitted that in Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be deleted. Further, the Ld. AR submitted that the training and software rental services provided under a standalone contract are eligible for getting taxed at the rate provided under section 44BB of the Act as confirmed by the Hon'ble Supreme Court in the case of ONGC Ltd. (supra), ground no. 2 of the Revenue be dismissed. The Ld. AR further submits that the Revenue has contended, for the first time in the written submission, that the entire receipts of the Assessee including that of supply and installation etc., of software which is not taxable in India in view of India-US DTAA, should be taxed under section 44BB of the Act. It is submitted that where the income of a resident of a contracting state is not taxable due to application of DTAA, the same income cannot be brought to tax by applying provisions of the domestic law. It is only when income is taxable under the provisions of domestic law read with DTAA, then the more beneficial taxing provisions (whether DTAA or domestic law) applies to that income. Since income from supply and installation etc., of software is not taxable for the reason that the Respondent has no Permanent Establishment in India, such income cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ought to be taxed under section 44BB of the Act and not at the rate of 15% as levied by the AO. 7.3 The Ld. DR emphatically relied upon the Assessment Order. The Ld. DR also submitted that the arguments submitted for A.Y. 2003-04 may be taken into consideration. 7.4 The Ld. AR relied on the order of CIT (A) and submitted that the arguments for Assessment Year 2003-04 be taken into consideration. A.Y. 2006-07 8. During the assessment year under consideration, the additions was made as per earlier Assessment Year 2003-04 including that of providing software to Indian Companies on rental basis. 8.1 Accordingly, the assessment for the 2006-07 was completed with following additions: Taxable income as per Return of Income NIL Add: Income from fee from included services -Installation and commissioning as a part of sale of software (5% of contract value) -Income from training services (included with sale of software) -Income from training service (standalone contract) ₹ 11,75,946/- ₹ 73,83,647/- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A which is to be considered project-wise. The CIT (A) further observed that the Assessing Officer has not considered the issue as to whether the assessee had or did not have a permanent establishment. Therefore, the CIT (A) for the Assessment Year 2002-03 held that the assessee did not have a permanent establishment in India during the previous year relevant to Assessment Year 2002-03. Accordingly, the CIT (A) held that in terms of Article 7(1) of the Indo-US DTAA the sale of software which are off the shelf software, are not taxable in India. Thus, the assessee has succeeded in establishing that there is no permanent establishment. 10. The assessee has engaged in installation and commissioning of software and training to the employees of the Indian entities as well as rental of software. For payment made on account of software supply to the foreign company the CIT (A) relied on ITAT Delhi Bench in case of Motorola Inc. (supra) wherein it is held that the payment made on account of software supply to the foreign company cannot be taxed as royalty. Thus, the CIT (A) deleted the addition made by the Assessing Officer. For software related to training which was provided by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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