TMI Blog2019 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has any PE in India, so as to warrant the consideration of the amount in question as Business profits under Article 7 of the DTAA. Receipts from SAPL for providing maintenance services in respect of GSS software - AO held this amount to be in the nature of Fees for technical services u/s.9(1)(vii) of the Act and also under the DTAA - HELD THAT:- Technical services provided by the assessee for maintenance of the existing GSS software supplied to SAPL amounts to rendering of technical or consultancy services simplicitor without `making available any technical knowledge, experience, skill, know-how or processes etc. to SAPL for use in future independently. In other words, it is a simple case of providing services involving technical knowledge which exhausted with its provision itself. Since such services did not result into provision of any technical knowledge, experience or skill etc. to SAPL, we are satisfied that the consideration so received by the assessee cannot be categorized as fees for technical services in terms of DTAA. Going by the beneficial provision in the DTAA vis- -vis the Act, this amount is directed not to be considered as fees for technical servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute Resolution Panel (DRP) has also taken similar view vide its direction dated 29-09-2016 for the A.Y. 2013-14. The ld. DRP in its direction for the year under consideration reproduced its own order for the immediately preceding assessment year 2013-14 and held that the receipt from SAPL for granting access to CAD/CAM software application was Royalty as per the provisions of the Act as well as the DTAA. Aggrieved thereby, the assessee has approached the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. Firstly, we will examine the taxability of the amount under the Act. The claim of the assessee is that the amount received by it from SAPL for allowing limited access to CAD/CAM is a consideration for copyrighted article and not use of a copyright. In this regard, it is observed that the Hon ble Delhi High Court in DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329 (Delhi) considered almost similar issue in which consideration was received by the assessee on grant of licence for use of software. The AO held that the software was licensed and not sold in as much as the copyright of the software remained with the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Article 7 of the DTAA. A close reading of the above para fairly reveals that the Hon ble High Court held, in principle, that if the income is not royalty, then it would be taxable as a business income. Since it held that the amount in question did not constitute Royalty within the relevant DTAA, it laid down in para 95 that : ` We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. In the oppugnation, the Hon ble Karnataka High Court in Samsung (supra) has held: `that the payment would constitute 'royalty' even as per the provisions of s. 9(1)(vi). 7. It, therefore, clearly emerges that a common thread which runs through both the above judgments is that the consideration is otherwise not exempt from tax under the Act. The dispute is only as to whether it is Business income or Royalty income under the Act. Whereas the Hon ble Karnataka High Court held consideration for use of software as Royalty inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (1) for granting relief of tax or for avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, 'the provisions of this Act shall apply to the extent they are more beneficial to that assessee . Crux of the sub-section (2) is that where a DTAA has been entered into with another country, then the provisions of the Act shall apply only if they are more beneficial to the assessee. In simple words, if there is a conflict between the provisions under the Act and the DTAA, the assessee will be subjected to the more beneficial provision out of the two. If the provision of the Act on a particular issue is more beneficial to the assessee vis-a-vis that in the DTAA, then such provision of the Act shall apply and vice versa . The Hon ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654 (SC) has held that the provisions of sections 4 and 5 are subject to the contrary provision, if any, in DTAA. Such provisions of a DTAA shall prevail over the Act and work as an exception to or modification of sections 4 and 5. Similar view has been taken by the Hon ble jurisdictional High Court in CIT v. Siemens A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such definition, it transpires that `Royalties is a payment of any kind received as a consideration: `for the use of, or the right to use, any copyright of literary , artistic or scientific work etc. The expression ` the use of, or the right to use, any copyright has also been used in Article 12 of the DTAA between India and the USA, which has been discussed in the case of Infrasoft (supra). The Hon ble Delhi High Court in that case held that what was transferred was not copyright or right to use copyright but a limited right to use copyrighted material, which did not give rise to any royalty income. It further observed that to be taxable as royalty income covered by Article 12 of DTAA, income of assessee should be generated by use of or right to use of any copyright and a License granted to licensee permitting him to download computer programme and storing it in computer for his own use is only incidental to facility extended to licensee to make use of copyrighted product for his internal business purpose. Finding that there was no transfer of any right in respect of copyright by assessee and it was a case of mere transfer of a copyrighted article whilst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are in any form within the ambit of `Royalty , there is no corresponding amendment in the DTAA and hence the DTAA, in the absence of the applicability of section 90(2A) to the year under consideration, would not automatically imbibe the changes made in the Act. We have noticed above that if the provisions of DTAA are more beneficial to the assessee then those would apply in supersession of the provisions of the Act. It is, therefore, held that the sum of ₹ 1.48 crore and odd cannot be construed as `Royalties in the hands of the assessee as per the mandate of Article 12 of the DTAA. It is relevant to note that the assessee specifically stated before the AO that it did not have any PE in India and further it is not the case of the AO that the assessee has any PE in India, so as to warrant the consideration of the amount in question as Business profits under Article 7 of the DTAA. 17. The second issue is treatment of a sum of ₹ 38,97,417/- which was received by the assessee from SAPL for providing maintenance services in respect of GSS software. The AO held this amount to be in the nature of Fees for technical services u/s.9(1)(vii) of the Act and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge and is nothing short of fees for technical services in the nature of technical or consultancy services. Thus, the amount in question constitutes income of the recipientassessee u/s.9(1)(vii) of the Act. 21. Now we turn to examine the position under the DTAA. We have reproduced above the relevant parts of the Article 12 between India and Sweden. Para 3(b) of the Article 12 defines the expression fees for technical services to mean payment of any kind in consideration for rendering of managerial, technical or consultancy services including the provision of services by technical or other personnel. In so far as the rendering of technical or consultancy services to constitute fees for technical services under para 3(b) is concerned, we find that the definition of the term fees for technical services in the DTAA to that extent is almost similar to that contained in Explanation 2 to section 9(1)(vii). However, at this stage, it is pertinent to note the terms of the Protocol with reference to Article 12 of the DTAA, which provides that : `if under any Convention, Agreement or Protocol between India and a third State which is a member of the OECD, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available connotes something which results in transmitting the technical knowledge so that the recipient could derive an enduring benefit and utilise the same in future on his own without the aid and assistance of the provider. On going through the above interpretation, it becomes palpable that in order to `make available technical services, it is sine qua non that the recipient of the services must acquire such technical know-how etc. which he can himself use in future without any assistance of the provider and the same is not any such act or service which vanishes or disappears on its provision by the payee itself. 23. Adverting to the facts of the instant case, it is found that the technical services provided by the assessee for maintenance of the existing GSS software supplied to SAPL amounts to rendering of technical or consultancy services simplicitor without ` making available any technical knowledge, experience, skill, know-how or processes etc. to SAPL for use in future independently. In other words, it is a simple case of providing services involving technical knowledge which exhausted with its provision itself. Since such services did not result in ..... 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