TMI Blog2019 (10) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... y linked with the software supplied. In our view, unless the services satisfy the make available test, the same cannot be taxed as FIS. Further, mere fact that provision of service may require technical input by the person providing services does not per se mean the technical knowledge. In our view, the receipt on account of support and maintenance services are not taxable under Article 12 as the services do not make available technical knowledge, experience, skill, know-how or process or consist of any development and transfer of any design. Levy of interest u/s 234B - HELD THAT:- Assessee is a foreign company and tax resident of USA and as per section 195 of the act taxes deductible at source on all its received and accordingly the assessee was not liable to pay advance tax. Therefore we direct the assessing officer to recompute the tax by following the decision of the jurisdictional High Court in case of NGC network Asia LLC [ 2009 (1) TMI 174 - BOMBAY HIGH COURT] - I.T.A. No.783/Mum/2017 - - - Dated:- 14-10-2019 - Shri Saktijit Dey, JM And Shri Manoj Kumar Aggarwal, AM For the Appellant : Ms. Hirali Desai-Ld.AR For the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal, the assessee is primarily contesting the action of lower authorities in making additions by treating certain receipts as Fees for Technical Services / Fees for included services within the meaning of Article 12 of India-USA Double Taxation Avoidance Treaty (DTAA). Ground No. 1 is general in nature whereas Ground No. 6, assailing penalty u/s 271(1)(c) is premature at this stage. 2. The Ld. Authorized Representative for Assessee, at the outset, submitted that the issues under appeal stood squarely covered by the decision of this Tribunal in assessee s own case for AYs 2009-10 to 2011- 12, ITA Nos. 1701/M/2014, 1439/M/15, 1995/M/16 common order dated 30/08/2019, a copy of which has been placed on record. The Ld.CIT-DR could not point out any distinguishing features in this AY. Nothing is on record to suggest that aforesaid ruling is not applicable to the facts of this AY also. 3. In the above background, the assessee before us is a non-resident corporate assessee. The assessment was framed on 28/11/2016 wherein the income was determined at ₹ 752.34 Lacs after certain additions as against Nil return filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills etc. to the person utilising the services. These words are which make available . The meaning ascribed by Mr. Kapila for the Department is that these words merely mean to allow somebody to make use of, whether actually made use of or not , but in our opinion and with respect, this meaning does not take due note of the addition of such words to the rendering of any technical or consultancy services . The meaning suggested by Mr. Kapila is embedded in the rendering of the services itself. When somebody renders services, it presupposes that somebody else is making use of the same. But the making use of should be contrasted with the making available . The making available , in our opinion, refers to the stage subsequent to the making use of stage. The qualifying word is which the use of this relative pronoun as a conjunction is to denote some additional function the rendering of services must fulfil. And that is that it should also make available technical knowledge, experience, skill etc. In our view the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is concerned, in case of difference between provisions of the Act and an agreement under section 90 i.e. (DTAA), the provisions of the agreement shall prevail over the provisions of the Act. 10.17 In view of our discussion above, we hold that the payments made by the assessee are not in the nature of royalty either under the domestic law or relevant DTAA ................................... 19. Further in para- 40 of the decision in the case of Bharti Airtel Ltd. (supra), the Tribunal has held that where make available clause is found in the treaty and there is no imparting as contemplated in the treaties, the payment cannot be treated as Fee for Technical Services (FTS) under the DTAA. The relevant paragraph of the decision is reproduced as under: '40. The second aspect of the issue are before us, is without prejudice to the finding under the Domestic Law, whether the payment to FTOs for IUC is fee for technical services under the DTAA, wherever 'make available clause' is found in these agreements. In view of our finding that the payment is not fee for technical services under the Act, it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the call to the end operator, and, in that sense, it works like a clearing house. Similarly, in the case of incoming calls, calls originating from Europe and USA, which are to end in India, are routed to the respective operators. In the present fact situation, the payment made by the Indian entities can be held to be royalty only when it is payment for scientific work, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. It is not for a payment for a scientific work nor there is any patent, trademark, design, plan or secret formula or process for which the payment is made. There can hardly be any dispute that the payment is made for a service, which is rendered with the help of certain scientific equipment and technology, rendered by the assessee. The service is connectivity to the telecom operators in the call end jurisdiction. The facility is a standard facility which is used by other telecom companies as well. As for the dedicated ports, these things only provide a certain level of capacity in access but the payment is for the service nevertheless. Merely because the payment invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that sense technical services are not made available. Undoubtedly, the services rendered by the assessee requires technical inputs, but that alone, as we have seen above, does not bring it in the ambit of fees for technical services taxable under article 13 of India-UK tax treaty. 22. In view of the above factual and legal discussions, we are of the view payment made by the assessee is only in respect of standard services provided by AT T and Spinet, which cannot be held to be Royalty . Only those payment, when it made for scientific work, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, which is absolutely missing in the present case. The payment in the present case is not for a payment for a scientific work nor there any patent, trademark, design, plan or secret formula or process for which the payment made. The service is connectivity to the telecom operators in the call end jurisdiction. The facility is a standard facility which is used by other telecom companies as well. Therefore, the action of the assessing officer, which was upheld by ld. DRP, in treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 in the definition of Royalty under section 9 (1)(vi) of Income tax Act by virtue of Finance Act 2012. The assessing officer failed to appreciate that there was no corresponding change introduced in the definition in the term Royalty under the India USA tax treaty. The assessee being tax resident of USA, is eligible for beneficial provision of India USA tax treaty in term of section 90(2) of the Act. Therefore, even if the consideration for sale of software is covered within the definition of Royalty under the Act, it cannot be taxed as such unless it falls within the definition of Royalty as defined in India USA tax treaty, therefore the assessee is entitled for availing beneficial provision of India USA tax treaty. To support their contention that payment received from TCS for sale of product is not liable to tax in India as Royalty income. Article 12(3) of India US tax treaty defined the Royalty payment made for the use of right to use of copyright of a literary, artistic or scientific work. Accordingly, in order to qualify as Royalty payment as income, provided in Article 12 of India USA tax treaty, the income of the appellant should have been generated by use of or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the said receipt for the use of copyright and proposed to tax in the form of sale of software as Royalty under India-US Tax Treaty. The DRP upheld the action of Assessing Officer. We have gone through the licence agreement wherein the assessee granted licence to TCS in accordance with the term and condition of the agreement. The term and condition of the licence is provided under clause 2.1. Further, in clause 4 of the agreement, the assessee has put a restriction on licence. The perusal of licensing agreement further shows that licence is non-exclusive, nontransferable and that the software is to be used strictly in accordance with agreement, and only one copy of software is supplied to the TCS. The TCS is only permitted to make one copy of software for internal back and archival purposes. Further, software is to be used by TCS only for its own business and cannot be rented, sold sub-licence or transfer to any third party as the TCS is restricted from making copies, decompile disassemble or reverse engineer the software. The title and ownership of the software is with the assessee. We have noted that Article 12(3) of the India-US Tax Treaty define the Royalty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software. 30. In view of aforesaid discussion, we are of the view that the receipt on account of sale of copyrighted/Shrink Wrapped Software is not taxable as per Article 12(14) of India-US Tax Treaty. Further, the receipt is also not taxable under the provisions of Income-tax Act as the assessee is eligible for beneficial provision of India-US Tax Treaty in term of section 90(2) of Income-tax Act. Moreover, after the amendment introduced in Explanation (4) in definition of Royalty under section 9(1)(6) by Finance Act, 2012, there is no corresponding change made in definition in term of Royalty under India-US Tax Treaty. Therefore, in view of the aforesaid discussion, the ground no.3 of the appeal is allowed in favour of assessee. 31. Ground No. 4 relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and maintenance fees were ancillary and subsidiary to enjoyment of right to use of the software for which royalties being paid and hence proposed to tax the amount as FIS in term of Article 12(4)(a) of India US tax treaty. The learned DRP rejected the objection of assessee and confirm the view taken by assessing officer. 33. The learned AR of the assessee submits that assessee, being tax resident of USA is eligible for beneficial provisions of India USA tax treaty which contains more restrictive definition of FTS as compared to the Act. Accordingly, the subject receipt cannot be taxable as FTS unless it is covered by the definition of FTS in the India US tax treaty, even if discovered by the definition of FTS under the Act. The learned AR of the assessee again reiterated the provision of Article 12 of India USA taxability wherein definition of royalty and fees for included services is defined. 34. The learned AR further submit that it is an undisputed fact that the support and maintenance services are ancillary and subsidiary, as well as inextricably and essentially linked, to the software supplied, therefore, the services would be depende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Geneva health check for retail instances (Geneva billing system performance tuning) and other professional and consultancy services. These services were claimed to have been subcontracted by assessee to Indian entity CIM on a principal to principal basis. In the return of income the assessee claimed that the said receipt are not taxable in India under the India US tax treaty. However the assessing officer in the assessment order held that services are ancillary and subsidiary to the enjoyment to use the software for which royalties being paid and hence proposed to tax the amount as FIS. On objection before DRP the action of assessing officer was upheld. The learned AR of the assessee submits that the services rendered by assessee are neither ancillary and subsidiary to the application or enjoyment of the right, property or information for which a royalty payment is described in Article 12(3) of Tax Treaty is received nor do they make available technical knowledge, experience, skill, know-how or process or consist of the development of transfer of technical plan or technical design. The learned AR further submits that unless, the services satisfy a make available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is allowed. Since facts are stated to be pari-materia the same in this AY, applying the aforesaid decision of the Tribunal, we delete impugned three additions made by Ld. AO. Ground Nos. 2 to 4 of the appeal stands allowed. 6. In ground No.5, the assessee is contesting the levy of interest u/s 234B by relying upon the decision of Hon ble Bombay High Court rendered in DIT V/s NGC Network Asia LLC (313 ITR 187). We find that similar issue, in the aforesaid decision of the Tribunal has also been dealt with in the following manner: - 42. Ground No. 6 relates to levy of interest under section 234B of the Act. The learned AR of the assessee submits that in the assessment order, the assessing officer levied interest under section 234B of the act amounting to ₹ 37,58,522/-on account of shortfall in payment of advance tax and self-assessment tax. The learned AR submitted that the assessee being tax resident of India and is foreign company under the income tax laws, accordingly, as per section 195 of the act taxes deductible at the source on all its received. Therefore there can be no liability to pay advance tax under section 208 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
