TMI Blog2018 (5) TMI 1957X X X X Extracts X X X X X X X X Extracts X X X X ..... to the software. The source code embedded in the software has not been imparted to them. Hence, there is no use or right to use of any process as held by the learned AO. Hence, the finding of the learned CIT(A) that the payment in question cannot be reckoned as royalty is factually and legally correct and the same is upheld. Thus, we hold that for all the years the payments received by the assessee from WIPRO/IBM in pursuance to the MSA cannot be treated as royalty under Article 12(4) of the India-Netherland DTAA. Thus, the matter is decided in favour of the assessee - ITA No. 2058/Mum/2016 - - - Dated:- 28-5-2018 - SHRI RAJENDRA, AM AND SHRI RAM LAL NEGI, JM For the Appellant : Shri MadhurAgrawal (AR) For the Respondent : Shri Samuel Darse (CIT DR) ORDER PER RAM LAL NEGI, JM This appeal has been filed by the assessee against the assessment order passed by the Assessing Officer (AO) on the basis of the direction dated 29.12.2015 passed by the Ld. Dispute Resolution Panel-2 (DRP), Mumbai, pertaining to the Assessment Year 2011-12, whereby the AO has passed the assessment order u/s 143(3) read with section 144C(13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient under Article 12 of the India-Netherlands DTAA and hence not subject to tax in India. 7. Without prejudice to the above, the learned AO erred in alternatively holding that the receipts qualify as equipment royalty under the Act as well as under the India-Netherlands DTAA. Interest under section 234A 8. Erred in incorrectly computing the interest of ₹ 62,06,880 leviable under section 234A of the Act. Interest under section 234B 9. Erred in levying interest of ₹ 2,24,99,940 under section 234B of the Act without appreciating the facts and circumstances of the case. Initiation of Penalty Proceedings 10. Erred in initiating penalty proceedings under section 271(1)(c) of the Act on the ground that the Appellant had filed inaccurate particulars and thereby concealed income without appreciating the facts and circumstances of the case. 3. Brief facts of the case are that the assessee company, registered in Netherlands is engaged in the business of providing Information Technology Support Services, Information Technology Helpdesk and Network Infrastructure service to Shell Group Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AA with the Netherlands. The Ld. DRP vide its order dated 29.12.2015 affirmed the findings of the AO. 5. Ground No. 1 and 2 of the appeal are of general in nature, hence we do not consider it necessary to adjudicate the said grounds separately. 6. Vide ground Nos. 3 and 4 the assessee has challenged the action of the AO in holding that the aforesaid amount of ₹ 25,21,84,024/- as royalty and taxable @ 10% as per the DTAA with the Netherlands. 7. Before us, the Ld. counsel for the assessee submitted that this ground of appeal is covered in favour of the assessee by the order of the Mumbai Bench of ITAT rendered in the appeals filed by the department in assessee s case, ITA No. 5051/Mum/2009 for the A.Y. 2006-07 and ITA No. 3818/Mum/2011 for the A.Y. 2007-08 and the appeal filed by the assessee in its own case ITA No. 729/Mum/2012 for the A.Y. 2008-09. Since, the ITAT has decided the identical issue in favour of the assessee, the impugned findings of the AO as per the direction of the Ld. DRP is liable to be set aside. 8. On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the AO u/s 143 (3) read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 88, wherein host of other decisions have been referred and relied upon. In the A.Y. 2008-09, the learned CIT (A) has relied upon the decision of Hon'ble Karnataka High Court in the case CIT vs. Samsung Electronics Co. Ltd. [2013]345 ITR 494 and some other decisions of the Tribunal. We find that the Hon'ble Delhi High Court has taken note of this fact and also analysed the payment of software within the ambit of royalty as defined under Article 12 of the India US Treaty. The relevant observation and finding of the Hon'ble High Court is as under: 87. In order to qualify as royalty payment, it is necessary to csal4ish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work In order to treat the consideration paid by the licensee as royalty, it is to be established that the licensee, by making such payments obtains all or any of the copyright rights of such literary work Distinction has to be made between the acquisition of a copyright right and a copyrighted article . Copyright is distinct from the Material object, copyrighted. Copyright is an intangible incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/ licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro-tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 95. 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. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Andhra Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difficult to accept the aforesaid submissions in the facts of the present case. We have already held above that 1,4eiftSsessee did not have any business connection. in India. have also held that the supply of equipment in question was in the nature of supply of goods. Therefore, this issue is to t examined keeping in view these findings. Moreover, another finding of fact is recorded by the Tribunal that the Cellular Operator did not acquire any of the copyrights referred to in Section 14 (b) of the Copyright Act, 1957. 55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Income -Tax Act or under the DTAA. We have to keep in mind what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in holding that it was not permissible for the Revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the assessee has no PE in India; therefore, same cannot be taxed as business income under Article 7. Accordingly, ground raised by the revenue stands dismissed. The aforesaid decision clearly clinches the issues in favour of the assessee. 16. So far as the reading of amended definition of 'royalty' as given in section 9(1)(vi) into treaty as contended and argued by Id. CIT DR, we find that, Hon'ble Delhi High Court in its latest judgment in the case of DIT vs. New Skies Satellite, reported in [2016] 95 CCH 0032, wherein their Lordships shave discussed the issue threadbare and came to the conclusion in the following manner:- 60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the A.Ys. 2006-07, 2007-08 and 2008-09 discussed above, we respectfully following the decision of the co-ordinate Bench decide this issue in favour of the assessee. Accordingly, Ground No. 3 and 4 of the assessee s appeal is allowed. 11. The assessee during the financial year relevant to the assessment year under consideration received fees for provision of Information Technology support services for the several customers based in India. The details of payment received by the assessee are as under:- S. No. Name of Entity Total Invoice amount (INR) 1. Accenture Service 35,28,131 2. Hazira LNG Private Limited 5,30,186 3. IBM India Pvt. Ltd. 3,56,55,244 4. Logica CMG Pvt. Ltd. 26,68,790 5. Shell India Markets Private Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipient under Article 12 of the India- Netherlands DTAA and hence not subject to tax in India. 6. Erred in alternatively holding that the receipt from IT - support services qualify as Royalty' under the IndiaNetherlands DTAA. 8. The facts and circumstances are exactly identical in both the AYrs i.e. 2009-10 and 2010-11 and also the grounds raised are identically worded hence, we will take- the facts from 2009-10. 9. The learned Counsel for the assessee, first of all, took us through the findings of the DRP on the issue which is recorded in Para 53 as under: 5.3 Discussions and directions of DRP 5.3.1 We have considered the draft assessment order, submissions of assessee and material. We have seen that under the Master Services Agreement, the assessee SITI BV has furnished technical and advisory services to various clients based in India. The delineated services are significantly technical in nature and the resultant fees are liable to be treated as Fees for Technical Services. We are also in agreement with the AO that the Ruling of Hon'ble Authority for Advance Rulings in the case of ARE VA T D India Limited (A TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered in the Netherlands. SIT! BV is in the business of providing information technology (IT') support services. During the financial year ended 31.03.2006 SIT! BV provided IT (mobile office) support services, IT helpdesk and network infrastructure related services to: Indian customers. SITI BV is a tax resident of the NetherIand and is eligible to claim benefits under the Double Taxation Avoidance Agreement entered into between India and The Netherlands. He explained that SITI BV is in the business of providing information technology support services SITI BV typically, provides helpdesk services-and network infrastructure services to Shell group companies comprising. Information Technology (II) support for solving any IT related problems faced by users i e any problem faced by users for accessing any application software c-mails, Computer repairs and maintenance etc. desktop laptop and workstation support, Services related to Wide area network ('WAN') arid Local area network ('LAN') for connection to the global servers', and Facilitating teleconferencing and video conferencing services Further, in the event Shell requires IT services from external service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Even under the agreements entered into with WIPRO and IBM, SITI BV only provides them access to the software i.e. computer Programme. SITI BV does not provide them the right to use the copyright embedded in the software. In other words, WIPRO, IBM are not permitted to make copies and sell the software. Under the Services Agreements, WIPRO and IBM-have been granted the mere under the right in the copyrighted software and not the right of, use of-copyright'. Whereas use of copyright' encompasses exploitation of the rights embedded in a copyright but a mere user right is a limited right and consideration paid for Such user right cannot be regarded as consideration for use of or right to use a copyright. In view of the above, the learned Counsel for the assessee stated that the issue is fully covered by the decision of Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter Co Ltd (2012) 20 taxmann.com 807 (Del-HC), wherein India-UK DTAA was under consideration of Hon ble Delhi High Court and Hon'ble High Court after considering the Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received, or Make available technical knowledge, experience. skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricable and essentially linked, to the sale of property, other than property described in paragraph 3 (a) of this Article; (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) For teaching in or by educational institutions; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (Lloyd's processing market) for signing. The assessee will act as a claim administrator and Will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the reinsurance process as discussed above, it is evident- to us that the assessee was rendering only intermediary services while acting as an intermediary/facilitator in getting the reinsurance cover for New India Insurance Co. There exists no material or basis on the basis of which, it Would be said that the assessee was rendering any kind of technical/consultancy service within the meaning of Article 13 of Indo- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such no substantial question of law arises for our consideration. The appeal is dismissed. There shall be. no order as to costs. 13. Further, the learned Counsel for the ass ssee stated that the reliance placed by DRP in Arevay T and D India Limited of Perfeti Van Melle Holdings B.V. In re [2011] 16 taxmann.com 207 (AAR - New Delhi) was reversed by Hon'ble Delhi High Court and reported in 2014 52 taxmann.com 161 (Delhi), wherein Hon'ble Delhi High Court has considered as under: - 1. This writ petition is directed against the ruling dated 09.12.2011 in AAR NO.86912010 given by the Authority for Advance Rulings. One of the pleas raised by the petitioner was that the said authority had not considered the Double Taxation Avoidance Agreement between India and Portugal which is an OECD countr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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