TMI Blog2020 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... nethra Ravi, JM For the Assessee : Shri Nikhil Pathak. For the Revenue : Shri Alok Malviya ORDER PER ANIL CHATURVEDI, AM : 1. This appeal filed by the assessee is emanating out of the order of Asst.Commissioner of Income Tax (International Taxation) 2, Pune dated 22.07.2019 for the assessment year 2016-17. 2. The relevant facts as culled out from the material on record are as under :- Sandvik Tooling Sverige AB now known as Sandvik Marching Solutions AB is a non-resident (Foreign) company incorporated in Sweden. Assessee electronically filed its return of income for A.Y. 2016-17 on 30.11.2016 declaring total taxable income at ₹ 16,68,150/-. The case was selected for scrutiny and thereafter notices u/s 143(2) and 142(1) of the Act along with questionnaire were issued to the assessee. On perusal of the details in return of income furnished, it was noticed that assessee had received ₹ 59,66,099/- from Sandvik Asia Private Limited (SAPL) on account of IT support services which are receipts for providing restricted access to in house developed production systems such as GSS and related applications. Apart from the aforesaid receipts, asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now in appeal and has raised the following grounds : 1. Ground 1. On the facts and circumstances of the case and in law, the Learned Dispute Resolution Panel ('Ld. DRP') and the Learned Assessing Officer ('Ld, AO') have erred in not considering the favourable order of the Hon'ble ITAT for AY 2010-11, 2011-12 and 2013-14 in appellant's own case pertaining to the taxability of receipts toward IT support services. It is prayed that, the Hon'ble ITAT's order is binding on the Ld. AO and hence, the entire addition made by the Ld. AO and confirmed by the Ld. DRP, be deleted. 2. Ground 2 On the facts and circumstances of the case, and in law, the Ld. DRP has erred in confirming the action of the Ld. AO in taxing the receipts of INR 33,34,612 towards service costs for upgradation of CADI CAM and Zeiss application provided to the tooling division of Sandvik Asia Private Limited ('SAPL') in India as Royalty within the meaning of Article 12 of the India-Sweden Double Taxation Avoidance Agreement ('DTAA'). It is prayed that the addition made by the Ld. AO and confirmed by the Ld. DRP, be deleted. 3. Ground 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axability 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 assessee which simply allowed the use of copyright to the person making payment to it. In view of the fact that the assessee authorized use of the copyright of the software to customers in India, which was a patented software, he held that the consideration for allowing the use of such patented software fell within the definition of Royalty u/s. 9(1)(vi) of the Act. No relief was allowed in the first appeal. However, the Tribunal held that the amount received by the assessee under the licence agreement for allowing the use of the software was not Royalty either under the Act or under the DTAA. The Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income u/s 9(1)(vi), the Hon ble Delhi High Court had not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act. 8. At this juncture, it is pertinent to note that the Finance Act, 2012 has carried out an amendment to section 9(1)(vi) dealing with `income by way of royalty by means of insertion of Expl. 4 w.r.e.f. 1.6.1976, which reads as under: - Explanation 4.- For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision 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 Aktiongesellschaft (2009) 310 ITR 320 (Bom.). In the light of the above discussion, it becomes vivid that if the provisions of the Treaty are more beneficial to the assessee vis-avis its counterpart in the Act, then the assessee shall be entitled to be ruled by the provisions of the Treaty. Here, it is made clear that the provisions of sub-section (2A) of section 90 inserted by the Finance Act, 2013 are not relevant to the assessment year 2014-15 under consideration as the same have been made effective w.e.f. 1.4.2016. 11. Now we turn to examine the taxability of the amount in the hands of the assessee under the DTAA. Relevant part of Article 12 of the DTAA with Sweden runs as under: 1. Royalties and fees for technical se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 copyright remained with the owner, the Hon ble High Court held that the payment was for a copyrighted article and represented purchase price of an article and hence could not be considered as royalty in the hands of the recipient under the DTAA. 13. Adverting to the facts of the instant case, it is observed that the assessee transferred a limited right in the CAD/CAM to SAPL. There was no transfer of copyright or use of any copyright. As against the requirement of para 3 of the Article 12 for royalty income to be generated by use or right to use of any copyright etc., what in the extant case has happened is that the assessee simply permitted SAPL to use the software for its limited internal business purpose only. No further right was granted to SAPL to deal with the copyright of the software. As there is no transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. 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 under the DTAA. He, therefore, included it in the total income of the assessee. The DRP upheld the decision of the AO in the draft order, against which the assessee has come up in appeal before the Tribunal. 18. Having heard both the sides and gone through the relevant material on record, we first need to precisely ascertain the nature of service for which the instant consideration was received. No agreement was produced before us to demonstrate the nature of receipt. On a specific query, the ld. AR stated that the payment was received for maintenance of the existing software with SAPL, which was not controverted. Albeit a feeble attempt was made for showing that the amount was also towards giving access to the GSS software, but the assessee could not substantiate the same with any cogent evidence or material. Even the concerned international transaction has also been reported by the assessee as `G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, India limits its taxation at source on dividends, interest, royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention. This is in the nature of the Most Favoured Nation (MFN) clause in the DTAA between India and Sweden which seeks to provide that if India has limited, inter alia, its scope of fees for technical services in a DTAA with any other OECD country, then such limited scope shall stand substituted in the DTAA with Sweden. Portuguese Republic is a member of the OECD with which Indian has entered into a DTAA. The relevant part of the term fees for included services has been defined in the Article 12(4) of the DTAA between India and Portuguese, which is as under : - `For the purposes of this Article fees for incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 services. Similar view has been taken by the Tribunal in its afore-referred order in the assessee s own case for the earlier years. Further, it is not the case of the AO that the assessee has any permanent establishment in India, so as to necessitate the consideration of the aspect of its taxability as Business profits under Article 7 of the DTAA . 7. Before us, Revenue has neither pointed out any distinguishing feature in the facts of the present case and that of earlier years i.e., 2010-11, 2011-12, 2013-14 2014-15. Further, no material has been placed by Revenue to demonstrate that the order of Tribunal in assessee s own case for A.Y. 2014-15 has set aside / stayed by higher Judicial Forum. We theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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