TMI Blog2020 (5) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... that the distribution of software licenses and their maintenance are inter-linked. Accordingly, we are inclined to agree with the contentions of the assessee. TPO was not justified in viewing maintenance services as separate from the distribution activity. We notice that the assessee and its AE have agreed that the assessee shall make payment of 40% of the revenue realised on sale of software licenses and on entering into maintenance contracts. A.R has further pointed out that the above method of sharing the revenue has been accepted to be at Arms length under TNMM method in the immediately preceding year and succeeding year. Hence we agree with the contentions of the assessee that there is no reason to take a different view in this y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of purchase of software. It has also remitted 40% of the maintenance charges collected from its customers towards maintenance of software to its AE. The dispute here is related to the amount remitted by the assessee to its AE towards maintenance charges. 4. The assessee submitted that the maintenance services are closely linked to sale or distribution of software licenses. Accordingly the assessee bench marked the entire transactions by aggregating them under TNMM method. The TPO accepted the TNMM method for sale of software licenses and held that the payment made by the assessee towards purchase of software licenses is at arms length. With regard to maintenance services, the TPO took the view that the same is in the nature of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this function. 3 Site visit to resolve defects/errors Personnel of taxpayer visit customer to rectify errors when remote support service does not work. They also visit to provide general maintenance services. No function of taxpayer. Taxpayer's application engineers also visit the premise of customers to debug any problems. Taxpayer has to maintain such engineers and send them, at its expense, to various sites in different metro cities of India for site visit. 25% weightage is given to this function. 4 Third level support when application engineers cannot resolve errors Taxpayer acts as facilitator/ coordinator betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the maintenance services into different tasks or functions and also determined the nature of responsibility or functions performed by each party. Maximum weight was given to the core activity and then revenue was split between parties on the basis of these tasks. So there doesn't appear to be any infirmity in the order of the TPO.... Even though the assessee has countered the observations made by the TPO with regard to the services rendered by the assessee and its AE, yet the Ld DRP took the view that the assessee has first time made the fresh claim before it that the major services are rendered by its AE. Accordingly, the Ld DRP rejected the explanations of the assessee and confirmed the Transfer pricing adjustment. 6. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate functions. The Transfer Pricing Officer has further analysed the nature of services performed by the assessee and its AE and accordingly arrived at the conclusion that payment of 10% of the maintenance charges collected by the assessee would be at arms length as per functions performed by each of them. He submitted that the assessee has, however, given different kind of explanation before Ld DRP and hence the Ld DRP has rejected the same. 9. We heard the parties and perused the record. The assessee is engaged in the business of distribution of software licences of its AE. The assessee has submitted that the software licenses are distributed along with one year free maintenance services. After completion of one year period, the custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the TPO was not justified in viewing maintenance services as separate from the distribution activity. We notice that the assessee and its AE have agreed that the assessee shall make payment of 40% of the revenue realised on sale of software licenses and on entering into maintenance contracts. The Ld A.R has further pointed out that the above method of sharing the revenue has been accepted to be at Arms length under TNMM method in the immediately preceding year and succeeding year. Hence we agree with the contentions of the assessee that there is no reason to take a different view in this year alone by re-characterising the payment relating to maintenance services alone. Accordingly, we set aside the order passed by the AO/TPO in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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