TMI Blog2021 (11) TMI 1000X X X X Extracts X X X X X X X X Extracts X X X X ..... gment in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. [ 2021 (3) TMI 138 - SUPREME COURT ] which was referred by the Tribunal in Ansys Inc. [ 2021 (6) TMI 513 - ITAT PUNE ] There has been no parting with copyright as envisaged within the meaning of Section 14 of the Copyright Act by the Licensor (assessee) to Licensee who is given access to only use the copyrighted software against which assessee s receipts cannot be taxed as royalty. Therefore, respectfully following the judicial precedents mentioned aforesaid on this issue - Grounds No.1 2 raised in appeal by the assessee are allowed. Addition of management service fees received by the assessee treating it as fees for technical services - HELD THAT:- Whatever services were provided by the assessee to Trigo India, no technical knowledge was made available by the assessee to the Indian Entity. Rather, it is a case of providing a service involving technical knowledge, which got consumed with its provision itself. Since such services simply involve use of technical knowledge and do not result into handing over some technical know-how to the recipient of the services. DR could not bring on record any mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es amounting to ₹ 88,21,345/- received by the appellant by treating it as fees for technical services. 4. The learned CIT(A) erred in holding that the services rendered by the appellant includes elements of both consultancy and technical services and therefore falls within the purview of definition of fess for technical services as per Article 13(4) of the India France DTAA as well as under the restrictive scope of definition of fees for technical services under Article 13(4) of the India UK DTAA. 5. The learned CIT(A) erred in confirming the levy of education cess of ₹ 57,528/- on the tax liability computed under the provisions of the India France DTAA. 6. Each one of the above grounds of appeal is without prejudice to the other. 7. The appellant reserves the right to amend, alter or add to the grounds of appeal. 2. Grounds No. 1 2 pertains to confirming the addition of software usage charges amounting to ₹ 13,51,464/- received by the assessee by treating it as royalty. 3. That before the Assessing Officer, the assessee had filed detailed submission as to why software charges received from Trigo India should not be considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer held that the receipts derived by the assessee from sale of software licenses should be taxed as Royalty @ 10% as per Article 13(2) of DTAA between India and France. 5. That before the Ld. CIT(Appeal), the assessee submitted that he has merely transferred the right to use copyrighted software ANTIFOG and that no transfer of copyright to Trigo India has taken place in this case and therefore, payments for the use of the software fall out of the definition of royalty. The Ld. CIT(Appeal) on this issue has held as follows: 5.2 . I have carefully considered the facts, arguments of the AO and of the appellant and various judicial decisions relied on by the Appellant. I find that as far as the taxability of the payments under Income Tax Act is concerned, the right to use the software is made expressly taxable by the retrospective amendment to the act on the provision of royalty u/s.9 of the Income Tax Act. The appellant in his arguments before me has overlooked the retrospective amendment in the Act. He argues that while Section 9 has been amended, the DTAA has not been amended and thus, even if the payments made for use of software license are now taxable as roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... always attached to an 'article' even for intangible assets. There cannot, in my view, be a 'copyright' in isolation. In other words, if one separates the word 'article' from 'copyright' then there would be no copyright itself. In view of the overwhelming decision cited by the AO, I hold that these payments are taxable as 'royalty' under the Income Tax Act as well as under the DTAA. Accordingly, the Appellant ought to have offered to tax this receipt. Hence, the learned AO has taxed this amount. I confirm the taxability of ₹ 13,51,464 6. We observe that on the similar set of facts and circumstances on the issue whether receipts by the assessee are royalty, the Pune Bench of the Tribunal in the case of Ansys Inc. Vs. ACIT (IT), Circle-1, Pune (2021) 127 taxmann.com 731 (Pune-Trib.) has held and observed as follows: 3. We have heard both the sides through Virtual Court and gone through the relevant material on record. Whereas the case of the assessee is that the receipt from M/s. Honeywell Technology Solutions Lab Pvt. Ltd. is `Business Profits' covered under Article 7 of the DTAA, the Revenue has set up a case that it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard, the Hon'ble Supreme Court in the aforenoted case further held that Explanation 4 to section 9(1)(vi) inserted vide the Finance Act 2012 is not clarificatory as it expands the scope and hence prospective. The assessment year under consideration is 2009-10. 6. Adverting to the facts of the extant case, it is seen that the disputed receipt of ₹ 2.42 crore from M/s. Honeywell Technology Solutions Lab Pvt. Ltd. is on account of sale of Software/license and not for parting with the copyright of the software. Since facts of the present case are similar to those considered and decided by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra), respectfully following the precedent, we hold that the amount cannot be brought within the ambit of 'Royalties' under Article 12 of the DTAA. 7. Au contraire, the case of the assessee before the authorities below has been that the receipt is not in the nature of 'Royalty', but 'Business Profits'. In order to bring `Business profits' of a resident of the other country to tax in India within the ambit of Article 7, it is sine qua non that the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the software ANTIFOG as per various terms and conditions specified in this Software License Agreement. There is no difference in facts of the present case as compared to the facts of the judgment of the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT (supra.) which was referred by the Tribunal in Ansys Inc. Vs. ACIT (supra.). There has been no parting with copyright as envisaged within the meaning of Section 14 of the Copyright Act by the Licensor (assessee) to Licensee who is given access to only use the copyrighted software against which assessee s receipts cannot be taxed as royalty. Therefore, respectfully following the judicial precedents mentioned aforesaid on this issue, Grounds No.1 2 raised in appeal by the assessee are allowed. 9. Grounds No.3 4 pertains to confirming of addition of management service fees amounting to ₹ 88,21,345/- received by the assessee treating it as fees for technical services . 10. The assessee has received management services fees of ₹ 88,21,345/- from Trigo India. The Assessing Officer held that the assessee provided services in the nature of managerial, technical or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d technical services and therefore, not only are the payments received for the same FTS as per Article 13(4) of the Indo France DTAA, but are also FTS even in the more restrictive definition of FTS in Article 13(4) of the Indo UK DTAA. Therefore, the Ld. CIT(Appeal) held that services rendered by the assessee being consultancy in nature is taxable, both under the domestic law as well as under Article 13 of the Indo France DTAA and accordingly, the action of the Assessing Officer to tax fees for advisory services of ₹ 88,21,345/- as FTS under the Income Tax Act and under the DTAA was confirmed. 13. The Ld. Counsel for the assessee at the time of hearing referred to a decision of Pune Bench of the Tribunal in the case of M/s. Faurecia Automotive Holding Vs. DCIT, ITA No.784/PUN/2015 for the assessment year 2011-12 dated 08.07.2019 wherein in the list of services which the assessee, therein, had provided to the Indian Entity as appearing at Para 8 of the said order were almost identical to the services rendered by the assessee herein to Trigo India in the present case. In the said decision the Tribunal has dealt with Article 13(4) of the Indo UK DTAA and the observation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the same cannot in our considered opinion be considered as `Fees for technical services under Article 13(4) of the DTAA with France when read with the Protocol and Article 13(4) of DTAA with the UK. 19. Reliance of the ld. AO on the Explanation below section 9(2) of the Act is of no consequence. This Explanation simply states that income of a non-resident shall be deemed to accrue or arise in India, inter alia, under clauses (vi) or (vii) of sub-section (1) of section 9 and shall be included in the total income of the nonresident, whether or not - (i) the non-resident has a residence or place of business or business connection in India; or (ii) the nonresident has rendered services in India. In the instant appeal, the issue is whether the services rendered by the assessee fall within the definition of `Royalties or `Fees for technical services u/s 9(1)(vi) or (vii) of the Act. We have held that section 9(1)(vi) is not attracted. Albeit section 9(1)(vii) is attracted, but the amount ceases to be `Fees for technical services in the light of the DTAA. Thus, there is no quarrel on whether or not the assessee has a place of business or business connection in India or it has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. The contention of the assessee was that education cess cannot be levied when the tax is charged as per DTAA which is inclusive of surcharge and education cess. This contention of the assessee was not accepted by the Ld. CIT(Appeal) and he held that education cess is in the character of income tax as was held in the referred judicial decision of the Mumbai Bench of the Tribunal (supra.). 18. At the time of hearing, the Ld. Counsel for the assessee brought to our notice to the decision of the Mumbai Bench of the Tribunal in the case of Sunil V. Motwani Vs. ITO, IT Appeal No.276 (MUM) 2012, (2013) 33 taxmann.com 252 (Mumbai-Trib) wherein the issue was whether tax payable at 12.5 percent on interest income under article 11(2) of DTAA between India and UAE is inclusive of surcharge and education cess?. The Tribunal on this issue has held as follows: 5. We have perused the records and considered the matter carefully. There is no dispute that the assessee is a non resident based in UAE. There is also no dispute that the assessee had received gross interest of ₹ 7,55,187/- from the Indian firms in which he was a partner. The interest income is no doubt taxable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and it was held that under Article 5(3) of DTAA with USA, preparatory and auxiliary type of work was excluded from the purview of PE and therefore, there being no PE it was held that income from software maintenance was liable to be taxed in India. The high Court was not concerned with taxability of interest income as per the treaty. 5.1 In view of the fore-going discussion, we hold that tax payable @ 12.5% under Article 11(2) of FTAA is inclusive of surcharge and education cess. We, therefore, set aside the order of CIT(A) and allow the claim of the assessee. 19. The Ld. DR conceded that the facts and circumstances involved in the present issue are absolutely identical to the facts and circumstances in the case of Sunil V Motiani Vs. ITO (supra.). 20. Having heard the parties herein and considering the decision of the Mumbai Bench of the Tribunal in the case of Sunil V Motiani Vs. ITO (supra.), on the same parity of reasoning, we provide relief to the assessee. Thus, Ground No.5 raised in the appeal by the assessee is allowed. 21. Grounds No.6 and 7 are general in nature and hence, no adjudication is required. 22. In the result, appeal of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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