TMI Blog2018 (3) TMI 1956X X X X Extracts X X X X X X X X Extracts X X X X ..... de India, and the income arising from such payment to the recipient shall be excluded from the deeming provision of Section 9(1) of the Act. Hence we are of the considered view that the assessee company will not be liable to deduct tax u/s.195 - Decided in favour of assessee. Non-deduction of Tax at Source towards payment made for purchase of software from non- residents - HELD THAT:- From the facts of the case it is apparent that the assessee has obtained license only for the usage of the software for a limited period and does not have the right to change or modify the software. This issue is squarely covered by the decision in the case DCIT Vs. Atmel R D India (P) Ltd [ 2008 (11) TMI 9 - AUTHORITY FOR ADVANCE RULINGS] as held merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest payable u/s.201(1A) - HELD THAT:- Since we have held that, in the case of the assessee, tax need not be deducted at source with respect to payment made towards reimbursement of warranty and payment made towards purchase of software and deleted the addition made on account of non-deduction of tax at source, this ground raised by the assessee does not survive because the assessee is not liable for payment of interest u/s.201(1A). - I.T.A. No.1854/ CHNY/2017 (Assessment Year: 2014-15) - - - Dated:- 21-3-2018 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER Assessee by : Shri N.V. Balaji, Advocate Revenue by : Smt. S. Vijayaprabha, JCIT O R D E R Per A. Mohan Alankamony, AM:- This appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-16, Chennai dated 08.06.2017 in ITA No.99/CIT(A)-16/2014-15 for the assessment year 2014-15 passed U/s. 250(6) r.w.s 201(1)(1A) of the Act. 2. The assessee has raised several grounds in its appeal however the cruxes of the issues are as follows:- (i) The Ld.CIT(A) has erred in upholding the order of the Ld.AO who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,45,237 No make available 4. 29,31,13,053 21,27,24,896 8,44,72,927 Not in the Nature of FTS 4.1 The Ld.DCIT was of the opinion that the reimbursement of warranty expenditure by the Assessee Company amounts to payment made towards fee for technical services outside India which is a taxable income of the recipient in India. On query as to why tax was not deducted at source by the assessee, the assessee made the following submissions before him:- NMIPL is in the business of selling of cars and exports to various destinations across the globe. In fulfilment of a key responsibility as a seller, NMIPL is required to extend after sale support in the form of warranty of cars and parts sold. The above remittances made are properly backed up by warranty claim invoices raised on NMIPL by the respective companies in various countries. The amount recharged by the non-resident is without any margin and is based on actual cost incurred by them. As a result of this, there is no profit element/ income accruing in the hands of the non-resident on the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident, the amount shall be treated as receipt in the nature of business income which is taxable only if the non-resident has a Permanent Establishment ('PE') in India ..... ..... Further, we wish to state that the 'Other Income' article of the relevant DTAA can be invoked only where the subject payment is not specifically covered by any other article in the DTAA. In the instant case, the payment is covered by the business income article, but is not subject to tax in India owing to the absence of PE in India . Assessee relied on - Bangkok Glass Industry Co. Ltd vs ACIT (257 CTR 326) - P.T Mckinsey Indonesia vs DDIT (25 ITR(T) 52) ..... In the given facts, the company has made payment to parties in Australia wherein ..... Assuming but not agreeing to a situation where the above payments are treated in the nature of technical services by your goodself, the same cannot be held liable to tax since it does not make available any technical knowledge, skill or experience to NMIPL under India - Australia DTAA Assessee placed reliance on Raymond Ltd v. DCIT [86 ITD 791] (Mum ITAT) Intertek Testing Services India (P) Ltd., In re [307 ITR 418] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntractual payments made by the assessee for obtaining technical services from the dealers for servicing the vehicles manufactured and sold by it, is in the nature of fee for technical services as per the Act and the DTAA and therefore it is taxable income in the hands of the recipient in India. 4.4 On appeal, the Ld.CIT(A) upheld the order of Ld.AO by observing as under: However, it is to be noted that, there are judicial decisions wherein, it is held that what an element of income is embedded in the receipt in the hands of the third party, the reimbursements are also liable to tax. The Hon'ble Delhi Tribunal, in the case of SPX India Private Limited v. CIT ( 147 ITD 120) (Delhi ITAT) held that sec. 195, r.w.sec 40(a) (i) of the Act, payment to non- resident for reimbursement of audit fee to a parent company held that the tax was required to be deducted outsource, as element of income was embedded in the receipt of auditor and therefore, upheld the disallowance u/s 40(a) (i) of the Act. Similarly, the Hon'ble ITAT, Chennai in the case of Ashok Leyland Limited v. DCIT (119 TTJ 716) (Chennai ITAT), the assessee agreed to reimburse expenditure towards Airfare, acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, such payment is required to be treated as fees for technical services as per the Act and as per the DTAA. The same is liable to be offered to tax in India. In view of the above discussion I upheld the action of the AO to treat the warranty expenses reimbursement for ₹ 29,71,97,823/- as FTS and appellant has failed to deduct TDS on such payment as required u/s 195 hence assessee in default u/s 201 (1) of the Act. 4.4 Before us the Ld.AR pointed out the provision of Section 9(1)(vii)(b) of the Act and argued by stating that, the exemption to the provision clearly provides, where any resident pays fees in respect of services for the purpose of making or earning any income from any source outside India, the income arising from such payment to the recipient outside India will not be deemed to be income accruing or arising in India. Further the Ld.AR relied on various decisions to drive his point that tax was not liable to be deductible in the case of the assessee for the payment made towards reimbursement of warranty expenses to sister concerns outside India. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities. 4.5 We have heard the rival sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion that the decision relied by the Ld.AO in the case SPX India Pvt. Ltd., Vs. CIT supra and Ashok Leyland Ltd., Vs. DCIT supra are not applicable to the facts of the case of the assessee. In the case SPX India Pvt. Ltd., the issue was with respect to deduction of tax at source on the amount reimbursed as ISO audit fee to parent company. In the case of Ashok Leyland Ltd., the company was engaged in the business of manufacture of motor vehicles in India and the issue was with respect to reimbursement of expenditure towards air fare, accommodation and subsistence cost of personal disputed by foreign company. Accordingly the issue is decided in favour of the assessee. 5. Ground No.2(ii) : Non-deduction of Tax at Source towards payment made for purchase of software from non- residents:- The assessee company had made payment towards purchase of software (1) mTAB License (2) CONSULT-III plus, from M/s. Gamma Associates, resident of United Kingdom and M/s. Nissan Motor Ltd., tax resident of Japan. The nature of software is extracted herein below from the order of the Ld.CIT(A):- mTAB License:- mTAB license is a statistical survey analysis tool for analyzing huge database ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, artistic, or scientific work ...... any patent, trademark, design or model, plan, secret formula or process..... The Ld.DCIT further relied in the decision of the case CIT Vs. CGI Information Systems and Management Consultants Pvt. Ltd. Thereafter the Ld.DCIT held as follows:- In view of the above, the payment for software are taxable as royalty as per Section 9(1)(vi) of the Act and as per Article 13(3)/12(3) of DTAA with UK/Japan. As the assessee has failed to deduct tax on the remittances made to M/s. Nissan Motor Limited Japan and Gamma Associates, UK during the Financial Year 2013-14 relevant to Assessment year 2014-15 towards purchase of software, as per the provisions of the Act, it is hereby held to be in default u/s 201(1) and 201(1A) of the Act and liable to pay the tax and interest specified in the Annexure A forming part of this order. 5.2 On appeal, the Ld.CIT(A) confirmed the order of the Ld.DCIT by agreeing with his view. 5.3 The Ld.AR argued before us by stating that the payments made by the appellants towards purchase of software from non- residents does not envisage the transfer of any right in the nature of copy-right or similar nature in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of data or instructions contained therein without any further 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 in his favour. 42. The license granted to the licensee permitting him to use the programme for its business purpose is only incidental to the facility extended to the licensee to make use of the copyrighted product for its 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. 43. There is no transfer of any right in respect of copyright by the Assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mains with the owner and the Licensees have acquired 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. 47. 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 ot which are more beneficial. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 48. 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. 49. In view of elaborate discussion and in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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