TMI Blog2022 (7) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... hence will not drop into para 3(a) of Article 12 with sequitur that the question of application of para 4(a) to support and maintenance charges will not arise. Since there is no amount taxable as royalties under Article 12(3)(a) in this case, the IT Support service charges, as a natural corollary, cannot be brought within the purview of Article 12(4)(a) of the DTAA. Do IT Support charges fall under Article 12(4)(b)? - From the description of services, it is graphically apparent that the assessee has been called upon to perform sizing review for new integrations and new lines of businesses; assisting Customer Operations team to perform Remedy operations; reviewing application performance and health check; quarterly review of activities undertaken. Further, the assessee was asked to deploy two persons for rendering on-site services. Judicially settled meaning of the term `make available has been incorporated in para 4(b) of Article 12 of the DTAA itself, which opens with making available technical knowledge etc. and culminates with: which enables the person acquiring the services to apply the technology contained therein . On going through the nature of services dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if viewed independent of software license income, is not chargeable to tax. The impugned order is, ergo, overturned and the addition and odd is directed to be deleted. Assessee appeal allowed. - ITA No.97/PUN/2022 - - - Dated:- 15-7-2022 - Shri R.S. Syal, Vice President And Shri Partha Sarathi Chaudhury, Judicial Member For the Assessee : Shri Farrokh V Irani For the Revenue : Shri Shishir Srivastava ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 06-12-2021 passed by the Assessing Officer (AO) u/s.143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) in relation to the assessment year 2018-19. 2. The only effective ground raised in this appeal is against treating receipt of Rs.42,42,96,498/- from Support and Maintenance Services rendered in relation to software sold as chargeable to tax as Fees for Technical Services (in short FTS ) under the Act and also India-Singapore Double Taxation Avoidance Agreement (DTAA). 3. Succinctly, the facts of the case are that the assessee is a tax resident of Singapore engaged in selling Software products to end-users ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to the effect that these were governed by Article 12(4)(a) of the DTAA. The DRP held that the IT Support charges were chargeable as Fees for technical services under the DTAA. Giving effect to the directions of the DRP, the AO passed the impugned order including IT Support service charges of Rs.42.42 crore in the total income. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. It is overt from the factual panorama that income from sale of software has been immuned from the tax-net primarily on the ground that no copyright was provided by the assessee to its customers. The issue under consideration is qua the income from IT Support services. At the outset, it has been fairly admitted on behalf of the assessee that the amount under consideration is chargeable to tax under the Act, but the protection is sought under the DTAA. The stand of the assessee has been that the said amount is in lieu of providing technical knowledge and experience etc. and since such services were not made available to the customers, it was not chargeable to tax in terms of Article 12(4)(b) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. .. 6. A cursory look at the above Article transpires that it deals both with royalties and fees for technical services. The terms `Royalties has been defined in para 3 having two clauses. Though the word `or has not been used between the clauses (a) and (b), still the term royalties means consideration received either for the use or right to use of (a) any copyright of a literary, artistic or scientific work etc. or (b) any industrial, commercial or scientific equipment. Both the clauses are independent of each other. A consideration becomes `royalties on satisfaction of the requisite conditions of either of the clauses. The conditions of both the clauses do not require cumulative satisfaction so as to rope in such consideration within the ambit of `royalties . Simply put, if consideration is received for allowing use or right to use copyright in literary, artistic or scientific work etc., it becomes `royalties . There is no requirement that such use or right to use of the software etc. must necessarily be coupled with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or consultancy nature etc., if such services are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the payment described in para 3 is received. The DRP held that income from sale of software does not fall under Article 12(3)(a) and hence not chargeable to tax. Now the moot question is whether IT Support service charges in relation to the software sold will still constitute FTS under para 4(a) of Article 12 of the DTAA? 9.2. The writ of Article 12(3)(a) extends to treating consideration for use or right to use any copyright of literary, artistic, scientific work etc. as `Royalties . Para 4(a) provides that the FTS means any consideration for services which are ancillary and subsidiary to the application or enjoyment of right, etc. for which payment described in para 3 is received. Thus, it is evident, in order an income to fall under para 4(a), it is necessary that there should be some amount falling in para 3(a) and the income as per para 4(a) should be for services ancillary to the enjoyment of the right property etc., ` for which a payment described in paragraph 3 is received . If there is no amount falling in para 3(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices rendered to Bharati Airtel Ltd., Gurgaon. Para 4.3 of the remand report provides that the: Customer has requested BMC to provide the following services, as time permits, to assist the Customer with the following activities : On the existing 8.1 system Performing a sizing review for new integrations and new lines of businesses being added to the platform and provide recommendations on the existing Remedy 8.1 system to achieve high availability of up to 99.99% Assisting Customer Operations team to perform Remedy operations management tasks to provide consistent user experience and stability. Be a member of the Customer team providing level 3 support. On the new 9.1 system Performing configuration and enhancements on the Remedy platform. Best practices technical advisory, configuration, documentations, integration of Remedy with other systems based on Customer use cases and requirements. Assisting Customer Operations team to perform Remedy operations management incident management, bug fixing, patch updates and deployment of major software releases. Be a member of the Customer team providing level 3 support. Review application per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Service will activate the BMC remedy on Demand solution as part of the BMC Remedy on Demand subscription service, and enable the customers to leverage the features of the BMC Remedy on Demand solution. The process includes activities that provide system access and basic configuration to enable the service. The process is administered remotely and when completed an email with credentials and general information on accessing and using the service will be sent to the Customer contact. Scope of Service Included : Provision Environments provision three (3) BMC Remedy on Demand environments. 10.5. Next is the Agreement with Cap Gemini, which states that the `Services shall mean facilities management, service bureau, outsourcing, application management and development, or any other information processing or related services. 10.6. On an overview of the nature of foregoing services rendered by the assessee to its customers, it is absolutely clear that these are in the realm of attending to the Customers requirements by performing sizing review for new integrations and new lines of businesses and also providing level 3 support along with reviewing applications performanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee, with the provision of IT Support services, did not make available any technical knowledge, experience or skill etc. to its customers to apply in future. Ex consequenti, receipt for IT Support services does not become FTS under this provision as well. 11. Once it is held that the amount received by the assessee for providing the IT Support services does not fall under para 4(a) and also misses the prescription of para 4(b), the same ceases to be FTS. The same way in which income from sale of software license in the present case broadly falls under para 3(a) of Article 12 but has been held by the DRP to not satisfy the condition of taxability, income from Support and Maintenance charges of the licensed software also largely fall under para 4(a b) but fail to magnetize taxability within its purview. 12. The DRP has arrived at the conclusion of taxability of IT Support service charges as FTS by distinguishing the earlier years tribunal orders. It held that the Tribunal did not separately examine the nature of Support services charges de hors receipts on account of software licenses and proceeded to treat both as software royalty. Firstly, the DRP in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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