TMI Blog2020 (3) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 5 and 6 of the present appeal are identical to the assessee s appeal for the AY 2015-16 [ 2020 (1) TMI 649 - ITAT MUMBAI ] and the coordinate Bench has decided the said issue in favour of the assessee by following the decision of the Tribunal in assessee s own appeals pertaining to the earlier assessment years. - ITA No. 6638/MUM/2019 - - - Dated:- 6-3-2020 - Shri Pramod Kumar (VP) And Shri Ram Lal Negi (JM) For the Assessee : Shri Madhur Agarwal (AR). For the Revenue : Shri V. Sreekar (CIT DR). ORDER PER RAM LAL NEGI, JM This appeal has been filed by the assessee against the order dated 22.08.2019 passed by the Assistant Commissioner of Income Tax (AO) u/s 143 (3) r.w.s. 144C (13) of Act, in pursuance of directions issued by the Ld. Dispute Resolution Panel (for short the DRP)-2, Mumbai, pertaining to the assessment year 2016-17. 2. The assessee has challenged the impugned order by raising the following effective grounds: General On the facts and circumstances of the case and in law, the learned AO based on the directions of the Hon ble DRP: 1. Erred in assessing the total income at Rs. 2,29,87,71,627/- as against Rs. NIL t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submitted that since the Tribunal has decided the identical issue in favour of the assessee and since there is no change in the facts of the present case, the findings of the AO may be set aside and these grounds of appeal may be allowed. Subsequently, the assessee placed on record the copy of order dated 10.01.2020 passed by the I Bench of the Tribunal in assessee s appeal ITA No. 7283/Mum/2018 for the AY 2015-16, in which the Tribunal has decided the identical issues in favour of the assessee by following the decisions rendered by the Tribunal in assessee s appeal pertaining to the earlier assessment years. 4. The Ld. Departmental Representative (DR) fairly admitted that the issues raised by the assessee vide Ground No. 3 and 4 are covered by the decisions of the ITAT, Mumbai in assessee s own case for the AYs 2012-13 , 2013-14, 2014-15. However, the Ld. DR supported the order passed by the Ld. AO in pursuance of the directions issued by the Ld. DRP. 5. We have heard the rival submissions and perused the material on record including the orders passed by the coordinate Bench in the assessee s own appeals pertaining to earlier years. As pointed out by the Ld. counsel, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. From the plain reading of the article it can be inferred that, it refers to payments of any kind received as a consideration for the use of, or the right to use any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Thus, in order to tax the payment in question as royalty , it is sine qua non that the said payment must fall within the ambit and scope of Para4 of Article 12. The main emphasis on the payment constituting royalty in Para4 is for a consideration for the use of or the right to use any copyright.......... The key phrases are for the use or the right to use any copyright of ; any patent......., or process , or for information........., ; or scientific experience , etc., are important parameter for treating a transaction in the nature of royalty . If the payment doesn t fit within these parameters then it doesn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ammes where the programme itself is not the essential object of the rental. (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv); (d) In the case of cinematograph film, - (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public; (e) In the case of sound recording, - (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote of this fact and also analysed the payment of software within the ambit of royalty as defined under Article 12 of the India US Treaty. The relevant observation and finding of the Hon ble High Court is as under: 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/ transferor who divests himself of the rights he possesses pro-tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his 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. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereof for the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97. 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. 98. We are not in agreement with the decision of the Andhra Pradesh High Court in the case of SAMSUNG ELECTRONICS CO. LTD (SUPRA) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator did not acquire any of the copyrights referred to in Section 14 (b) of the Copyright Act, 1957. 55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Income -Tax Act or under the DTAA. We have to keep in mind what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in holding that it was not permissible for the Revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an integral part thereof. On these facts, it would be useful to refer to the judgment of the Supreme Court in TAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court in its latest judgment in the case of DIT vs. New Skies Satellite, reported in [2016] 95 CCH 0032, wherein their Lordships shave discussed the issue threadbare and came to the conclusion in the following manner:- 60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement . The aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court wherein this issue has been discussed in detail, therefore, the appeal for A.Y. 2008-09 of the assessee is allowed. 6. Similarly, the Tribunal decided this issue in favour of the assessee for the A.Y. 2009-10 to 2014-15 by various orders and for the A.Y.2012-13 in ITA. No. 2192/Mum/2017 dated 24.10.2018. No distinguishing facts have been brought to our notice. Therefore, facts being identical respectfully following the said decisions, we allow Ground Nos. 3 and 4 of the grounds of appeal of the assessee. 6. The coordinate Bench has decided the identical issue in favour of the assessee in assessee s appeals pertaining to the earlier assessment years including the assessment year 2015-16 discussed above. Since, there is no change in the facts of the present case, we respectfully following the decision of the coordinate Bench rendered in the assessee s appeal ITA No. 7283/Mum/2018 for the AY 2015-16 and the decisions rendered in earlier assessment years, we set aside the findings of the Ld. AO and allow Ground No. 3 and 4 of appeal of the assessee. 7. Similarly, the Ld. counsel for the assessee submitted that Ground No. 5 and 6 of the present appeal are covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue common issue in both the appeals of assessee is as regards to taxability of payment received by assessee from IT support services which constitutes Fees for Technical Services ('FTS') and royalty under the India Netherlands Treaty DTAA. For this Assessee has raised following ground:- Payments towards IT Support fees held in be Fees for Technical Services 'FTS') and royalty. 4. Erred in holding that payments received by the Appellant for IT support DTAA. 5. Failed to appreciate that IT support services do not 'make available any technical knowledge, skill, experience etc.to the services recipient under Article 12 of the India-Netherlands DTAA and hence not subject to tax in India. 6. Erred in alternatively holding that the receipt from IT - support services qualify as Royalty' under the IndiaNetherlands DTAA. 8. The facts and circumstances are exactly identical in both the AYrs i.e. 2009-10 and 2010-11 and also the grounds raised are identically worded hence, we will take- the facts from 2009-10. 9. The learned Counsel for the assessee, first of all, took us through the findings of the DRP on the issue which is recorded in Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an enduring nature and has a direct nexus with the assessees business. 5.3.2 considering the above factual and leg matrix we are of the opinion that the action of the AO in treating the above receipt is fee for technical services does not require any interference The alternate arguments on taxability of the receipt as royalty do not require any direction from the penal as we have already upheld the taxability of the services as fees for included service . 10. The learned Counsel for the assessee explained the facts that the SITI BV is a company registered in the Netherlands. SIT! BV is in the business of providing information technology (IT') support services. During the financial year ended 31.03.2006 SIT! BV provided IT (mobile office) support services, IT helpdesk and network infrastructure related services to: Indian customers. SITI BV is a tax resident of the Netherland and is eligible to claim benefits under the Double Taxation Avoidance Agreement entered into between India and The Netherlands. He explained that SITI BV is in the business of providing information technology support services SITI BV typically, provides helpdesk services-and network infrastruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the use, or the right to use, any copyright of literacy, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.' 12. From the above, it is clear that SITI BV is engaged in providing IT services to Indian entities but does not provide any right to use any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Even under the agreements entered into with WIPRO and IBM, SITI BV only provides them access to the software i.e. computer Programme. SITI BV does not provide them the right to use the copyright embedded in the software. In other words, WIPRO, IBM are not permitted to make copies and sell the software. Under the Services Agreements, WIPRO and IBM-have been granted the mere under the right in the copyrighted software and not the right of, use of copyright'. Whereas use of copyright' encompasses exploitation of the rights embedded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10% of the gross amount of such royalties and fees for technical services. 3** ** ** (4) For the purpose of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received, or Make available technical knowledge, experience. skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 of this Article shall not include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B Boda reinsurance (Broker) Pvt. Ltd of Mumbai and that J B. Boda was duly licenced by the Insurance Regulatory Development Authority to transact reinsurance business in India 11 The Tribunal also observed as under. 27. In the illustrative transaction, New India Insurance Co. Ltd in India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (Lloyd's processing market) for signing. The assessee will act as a claim administrator and Will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the reinsurance process. 12. Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as 'fees for technical services'. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the make available clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case. 13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such no substantial question of law arises for our consideration. The appeal is dismissed. There shall be. no order as to costs. 13. Further, the learned Counsel for the assessee stated that the reliance placed by DRP in Arevay T and D India Limited of Perfeti Van Melle Holdings B.V. In re [2011] 16 taxmann.com 207 (AAR - New Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in assessee s own appeals for the A.Y. 2009-10 and 2010-11 referred above, we respectfully following the order of the co-ordinate Bench allow Ground No. 5, 6 and 7 of this appeal. 10. Facts being identical, respectfully following the said decision of the Tribunal we allow Ground Nos. 5 and 6 of the assessee. 11. In so far as Ground No.2 is concerned the Ld. Counsel for the assessee submitted that since it was held in favour of the assessee on Royalty and FTS ground, the ground raised by the assessee in respect of receipts towards access to use software and IT support services does not constitute income may be kept open. Accordingly, this ground is kept open which may be contested as and when the situation arises. 12. The rest of the grounds are only consequential in nature and the same are restored to the file of the Assessing Officer for adjudication in accordance with law. 10. The coordinate Bench has decided the identical issue in favour of the assessee in assessee s own appeal ITA No. 7283/Mum/2018 AY 2015-16 by following the decisions of the coordinate Benches rendered in assessee s own appeals pertaining to the AY 2011-12 to 2014-15 and AY 2 ..... 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