TMI Blog2023 (4) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... License for usage of the copy righted products are with Microsoft only and the assessee has acquired global right and transferred the above said Licenses to its group entities based on the requirements. Whether this transaction falls under the category of Royalty or FTS is the issue. Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd [ 2021 (3) TMI 138 - SUPREME COURT] held that Microsoft Software products are sold to end users by Microsoft Corporation and whatever the license which are routed through the middle man, the Microsoft does not grant any right or interest, least of all, a right or interest to reproduce the computer software. Further such reproduction is expressly interdicted and expressly stated that no vestige of copyright is at all transferred either to the distributor or to the end user. Therefore, it does not fall in the category of Royalty or copyright. Assessee has acquired the global license and allowed the group entities to use the above Licenses on the basis of requirements, the assessee has billed them according to their usage by properly documenting the usage and charged to them. As held in the decision of Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹.7,55,89,549 from the services rendered to Atos India as under:- (i) Cost recharge of Microsoft license fees (ii) Co-ordination services relating to Tower Watson project. The above services are provided by the assessee in pursuance of the agreements entered with Atos India. 3. The return of income filed by the assessee and however, it has not reported the above receipts and offered to tax. The Assessing Officer observed that taxes are deducted at source at the time of payments. He also observed that as per the 26AS statement, the taxes were deducted on a total receipt of ₹.5,55,75,255 /- @10.55% on an average and the TDS of ₹.58,67,358 was claimed in the return of income as refund. The Assessing Officer observed that since no income was offered to tax, during the assessment proceedings, assessee was asked to explain why the same should not be taxed as royalty and/or Fee for Technical Service (FTS). 4. In reply, assessee submitted that it has received payments from Atos India towards (a) Recharge of costs pertaining to Microsoft licence fees, in this regard, it was informed that Atos group has entered into a central agreement with Microsoft to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 12 of the 'India-USA DTAA' for royalty, FTS and FIS. With regard to that following facts recorded by the Assessing Officer: - (a) Group Atos Origin has become one of the leading European IT companies by 2004 after Atos SA acquired and integrated Sema Group. Origin, and (b) Due to the acquisition and integration that has taken place, the knowhow rights, and experience of the former Atos, Origin, Atos Origin and Sema Groups that have been acquired and developed by them due to their years of operation in the field of Information Technology are provided to the Group companies including Atos India who carry out contract works as a representative of Group Atos Origin. 7. Accordingly, Assessing Officer proposed the addition of ₹.7,55,89,549/- as fees received from Atos India being royalty as well as FTS. 8. Aggrieved assessee filed the objections before DRP and filed the detailed submissions as under: - 3.4.5 From the definition of the term Royalty as provided in Explanation 2 to section 9(1)(vi) of the Act and Article 12(3) of the India-USA DTAA, it is evident that the definition as given in the Acts much wider in scope as compared to the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er directly or with the aid of a machine or device. The copy of the program may be fixed in the magnetic medium of a floppy disk, or in the main memory or hard drive of a computer, or in any other medium. 3.4.8 The assessee would also like to support its above contention by placing reliance on the following decisions: Baan Global B.V. [2016] (ITA No. 7048/M/2010) (Mum.) Reliance Industries Limited [2016] (ITA No. 2529/M/2008) (Mum.) DIT vs. Ericsson AB [2012] (343 ITR 470) (Del.) DIT v. Nokia Networks OY [TS-700-HC-2012 (Del.)] Infrasoft Ltd. Vs. ADIT [2009] (28 SOT 179) (Del.) Sonata Information Technologies Ltd [2006] (103 ITD 324) (Bang.) Motorola Inc. v. DCIT [2005] (95 ITD 269) (Del.) (SB) Dassault Systems K.K., In Re [2010] (229 CTR 105) (AAR) 3.4.9 As per the assessee, the principle enunciated in the above decisions is that the payment for right to use the software was not for any copyright in the software but only acquisition of the copyrighted article and the same, therefore, could not be considered as Royalty within the meaning as provided in the DTAA. The above propositions also gain support from the Commentaries on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not in the nature of technical or consultancy services. 3.4.15 Without prejudice to the above, it is further claimed that even if the services are considered to be in the nature of technical or consultancy services, the assessee does not make available any skill, know how, technical knowledge, etc. which enables Atos India to apply the technology contained therein on its own. 3.4.16 The assessee has relied on the Memorandum of Understanding (MoU) to the India-USA DTAA to explain Article 12 and its applicability in detail. Relevant paragraphs of this MoU are reproduced below: Paragraph 4 (in general) . Under paragraph 4, technical and consultancy services are considered included services only to the following extent.... (2) as described in paragraph 4(b). if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. .(Emphasis supplied) Paragraph 4(b) ...............Generally speaking, technology will be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een held that payment for services similar to that of the assessee do not fall within the meaning of concept of 'make available under the DTAA: ADIT vs. WNS North America Inc [2013] (ITA No. 2944/Mum/2012) (Mum) Sandvik Australia Pty Ltd Vs DDIT (2013] (141 ITD 598) (Pune) Ernst Young Pvt. Ltd, in Re [2010] (323 ITR 184) (AAR) Endemol India Pvt. Ltd, in Re [2013] 261 CTR 117 (AAR) Bharati AXA General Insurance Co. Ltd, in Re [2010] (326 ITR 477) (AAR) Invensys Systems Inc, in Re [2009] (317 ITR 438) (AAR) 3.4.22 The assessee submits that, in the instant case, the services provided by the assessee to Atos India do not make available technical knowledge, knowhow, experience, etc. Hence, they do not qualify as FIS under Article 12(4) of India-USADTAA. 3.4.23 In light of the above, payments received by the assessee from Atos India are neither in the nature of Royalties or FIS under the Article 12 of the India-USA DTAA. The said payments are in the nature of Business Profits under Article 7 of the India-USA DTAA. Such business profits would have been taxable only if the assessee had a PE in India. Since the assessee did not have PE in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fall under the definition of royalty as per Article 12(3) of the India US DTAA is not found acceptable. Even the reliance placed by the assessee on IRS guidelines of USA is not found relevant as the software have not been sold to Atos India. Same is the situation with reliance placed by the assessee on the decision in the case of Tata Consultancy Services (supra). 3.10.5 The consideration is not found to be with reference to sale of MS licenses. It is noted that the amount clearly falls within the realm of royalty, being an amount charged for access to the software which is being owned and maintained by the assessee company. It is held that the amount represents royalty, both as per Section 9(1)(vi) of the IT Act as well as Article 12(3) of the India US Treaty. 3.10.6 The objection raised by the assessee on this issue is not found to be correct and is dismissed. 3.11 Co-ordination services relating to Tower Watson project: The nature of service has been detailed above. Further, the agreement between the two parties with respect to this service has been examined. The assessee has claimed that the amount has been received for providing a service desk for authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r but only to the extent such license and rights are granted in the Prime Contract if performance of services requests the use of specific software or tools owned by company or its client, subcontractor (a) shall not modify, alter, change, adapt or create derivative works based upon such software and tools, or any part thereof; (b) shall not sell, assign, pledge, sub-license, lease, deliver or otherwise transfer such software and tools and (c) shall not disclose to any third party or permit any third party to have access to, or use or copy such software and tools. 3.11.4 Although the access to the assessee's intellectual property rights is limited to performance of the service with reference to contract with Tower Watson, it is admittedly utilised for the purpose of the Atos India's business. The fact remains that Atos India has been allowed use of the intellectual properties of the assessee company for its own business activities and such intangibles are clearly in the nature of copyright of scientific work or patent, trademark, design, model, plan, secret formula or process, or information concerning industrial, commercial or scientific experience . 3.11.5 It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T held the payment to be fee for technical service in terms of India UK DTAA wherein the requirement of make available was satisfied. The Bench held that; In the instant case the assessee has hired for conducting research in respect of the appropriate structure for the IPL and makes recommendation to BCCI accordingly. It is required to provide the Constitution of the IPL, the authority of the governing Council, the structure of IPL, tournament rules and regulation, the franchisee tender document, the franchisee agreement, necessary franchisee regulation and the IP implementation budget. According to the agreement the intellectual property rights remains with the board of control for Cricket in India. Even assessee could not point out that why make available test has not been satisfied in this event by providing all the rules and regulations of IPL, standard operating procedures of matches, copies of the franchisee agreement various documentation/contracts etc which shall remain with the BCCI Therefore, in the instant case the BCCI is enabled to absorb and apply the information and the advice provided by the appellant to it for conducting such sporting events. Thus, when all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all the services rendered by Atos US fall within the ambit of Article 12 of th India US DTAA as royalty/fee for technical services and are liable to tax in India. The objection raised by the assessee is not found acceptable and is dismissed. 10. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - 1. That on the facts and in the circumstances of the case and in law, the Learned Deputy Commissioner of Income-tax (International Taxation) 1(1)(2), Mumbai (the Learned AO') and the Dispute Resolution Panel (the DRP) erred in holding the sum of Rs.7.55.89.550 as 'Royalty under Section 9(1)(vi) of the Income-tax Act, 1961 (the Act) and Article 12 of the Double Taxation Avoidance Agreement (the DTAA') entered into between India and France. 2. That on the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in holding the sum of Rs. 7.55.89.550 as 'Fees for Technical Services' under Section 9(1)(vii) of the Act and Article 12 of the DTAA. 3. That on the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in not considering that the sum of Rs. 7.55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 Profile 1 (enterprise desktop) (Users can be assigned in product profiles and they are granted access to the apps and services of the product on which the product profile is based) 3. Visual Studio 3.1 Visual Studio 2010 professional (An integrated development environment which is used to develop computer programs, as well as websites, web apps, web services and mobile apps) 4. Project and Visio 4.1 Project 2010 Pro (A project management software product designed to assist a project manager in developing a schedule, assigning resources to tasks, tracking progress, managing the budget, and analyzing workloads) 4.2 Project 2010 Standard 4.3 Visio 2010 Pro (A software product which helps in creating professional diagrams, flow charts etc.) 4.4 Visio 2010 Standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.5 Article 12(3) of the India-USA DTAA defines the term 'Royaltes' as under: The term royalties as used in this Article means payments of any kind received consideration for the use of, or the right to use: (a) any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 2.6 Article 12(3)(a) brings within the ambit of the definition of royalty, a payment made for the use of or the right to use a 'copyright of a literary, artistic or scientific work. Thus, only those payments th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht Act and does not get the right to reproduce a computer programme and exploit the reproduction by way of sale, transfer, license etc., which is at the heart of the definition of 'copyright' under the Copyright Act. In this bunch of cases, the Hon'ble Supreme Court has taken into consideration the agreement between Microsoft Corporation and an end user for use of Microsoft products and noted as under: 44. (iii) Category 3: The standard-form EULA accompanying Microsoft software products sold to resident Indian end-users by Microsoft Corporation, a non-resident, foreign vendor includes the following terms: 46. When it comes to an end-user who is directly sold the computer programme, such end user can only use it by installing it in the computer hardware owned by the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. 47. In all these cases, the licence that is granted vide the EULA, is not a licence in terms of section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in sections 14(a) and 14(b) of the Copyright Act, but is a licence wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 2.12 As can be seen from the above, the end user license agreement accompanying Microsoft products was subject matter of appeal before the Hon'ble Supreme Court. Further, the appeals before the Supreme Court were also concerned with the India-USA DTAA (kindly refer para 40 of the decision). Therefore, the aforesaid decision is squarely applicable to the facts of the present case. 2.13 Further, attention is also invited to the decision of the Hon'ble Delhi High Court in the case of EY Global Services Ltd. v. ACIT: W.P.(C) Nos. 11957 12003 of 2016, wherein, the fact pattern is similar as that of the Appellant. In this case, a group entity incorporated in the United Kingdom (UK) purchased software from third-party vendors by way of a licence for the use of the same by the member firms of the group. The payment received by the UK company from its members was for the use of computer software loaded on its server by the creation of a standard facility for which access was granted to all the member firms of the group. The UK company had also entered into a contract with the member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down the law for general application. The law, as laid down by the Supreme Court, when applied to facts of the present case, squarely covers the same in favour of the petitioners. . 18. In view of the above, the Impugned Rulings dated 10-8-2016 passed by the learned AAR are set aside and it is held that the payment received by EYGSL (UK) for providing access to computer software to its member firms of EY Network located in India, that is, EYGBS(India), does not amount to 'royalty' liable to be taxed in India under the provisions of the Income-tax Act, 1961 and the India-UK DTAA. 2.14 In view of the above, it is humbly submitted that the amount received towards recharge of costs pertaining to Microsoft License Fee from Atos India should not be treated as royalty/FIS under the India-USA DTAA and the addition made by the Ld. AO in relation thereto deserves to be deleted. 3. Services relating to Tower Watson Project: Facts: 3.1 The Appellant (formerly known as Siemens IT Solutions and Services, Inc.) had entered into a Master Services Agreement as of 01.02.2011 with Towers Watson Pennsylvania Inc. (Tower Watson) for provision of information tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 3.5 As can be seen from the above, in order to attract the taxability of an income under Article 12(4)(b), not only the payment should be in consideration for rendering of technical or consultancy services, but additionally, the services so rendered should also be such that 'make available' technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 3.6 In this regard, attention is invited to the Memorandum of Understanding ( MOU ) entered into by the Indian Government with the Government of the USA in relation to the India-USA DTAA to explain Article 12 and its applicability in detail. Relevant paragraphs of this MoU are reproduced below: Paragraph 4 (in general) .. Under paragraph 4, technical and consultancy services are considered included services only to the following extent. (2) as descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available envisages enduring benefit to the recipient of services and continued dependence by the recipient on services of the service provider may indicate an absence of 'make available. 3.9 In the instant case, the Service Desk provided by the Appellant does not make available any skill, know how, technical knowledge, etc. which enables Atos India or Tower Watson India to apply the technology contained therein on its own and there is continued dependence on the service desk for resolving the incidents/problems. Therefore, the payment received for such services do not qualify as FIS under Article 12(4) of India-USA DTAA. 3.10 In support of the above contentions, the Appellant wishes to place reliance on the decision of Hon'ble Pune Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. v. DDIT: ITA No. 93/PN/2011, wherein the Hon'ble Tribunal held that Information Technology (IT) support services such as help desk, etc. for solving IT related problems provided by an Australian company to its Indian subsidiary had not made available any technical knowledge or expertise to the Indian company and therefore, were not covered by para 12(3)g) of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices relating to Tower Watson Project should not be held to be FIS/royalty under the India-USA DTAA and the addition made in relation thereto deserves to be deleted. 12. On the other hand, Ld.DR opposed the submissions of the Ld. AR of the assessee and he brought to our notice Page No. 160 and 162 of the Paper Book which is copy of the agreements for services rendered by the assessee and he specifically brought to our notice Clause 5.2 of the service agreement. He submitted that it is a service and at the same time he submitted that assessee has not reported these services in 3CB. Further, he brought to our notice agreement relating to service desk services and specifically the Clause 8.4 of the above services and submitted that these are all support services rendered by the assessee to Atos India and prayed that these services are rendered by the assessee which will fall under royalty as well as FTS. Therefore, he relied on the orders passed by the DRP/AO. 13. Considered the rival submissions and material placed on record, we observe that the assessee has provided two services to its subsidiary in India for the execution of sub-contract with Tower Watson India. It is impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther to the distributor or to the end user. Therefore, it does not fall in the category of Royalty or copy right. 15. Further we observe that in the case of EY Global Services Ltd, which is similar to the facts in the case of the Assessee, in which Hon ble High Court has relied upon the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd., v. CIT [125 taxmann.com 42 (SC)]. The decision of the above is reproduced below: 13. A reading of the above judgment would clearly show that for the payment received by EYGSL (UK) from EYGBS (India) to be taxed as royalty , it is essential to show a transfer of copyright in the software to do any of the acts mentioned in section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as royalty . 14. In the present case, the EYGBS (India), in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee to the employees of Tower Watson to monitor the IT related glitch. We observe that as part of the IT services to be provided by the assessee to the Tower Watson Group, inter-alia it covers Atos India to Tower Watson India for dealing with the IT incidents faced by the employees of the Tower Watson. The above said Service Desk is maintained by the assessee in the USA for the entire Tower Watson Group and serves as a single point of Contact to deal with all the incidents, problems and service requests from various group concerns of Tower Watson relating to IT services. The details of services provided are submitted before us at Page No 347 of the paper book. It was submitted before us that the issues are addressed by the respective group concerns, in this case, Atos India and the assessee has not provided or resolved any IT related issues, which gives the impression to attract make available clause. 18. We observe that the assessee has given sub-contract to Atos India of the services to be provided to Tower Watson India, the same is placed in record at Page No.160 of the Paper Book. The revenue has heavily relying on this sub-contract agreement to bring to tax t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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