TMI Blog2023 (8) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee during the current Assessment Year. Without going into merits of the findings of the DRP, we observe that DRP has come to the conclusion on their own analysis that the case of the assessee falls under FTS. We observe that while passing the final Assessment Order AO has not followed the directions of the DRP and passed his own Assessment Order by merely reproducing his analysis in draft Assessment Order. Final Assessment Order passed by the AO is not as per section 144C(13) - AO has filed a note in support of his final Assessment Order in which he has made submissions that the order passed by him is analyzing the various issue which are without prejudice views which Ld. DRP has not rejected. He is of the view that the final Assessment Order passed by him is as per section 144C(13). AO has not followed the directions of the DRP and the directions of the Ld. DRP are very clear and AO has not bothered to atleast classify the income earned by the assessee under the head FTS as per the directions of the Ld. DRP and royalty. He proceeded to complete the final Assessment Order based on his own analysis made by him in draft Assessment Order which is clearly a violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 comprises of four components which is tabulated as under: Sr. No. Nature of Income Amount (in Rs. ) 1. Software licenses 2,44,86,771 2. Support Services 36,37,596 3. Hardware 7,43,728 4. Freight expenses 19,693 Total 2,88,87,787 4. The learned Deputy Commissioner erred in not appreciating the fact that the income earned by the appellant towards software license amounting to Rs. 2,44,86,771 is not taxable as royalty under Article 12 of the India-Sweden Tax Treaty. 5. The learned Deputy Commissioner erred in not appreciating the fact that the income earned by the appellant towards provision of support services amounting to Rs. 36,37,596 is not taxable as fees for technical services (FTS) as per Article 12 of the India-Sweden Tax Treaty r.w. the Most Favored Nation (MFN) clause as contained in the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble DRP is purely surmise and conjecture and is not based on any material on record. Levy of surcharge and education cess 15. The learned Deputy Commissioner erred in levying surcharge and education cess on the tax payable on income chargeable to tax at the rate of 10% as per Article 12(2) of the India-Sweden Tax Treaty. Interest under section 234B 16. The learned Deputy Commissioner erred in levying interest of Rs. 1,84,460 under section 234B of the Act. Interest under section 234D 17. The learned AO erred in levying interest under section 234D of the Act. Interest under section 244A 18. The learned AO erred in not correctly granting the interest under section 244A of the Act. Penalty Proceedings 19. The learned Deputy Commissioner erred in initiating penalty proceedings under section 274 read with section 270A of the Act. General 20. Each of the above grounds of appeal is independent and without prejudice to the other grounds of appeal preferred by the appellant. 21. The Appellant prays for leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware directly purchased by Indian end-users from foreign suppliers/ manufacturers; 2. Computer software purchased by Indian distributors/ resellers from foreign suppliers; 3. Computer software purchased by foreign distributors/ resellers from foreign suppliers for resale/distribution in India to Indian distributors/ end-users; and 4. Computer software, embedded in the hardware and sold by foreign suppliers to Indian distributors/ end users as a bundled software. 8. The assessee submitted that IAR Systems holds the copyright, trade secrets, and any other intellectual property rights which subsist in the Licensed Product and all copies thereof. No title or other rights in the Licensed Product shall pass to the Licensee and further submitted that IAR is only providing support services, error analysis, error resolution, updates to newer releases. Therefore, the assessee submits that the support services provided by it do not make available any technology or technical skills to third party distributors and / or end users. In view of this, the services provided by IAR do not fall within the ambit of FTS under the Article 12 of the India-Sweden Tax Treaty and further, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 25 November 2020 in the paperbook filed before the Hon'ble Panel. The assessee now encloses the said letter dated 25 November 2020 as Annexure 1. Further, while passing the Draft Assessment Order dated 22 April 2021 for the captioned AY 2018-19. the learned Assessing Officer has inter-alia reproduced the submission dated 22 March 2021 filed by the assessee (on page 02 to 13 of the DRP set filed) but has not given any finding with respect to the income earned by the assessee from provision of support services and instead taxed the entire receipts receipt of Rs. 2,88,87,787/- earned during the year as Royalty without appreciating the fact the provision for support services can by no stretch of imagination be taxable as Royalty . In this connection, the assessee submits a statement giving details of the breakup of the income earned by the assessee during the previous year relevant to AY 2018-19 and the copy of the support and update agreement at Annexure 2 and Annexure 3 respectively to enable the Hon'ble Panel to appreciate the facts of the case and decide the matter. 11. After accepting the above additional evidences, Ld. DRP remitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Emerson Innovation Center - Pune - 397,811 - - 397,811 11 Robert Bosch Engineering Business Solutions Ltd 4,905,223 158,147 - - 5,063,370 12 Analog Devices India Pvt Ltd 61,455 - 61,455 13 Valeo India Pravate Limited 319,202 244,778 563,980 14 Knorr-Bremse Technology Center India Private Ltd 230,720 - 230,720 15 Xylem Water Solutions India Pvt. Ltd. 225,780 - 225,780 Total income 24,486,771 3,637,596 743,728 19,693 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes that the Ld. DRP has upheld the findings of the Assessing Officer and has categorically rejected all the objections of the Assessee. 10.2 Further, the Assessing Officer in the final Assessment Order dated 31.01.2022 has noted the findings of the Ld. DRP in the directions dated 27.01.2022 in which the Ld. DRP has rejected all the four objections of the assessee. The Assessing Officer has noted that he is passing the Final Assessment Order on the directions of the Ld. DRP and has nowhere refuted the findings of the Ld. DRP. Therefore, it cannot be said that the Assessing Officer has not followed the directions of the Ld. DRP 10.3 Therefore, it is to be seen that the Assessing Officer has taken three views in the Draft Assessment Order. He has discussed his primary view that software copy obtained on license is for use for the copy right and therefore the consideration for the use of software has to be taxed as Royalty in detail. The Assessing Officer has also mentioned a Without prejudice view that the software is a secret process which is used in the data processing and the payment is made for using the secret process and hence the payment should be considered as Roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance, in Para 10.14 Ld. DRP has noted that, Thus, issuance of notification is part of legislative requirement to implement a DTAA, which has not been done so far to import restrictive scope of FTS/FIS (from other DTAAS) or to apply a lower rate of taxation for royalty. Similarly in Para 10.16, the Ld. DRP has observed that It is thus important to issue notification to make the provision of FTS (Fees for Technical Services) clear or to import a lower rate of taxation of royalty if the Government intends to import the provision relating to FTS/FIS of other treaties or the lower rate of taxation of royalty in other treaties Therefore, it can be seen that the Ld. DRP has taken both the views in parallel and not mutually exclusive to each other. 10.6 Additionally, it is to be mentioned that the Hon'ble Bombay High Court, in Vodafone India Services (P) Ltd., Vs. Union of India (361 ITR 531), paragraph 47, states that the process before the DRP is a continuation of assessment proceedings and in view of the same, it is to be seen that the views taken by the Assessing Officer and the Ld. DRP are to be read in conjunction with each other as neither have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue on record and also relying on various case laws held that the receipts of income by the assessee are taxable under the head Royalty and in objection filed by the assessee before Ld. DRP and Ld. DRP has held that the above receipts received by the assessee is involvement of support services to the extent of ₹.36,37,596/- and other portion of the income includes sale of software and hardware. Without going into merits of the findings of the Ld. DRP, we observe that Ld. DRP has come to the conclusion on their own analysis that the case of the assessee falls under FTS. We observe that while passing the final Assessment Order Assessing Officer has not followed the directions of the Ld. DRP and passed his own Assessment Order by merely reproducing his analysis in draft Assessment Order. 19. From the record we observe that the final Assessment Order passed by the Assessing Officer is not as per section 144C(13) of the Act. However, Assessing Officer has filed a note in support of his final Assessment Order in which he has made submissions that the order passed by him is analyzing the various issue which are without prejudice views which Ld. DRP has not rejected. He i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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