TMI Blog2023 (11) TMI 1102X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of which, the Indian subsidiary provides certain back office support services to the assessee and gets remunerated at cost plus 15% mark-up. A reading of the draft assessment order certainly gives an impression that the AO has mixed up both the transactions and under a misconceived notation that the assessee has received markup over the cost of software, has proceeded to treat the receipts as royalty. Neither the Departmental Authorities have brought on record any material to establish that the reimbursement of cost to the assessee is inclusive of markup, nor at the time of hearing before us ,DR could place any evidence on record to demonstrate that the reimbursement of cost includes element of markup. Therefore, in our view, the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , CIT(DR) ORDER Captioned appeal has been filed by the assessee challenging the final assessment order dated 28.04.2023 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (in short the Act ), pertaining to assessment year 2020-21, in pursuance to directions of learned Dispute Resolution Panel (DRP). 2. The only dispute arising in the present appeal relates to addition of reimbursement of expenses from the India subsidiaries as royalty. 3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in United States of America ( USA ) and a tax resident of USA. As stated by the Assessing Officer, the assessee is engaged in providing translation and localization solution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the software licences provided to the Indian subsidiary and the other transactions with the Indian subsidiary. In response to the query raised, the assessee furnished certain details before the Assessing Officer and reiterated its stand that cost-to-cost reimbursement of software license expenses is not taxable in India. After verifying the details furnished by the assessee and the submissions made, the Assessing Officer, ultimately, concluded that assessee s claim that the receipts are cost-to-cost reimbursement of software licence expenses is unacceptable, since, as per the agreement, the assessee has received markup of 16.87%. Accordingly, he treated the receipts on account of reimbursement of cost of software licences as royalty incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ixing up facts relating to back office support service agreement with the Indian subsidiaries, has erroneously concluded that the assessee has charged a markup of 16.87 %, which is contrary to the materials on record. 7. Without prejudice, he submitted that what the assessee has given to the subsidiaries, including the Indian entity is shrink- wrapped software licences purchased from third party vendors, wherein, the assessee has no intellectual property rights ( IPR ). He submitted, the third party vendors are the actual owner of the copyright in the software and that has not been transferred to the assessee. He submitted, when the assessee itself is not having ownership over the copyright in the software, there is no question of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at cost plus 15% mark-up. A reading of the draft assessment order certainly gives an impression that the Assessing Officer has mixed up both the transactions and under a misconceived notation that the assessee has received markup over the cost of software, has proceeded to treat the receipts as royalty. However, neither the Departmental Authorities have brought on record any material to establish that the reimbursement of cost to the assessee is inclusive of markup, nor at the time of hearing before us, learned Departmental Representative could place any evidence on record to demonstrate that the reimbursement of cost includes element of markup. Therefore, in our view, the cost-to-cost reimbursement of price paid towards software cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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