TMI Blog2024 (2) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... r create derivative works of the licensed software, any updates or any part thereof (as accepted and permitted by EULA). From the relevant clause of EULA extracted above, it is amply clear that the end user has limited right to use the application quite akin to use of licensed software. MG India merely purchases the Software and acts as a reseller and it is for this reason that it is not a party to EULA. This would not in our view characterize the impugned receipts from supply of Software as royalty income. The payments received by the assessee is for the supply of Software which is a standardized / off the shelf software and not for the use of the copyright or imparting information concerning industrial, commercial or scientific experience and thus would not fall within the scope of Article 12(3) of the India-China DTAA to be taxed as royalty income. The impugned receipts would thus partake the character of business income in the hands of the assessee which is not taxable in India in the absence of PE of the assessee in India. Accordingly, ground decided in favour of the assessee. Levy of Interest u/s 234A is levied only in cases where the assessee does not furnish its ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. That on the facts and circumstances of the case and in law, the directions issued by the Ld. Dispute Resolution Panel ('DRP') is non-est and invalid in absence of Document Identification Number ('DIN ), though intimated subsequently. 3.1 That on the facts and circumstances of the case and in law, the final assessment order passed in conformity with invalid directions of DRP is, therefore, invalid and barred by limitation. Without prejudice- Merits 4. That on the facts and circumstances of the case and in law, assessing officer erred in holding that the payment received by the appellant from sale of software to MG Motor India Private Limited ('MG India') is taxable as royalty in India in terms of Article 12(3) of the India-China Double Taxation Avoidance Agreement ('DTAA'). 4.1 That on the facts and circumstances of the case and in law, assessing officer erred in arbitrarily holding that supply of software has resulted in imparting of information concerning technical, industrial, commercial, or scientific knowledge, experience or skill, coded in the form of map, navigation, weather, etc. not appreciating that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee which were duly complied with. During the AY 2020-21, the assessee entered into License Agreement with MG Motor India Private Limited ( MG India ) for granting of licence to incorporate the Intelligent connected vehicle system ( Software ) into head unit (supplied by another company) which is supplied from outside India and get fitted into MG India s car. The assessee received Rs. 18,79,80,556/- from MG India for supply of Software during AY 2020-21 and claimed it as non-taxable under the provisions of India-China DTAA. 4.1 During the assessment proceedings a show cause notice dated 14.03.2022 was issued to the assessee asking to explain why the above receipts may not be treated as royalty income. The assessee filed its response on 17.03.2022 and 21.04.2022 and contended before the Ld. Assessing Officer ( AO ) that: i) the assessee has not transferred the copyright in the software to MG India and the case of the assessee is covered by decision of the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT 432 ITR 471; ii) the assessee has transferred non-exclusive, non-transferrable and restricted rights for software an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation in the nature of industrial, commercial or scientific experience constitutes royalty. iii) The decision of the Supreme Court in the case of Engineering Analysis (supra) is not applicable in the facts of the present case since the issue under consideration relates to imparting of information concerning technical, industrial, commercial or scientific knowledge, experience. 9.1 The Ld. AR submitted that the Ld. AO failed to appreciate that MG India merely purchases the licensed software which are embedded in the head unit and fitted into cars for end use by the buyer of the car. In such cases, EULA is signed with the end user/customer to restrict access to rights in the licence. MG India merely purchases these bundled software and acts as a reseller and for that reason is not a signatory in EULA. The Ld. AR reiterated that this aspect has been examined by the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra) wherein IBM Singapore had signed EULA with end user and not with IBM India, who acted as reseller. (para 12 at page 24 of the Case Law Paper Book referred). 9.2 As regards the allegation made by the Ld. AO in para 9(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntric i.e. they remain same for all cars of a particular model. The assessee has also filed a declaration before the Ld. AO which is on record (pages 27 of the Paper Book) certifying that SOIMT supplies software to MG India. The software gets delivered to hardware supplier and it comes as a part of hardware. There are no services provided by SOIMT and only off the shelf software is provided. 11.1 It is the case of the Revenue that the payment received by the assessee from MGI is royalty income subject to tax in India in terms of Article 12(3) of the India-China DTAA. Article 12(3) of India-China DTAA is reproduced below for ready reference: The term royalties as used in this Article means payment 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 and films or tapes for radio or television broadcasting any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience 11.2 In the given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Further obligations of Party A a) Party A shall at all times store the Licensed Products in a secure manner b) In no event shall Party A make any additions, modifications, adaptations, or other alterations that in any manner materially reduce, impair, or otherwise negatively impact upon the accuracy, completeness, integrity, or safety of the Licensed Products. c) Specifically, in respect of the Software. Party A shall not, except as explicitly permitted under this Agreement i) copy the whole or any part of the System: ii) modify, merge or combine the whole or any part of System with any other software or documentation: iii) assign, license, transfer, sell, lease, rent, charge or otherwise deal in or encumber the System nor use it on behalf of or make available the same to any third party except as otherwise set forth herein, and iv) reverse engineer, disassemble or decompile the whole or any part of the System from object code into source code or make any derivative works from or based upon the System or any part thereof 11. Intellectual Property Rights All Intellectual Property Rights in the Licensed Products shall belong to Party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard/off the shelf software supplied by the assessee to MG India for which the impugned payments are made by MG India. This is also evidenced by a declaration/certificate filed by the assessee wherein it has been specifically certified that the assessee supplies off the shelf software which gets delivered to hardware supplier and comes as a part of hardware without there being any element of provision of services by the assessee to MG India. From the relevant clauses of the License Agreement extracted above, it can be seen that the assessee has granted a non-transferable, non-exclusive, non-assignable license to incorporate the Software into the vehicles manufactured/sold by MG India to the end customers; no rights have been provided to make copies of software products or to modify, merge or combine with other software; no right to change the object code from source code and make any derivative products from that have been provided and the technical documentation for the software remained the property of the assessee and the assessee is responsible for any claims of patent infringement and thus there is no transfer of intellectual property rights. All intellectual property rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he industrial reproduction of a product or process . know-how represents what a manufacturer cannot know from mere examination of the product and mere knowledge of the progress of technique. The information concerning industrial, commercial or scientific experience should have a perpetual or extended use. From the factual and legal scenario and considering the relevant clauses of the License Agreement which specifically provides for supply of software license only, it can be gathered that the assessee has only supplied a standard/off the shelf software to MG India and the assessee has not given any know-how to MG India from which MG India could reproduce the same for its perpetual use as MGI India has to purchase licenses equal to number of cars manufactured by it. It is only the use of Software that is provided on license basis while the source code/algorithm always remains with the assessee only. No adverse material has been brought on record by the Revenue to controvert the above factual and legal position. Further, in our considered opinion, the assessee s contentions finds due support from the decision of the Hon ble Supreme Court in the case of Engineering Analysis Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases where the assessee does not furnish its return of income or furnishes it after the due date prescribed under section 139 of the Act. The facts on record reveal that the assessee filed its return of income within the prescribed (extended) due date applicable to the relevant AY under consideration. Hence we deem it fit and proper to restore this issue to the file of the Ld. AO for verification as to the filing of date of return viz-a-viz the due date of filing of return for the AY 2020-21 in the light of the CBDT circular (supra) and decide it afresh in accordance with law. 15. Ground No. 7 relates to levy of interest of Rs. 6,74,466/- under section 234B of the Act. The Ld. AR drew our attention to the proviso inserted in section 209(1)(d) of the Act by the Finance Act, 2012 w.e.f. 01.04.2012 which is reproduced below:- Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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