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TMI Blog2025 (3) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... ount from the said two Indian companies which are detailed as under: 4. Indian companies/ AEs, on the above payments to the assessee company deducted withholding tax. The assessee in the return filed offered income on account of the above receipts except the receipt of GIS Charges (Software License Payment). 5. The assessee contended that it purchases various types of software products like Civil-3D, Navisworks, Microsoft office products etc. from third party venders for the usage of group companies globally. The cost of purchases of such software and their maintenance charges were reimbursed by the group entities on cost-to-cost basis without any element of profit and the same accounted as GIS Charges. The assessee accordingly claimed that such receipt is not chargeable to tax. 6. The AO during the assessment proceeding found that the assessee's claim of cost allocation on a pure cost-to-cost basis lacked supporting evidence and a clear formula for allocation. The assessee asserted that costs were allocated based on software usage by employees, but no verifiable details, such as a proper break-up of expenses or internal records, were provided. The AO noted that while debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for services. 6.5 Furthermore, the AO rejected the assessee's argument that the services did not involve a "make available" clause, as the expertise and processes were effectively imparted to Indian entities for achieving efficiency. Consequently, the AO concluded that the payments made towards software charges amounting to Rs.38,93,27,712/- were to be taxed as FTS at a 10% rate. The draft assessment order was passed under Section 144C of the Act, allowing the assessee to file objections with the Dispute Resolution Panel if desired. 7. The assessee preferred to file objection before the learned DRP. The assessee argued before the learned DRP that the GIS charges levied on Atkins India and Confluence Project Management Private Ltd. (CPMPL) were on a cost-to-cost basis without any profit element and, therefore, not taxable. It contended that no services were rendered in connection with the reimbursement of software license costs and that no training services were provided by Atkins UK to the Indian entities concerning the software cost recharge. 7.1 Further, the assessee claimed that since the term "managerial services" is not included in the definition of Fees for Technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services provided by the assessee involved both technical and managerial skills. The Panel concurred with the AO's view that the "make available" clause was satisfied, as the services rendered resulted in the transfer of technical knowledge, experience, skill, and processes to Indian entities. In conclusion, the DRP confirmed the decision of the AO, holding that the payments were taxable as FTS. Consequently, the assessee's objections were dismissed. 9. Being aggrieved by the order of ld. DCIT/ DRP, the assessee is in appeal before us. 10. The learned AR before us filed a paper book running from pages 1 to 294 and case law compilation having pages from 295 to 567 and contended that the agreement between the assessee and its subsidiaries was made for indefinite period of time, placed on pages 188 to 198 of the paper book, which evidences that there was no transfer of technology by the assessee to its associated companies. The assessee has been receiving the payment in dispute from the associated enterprises in the earlier and later years which was also accepted by the revenue. 10.1 The learned AR further submitted that it has received the payment against the supply of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Indian entities. 12.1 We are further of the opinion that the deduction of TDS by the Indian AEs at DTAA rates does not automatically classify the payments as FTS. TDS deduction is a procedural compliance, and the underlying nature of the transaction must be examined to determine taxability. In the present case, there is no element of technical or managerial service in the reimbursement of software license costs. 12.2 We also note that the payments in question were for software licenses procured for group use, and even if a markup was applied, the nature of the receipts remains that of a business transaction rather than FTS. The assessee has not provided any specialized services beyond cost allocation. Therefore, the taxation of such receipts should be examined under business income principles rather than FTS. The Hon'ble Supreme Court ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. vs CIT in Civil appeal no. 8734 of 2018 clarifies that payments for software licenses should not be treated as royalty. Similarly, we find that the reimbursement of software license costs does not constitute FTS, as no technical services were rendered. The AO and DRP have erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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