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2022 (1) TMI 281 - ITAT PUNEAccrual of income in India - Royalty / FTS - tax receipt towards software license fees as 'Royalty' within the meaning of Article 12 of the India- Netherlands Double Taxation Avoidance Agreement - distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles - Right to use a copyrighted article or product with the owner retaining his copyright - HELD THAT:- The appellant company granted the software license fee on non-exclusive non-transferable basis during the license term. The subject software is standard software not customised software. The title, the ownership and all rights in patents, copyrights and trade secrets and other software contained does not get transferred to the customer. The Courts as well as OECD commentary on Article 12 of the DTAA recognized the distinction between “copyrighted article” and “copyright right” in the programme and software which incorporates a copy of the copyrighted programme. Any payment made for acquisition of copy of the software is held not to be Royalty. Thus as relying on ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED [2021 (3) TMI 138 - SUPREME COURT] we hold that fee for grant of software license cannot be taxed in India. Since we have held that the subject transaction of receipt of consideration for grant of software license held not to be Royalty under the provisions of Income Tax Act, 1961, the question of considering under the provisions as per DTAA between India and Netherland does not arise. Thus, ground of appeal No.1 filed by the assessee stands allowed. Bring to tax software maintenance fee and consulting service fee and training fees as Fees for Technical services within the meaning of Article 12(5)(a) of the India and Netherland treaty - DRP held that the receipts of assessee from the software maintenance, consulting services and training fees are chargeable to tax as Fees for Technical services as per Article 12 (5)(a) of India and Netherland treaty - HELD THAT:- Clause 5 of Article 12 defines “fees for technical services” to mean the payment of any kind to any person in consideration of rendering any technical or consultancy services that are ancillary and subsidiary to application of enjoyment of the right, any copyright information described in clause 4 which deals with the payment made towards Royalties. DRP gave a finding that the software maintenance, consultation charges and training fees are in connection with the receipt of consultation towards software license fee. This finding of the DRP is not under challenge before us. Therefore, the software maintenance fees, consulting charges and training fees which are incidental to software license fee, assumes same character as that of software license fee. Even the software maintenance, consulting charges and training fees which are incidental to software maintenance fee cannot come within the purview of FTS within clause 5 of Article 12 of the treaty. Our view is fortified by the judgment of Hon’ble Delhi High Court in the case of Datamine International Ltd. [2016 (3) TMI 540 - ITAT DELHI]. We, therefore, we hold that software maintenance fees, consultancy services fees and training services fees cannot be held to be “Fees for Technical services”. Thus, grounds of appeal no. 2 to 4 stands allowed Short credit of deduction of tax at source - HELD THAT:- This ground of appeal is restored to the file of AO with a direction to allow tax as per the information contained in Form No.26AS. Thus, grounds of appeal is allowed for statistical purposes.
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