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2017 (3) TMI 1742 - AT - Income TaxRoyalty receipt - License fee for the use of customized software received by the assessee from its affiliate concern - DTAA between India and Sweden - income accrued and taxable in India - services rendered by assessee company to its Indian group companies - HELD THAT - Assessee is providing IT support and advisory services for solving IT related problems by its users and various application softwares. In order to qualify the payment as Royalty it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literacy artistic or scientific work. Further in order to meet the consideration paid by the licencee as royalty it is to be established that the licencee by making such payments has obtained all or any of the copyright rights. The assessee has not made available any technical knowledge or expertise to the recipient Indian company. In our opinion the assessee has only provided the back-up services and IT support services for solving IT related problems to its Indian subsidiary. Hence unless and until the services are not made available same cannot be taxable in India The issue is identical to that of Sandvik Australia Pty. Ltd. 2013 (4) TMI 643 - ITAT PUNE . We therefore following the aforesaid decision and INFRASOFT LTD. 2013 (11) TMI 1382 - DELHI HIGH COURT held that the amount received by assessee cannot be considered to be royalty or FTS and therefore not taxable in India. We therefore hold accordingly. Thus the grounds of the assessee are allowed.
Issues Involved:
1. Taxability of the fee received by the assessee under the India-Sweden Double Taxation Avoidance Agreement (DTAA). 2. Classification of the fee as 'Royalty' under Article 12 of the India-Sweden DTAA. 3. Determination of whether the fee qualifies as Fee for Technical Service (FTS) under Article 12 of the India-Sweden DTAA. Detailed Analysis: 1. Taxability of the Fee Received by the Assessee: The assessee, a non-resident company incorporated in Sweden, provided IT support services to its affiliate, Sandvik Asia Private Limited, and received a fee of Rs. 5,42,070/-. The assessee claimed the fee was non-taxable in India, arguing it had no Permanent Establishment (PE) in India. The Assessing Officer (AO) disagreed, stating the fee was taxable as 'Royalty' under Article 12 of the India-Sweden DTAA and Section 9(1)(vi) of the Income Tax Act, 1961. The Dispute Resolution Panel (DRP) upheld the AO's decision, leading to the assessee's appeal. 2. Classification of the Fee as 'Royalty': The AO and DRP classified the fee as 'Royalty,' arguing the assessee provided a license to use customized software, which qualifies as royalty under both the Income Tax Act and the India-Sweden DTAA. The DRP noted the assessee maintained an Enterprise Resource Planning (ERP) system, which was essential for managing sales data and devising marketing strategies. The DRP concluded that the payment for the use of this database constituted 'Royalty' as it involved the commercial exploitation of intellectual property. 3. Determination of Fee as Fee for Technical Service (FTS): The assessee contended the fee did not qualify as FTS under Article 12 of the India-Sweden DTAA, as it did not "make available" technical knowledge, skills, or processes to the service recipient. The assessee argued the services were limited to IT support and did not involve the transfer of technical knowledge enabling the recipient to use it independently. The assessee cited the case of its sister concern, Sandvik Australia Pty. Ltd., where the Tribunal held similar services were not taxable in India. Tribunal's Decision: The Tribunal examined the nature of services provided by the assessee, which included IT support and advisory services. It referred to the Delhi High Court's decision in DIT vs. Infrasoft Ltd., which distinguished between royalty paid for copyright rights and consideration for copyrighted articles. The Tribunal concluded the assessee's services did not involve the transfer of copyright or technical knowledge, and the fee was not 'Royalty' or FTS under the DTAA. The Tribunal also relied on its previous decision in Sandvik Australia Pty. Ltd., where it held that similar services were not taxable in India. It emphasized that the services provided by the assessee did not meet the criteria for 'Royalty' or FTS under the DTAA. Conclusion: The Tribunal allowed the assessee's appeal, holding that the fee received was neither 'Royalty' nor FTS and therefore not taxable in India under the India-Sweden DTAA. The decision was pronounced on 24th March 2017.
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