2020 (1) TMI 1177 - AT - Income Tax

Royalty receipt - treatment of amount received by the assessee for providing users a right in off-the- shelf software and use of standard facilities and support services - HELD THAT - Similar issue came up for consideration before the Tribunal in assessee s own case for earlier years. In its order dated 07-08-2019 for the assessment year 2008-09 2019 (8) TMI 1468 - ITAT PUNE the Tribunal, following its earlier orders for the assessment years 2004-05 and 2006-07, has held that such amount cannot be treated as Royalty chargeable to tax. Addition towards reimbursement of cost from Cummins India limited by treating the same as Fees for Technical services (FTS) - AR contended that ample evidence was available to prove the case and one chance be given to the assessee to place on record the necessary evidence to the satisfaction of the AO - HELD THAT - In view of the facts as obtaining in the instant case, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is set-aside and the matter is restored to the file of the AO. We order accordingly and direct him to decide this issue afresh as per law after allowing reasonable opportunity of hearing to the assessee Addition being difference as per Form No.3CEB of Cummins India Limited and the receipt shown by the assessee towards off-the shelf software charges - HELD THAT - We find the assessee showed the receipt from Cummins India Ltd. at a figure lower by ₹ 16,84,833/-. In the absence of the assessee showing any reconciliation of the two amounts, it has to be held that the assessee reflected lower receipt. However, in view of the off the- shelf software receipts and support services charges etc. not chargeable to tax in view of our decision on ground nos. 1 2, we hold that the said sum though includible in the receipts, cannot be charged to tax.

Summary

Issues:
1. Treatment of amount received for providing users a right in off-the-shelf software and standard facilities as 'Royalty'.
2. Addition of reimbursement of cost from Cummins India Limited as 'Fees for Technical services'.
3. Discrepancy in the amount received from Cummins India Limited for off-the-shelf software charges.

Issue 1: The appeal dealt with the treatment of the amount received by the assessee for providing users a right in off-the-shelf software and standard facilities as 'Royalty'. The Assessing Officer taxed this amount as 'Royalty' under the Income-tax Act, which the assessee contested. The Tribunal referred to its earlier orders and held that such amount cannot be treated as 'Royalty' chargeable to tax, following precedent. Therefore, the additions were deleted.

Issue 2: The next issue involved the addition of reimbursement of cost from Cummins India Limited as 'Fees for Technical services'. The assessee received an amount from Cummins India Limited, which was not offered for taxation as it was considered reimbursement of costs. The AO, however, taxed this amount as 'Royalty' or 'Fees for Technical services' under the DTAA. The Tribunal observed that there was a lack of evidence to prove the nature of the amount and decided to set aside the order, directing the AO to decide the issue afresh after allowing the assessee to provide necessary evidence.

Issue 3: The final issue concerned a discrepancy in the amount received from Cummins India Limited for off-the-shelf software charges. The AO noted a variance in the amount shown as received by the assessee compared to the amount reported by Cummins India Limited. The Tribunal found that the assessee had reflected a lower receipt without providing a reconciliation of the amounts. However, considering the previous decision that the off-the-shelf software receipts were not chargeable to tax, the Tribunal held that the amount in question could not be charged to tax. Consequently, the appeal was partly allowed.

In conclusion, the Tribunal's judgment addressed the issues related to the taxation treatment of amounts received by the assessee for software rights and standard facilities, reimbursement of costs, and a discrepancy in reported receipts, providing detailed analysis and decisions on each matter based on legal provisions and precedents.