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2023 (1) TMI 1304 - AT - Income TaxIncome taxable in India - receipts on account of support and maintenance services to its customers in India - Fees for Technical Services ( FTS ) under the Act and also India-Singapore DTAA - DRP has arrived at the conclusion of taxability of IT Support service charges as FTS by distinguishing the earlier years tribunal orders - HELD THAT - As decided in own case 2022 (7) TMI 744 - ITAT PUNE DRP in the earlier orders did not draw any such distinction and held the entire amount as chargeable to tax as royalty in the light of the decision in Samsung 2011 (10) TMI 195 - KARNATAKA HIGH COURT When the matter came up before the Tribunal, the decision in Engineering Analysis 2021 (3) TMI 138 - SUPREME COURT had been delivered by then, based on which the decision of the AO, treating the composite amount as royalty, was reversed. When neither the AO nor the DRP had treated the two streams of income as separate from each other, having different connotation in terms of the DTAA, there could have been no question of the Tribunal setting up a new case. Be that as it may, we have eloquently discussed the issue above and reached the conclusion that the income from IT Support services, even if viewed independent of software license income, is not chargeable to tax. Decided in favour of assessee.
Issues Involved:
1. Taxability of receipts from support and maintenance services as fees for technical services (FTS) under the India-Singapore DTAA and the Income Tax Act. 2. Validity of assessment proceedings due to the issuance of notice under section 143(2) by the National e-Assessment Centre (NeAC). 3. Erroneous levy of interest under section 234D of the Income Tax Act. 4. Initiation of penalty proceedings under section 274 read with section 270A of the Income Tax Act. Issue-wise Detailed Analysis: I. Taxability of Receipts from Support and Maintenance Services: The primary issue was whether the receipts of INR 43,01,95,843 from support and maintenance services rendered in relation to the sale of software were liable to tax in India as fees for technical services (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA) and the Income Tax Act. The assessee argued that these receipts should not be taxed as FTS since the services did not "make available" any technical knowledge, experience, skill, know-how, or processes to the customers, which is a requirement under Article 12(4)(b) of the DTAA. The Tribunal referred to its earlier decision in the assessee's case for the A.Y. 2018-19, where it was held that the support and maintenance services did not qualify as FTS under the DTAA. The Tribunal reiterated that the services provided were consumed with their provision and did not enable the customers to apply the technology independently in the future. Consequently, the receipts from support and maintenance services were not taxable as FTS under the DTAA. II. Validity of Assessment Proceedings: The assessee challenged the validity of the assessment proceedings on the grounds that the notice under section 143(2) was issued by the National e-Assessment Centre (NeAC), which lacked the authority to do so for cases assigned to the International tax charge. The assessee contended that the notice was invalid as per the order dated 13 August 2020 issued under section 119 of the Act by the Central Board of Direct Taxes (CBDT), which stated that assessment proceedings and orders in cases assigned to International tax charge should not be facilitated through the Faceless Assessment Scheme (FAS) 2019. The Tribunal, however, did not make a definitive ruling on this issue as the primary substantive ground regarding the taxability of receipts was decided in favor of the assessee. The Tribunal kept this issue open subject to all just exceptions. III. Erroneous Levy of Interest under Section 234D: The assessee argued that the additional interest of INR 61,56,107 levied under section 234D of the Act was erroneous as it resulted from unanticipated additions made to the total income due to a difference of opinion. The Tribunal noted that this issue was consequential and did not require separate adjudication since the primary issue of taxability was resolved in favor of the assessee. IV. Initiation of Penalty Proceedings under Section 274 Read with Section 270A: The assessee contended that the initiation of penalty proceedings under section 274 read with section 270A of the Act was erroneous as it was based on the same receipts from support and maintenance services being considered liable to tax in India. The Tribunal observed that this issue was also consequential and did not require separate adjudication in light of the primary issue being decided in favor of the assessee. Conclusion: The Tribunal allowed the assessee's appeal, holding that the receipts from support and maintenance services were not taxable as fees for technical services under the India-Singapore DTAA. The issues regarding the validity of assessment proceedings and the erroneous levy of interest under section 234D, as well as the initiation of penalty proceedings, were deemed consequential and did not require separate adjudication. The Tribunal's decision was pronounced in the open court on 25.01.2023.
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