9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (7) TMI 178 - HC - Income TaxAccrual of income in India - Royalty receipt - consideration received by the Assessee from CPI for the use of the SAP system - first reason given by the ITAT is that the said payment would not amount to equipment royalty and therefore cannot be taxed as royalty under the Act - HELD THAT - In the present case, since, for the Assessment Year 1999-2000, the definition of royalty given in Explanation 2 to Section 9(1)(vi) did not include equipment royalty as Clause (iv a) was inserted into the said Section by the Finance Act 2001 only with effect from 1st April 2002, the Assessee was entitled to opt for taxation under the provisions of the Act. It is undisputed that the provisions of the Act, as far as they are applicable to Assessment Year 1999-2000, did not provide for equipment royalty. In these circumstances, in our view, the ITAT was correct in holding that the said payment of USD 11,80,500/- made by CPI to the Assessee could not have been brought to tax under the Act as equipment royalty. Further, in our view, for the aforesaid reasons, the submissions made by Mr. Suresh Kumar in the context of equipment royalty are totally devoid of merit. Payment made by CPI to the Assessee was not process royalty under Clause (iii) to Explanation 2 to Section 9(1)(vi) - Explanation 6 to Section 9(1)(vi) clarifies that the expression process includes and shall be deemed to have always included transmission by satellite, cable, optic fibre or by any other similar technology, whether or not such process is secret. As rightly submitted by Mr. Pardiwalla, and as rightly held by the ITAT, Explanation 6 includes within the definition of process live transmission of programmes such as channel feed and not access of the SAP system of the Assessee as done by CPI, which is a standard facility provided by the Assessee to CPI, and is used for input of data and generation of reports. In these circumstances, in our view, Explanation 6 also does not take the case of the Revenue any further. We are of the view that the ITAT is correct in holding, on facts, that the payment made by CPI to the Assessee for accessing the SAP system does not amount to process royalty under Section 9(1)(vi) of the Act. Payment made by CPI to the Assessee would also not be covered by Explanation 5 to Section 9(1)(vi) - The amount paid by CPI to the Assessee cannot be considered as royalty under Explanation 5. In the present case, as correctly held by the ITAT, the facts on record show that CPI had been granted a limited access to the SAP system by establishing a communication line at its own cost for use of data available in the SAP system. Hence, payment made by CPI cannot be regarded as payment for use of the system and therefore cannot amount to royalty under the said Explanation 5. The said payment made by CPI to the Assessee cannot be considered as royalty under clause (v) to Explanation 2 to Section 9(1)(vi) - In the present case, the facts on record clearly show that the Assessee has not transferred any right in respect of any copyright of any literary or artistic or scientific work to CPI. As stated earlier, the Assessee has only given access of the SAP system to CPI. Even if Explanation 4 to Section 9(1)(vi) is taken into consideration, the same provides that the transfer of all or any rights in respect of any right, property or information includes, and has always included, transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. For Explanation 4 to apply again there has to be transfer of right to use a computer software. In the present case, the Assessee has not transferred to CPI the right to use any computer software. It has only allowed CPI to access the SAP system. For this reason, on facts, even Explanation 4 is not applicable. ITAT has correctly come to conclusion that clause (v) to Explanation 2 is not applicable in the present case. Whether the consideration received by the Assessee could at all be taxed in India? - Article 5 of the DTAA defines the Permanent Establishment as inter alia a place of management, a branch, an office, a factory, a warehouse, a workshop etc. Based on this definition, the ITAT has come to the conclusion that the Assessee does not have a Permanent Establishment in India. As the Assessee does not have a Permanent Establishment in India, by virtue of the provisions of Article 7 of the DTAA, the payment received by it from CPI, which would be business profit, is not taxable in India. No substantial question of law - Revenue appeal dismissed.
Issues Involved:
1. Taxability of consideration received for the use of the SAP system as "Royalty" under the Income Tax Act, 1961. 2. Applicability of "fees for technical services" to the consideration received. 3. Option to be taxed under the provisions of the Act or the Double Tax Avoidance Agreement (DTAA). 4. Nature of payments received as reimbursement of expenses. Summary: Issue 1: Taxability of consideration as "Royalty" - The Revenue challenged the ITAT's decision that the payment of USD 11,80,500/- made by CPI to the Assessee was not royalty under the Act. The ITAT concluded that the payment would not amount to equipment royalty since Clause (iv a) of Explanation 2 to Section 9(1)(vi) was inserted only with effect from 1st April 2002, and thus was not applicable for the Assessment Year 1999-2000. - The ITAT also held that the payment was not process royalty under Clause (iii) of Explanation 2 to Section 9(1)(vi), as the payment was for accessing the SAP system hosted by the Assessee, not for the use of a process. - The ITAT further concluded that the payment did not fall under Explanation 5 to Section 9(1)(vi) as CPI was granted limited access to the SAP system, not possession or control of any right, property, or information. - The ITAT determined that the payment was not royalty under Clause (v) of Explanation 2 to Section 9(1)(vi) as there was no transfer of any right in respect of any copyright. The Supreme Court's judgment in Engineering Analysis Centre of Excellence Private Limited clarified that for Clause (v) to apply, there must be a transfer of rights in relation to copyright, which was not the case here. Issue 2: Applicability of "fees for technical services" - The ITAT did not specifically address this issue in the detailed judgment provided, focusing primarily on the royalty aspect. Issue 3: Option to be taxed under the Act or DTAA - The ITAT held that under Section 90(2) of the Act, the Assessee could opt for the more beneficial provisions of the Act over the DTAA. Since equipment royalty was not included in the definition of royalty under the Act for the relevant assessment year, the Assessee was entitled to this benefit. Issue 4: Nature of payments as reimbursement of expenses - The ITAT did not specifically address the reimbursement of expenses in the detailed judgment provided, focusing on the nature of the payments as royalty. Conclusion: - The ITAT's order was upheld, concluding that the payment received by the Assessee from CPI for the use of the SAP system was not taxable as royalty under the Act. The Assessee's option to be taxed under the more beneficial provisions of the Act was valid, and the payment was not considered process royalty or equipment royalty. The appeal was dismissed, and no substantial question of law was found to interfere with the ITAT's order.
|
