2023 (12) TMI 773 - AT - Income Tax

Income taxable in India - subscription, professional and training services rendered by the assessee - taxability of the amount as fee for technical services - HELD THAT - We find that identical ground was taken by the assessee in A.Y. 2019-20 2023 (8) TMI 1391 - ITAT DELHI we find that the assessee had merely granted only access to software and there is no transfer of technology by the assessee. Hence we have no hesitation to hold that the services rendered by the assessee does not fall within the definition of FTS as per the Treaty. In any case, we find that the since assessee had merely granted access to software, it does not fall within the definition of FTS even as per the Act. In this regard, analogy could be drawn from the decision of Hon ble Supreme Court in the case of CIT vs Kotak Securities Ltd 2016 (3) TMI 1026 - SUPREME COURT wherein it was held that service made available by Bombay Stock Exchange BSE Online Trading (BOLT) System for which transaction charges are paid by members of BSE are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange; such services do not amount to 'technical services' provided by Stock Exchange, not being services specifically sought for by user or consumer and, therefore, no TDS would be deductible under section 194J on payments made for such services. We hold that the subscription, professional and training services rendered by the assessee does not fall within the definition of FTS both under the Act as well as under the DTAA and accordingly the same cannot be taxed in India. Accordingly, the Grounds 1 to 3 raised by the assessee are allowed.

Issues Involved:
1. Validity of DRP directions without a valid computer-generated DIN.
2. Validity of the final assessment order based on invalid DRP directions.
3. Addition of income on account of subscription, professional, and training services as Fees for Technical Services (FTS).
4. Assumption of "make available" technical knowledge without evidence.
5. Applicability of the Most Favored Nation (MFN) clause in the India-Netherlands DTAA.
6. Granting of TDS credit.
7. Charging of interest under sections 234C/234D.
8. Consequential interest under sections 234A and 234B.
9. Initiation of penalty proceedings.

Summary:

1. Validity of DRP Directions Without a Valid Computer-Generated DIN:
The assessee argued that the DRP directions dated 19 April 2023 were invalid due to the absence of a valid computer-generated DIN, as required by Circular No. 19 of 2019 by the CBDT. However, this ground was not pressed by the assessee during the hearing and was dismissed.

2. Validity of the Final Assessment Order Based on Invalid DRP Directions:
Similarly, the assessee contended that the final assessment order dated 31 May 2023 was null and void due to the invalid DRP directions. This ground was also not pressed and dismissed.

3. Addition of Income on Account of Subscription, Professional, and Training Services as FTS:
The main contention was the addition of INR 171,92,37,658 for A.Y. 2020-21 and INR 248,32,06,556 for A.Y. 2021-22, treated as FTS under the India-Netherlands DTAA. The Tribunal found that the issue was covered by its earlier decision in the assessee's own case for A.Y. 2019-20, where it was held that the services did not fall within the definition of FTS as per the DTAA. The Tribunal reiterated that the services provided were mere access to software without any transfer of technology, thus not taxable in India.

4. Assumption of "Make Available" Technical Knowledge Without Evidence:
The Tribunal noted that there was no material evidence to substantiate that the assessee made available technical knowledge to the service recipient. The Tribunal referred to the Karnataka High Court's decision in CIT vs. De Beers India Minerals (P) Ltd, emphasizing that mere access to software does not constitute making available technical knowledge.

5. Applicability of the MFN Clause in the India-Netherlands DTAA:
The Tribunal held that the services did not fall within the purview of FTS under Article 12 of the India-Netherlands DTAA by virtue of the MFN clause read with the India-Finland DTAA. Consequently, the addition was deleted.

6. Granting of TDS Credit:
The issue of TDS credit required factual verification. The Tribunal directed the AO to grant TDS credit after due verification in accordance with the law.

7. Charging of Interest Under Sections 234C/234D:
The charging of interest was deemed consequential. The AO was directed to recalculate the interest while giving effect to the appellate order.

8. Consequential Interest Under Sections 234A and 234B:
The interest under sections 234A and 234B was also considered consequential and would change based on the relief provided in the grounds of appeal.

9. Initiation of Penalty Proceedings:
The initiation of penalty proceedings under section 274 read with section 270A was considered premature and required no adjudication.

Conclusion:
The appeals for A.Y. 2020-21 and A.Y. 2021-22 were partly allowed, with significant relief granted on the addition of income treated as FTS and directions for factual verification of TDS credit. The Tribunal's decision was consistent with its earlier rulings in the assessee's own cases for previous years.

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