2025 (3) TMI 705 - AT - Income Tax

Accrual of income in India - Receipts from General Business Support Services ( BSS ) constitute income or not? - treatment of BSS as FTS - HELD THAT - Since the BSS rendered by the assessee is arising out of the same CCA as in the case of SIMPL 2012 (2) TMI 98 - AUTHORITY FOR ADVANCE RULINGS we are of the view that the decision of the Hon ble High Court has a binding precedence in assessee s case also. Further the facts for the year under consideration are identical to AY 2009-10 and the revenue did not bring anything on record to controvert the same. Accordingly we direct the AO to delete the addition made towards BSS in the hands of the assessee. Treatment of cost allocation SUN and GSAP maintenance charges as Royalty - whether the amount received by the assessee on account of cost allocation of SUN Maintenance Software application and GSAP maintenance charges is royalty under the DTAA between India and UK? - In assessee s case the payments are made towards cost allocation of of SUN Maintenance Software and GSAP maintenance charges therefore we hold that the amount received towards cost allocation of SUN Maintenance Software and GSAP maintenance charges cannot be treated as royalty and the addition made in this regard is not sustainable. Treatment of cost allocation pertaining to GSAP Go-Live and access of GSAP application as Royalty - HELD THAT - The assessee during the year under consideration has migrated to GSAP Software and has incurred expenses towards procurement of licence to use the Software also expenses towards customization of the Software for Go-live. These expenses have been allocated across the group on a cost to cost basis based on the number of users. Only when the payment is made towards the right to use the copy right the same would fall within the definition of Royalty under the DTAA. In assessee s case the amount received towards cost allocation of expenses incurred towards acquiring the licence to access GSAP Software and the cost incurred towards modification for Go-live does not result any right to use the copy right but only the right to use the copy righted software of GSAP. Therefore in our considered view the amount paid cannot be treated as Royalty under Article 13 of the DTAA between India and UK. Further the amount received by the assessee is on a cost to cost basis without any income element in it and on that count also the amount received cannot be treated as taxable in India. Thus we hold that the receipt towards cost allocation of GSAP licence and Go-live of GSAP application cannot be treated as Royalty.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the receipts from General Business Support Services (BSS) constitute 'income' and qualify as Fees for Technical Services (FTS) under the India-UK Double Taxation Avoidance Agreement (DTAA).

2. Whether the receipts towards access to SUN (software) application and Global Standard Accounting Package (GSAP) maintenance charges constitute 'income' and qualify as 'royalty' under the India-UK DTAA.

3. Whether the receipts towards GSAP Go-Live charges and access to GSAP application constitute 'income' and qualify as 'royalty'.

4. Whether the final assessment order is barred by limitation.

5. Application of interest under sections 234A, 234B, and 234C, and penalty under section 271(1)(c).

ISSUE-WISE DETAILED ANALYSIS

Treatment of BSS as FTS

The relevant legal framework involves the interpretation of Article 13 of the India-UK DTAA, which defines 'fees for technical services'. The Court referenced a prior decision where it was held that the services rendered under the Cost Contribution Agreement (CCA) were managerial, not technical, and thus not taxable as FTS. The Court noted that the High Court quashed the AAR ruling that had previously classified these services as FTS, emphasizing that the services did not 'make available' technical knowledge as required under Article 13(4)(c) of the DTAA. The Tribunal concluded that the receipts from BSS should not be taxed as FTS, aligning with the High Court's decision.

Treatment of SUN and GSAP Maintenance Charges as Royalty

The Court examined whether payments for SUN and GSAP maintenance charges constituted 'royalty' under the DTAA. The legal framework involved Article 13 of the DTAA and Section 9(1)(vi) of the Income Tax Act. The Tribunal relied on the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT, which clarified that payments for the use of copyrighted software do not constitute royalty. The Tribunal concluded that the maintenance charges did not involve the transfer of copyright and thus did not qualify as royalty.

Treatment of GSAP Go-Live Charges and Access as Royalty

The Tribunal considered whether the cost allocation for GSAP Go-Live and access to GSAP application constituted royalty. The Court reiterated the principle from the Supreme Court that only payments for the right to use a copyright, not the copyrighted item itself, qualify as royalty. The Tribunal found that the payments were for the right to use the software, not the copyright, and thus did not constitute royalty under Article 13 of the DTAA. Additionally, since the payments were on a cost-to-cost basis without any income element, they were not taxable in India.

Limitation and Procedural Issues

Although the assessee raised an additional ground regarding the limitation of the final assessment order, it was not pressed during the hearing and therefore not admitted for adjudication.

Interest and Penalties

The Tribunal noted that the interest under sections 234A, 234B, and 234C was consequential and did not require separate adjudication. The penalty under section 271(1)(c) was not specifically addressed in the judgment.

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings include:

1. The receipts from General BSS do not constitute FTS under the DTAA, as they are managerial services and do not 'make available' technical knowledge.

2. The payments for SUN and GSAP maintenance charges are not royalty, as they do not involve the transfer of copyright.

3. The payments for GSAP Go-Live and access do not qualify as royalty under the DTAA, as they are for the use of copyrighted software, not the copyright itself.

The Tribunal's conclusions are consistent with the principles established in the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT, emphasizing the distinction between payments for the use of copyrighted items versus the copyright itself.

The appeals for AY 2012-13 to AY 2015-16 were partly allowed, with the Tribunal directing the deletion of additions made by the AO regarding BSS and software-related payments.

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