9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (9) TMI 51 - AT - Income TaxIncome accrued In India - granting access to CAD/CAM software application - maintenance of software - Royalty under the Act as well as the Double Taxation Avoidance Agreement between India and Sweden (DTAA) - PE in India - HELD THAT - Unlike the insertion of Explanation 4 to section 9(1)(vi) engulfing consideration for use of software in any form within the ambit of Royalty , there is no corresponding amendment in the DTAA and hence the DTAA, in the absence of the applicability of section 90(2A) to the year under consideration, would not automatically imbibe the changes made in the Act. As noticed above that if the provisions of DTAA are more beneficial to the assessee then those would apply in supersession of the provisions of the Act. It is, therefore, held that the sum of ₹ 1.48 crore and odd cannot be construed as Royalties in the hands of the assessee as per the mandate of Article 12 of the DTAA. It is relevant to note that the assessee specifically stated before the AO that it did not have any PE in India and further it is not the case of the AO that the assessee has any PE in India, so as to warrant the consideration of the amount in question as Business profits under Article 7 of the DTAA. Receipts from SAPL for providing maintenance services in respect of GSS software - AO held this amount to be in the nature of Fees for technical services u/s.9(1)(vii) of the Act and also under the DTAA - HELD THAT - Technical services provided by the assessee for maintenance of the existing GSS software supplied to SAPL amounts to rendering of technical or consultancy services simplicitor without making available any technical knowledge, experience, skill, know-how or processes etc. to SAPL for use in future independently. In other words, it is a simple case of providing services involving technical knowledge which exhausted with its provision itself. Since such services did not result into provision of any technical knowledge, experience or skill etc. to SAPL, we are satisfied that the consideration so received by the assessee cannot be categorized as fees for technical services in terms of DTAA. Going by the beneficial provision in the DTAA vis- -vis the Act, this amount is directed not to be considered as fees for technical services. Similar view has been taken by the Tribunal in its afore-referred order in the assessee s own case for the earlier years. Further, it is not the case of the AO that the assessee has any permanent establishment in India, so as to necessitate the consideration of the aspect of its taxability as Business profits under Article 7 of the DTAA.
Issues Involved:
1. Taxability of ?1,48,54,717/- as Royalty under the Income-tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and Sweden. 2. Treatment of ?38,97,417/- received for providing maintenance services as 'Fees for Technical Services' under the Income-tax Act and the DTAA. Issue-wise Detailed Analysis: 1. Taxability of ?1,48,54,717/- as Royalty: The assessee, a non-resident company incorporated in Sweden, received ?1,48,54,717/- from Sandvik Asia Private Limited (SAPL) for CAD/CAM monthly costs. The Assessing Officer (AO) treated this amount as Royalty under Section 9(1)(vi) of the Income-tax Act and the DTAA between India and Sweden, arguing that the payment was for limited user access to the CAD/CAM software application. This view was supported by the Dispute Resolution Panel (DRP) based on a similar decision for the assessment year 2013-14. The Tribunal examined the taxability under both the Act and the DTAA. Under the Act, the Tribunal noted the retrospective amendment to Section 9(1)(vi) by the Finance Act, 2012, which clarified that any consideration for the use or right to use computer software, including granting a license, constitutes Royalty. This amendment, effective from 01-06-1976, made it clear that the amount in question is chargeable to tax as Royalty under the Act. Under the DTAA, Article 12 defines 'Royalties' as payments for the use of or the right to use any copyright. The Tribunal referred to the Delhi High Court's decision in DIT Vs. Infrasoft Ltd., which held that payments for a license to use software did not constitute Royalty under the DTAA as it was for a copyrighted article, not the use of a copyright. The Tribunal found that the assessee only transferred a limited right to use the CAD/CAM software for internal business purposes without transferring any copyright. Therefore, the amount could not be construed as 'Royalties' under the DTAA. The Tribunal also considered the Karnataka High Court's decision in CIT Vs. Samsung Electronics Co. Ltd., which held that payments for software constituted Royalty under the DTAA. However, since the assessee was not under the jurisdiction of the Karnataka High Court, the Tribunal followed the Delhi High Court's decision, which was more favorable to the assessee. Consequently, the Tribunal held that the amount could not be considered Royalty under the DTAA. 2. Treatment of ?38,97,417/- as 'Fees for Technical Services': The second issue involved the treatment of ?38,97,417/- received from SAPL for providing maintenance services for GSS software. The AO treated this amount as 'Fees for Technical Services' under Section 9(1)(vii) of the Act and the DTAA. The DRP upheld this decision. The Tribunal first examined the nature of the service, confirming that it was for maintenance of existing software, which involves technical knowledge. Under Section 9(1)(vii) of the Act, 'Fees for Technical Services' includes consideration for rendering technical or consultancy services. The Tribunal concluded that the amount received for software maintenance constituted 'Fees for Technical Services' under the Act. Under the DTAA, Article 12 defines 'fees for technical services' similarly to the Act. However, the DTAA with Sweden includes a Most Favoured Nation (MFN) clause, which means that if India has a more restricted scope of 'fees for technical services' in a DTAA with another OECD country, that restricted scope applies. The DTAA with Portugal, an OECD member, defines 'fees for included services' as payments for services that 'make available' technical knowledge, experience, skill, or know-how. The Tribunal noted that 'make available' means the recipient can use the acquired knowledge or skill independently in the future. In this case, the maintenance services provided by the assessee did not 'make available' any technical knowledge or skill to SAPL for future use. Therefore, the amount did not qualify as 'fees for technical services' under the DTAA. The Tribunal directed that the amount should not be considered as 'fees for technical services' under the DTAA, following the beneficial provisions of the DTAA over the Act. Conclusion: The Tribunal allowed the appeal, holding that ?1,48,54,717/- could not be taxed as Royalty under the DTAA and ?38,97,417/- could not be treated as 'Fees for Technical Services' under the DTAA. The decision was pronounced in the Open Court on 30th August 2019.
|
