9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (1) TMI 292 - AT - Income TaxTDS u/s 195 - Disallowance u/s. 40(a)(i) in respect of payment of 'Software Maintenance charges' - HELD THAT - Assessee was allowed the use of the software for its own business purpose and there was no permission to sub-licence the same. There is a specific bar on the assessee in not sub-licensing the software, which were to be used for its sole business needs. The consideration was for the use of software for its own business purpose and not for the use of, or the right to use, any copyright of software. As the consideration payable by the assessee for use of LARA, DIVA and Ocean was only for the use of the software for its own business purpose and not having right to copyright, the same will not constitute 'Royalties' within Article 13(3) of the DTAA. Even if for a moment, we presume that the amount is chargeable to tax in the hands of the CMA CGM, France as royalty u/s 9(1)(vi) of the Act with the assistance of Explanation 4, as urged by the ld. DR, the same would escape taxation in terms of the DTAA because the parallel of Explanation 4 to section 9(1)(vi) is not a part of the DTAA. We have noted above that on the plain language of section 9(1)(vi) de hors the effect of Explanation 4, the consideration does not fall in the realm of 'royalty'. Now we turn to the 'Maintenance charges' of the software paid by the assessee, which have been impliedly treated by the authorities below as 'fees for technical services' u/s 9(1)(vii) as well as the DTAA. Though there is no separate quantification of such an amount, but the same is a part of the overall consideration as per the Agreements. Section 9(1)(vii) deals with income by way of 'fees for technical services'. Explanation 2 gives definition of 'fees for technical services' to mean any consideration for the rendering of any managerial, technical or consultancy services. As the maintenance of software is in the nature of a technical service, it is held that the same is covered u/s. 9(1)(vii) of the Act. Reverting to the DTAA, it is seen that para 4 of the Article 13 deals with 'fees for technical services'. In the present context, it provides that the term fees for technical services means consideration for services of a managerial, technical or consultancy nature. Thus, the definition of 'fees for technical services' in the present context given in the DTAA is almost similar to that used in Explanation 2 to section 9(1)(vii) of the Act, going by which the software maintenance charges fall within the ambit of 'fees for technical services'. Payment for use of software made by the assessee to CMA CGM, France does not satisfy the requirement of 'use of, or the right to use, any copyright of software'. Once it is held that para 3 of Article 12 is not attracted, as a sequitur, the application of clause (a) of para 4 of Article 12 of the DTAA with Portuguese would automatically be ousted, thereby making the amount of ₹ 6.85 crore paid by the assessee to CMA CGM, France for use of LARA, DIVA and Ocean software as immune from taxation in India. Going by the beneficial provision in the DTAA vis- -vis the Act, it is held that there was no requirement on the part of the assessee to deduct tax at source which should have called for any disallowance u/s.40(a)(i) of the Act. We, therefore, order to delete the addition. G ranting of correct amount of credit of TDS - HELD THAT - AO is directed to verify the amount of TDS and allow appropriate credit as per law.
Issues Involved
1. Confirmation of disallowance under Section 40(a)(i) of the Income-Tax Act, 1961. 2. Nature of payment for 'Software Maintenance charges' and its tax implications. 3. Application of Double Taxation Avoidance Agreement (DTAA) between India and France. Detailed Analysis 1. Confirmation of Disallowance under Section 40(a)(i) The primary issue in this appeal is the confirmation of disallowance under Section 40(a)(i) of the Income-Tax Act, 1961, concerning the payment of 'Software Maintenance charges' amounting to ?6,85,69,596/-. The authorities below disallowed the deduction on the grounds that the assessee failed to withhold tax on the payment made to its Associated Enterprise (AE) in France. 2. Nature of Payment for 'Software Maintenance Charges' The assessee, an Indian company acting as a shipping agent, made payments to CMA CGM, France for the use of software tools (LARA, DIVA, and Ocean). The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that these payments were in the nature of 'royalty' and 'fees for technical services' under Section 9(1)(vi) and 9(1)(vii) of the Act, respectively. The AO observed that the payments were excessive compared to the previous year and did not concur with the assessee's justification for the increase. The Tribunal examined the agreements between the assessee and CMA CGM, France, which revealed that the payments were part of a cost allocation arrangement for using the software to facilitate shipping operations. The Tribunal concluded that these payments were not for the use of any copyright but for the use of software for business purposes. Therefore, the payments did not qualify as 'royalty' under the DTAA. 3. Application of Double Taxation Avoidance Agreement (DTAA) The Tribunal analyzed the DTAA between India and France, particularly Article 9, which deals with 'Shipping' income. It was determined that the profits derived by CMA CGM, France from the operation of ships in international traffic are taxable only in France. The Tribunal also referred to the decision in A.P. Moller Maersk v. DDIT (IT) and the Hon'ble Supreme Court's ruling in DIT v. A.P. Moller Maersk, which held that income arising from the use of a global tracking system linked to shipping operations is not 'fees for technical services' but income from shipping operations. The Tribunal further examined the Protocol appended to the DTAA, which includes a Most Favoured Nation (MFN) clause. This clause ensures that if India limits its scope of fees for technical services in a DTAA with any other OECD country, such limited scope shall apply to the DTAA with France. The Tribunal found that the payments made by the assessee did not 'make available' any technical knowledge, experience, skill, or know-how to the assessee, thus falling outside the scope of 'fees for technical services' under the DTAA. Conclusion The Tribunal concluded that the payments made by the assessee to CMA CGM, France were not taxable in India under the DTAA. Consequently, there was no obligation on the part of the assessee to deduct tax at source, and the disallowance under Section 40(a)(i) of the Act was not warranted. The appeal was allowed, and the AO was directed to verify the amount of TDS and allow appropriate credit as per law. The grounds regarding the levy of interest under Sections 234B and 234C were consequentially allowed.
|
