2023 (3) TMI 1307 - AT - Income Tax

Income deemed to accrue or arise in India - consideration received from ancillary support services as Fee for technical service ('FTS') as per India- United Kingdom of Great Britain and Norther Ireland ('UK') Double taxation Avoidance Agreement ('DTAA') and as per the Income-Tax Act, 1961 - HELD THAT - We notice that a similar issue has been considered by the coordinate Bench in the case of LLC 2021 (8) TMI 1370 - ITAT BANGALORE as held receipts by way of sale of software licenses and provision of ancillary support services connected with the sale of software products cannot be assessed as royalty/FTS income in the hands of the assessee. Accordingly, we set aside the order passed by the AO on this issue. We notice that in assessee s case 2021 (7) TMI 615 - ITAT BANGALORE the consideration received is towards sale of software and other ancillary support services which fact has not been disputed by the lower authorities. We are therefore of the considered view that the decision of the apex Court in the case of Engineering Analysis 2021 (3) TMI 138 - SUPREME COURT and the above decision of the coordinate Bench are clearly applicable in assessee s case. Accordingly, we set aside the order passed by the AO and delete the addition made. Decided in favour of assessee.

Summary

Issues involved:
The appeal challenges the final assessment order passed by the ITO, Ward 1(1), International Taxation, Bangalore for the assessment year 2019-20 regarding the treatment of income from the sale of standard software and ancillary support services.

Assessment of Income:
The appellant, a company incorporated in the UK, filed a revised return admitting a total income of NIL and claimed a refund. The original return disclosed income from the sale of standard software to an Indian group company, with TDS deducted. The appellant claimed this income as not chargeable to tax in India under specific sections, citing a Supreme Court decision.

AO's Determination:
The AO treated 50% of the amount received as income in the hands of the appellant for technical services, considering it not only as payment for software but also for additional services like distribution, technical support, and customer services. The DRP upheld this view, directing the AO to adopt a break-up figure for TDS purposes due to the lack of a specific breakdown provided by the appellant.

Appellant's Arguments:
The appellant contended that the consideration for ancillary support services was integral to the sale of software products and should not be separately taxed as fees for technical services. They relied on various decisions, including a Supreme Court ruling, to support their position.

Tribunal's Decision:
The Tribunal noted a similar issue previously decided in favor of the appellant by a coordinate bench and referenced the Supreme Court's judgment, which clarified the tax treatment of software sales and ancillary services. Following these precedents, the Tribunal held that the receipts from software licenses and related support services should not be assessed as royalty or FTS income. Consequently, the AO's order was set aside, and the addition made was deleted.

Conclusion:
Based on the applicable legal principles and precedents, the Tribunal allowed the appeal in favor of the appellant, emphasizing that the income from software sales and associated support services should not be treated as royalty or fees for technical services.