2023 (10) TMI 1262 - AT - Income Tax

Income taxable in India - receipts on account of support and maintenance services to its customers in India - Fees for Technical Services ( FTS ) under the Act and also India-Singapore DTAA - DRP has arrived at the conclusion of taxability of IT Support service charges as FTS by distinguishing the earlier years tribunal orders - HELD THAT - As decided in own case 2023 (1) TMI 1304 - ITAT PUNE DRP in the earlier orders did not draw any such distinction and held the entire amount as chargeable to tax as royalty in the light of the decision in Samsung 2011 (10) TMI 195 - KARNATAKA HIGH COURT - When the matter came up before the Tribunal, the decision inENGINEERING ANALYSIS 2021 (3) TMI 138 - SUPREME COURT had been delivered by then, based on which the decision of the AO, treating the composite amount as royalty, was reversed. When neither the AO nor the DRP had treated the two streams of income as separate from each other, having different connotation in terms of the DTAA, there could have been no question of the Tribunal setting up a new case. Be that as it may, we have eloquently discussed the issue above and reached the conclusion that the income from IT Support services, even if viewed independent of software license income, is not chargeable to tax. Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of receipts from support and maintenance services under the India-Singapore DTAA and the Income Tax Act.
2. Validity of assessment proceedings due to the issuance of notice under section 143(2) by the National Faceless Assessment Centre.
3. Initiation of penalty proceedings under section 274 read with section 270A of the Income Tax Act.

Summary:

I. Taxability of Receipts from Support and Maintenance Services:
The assessee contested that receipts of INR 54,93,70,516 from support and maintenance services were erroneously considered as fees for technical services (FTS) under the India-Singapore DTAA and the Income Tax Act, and thus liable to tax in India. The Tribunal referenced its earlier decision for the assessment year 2019-2020, where it was established that such receipts do not qualify as FTS under Article 12(4)(a) or (b) of the DTAA. It was concluded that the services provided did not "make available" any technical knowledge, experience, or skill to the customers that they could use independently in the future. Therefore, the receipts were not taxable as FTS, and the addition was directed to be deleted.

II. Invalidity of Assessment Proceedings:
The assessee argued that the assessment proceedings were invalid as the notice under section 143(2) was issued by the National Faceless Assessment Centre (NaFAC) without proper authority. The Tribunal did not delve into this issue in detail, as the primary ground regarding the taxability of receipts was decided in favor of the assessee. The issue was kept open for future consideration.

III. Initiation of Penalty Proceedings:
The assessee also challenged the initiation of penalty proceedings under section 274 read with section 270A of the Act. This issue was not separately adjudicated, as the primary ground regarding the taxability of receipts was resolved in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal accepting the assessee's primary ground concerning the taxability of support and maintenance service receipts. The issue of the validity of assessment proceedings was kept open, and the initiation of penalty proceedings was not separately addressed. The order was pronounced on 27.06.2023.