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TMI Blog2015 (11) TMI 1529X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly. In our view, in the hands of the Indian company, when it is not treated as Royalty, then, the same consideration should also be extended to the same transaction in the case of “AE” i.e. “ESI US”. In the present case, income towards sale of software to the Indian “AE” cannot be treated as “Royalty”. Hence, the addition made by the AO towards Royalty is deleted. - Decided in favour of assessee - ITA No. 456/Hyd/2015 - - - Dated:- 27-11-2015 - SHRI P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER For the Appellant: Shri Sharat Rao For the Respondent: Shri Siri Kumar O R D E R PER S. RIFAUR RAHMAN, A.M.: This appeal by assessee is directed against assessment order passed u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in turn, based on above order from the customer ('end users'), places back-to-back purchase orders on the assessee. * ESI India either imports software CDs, or downloads the software; and subsequently installs it on the customer's machine. The hardware key or the soft key in relation to the above software is directly provided by the appellant to the users/ clients in India. Further, the End User License Agreement ('EULA'), needs to be accepted by the customer directly before installing the software on its machine. ESI India does not have any access to either the source code or into the actual programming codes present in the software product. Neither ESI India nor the end us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Since the matter has not reached the finality, DRP rejected the objections of the assessee. 3.1 Consequent to the directions of the Hon'ble DRP, the learned AO passed the final assessment order dated February 19, 2015 under section 143(3) read with section 144C of the Act, treating the payment towards sale of software as royalty. However, the rate of surcharge on the applicable tax was reduced to 2.5 percent as per the directions of the DRP. 4. Aggrieved by the final assessment order, the assessee is now in appeal before the Tribunal. 5. Vide Annexure 2, the assessee has raised 10 grounds of appeal and in Annexure 3, assessee has filed concise grounds, which are as follows: 1. To delete the addition amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book vide pages 114 to 122, wherein the AO accepted the contentions of ESI India that such payments cannot be treated as royalty and deleted the disallowance for non-deduction of tax at source under section 40(a)(i) of the Act. The assessee ESI US sold the software to ESI India and in the assessment of ESI India , it is the payments are treated as towards the purchase of software and not as payment towards Royalty. The principle needs to be applied consistently. In our view, in the hands of the Indian company, when it is not treated as Royalty, then, the same consideration should also be extended to the same transaction in the case of AE i.e. ESI US . In the present case, income towards sale of software to the Indian AE cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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