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TMI Blog2019 (5) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... garded as royalty. In the present case, however, the supply of software has already been held to be not in the nature of royalty by the decision of ITAT, Mumbai. We have not gone into the question regarding the applicability of Article 12(3) and also the definition of royalty is given in Explanation-2 to Section 9(1)(vi) and our conclusions in these appeals and are guided only by the ruling of the Mumbai Bench of the ITAT in the case of M/s. i2 Technologies (Netherlands) BV Vs. ACIT (International Taxation) (supra). We are of the view that the maintenance revenue received by the assessee cannot be regarded as a royalty chargeable to tax in India. The addition made is therefore directed to be deleted. - Appeal of assessee is allowed. - ITA No. 788/Bang/2010 - - - Dated:- 26-4-2019 - Shri N.V. Vasudevan, Vice President And Shri Jason P. Boaz, Accountant Member For the Appellant : Shri T. Suryanarayana, Advocate For the Respondent : Smt. Priscilla Singsit, CIT-DR, Shri R.N. Siddappaji, Addl.CIT ORDER PER N V VASUDEVAN, VICE PRESIDENT : This is an appeal by the assessee against the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch support for the affected Software by paying the then current annual Maintenance Fees plus an amount equal to the aggregate Maintenance Fees that would have been payable for the affected Software during the period of lapse. I2 shall provide Maintenance for the current and the immediate prior versions of the Licensed Software. Maintenance does not include the correction of errors or defects caused by operation of the System in a manner other than that expressly or impliedly authorized by i2, the incorrect use of the System by Customer or hardware maintenance . (emphasis supplied in bold letters) 3. The Assessing Officer (AO) was of the view that the maintenance revenue received by the assessee is nothing but royalty, which is chargeable to tax in India. The definition of royalty as it stood in AY. 2006-07 is extracted in the order of the AO and is as follows: Definition of Royalty as per the I T. Act- Explanation 2 :- For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make available technical knowledge, experience, skill, know-how, or processes , of the DTAA. Article 12(3) (4) of the DTAA is as follows: Definition of Royalty as per Article 12(3) of DTAA 12(3) The term 'royalties' as used in this Article means payments of any kind received as a consideration for the right to use of, or the right to use (a)any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b)any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described it paragraph 4(b) or 4(c) of Article 8. Fees for included services as per article 12(4) of DTAA are as under: 12 (4) For purposes of this article, fees for included services means payments of any kind to any person in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rewards attached thereto .. 4.1. The Ld.CIT(A) found that in the case of i2 Technologies (Netherlands) BV, they were assessed in Mumbai and the Revenue i.e., the AO at Mumbai has taxed the supply of software as royalty in the hands of i2 Technologies (Netherlands) BV. Since the sale of software has been considered as royalty in the hands of i2Technologies (Netherlands) BV, the CIT(A) was of the view that the maintenance services are also be considered as royalty. These facts emanate from reading of para Nos. 4.3.4 4.3.5 of the order of CIT(A), which are as follows: 4.3.4. There can be no dispute that the receipts on account of maintenance charges are incidental to software receipts and bear the same character as that of software receipts. It is gathered that i2 (assessed at Mumbai) has been claiming in its IT returns that its software receipts are not taxable in India. However, the AO at Mumbai and the concerned CIT(A) having jurisdiction over that case have held such software receipts to be in the nature of Royalty liable to tax in India both under the Act and the relevant DTAA. The matter is said to be pending in further appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), assessee filed an appeal before the Tribunal, raising the following Grounds of Appeal: 1. The learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in holding that the receipts on account of maintenance charges are incidental to software receipts and bear the same character as that of software receipts. 2. The learned CIT(A) erred in concluding that the sale of licenses are in the nature of royalty income and thereby concluding that maintenance services in relation to the sale of the said licenses are ancillary and subsidiary to the application or enjoyment of the right, property or information under subclause (vi) to explanation 2 of section 9(1)(vi) of the Income Tax Act, 1961 (The Act). 3. The learned CIT(A) has further erred in treating the payment for maintenance services as fees for included services under Article 12(4)(a) of the Indo-US-DTAA. The learned CIT(A) erred in holding that maintenance services are ancillary and subsidiary to the application or enjoyment of the right or property. 4. The learned CIT(A) ought to have appreciated that the sale of software licenses does not fall within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee submitted that since the very basis of the conclusion by the Revenue authorities that the maintenance revenue received by the assessee was in the nature of royalty is based on the conclusion in the case of M/s. i2 Technologies (Netherlands) BV Vs. ACIT (International Taxation) (supra), that the supply of software by them is in the nature of royalty and therefore, the maintenance services which are incidental to supply of software should also be regarded as royalty, has now been reversed the natural consequences will be that the sum received as maintenance revenue, it cannot be regarded as chargeable to tax in India as a royalty. It was submitted that even otherwise there was no dispute that the receipt in question would be in the nature of business income and since the assessee did not have a Permanent Establishment (PE) in India, the said receipt would not be chargeable to tax in India. 6. The Ld.DR placed reliance on the order of CIT(A). 7. We have carefully considered the rival submissions and are of the view that in the light of the conclusions in the case of M/s. i2 Technologies (Netherlands) BV Vs. ACIT (International Taxation) (supra), by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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