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TMI Blog2019 (9) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... rivate Limited (SAPL). This amount of Rs. 1.87 crore has two components viz., Rs. 1,48,54,717/- towards CAD/CAM monthly cost and Rs. 38,97,417/- towards GSS Maintenance charges. The first issue that we are espousing is in relation to CAD/CAM monthly cost of Rs. 1.48 crore received by the assessee from SAPL, which was claimed to be not chargeable to tax in the absence of the assessee having any Permanent Establishment (PE) in India. The Assessing Officer (AO) observed that the assessee provided limited user access to the software application CAD/CAM utility to the Tooling Division of SAPL as a quid pro quo for the said payment. Treating the same as Royalty u/s. 9(1)(vi) of the Act as well as under the DTAA, the AO held the amount to be chargeable to tax in the hands of the assessee. In reaching this conclusion, he observed that the Dispute Resolution Panel (DRP) has also taken similar view vide its direction dated 29-09-2016 for the A.Y. 2013-14. The ld. DRP in its direction for the year under consideration reproduced its own order for the immediately preceding assessment year 2013-14 and held that the receipt from SAPL for granting access to CAD/CAM software application was Royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its dissent with the decision in Samsung (supra) and the matter is now sub-judice before the Hon'ble Supreme Court. 6. On a comparative analysis of the judgments of the Hon'ble Delhi and the Hon'ble Karnataka High Court, it transpires that the Hon'ble Delhi High Court in Infrasoft (supra) examined the taxability of the amount received by the assessee on the touchstone of the provisions of the DTAA and held the same to be not constituting Royalty. It did not specifically examine the position under the Act. However, in para 63, it did mention that: `What is thus required to be examined is whether income of the Assessee is royalty income as covered by Article 12 of the DTAA if not then the same would be taxable as business income as covered by the provisions of Article 7 of the DTAA.' A close reading of the above para fairly reveals that the Hon'ble High Court held, in principle, that if the income is not royalty, then it would be taxable as a business income. Since it held that the amount in question did not constitute Royalty within the relevant DTAA, it laid down in para 95 that : `We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this retrospective amendment carried out to section 9(1)(vi) also covering the year under consideration, it is axiomatic that the amount in question is chargeable to tax under the Act as Royalty income in the hands of the non-resident. 10. Section 90(1) of the Act provides that the Central Government may enter into an agreement with the Government of any other country for the granting of relief of tax in respect of income on which tax has been paid in two different tax jurisdictions. Subsection (2) of section 90 unequivocally provides that where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax or for avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, 'the provisions of this Act shall apply to the extent they are more beneficial to that assessee'. Crux of the sub-section (2) is that where a DTAA has been entered into with another country, then the provisions of the Act shall apply only if they are more beneficial to the assessee. In simple words, if there is a conflict between the provisions under the Act and the DTAA, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention." 12. Para 2 of the Article 12 clearly stipulates that Royalty as defined in para 3(a) may also be taxed in the contacting state in which it arises. Thus, in order to be governed by para 2, it is essential that the receipt should first pass the test of the definition of `Royalty' as given in para 3 (a). On going through such definition, it transpires that `Royalties' is a payment of any kind received as a consideration: `for the use of, or the right to use, any copyright of literary, artistic or scientific work' etc. The expression `the use of, or the right to use, any copyright' has also been used in Article 12 of the DTAA between India and the USA, which has been discussed in the case of Infrasoft (supra). The Hon'ble Delhi High Court in that case held that what was transferred was not copyright or right to use copyright but a limited right to use copyrighted material, which did not give rise to any royalty income. It further observed that to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) is in favour of the assessee, we follow the same and that is more so for the raison d`etre that the Tribunal in its order dated 29-03-2019 in ITA Nos. 195 to 197/PUN/2017 in the assessee's own case for the A.Yrs. 2010-11, 2011-12 and 2012-13 has also decided similar issue in favour of the assessee. 16. Here it is essential to mention that unlike the insertion of Explanation 4 to section 9(1)(vi) engulfing consideration for use of software in any form within the ambit of `Royalty', there is no corresponding amendment in the DTAA and hence the DTAA, in the absence of the applicability of section 90(2A) to the year under consideration, would not automatically imbibe the changes made in the Act. We have noticed above that if the provisions of DTAA are more beneficial to the assessee then those would apply in supersession of the provisions of the Act. It is, therefore, held that the sum of Rs. 1.48 crore and odd cannot be construed as `Royalties' in the hands of the assessee as per the mandate of Article 12 of the DTAA. It is relevant to note that the assessee specifically stated before the AO that it did not have any PE in India and further it is not the case of the AO that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining or like project undertaking by the recipient, constitutes fees for technical services. When we apply the mandate of the Explanation 2 to the factual panorama obtaining before us, it clearly emerges that what the assessee received is consideration for maintenance of the existing software with SAPL which obviously involves use of technical knowledge and is nothing short of fees for technical services in the nature of technical or consultancy services. Thus, the amount in question constitutes income of the recipientassessee u/s.9(1)(vii) of the Act. 21. Now we turn to examine the position under the DTAA. We have reproduced above the relevant parts of the Article 12 between India and Sweden. Para 3(b) of the Article 12 defines the expression 'fees for technical services' to mean payment of any kind in consideration for rendering of managerial, technical or consultancy services including the provision of services by technical or other personnel. In so far as the rendering of technical or consultancy services to constitute fees for technical services under para 3(b) is concerned, we find that the definition of the term 'fees for technical services' in the DTAA to that extent is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the payer of the services should be able to utilise the acquired knowledge or knowhow at his own in future without the aid of service provider. The Authority for Advance Ruling in Production resources group, in Re (2018) 401 ITR 56 AAR has also held that "make available" connotes something which results in transmitting the technical knowledge so that the recipient could derive an enduring benefit and utilise the same in future on his own without the aid and assistance of the provider. On going through the above interpretation, it becomes palpable that in order to `make available' technical services, it is sine qua non that the recipient of the services must acquire such technical know-how etc. which he can himself use in future without any assistance of the provider and the same is not any such act or service which vanishes or disappears on its provision by the payee itself. 23. Adverting to the facts of the instant case, it is found that the technical services provided by the assessee for maintenance of the existing GSS software supplied to SAPL amounts to rendering of technical or consultancy services simplicitor without `making available' any technical knowledge, experien ..... X X X X Extracts X X X X X X X X Extracts X X X X
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