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TMI Blog2019 (11) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue but in the present case the facts were not properly verified by the Revenue authorities. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication of this aspect in light of the decisions mentioned by the Ld. AR. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 2 to 2.4 are partly allowed for statistical purpose. Selling warranties, upgrades and similar service packages on behalf of manufacturers of the software without providing any actual service - AR submitted that the assessee was not providing technical service at all - HELD THAT:- We have heard both the parties and perused all the relevant material available on record. From the perusal of the assessment order it can be seen that the Assessing Officer should have verified the nature of service packages and direct sale of provision of services relating to FTS. This fact is not disputed by the Ld. AR that the nature of services are not properly verified by the Assessing Officer. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court instead. 2.4 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in concluding that the consideration paid by the customers in India for the use of the software would be taxable as royalty, even while recognizing that the appellant never owned any copyrights in the software that it could transfer to the customers. 3. That on the facts and in the circumstances of the case, the Assessing Officer erred on facts and in law in concluding, following the direction of DRP, that ₹ 3,04,35,127/- received from sale of service package to be taxable as Fees for Technical Services. 3.1 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in not appreciating that the appellant was selling warranties, upgrades and similar service packages on behalf of manufacturers of the software without providing any actual service. 3.2 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in holding that the appellant was providing technical service while in fact the appellant was not providing any service at all. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of New Delhi. 2.4 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in ignoring the decisions of the jurisdictional Delhi High Court and in following the decisions of the Karnataka High Court instead. 2.5 That the Learned AO as well as the Honorable DRP failed to appreciate that in order to qualify as a royalty payment within the Act, it is to be established that the acquirer, by making payment, obtains all or any of the copyrights of the literary work, being software. Further, distinction has to be made between the acquisition of a 'copyright right' and a 'copyrighted article' 2.6 The learned AO and Honorable DRP have erred in determining the above said Income by placing excessive reliance on the retrospective amendment to section 9(l)(vi) by the Finance Act, 2012 read with explanation 4 to the said section by the Finance Act, 2012 holding the Income earned by the assesse as Royalty Income - not appreciating the fact that no retrospective amendment into a domestic law can be read into a Tax Treaty, as judicially decided. 2.7 That on the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred to the customers by the assessee. Therefore, assessee could not merely be categorized as a commission agent or a pass through entity. While providing the software to the customers, assessee company in effect transferred the license to use the software by the customers. The customer was granted a license by the assessee under which the customer was granted some of the rights by the assessee using which the customer is authorized to copy the code into the hard disk of computer/ equipment, run the executable file/ installer programme, install the programme into the computer/ equipment and run the programme to get the intended result. For this right to use the software a separate consideration is provided under the contract/ Purchase Order. The assessee was also required to render the services of technical support for the equipment. For these services, which requires specialized skills, assessee was separately remunerated. The invoices raised by the assessee also clearly distinguish the nature and quantum and classify the receipts into three distinct heads (i) supply of hardware, (ii) Licensing of Software and (iii) Technical support services. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the software. Thus, it could not be possibly have transferred any copyright. In fact DRP observed that the assessee never owned any copyrights in the software that it could be transfer to the customer. The Ld. AR submitted that the same is covered by the decision of the Tribunal in case of Black Duck Software Inc. vs. DCIT (2017) 86 taxmann.com 62 (Delhi-Trib.). The Ld. AR also relied upon the decision of Hon ble Delhi High Court in case of CIT vs. DYNAMIC VERTICAL SOFTWARE INDIA P. LTD. [2011] 332 ITR 222 (Delhi) as well as the decision in the case of PCIT vs. M. Tech India (P) Ltd. 381381 ITR 31 (Delhi). The Ld. AR further submitted that the assessee is a trader and not a developer or manufacturer. Avnet Asia and its parent company are all distributors of software and hardware products of various manufacturers. This major fact was ignored by the Assessing Officer as well as DRP. The assessee and its group companies merely buy and sell software products developed by other companies and never acquire any right in the said products. The Ld. AR submitted that this transaction of purchase and sale of third party software products is identical to the facts in the case of Dynamic Vert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of any right in respect of a patent, technology or of copyright, trademark or for simpliciter use of patent, trademark, copy right etc. are in nature of royalty under section 9(1) of the Act. Explanation 4 clarifies that the intention of the legislature has always been to include consideration in respect of transfer of all or any right for use or right to use a computer software (including granting of licence) as royalty, irrespective of the medium through which such right is transferred. Thus, legal ownership of such rights, indirect use of such rights and claims related to the location of such rights will not be material in deciding whether such consideration amounts to royalty. The Ld. DR further submitted that as per India- Singapore DTAA, royalty is defined as consideration for the use or the right to use any copyright of a literary, artistic or scientific work falls within the definition of royalty. Thus, the Assessing Officer as well as DRP has rightly made addition in respect of receipt for supply of software as held to be royalty income. Therefore, the appeal of the assessee deserves to be dismissed. 8. We have heard both the parties and perused all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 3 to 3.3 are partly allowed for statistical purpose. 12. As regards to Ground No. 4, the Ld. AR submitted that the credit for tax deducted at source should have been allowed by the Assessing Officer. 13. The Ld. DR relied upon the Assessment Order. 14. We have heard both the parties and perused all the relevant record. This aspect is not properly verified by the Assessing Officer as regards credit for tax deducted at source. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given proper opportunity of hearing by following principles of natural justice. Ground No. 4 is partly allowed for statistical purpose. 14. Thus, appeal being ITA No. 1288/DEL/2015 for A.Y. 2011-12 is partly allowed for statistical purpose. 15. As regards appeal being ITA No. 4173/DEL/2016 for A.Y. 2012-13 involves only one issue that of supply of software whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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