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TMI Blog2019 (3) TMI 1705X X X X Extracts X X X X X X X X Extracts X X X X ..... CIAL MEMBER AND SHRI N.K. PRADHAN, JUDICIAL MEMBER For the Appellant : Shri Madhur Agarwal (AR) For the Respondent : Shri V. Sreekar (CIT-DR) ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the assessment order passed by Assessing Officer under section 143(3) r.w.s. 144C(13) dated 30.10.2017 passed in pursuance of direction of Dispute Resolution Panel (DRP)-II, Mumbai dated 20.09.2017 for Assessment Year 2014-15. The assessee has raised the following grounds of appeal: Based on the facts and circumstances of the case, Shell Information Technology International BV (hereinafter referred to as 'SITI BV' or 'the Appellant') craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income Tax (International Taxation), Range 4(2)(1), Mumbai [hereinafter referred to as the 'learned AO'] under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act'), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-2, (hereinafter referred to as the ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 234B of the Act 8. Erred in levying interest under section 234B of the Act without appreciating the facts and circumstances of the case. 2. At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that all the grounds of appeal raised by assessee are covered in favour of assessee in assessee s own case for right from the beginning of Assessment Years 2006-07, 2007-08, 2010-11, 2011-12, 2012-13 2013-14. The ld. AR of the assessee furnished the narration of grounds of appeal in a tabulated chart and the decision of Tribunal wherein the grounds of appeal are covered. 3. The ld. Departmental Representative (DR) for the revenue after going through the details furnished in tabulated chart and going through the orders of Tribunal submits that the principle of res-judicata is not applicable on the proceeding under the Income-tax and the Assessing Officer has decided the issue on the basis of material available before him. The ld. DR thus, relied upon the order of lower authorities below. 4. We have considered the submissions of the ld. representatives of the parties and have gone through the orders of the lower authorities and the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Income Tax Act. Since, the AO has decided the issue on merits, there is no infirmity in the impugned order to interfere with the same. 9. We have heard the rival submissions and also perused the material on record. The coordinate Bench of the Tribunal has decided the identical issue in favour of the assessee in the assessee s own case for the A.Y. 2006-07, 2007- 08 and 2008-09. The coordinate Bench of the Tribunal has decided this issue in favour of the assessee holding as under:- 13. Thus, the definition of 'copyright in section 14 is an exhaustive definition and it refers to bundle of rights. In respect of computer programming, which is relevant for the issue under consideration before us, the copyright mainly consists of rights as given in clause (b), that is, to do any of the act specified in clause (a) from (i) to (vii) as reproduced above. Thus, to fall within the realm and ambit of right to copyright in the computer software programme, the aforesaid rights must be given and if the said rights are not given then, there is no copyright in the computer programme or software Here in this case of the conditions mentioned in section 14 of the Copyright Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub-licence or transfer the copy of software to any third party without the consent of Infrasoft. 93. The licensee has been prohibited from copying, decompiling, decompiling, de-assembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee Company and its customers stipulates that all copyrights and intellectual property rights in the software and cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 14(1) of the Copyright Act and the payment made for the grant of the licence said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DIT v. M/s Nokia Networks OY (Supra) as not amounting to acquiring a copyright in the software . The ratio of the above decision clearly clinches the issue which is applicable in the case of the assessee also. This ratio and principle has been followed and reiterated again in the case of Principal CIT us M. Tech India Put Ltd (supra) and again in the decisions of Alacatel Lucent, Canada, reported [2015] 372 ITR 476, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y facilitates the functioning of the equipment and is an integral part thereof On these facts, it would be useful to refer to the judgment of the Supreme Court in TATA Consultancy Services Vs. State of Andhra Pradesh (2004) 271 ITR 401 (SC), wherein the Apex Court held that software which is incorporated on a media would be goods and, therefore, liable to sales tax. Following discussion in this behalf is required to be noted: - 'in our view, the term goods as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or (In case of painting) or compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement . The aforesaid decision also takes care of all the arguments relied upon by the id. CIT DR including that of the Verizon Communications Singapore Pte. Ltd. The Hon'ble High Court has specifically clarified as to why the said judgment of Madras High Court cannot be applied in such cases after observing as under:- 31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. V. The Income Tax Officer, International Taxation 1, /2014] 361 ITR 575 (Mad), the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. While TV Today, supra note 22 recognizes that the question will have to be decided and the submission argued, Verizon, supra not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. 11. We have considered the submission of representative of the parties and perused the record. We have noted that similar ground of appeal was raised by assessee in appeal for A.Y. 2012-13 2013-14 and the coordinate bench of Tribunal in ITA No. 2192 2193/Mum/2017 dated 24/10/2018 by following the decision of A.Y. 2011-12 in ITA No. 2058/Mum/2016 passed the following order: 8. Next grievance of assessee relates to treating the receipts as fees for technical services under the Act as well as Indian-Netherland DTAA. We found that this issue is also covered by the order of the Tribunal in assessee s own case for the above assessment years. Precise observation of the Tribunal dated 28/05/2018 for the A.Y.2011-12 was as under:- 11. The assessee during the financial year relevant to the assessment year under consideration received fees for provision of Information Technology support services for the several customers based in India. The details of payment received by the assessee are as under:- S. No. Name of Entity Total Invoice amount (INK) 1 Accentu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices 'FTS') and royalty. 4. Erred in holding that payments received by the Appellant for IT support DTAA 5. Failed to appreciate that IT support services do not 'make available any technical knowledge, skill, experience etc. to the services recipient under Article 12 of the India Netherlands DTAA and hence not subject to tax in India. 6. Erred in alternatively holding that the receipt from IT - support services qualify as Royalty' under the IndiaNetherlands DTAA. 8. The facts and circumstances are exactly identical in both the AYrs i.e. 2009-10 and 2010-11 and also the grounds raised are identically worded hence, we will take- the facts from 2009-10. 9. The learned Counsel for the assessee, first of all, took us through the findings of the DRP on the issue which is recorded in Para 53 as under: 5.3 Discussions and directions of DRP 5.3.1 We have considered the draft assessment order, submissions of assessee and material. We have seen that under the Master Services Agreement, the assessee SITI BV has furnished technical and advisory services to various clients based in India. The delineated services are significantly technical in nature and the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axability of the services as fees for included service . 10. The learned Counsel for the assessee explained the facts that the SITI BV is a company registered in the Netherlands. SIT! BV is in the business of providing information technology (IT') support services. During the financial year ended 31.03.2006 SIT! BV provided IT (mobile office) support services, IT helpdesk and network infrastructure related services to: Indian customers. SITI BV is a tax resident of the NetherIand and is eligible to claim benefits under the Double Taxation Avoidance Agreement entered into between India and The Netherlands. He explained that SITI BV is in the business of providing information technology support services SITI BV typically, provides helpdesk services-and network infrastructure services to Shell group companies comprising. Information Technology (II) support for solving any IT related problems faced by users i e any problem faced by users for accessing any application software c-mails, Computer repairs and maintenance etc. desktop laptop and workstation support, Services related to Wide area network ('WAN') arid Local area network ('LAN') for connection to the gl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Even under the agreements entered into with WIPRO and IBM, SITI BV only provides them access to the software i.e. computer Programme. SITI BV does not provide them the right to use the copyright embedded in the software. In other words, WIPRO, IBM are not permitted to make copies and sell the software. Under the Services Agreements, WIPRO and IBM-have been granted the mere under the right in the copyrighted software and not the right of, use of-copyright'. Whereas use of copyright' encompasses exploitation of the rights embedded in a copyright but a mere user right is a limited right and consideration paid for Such user right cannot be regarded as consideration for use of or right to use a copyright. In view of the above, the learned Counsel for the assessee stated that the issue is fully covered by the decision of Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter Co Ltd (2012) 20 taxmann.com 807 (Del-HC), wherein India-UK DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received, or Make available technical knowledge, experience. skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this make available condition has not been satisfied inasmuch as no technical knowledge, experience, skill, know-how, processes, have been made dye/lab/c by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design. 10. The Tribunal examined the evidence available on record in order to return a finding on the issue as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee acting as an intermediary in the reinsurance process cannot, by any stretch of imagination, be qualified as a consideration received for rendering any financial analysis related consultancy services rating agency advisory services, risk based capital analysis etc. as alleged by the A.O. The Tribunal also noted the process by which the transactions takes place It has been pointed out that the originating insurer in India would contact J. B. Boda/ M, B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the- international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final-decision in the matter. Based on the decision of the originating in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement between India and an OECD country could be looked into while construing the Indo-Netherlands Double Taxation Avoidance Convention. The learned counsel for the petitioner had also raised the plea that the memorandum of understanding concerning fees for included services referred in Article 12(4) of the Indo USA DTAA concerning the expression? Available? was also not considered by the Authority for Advance Rulings; It-was submitted that the said Authority refused to look into the IndoPortugese DTAA or the lndo USA DTAA and memorandum of understanding between India and USA on the ground that only the Indo Netherlands DTAC needed to be looked into. 2. The learned counsel for the respondent states that the Authority for Advance Rulings was correct in not looking, into the lndo - Portugese DTAA, but insofar as the Indo-USA DTAA is concerned a provision similar to that DTAA has been incorporated in the Indo-Netherlands DTAC by virtue of paragraph 5 of Article 12 of the same, whereby the very same make available clause, which is to be found in the DTAA between India and USA read with the memorandum of understanding connected therewith, has been incorporated into Indo-Netherlands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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