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TMI Blog2022 (2) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... nsmit the technical knowledge to the payer so that the payer makes use such technology in future without involvement of the service provider. Considering the facts in totality in light of the relevant article of India US DTAA, we are of the considered view that the engineering fees received by the assessee are not taxable in India. Ground No. 2 with all its sub-grounds is allowed. Taxation of software reimbursements as Royalty - assessee strongly contends that reimbursements sought by the assessee represent recovery of expenses incurred by it, on behalf of Autoliv India, on an at-cost basis - HELD THAT:- Reimbursement towards software charges will not qualify as royalty u/s 9(1)(vi) of the Act as well as under DTAA for the simple reason that it is not a case of the assessee possessing any right for use or right to use computer software in the first place for it to transfer such right to Autoliv. Article 12(3A) of the India USA DTAA provides royalty which means consideration received inter alia for use or right to use any copyright of a literary, artistic or scientific work. We are of the considered view that the assessee has not received consideration for granting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ₹ 7,001,452/- (ii) Reimbursement on software costs ₹ 353,693/- (iii) Reimbursement of salary related costs ₹ 4,79,63,123/- 6. Return was filed on 31.03.2017 declaring NIL income. Return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. 7. The assessee was asked to explain as to why Revenue from engineering fees, software costs, reimbursements and reimbursements of salary and related costs may not be treated as income from Royalty/FTS and taxed accordingly. 8. The assessee filed detailed reply explaining the nature of transactions and strongly contended that engineering fees is not taxable as FIS in India. 9. The detailed submissions of the assessee are extracted by the Assessing Officer in his assessment order. The detailed submissions of the assessee were dismissed by the Assessing Officer. The Assessing Officer was of the opinion that the services provided by the assessee are technical services. The Assessing Officer was of the firm belief that these services made available technical knowledge, skill etc and, accordingly, treated the revenue from engineering services as FTS in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the considered view that the assessee had no occasion to transfer or make available any technology, skill, knowledge, process, etc. involved in carrying out the engineering services to Autoliv India. On the contrary, for every new project / requirement for the Ford brand of cars in India, Autoliv India has to invariably sub-contract the relevant portion of the Project to the assessee. The engineering fees earned by Autoliv US under the sub-contractor agreement included costs which it had incurred on labor, depreciation, rent, materials, supplies and other resources and costs incurred by Autoliv US on transportation, food and lodging and was marked up by 7% on the internal costs. 17. In our understanding of the law, as per section 90(2) of the Act, the provisions of the tax treaty shall prevail over the provisions of the Act to the extent they are more beneficial to the taxpayer. As per Article 12 of the India US DTAA, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services, if such services: a) are ancillary and subsidiary to the application or enjoyment of the right, property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered to make the technology available. 20. In light of the aforementioned judgment of the Hon'ble High Court of Karnataka, facts of the case in hand show that technical knowledge or skills provided by the assessee should be imparted to and absorbed by the receiver Autoliv India Pvt. Ltd so that the receiver can deploy similar technology or technique in future without depending upon the assessee. 21. In our considered view, technology only will be considered as made available when the person acquiring such knowledge is possessed of the same enabling him to apply in future at his own. If the services are consumed in the provision without leaving anything tangible with the payer for use in future, then it will not be characterized as making available of the technical services notwithstanding the fact that its benefit flowed directly and solely to the payer of the service. We are further of the view that what is necessary is that the service provider should transmit the technical knowledge to the payer so that the payer makes use such technology in future without involvement of the service provider. 22. Considering the facts in totality in light of the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement of the expenses, it cannot be income chargeable to tax. 29. Further, we are of the view that since the assessee was not the ultimate beneficiary of the receipts, the assessee did not render any service in connection with reimbursements. Actual bills were paid by the recipients and were later on reimbursed and the assessee did not earn/make any profit on such reimbursements. 30. Having said all that, we are of the considered opinion that reimbursement towards software charges will not qualify as royalty u/s 9(1)(vi) of the Act as well as under DTAA for the simple reason that it is not a case of the assessee possessing any right for use or right to use computer software in the first place for it to transfer such right to Autoliv. Article 12(3A) of the India USA DTAA provides royalty which means consideration received inter alia for use or right to use any copyright of a literary, artistic or scientific work. 31. In light of this article, we are of the considered view that the assessee has not received consideration for granting a right to use any copyright in computer software from Autoliv. We find that the lower authorities have heavily relied upon the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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