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TMI Blog2022 (4) TMI 669X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and served on the assessee. In response to the same, the AR of the assessee appeared from time to time and filed the requisite information/details. During the course of assessment proceedings, the AO noted that the assessee has received an amount of USD 828170 which is from supply of software products to the end customers in India. He noticed that assessee has not offered this amount to tax in its return of income. He, therefore, asked the assessee to explain nature of its revenue received in India and how the same is not taxable in India. The assessee contended that in view of the provisions of India-USA DTAA assessee's income from-sale of software is not taxable in India. The assessee placed reliance on various judgments in support of its claim. Assessee also discussed various provisions of the Income Tax Act, 1961, India-US DTAA and relevant provisions of Copyright Act, 1957 etc. to reinforce its arguments and claims. 3. However, the AO was not satisfied with the arguments advanced by the assessee. Rejecting the various explanations given by the assessee and following the order for the preceding assessment year where it has been held that payment received from the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India-USA Double Taxation Avoidance Agreement ('the DTAA' for short). 3. That the learned AO/DRP overlooked the difference between the transfer of right to use a copyrighted article as against the transfer of copyright itself and that in the case of the Appellant, it is the former that has taken place. 4. That the learned AO/DRP erred in not appreciating that the consideration received by the Appellant for sale of software to Indian resellers/distributors does not constitute payments in respect of a secret process. 5. That the learned AO/DRP failed to appreciate that since the payment received by the Appellant from its customers was not to be measured with reference to the productivity or use of the software, it could not be construed as 'royalty'. 6. That the learned AO/DRP erred in not following decisions delivered by the jurisdictional High Court and this Hon'ble Tribunal, and the Authority for Advance Rulings on the issue arising in the Appellant's case. 7. That the learned AO/DRP erred in classifying the consideration received by the Appellant towards maintenance and technical support services/ancillary support services as fees for technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged in the business of developing, manufacturing and distribution of software products and has entered into international distributor/reseller agreements in India for supplying software products and maintenance support services to the end customers in India. 5. During the year under consideration, the assessee has received the following income from Indian distributors/resellers: i) Receipts from sale of software products Rs. 4,86,91,372/ - ii) Receipts from provision ancillary support services Rs. 1,12,06,404/ - 6. Return was filed on 29.09.2014 declaring NIL income. The aforementioned receipts were considered as not taxable in India as the same does not constitute royalty/fees for technical services [FTS] under India - USA DTAA. 7. Return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. The Assessing Officer was of the firm belief that income from sale of software licensing to Indian distributions/resellers is taxable as 'Royalty' under Article 12 of the India - USA DTAA and so also the income from ancillary services. 8. Objections were raised before the DRP and the DRP, vide order dated 28.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduce the software products or modify and create any derivative work and copies of assessee's product. The Reseller/Distributor can use the trademark of the assessee only for the specific purpose of indicating to the public that they are authorized by the assessee, but they will indicate that the assessee is sole owner of trademark and on termination will immediately cease all use of assessee's trademark. 12. A careful perusal of the agreement entered into by the assessee with the resellers in India and keeping in mind the aforementioned specific clauses, in our considered opinion, it is clear that such agreements are entered into solely for the sale of software products and not in any way entail transfer of patent, copy right or any other intellectual property right. 13. On the above factual matrix, in our consider opinion, the quarrel is squarely covered in favour of the assessee and against the Revenue by the decision of the Hon'ble Supreme Court in a land mark judgment in the case of Engineering Analysis Center of Excellence Pvt. Ltd. [2021] 432 ITR 471 has laid down the following: "Given the definition of royalties contained in article 12 of the DTAAs 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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