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TMI Blog2022 (5) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... s can be treated as royalty under Article 12(3) of India Singapore Tax Treaty. In case, it does not come within the ambit of royalty as defined under the Treaty, there is no need to go into the provisions of the Act. On a perusal of the assessment order it is noticed that the Assessing Officer has not factually examined the nature of transaction between the assessee and the Indian Customers. The Assessing Officer relying upon certain judicial precedents has straightway assumed that the assessee has sold a copyright. However, neither the sample agreement nor any other material available on record demonstrate that the assessee has transferred/sold the use or right to use a copyright and not copyrighted article. What the assessee has sold is copyrighted article and not the copyright. It is also observed, while treating the payment received by the assessee as royalty, the departmental authorities have been greatly influenced by the decision of Samsung Electronics Pvt. Ltd. [ 2011 (10) TMI 195 - KARNATAKA HIGH COURT] . However, the issue is no more res integra in view of the decision of Hon ble Supreme court in case of Engineering Analysis Centre of Excellence (P.) Ltd. [ 2021 (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 ( Act ), on the following grounds: On the facts and circumstances of the case and in law, the learned CIT(A) has: General ground 1. erred in upholding the total income of the Appellant at Rs 2,59,12,200 as against the returned income of Rs 9,17,792. Taxability of sale of software products 2. erred in upholding that the income earned by the Appellant from sale of software products of Rs 1,30,74,292 is taxable in India as royalty under Section 9(1 )(vi) of the Act and under Article 12 of the India- Singapore Tax Treaty. Taxability of provision of software related support services 3. erred in upholding that income earned by the Appellant from provision of software related support services ofRs 1,19,20,121 is taxable in India as Fees for Technical Services under Section 9(l)(vii) of the Act and under Article 12 of India-Singapore Tax Treaty. 4. erred in upholding that income earned by the Appellant from provision of software related support services of Rs 1.19220.121 is taxable in India as royalty under Section 9(l)(vi) of the Act and under Article 12 of India-Singapore Tax Treaty. Levy of education cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - was not offered to tax on the plea that it is neither royalty nor FTS. Hence, in absence of a PE, the amount, being in the nature of business income, is not taxable. 6. The Assessing Officer, however, did not accept the claim of the assessee. Relying upon certain judicial precedents, including, the decision of Hon ble Karnataka High court in case of CIT Vs. Samsung Electronic Pvt. Ltd. he held that the amount received by the assessee towards sale of software products and provision of software related maintenance services is in the nature of royalty, both under section 9(1)(vi) of the Act as well under Article 12(3) of the India Singapore DTAA. Further, he held that the amount received by the assessee towards provision of software related maintenance services, as otherwise, is also in the nature of FTS both under Section 9(1)(vii) as well as Article 12(4)(b) of the India Singapore Tax Treaty. Accordingly, he added back the amount of Rs.2,59,12,204/- to the income of the assessee while completing the assessment. 7. The aforesaid decision of the Assessing Officer was also upheld by learned Commissioner (Appeals) while deciding assessee s appeal. 8. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysis is reproduced hereunder: Sl. No. Microstrategy Singapore Engineering Analysis Centre of Excellence (P.) Ltd. 1 Parties involved: MSTR Singapore is a wholly owned subsidiary of MSTR US and is responsible for distribution and maintenance (upgrading, defect correction and hotline) of MSTR software for customers in Asian markets. It also offers consulting, system integration and education services to its customers. MSTR Singapore enters into agreements with Indian distributors/ partners on principal to principal basis. The appeals has been grouped into four categories, out of which the below two are relevant: The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, nonresident sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Agreement assert or claim any interest in, or assert or do anything that may adversely affect MicroStrategy's ownership of, or the validity of, the intellectual property and proprietary rights of MicroStrategy in or relating to the Products Category 1: 1. GRANT OF LICENCE. Samsung grants you a limited non-exclusive licence to install, use, access, display and run one copy of the Samsung Software on a single Samsung Mobile Device, local hard disk(s) or other permanent storage media of one computer and you may not make Samsung Software available over a network where it could be used by multiple computers at the same time. You may make one copy of the Samsung Software in machine readable form for backup purposes only; provided that the backup copy must include all copyright or other proprietary notices contained on the original. .. 2. RESERVATION OF RIGHTS AND OWNERSHIP. Samsung reserves all rights not expressly granted to you in this EULA. The Software is protected by copyright and other intellectual property laws and treaties. Samsung or its suppliers own the title, copyright and other intellectual property r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Territory solely for Evaluation, according to the terms and conditions of this Agreement and the applicable clickwrap license agreement included with the Products, and..... 1.4 Reseller shall not directly or indirectly: (a) copy, display, distribute, or otherwise use the Products or the metadata created by the Products, in any manner or for any purpose not expressly authorized by the Agreement (b) reverse engineer, decompile, translate or disassemble the Products or the metadata created by the Products (c) rent, lend or transfer a Product or a Product license to an Affiliate or Resseler (d) use the Products or the metadata created by the Products for outsourcing, or provide any access to the Products through a service bureau, time-sharing or ASP agreement (e) Market or demonstrate any pre-release Software( Beta ) in the Territory. 1.5 Reseller and End Users acquire no ownership rights in or title to the Products. The Products are licensed and not sold. No use of the terms sell or resell in or in connection with this Agreement shall be deemed to imply otherwise. MicroStrategy and its licensors retain all ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement that no further right to sublicense or transfer, nor is there any right to reverse-engineer, modify, reproduce in any manner otherwise than permitted by the licence to the end-user. What is granted to the distributor is only a nonexclusive, non-transferable licence to resell computer software, it being expressly stipulated that no copyright in the computer programme is transferred either to the distributor or to the ultimate end-user. Similarly, no further right to sub-license or transfer, nor is there any right to reverse engineer, modify, reproduce in any manner otherwise than permitted by the licence to the end-user. 11. Thus, he submitted, the issue is squarely covered in favourte of the assessee by virtue of the aforesaid decision of the Hon ble Supreme Court. 12. As regards treatment of software related maintenance services as FTS, learned counsel for the assessee submitted, while providing such services, the assessee has not made available any technical knowledge, skill, knowhow or experience which would enable the party to use it independently without requiring the aid and assistance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the amount received by the assessee as royalty is concerned, learned Departmental Representative fairly submitted that the issue now stands covered in favour of the assessee in view of the ratio laid down by the Hon ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. (supra). However, insofar as the issue of taxability of the amount as FTS, learned Departmental Representative submitted, while providing such services the assessee has made available technical knowledge, skill, knowhow etc. to the distributors/resellers to enable them to use such technical knowledge, skills, know-how etc. Therefore, the consideration received for provision of such services has to be treated as FTS. 14. We have considered rival submissions and perused the materials on record. Undisputedly, during the year under consideration, the assessee had sold certain software products to customers in India and has also provided software related maintenance services. The first issue which arises for consideration is, whether the amount received by the assessee towards sale of software products and software related maintenance services can be treated as royalty under Article 12( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 3 and 4 are allowed. 18. In ground no. 5, the assessee has challenged the levy of education cess on the ground that as per the definition of tax under Article 2, being in the nature of surcharge, would be included in the tax rates prescribed in the Treaty. For such, proposition, he relied on the following decisions: Soregam SA v DDIT (101 taxmann.com 94) (Delhi Tribunal) (referpage no. 370 to 382 of Legal Paperbook) DIC Asia Pacific Pte Ltd v Assistant Director of Income Tax (18 ITR(T) 358) (Kolkata Tribunal) (refer page no. 383 to 386 of Legal Paperbook) R.A.K. Ceramics, UAE v DCIT(IT) (176ITD 294)(Hyderabad Tribunal) Sunil V Motiani v Income Tax Officer (International Taxation) (59 SOT 37) (Mumbai Tribunal) 19. Learned Departmental Representative submitted, the issue may be resorted back to the Assessing Officer for re-examination. 20. Having considered rival submissions, we are of the view that the issue has become, more or less, academic, since, we have deleted the additions made by the Assessing Officer. However, the Assessing Officer is directed to compute the tax liability strictly in terms with the Treaty provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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