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TMI Blog2022 (7) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... me at Nil. During the draft proceedings, the Assessing Officer (AO) noted that the assessee earned income of Rs.109,01,25,420/- from sale of Software licenses and support services in relation thereto, which was not offered for taxation on the ground that the first item was towards sale of software licenses and not the transfer of copyright; and the second was for Support services which did not make available any technical know-how to the customers. The AO observed that the Dispute Resolution Panel (DRP) in earlier assessment years has confirmed the action of the AO in treating such amount as Royalty. The assessee gave its bifurcation as, Rs.67.94 crore from sale of software license and Rs.41.06 crore from rendition of Support and Maintenance of the software licensed (hereinafter also called 'IT Support services'). The AO held that the first component was chargeable as Royalty under the Act as well as Article 12(3)(a) and the second was taxable as `fees for technical services' under the Act and also Article 12(4)(a) of the DTAA. The assessee's contention that the second item was in the nature of provision of services involving technical knowledge without making available such techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing such amount to be in relation to software sold, thereby, falling under Article 12(4)(a) of the DTAA as fees for technical services. During the course of the remand proceedings, the AO canvassed a view that the receipt was also for making available technical knowledge etc. to the software buyers and hence covered under Article 12(4)(b) of the DTAA as well. Thus, it is evident that the AO has considered the receipt from IT Support services both under clauses (a) and (b) of Article 12(4) of the DTAA. 5. In order to appreciate the rival contentions, it would be apposite to consider the mandate of the relevant parts of Article 12 of the DTAA, which runs as under: `Article 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. .... 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Similar is the position regarding para 4 of Article 12, which has three clauses. The word `or' has been expressly deployed at the end of the clauses (a) and (b) so as to make it clear that consideration for the services referred to in either of the three clauses constitutes fees for technical services. In other words, if the consideration is received for rendering the services in the nature given in clause (a), the amount will become FTS without examining if the conditions of clauses (b) or (c) are satisfied. Similarly, if some consideration is received for the services which "make available" technical knowledge etc. under clause (b), it automatically becomes FTS without any further need to examine if the prescription of clauses (a) and (c) is satisfied. It follows that paras 3 and 4 of the Article 12 deal with distinct situations, mutually exclusive to each other, so as to constitute royalties or fees for technical services, as the case may be, in the given circumstances. 8. Adverting to the facts of the extant case, it is patent that the AO categorized Receipt on account of software licenses under clause (a) of para 3 of the Article 12 in the draft order and finalized its tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancillary and subsidiary to the application or enjoyment of such right etc. cannot also, as a fortiori fall in para 4(a). It is for the raison d'etre that existence of any consideration under Article 12(3)(a) is sine qua non for bringing any amount in relation to services under para 4(a) of Article 12. There can be two situations of income arising from licensing of software and also from support and maintenance services for such software. First, where the amount received by the assessee from licensing of software satisfies the condition of `royalty' as right to copy is also assigned to the licensee; and second, where copyright is not assigned. In the first situation, income from licensing of software would descend in para 3(a) of Article 12 and accordingly the amount of support and maintenance charges will be governed by para 4(a) of Article 12. In the second scenario, income from licensing of software would not satisfy the condition of `royalty' and hence will not drop into para 3(a) of Article 12 with sequitur that the question of application of para 4(a) to support and maintenance charges will not arise. Since there is no amount taxable as royalties under Article 12(3)(a) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided in following quarter including * Historical performance and availability review * Recommendations to improve performance and availability that could be implemented in the next quarter * Review of support cases and incidents raised within BMC * Additional use cases Customer would like to deploy and Customer roadmap update * BMC roadmap and Customer innovation agenda update BMC will provide the following to assist the customer:- * Provide two (2) resources for 24 continuous months (inclusive of public holidays and annual leave) during Business Hours. * Services will be delivered onsite in Customer's location in Manesar, Gurgaon. * BMC resources will assist with operations onsite during on Business Days, some remote assistance may be required to support major or critical incidents outside of business hours. * In case of a critical incident that disrupts the High Availability of the system, BMC will * Invoke our Severity 1 alert notification and place the Customer incident on Follow The Sun priority. * Convene a specialist team consisting operations BMC technical support analysis customer operations teams to further review. * Work with Customer opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wledge, experience, or skill etc. to the customers within the scope of para 4(b) of Article 12 of the DTAA? The expression `make available' has come up for consideration before several judicial forums. The Hon'ble Karnataka High Court in CIT Vs. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar.) has held that the condition of the expression make available gets satisfied if the payer of the services is able to utilize the acquired knowledge or knowhow at his own in future without the aid of the service provider. The Authority for Advance Ruling in Production resources group, in Re (2018) 401 ITR 56 AAR has also held that "make available" connotes something which results in transmitting the technical knowledge so that the recipient could derive an enduring benefit and utilize the same in future on his own without the aid and assistance of the provider. On going through the above interpretation, it becomes palpable that in order to `make available' technical services, it is essential that the recipient of the services must acquire such technical know-how etc. which he can himself use in future without any assistance of the provider. It cannot be any act or service which is av ..... X X X X Extracts X X X X X X X X Extracts X X X X
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