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TMI Blog2023 (3) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Engineering Analysis [ 2021 (3) TMI 138 - SUPREME COURT ] and the above decision of the coordinate Bench are clearly applicable in assessee s case. Accordingly, we set aside the order passed by the AO and delete the addition made. Decided in favour of assessee. - IT(IT)A No.877/Bang/2022 - - - Dated:- 13-3-2023 - SMT. BEENA PILLAI, JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER For the Appellant : Shri Ketan Ved, CA For the Respondent : Shri D.K. Mishra, CIT ORDER Per Padmavathy S., Accountant Member This appeal is against the final order of assessment passed by the ITO, Ward 1(1), International Taxation, Bangalore dated 25.7.2022 for the assessment year 2019-20. 2. The assessee is a company incorporated and registered at Cayman Islands, UK and is in the business of undertaking development of intellectual property and selling its products globally. The assessee filed original return of income for the AY 2019-20 on 31.10.2019 admitting NIL income. The assessee subsequently filed a revised return on 9.4.2020 admitting a total income of NIL and claimed a refund of Rs.14,48,60,999. The return was selected for scrutiny under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llary support services as Fee for technical service ('FTS') as per India- United Kingdom of Great Britain and Norther Ireland ('UK') Double taxation Avoidance Agreement ('DTAA') and as per the Income-Tax Act, 1961 ('the Act'). The consideration received from sale of software product also include consideration for ancillary support services and these two are inseparable and cannot be taxed separately. The ancillary support services are part and parcel of the sale of software product. 3. The learned AO/ Learned DRP erred in arriving at a conclusion that the ancillary support services are provided free of cost to Indian clients. 4. The learned AO/Learned DRP erred in arbitrarily treating 50% of the consideration towards ancillary support services as FTS as per the India-UK DTAA and as per the Act. 7. The ld. AR submitted that the assessee sold the software product and also received income from providing support services. He further submitted that providing ancillary support services is also related to sale of software products only. The ld. AR drew our attention to the order of the AO where he himself admits that the software cost char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate in force which, under Section 2(37A)(iii) of the Income Tax Act, is the rate in force prescribed by the DTAA. Importantly, such deduction is only to be made if the non-resident is liable to pay tax under the charging provision contained in Section 9 read with Section 4 of the Income Tax Act, read with the DTAA. Thus, it is only when the non-resident is liable to pay income tax in India on income deemed to arise in India and no deduction of TDS is made under Section 195(1) of the Income Tax Act, or such person has, after applying Section 195(2) of the Income Tax Act, not deducted such proportion of tax as is required, that the consequences of a failure to deduct and pay, reflected in Section 201 of the Income Tax Act, follow, by virtue of which the resident-payee is deemed an assessee in default , and thus, is made liable to pay tax, interest and penalty thereon. This position is also made amply clear by the referral order in the concerned appeals from the High Court of Karnataka, namely, the judgment of this Court in GE Technology (supra). 47. In all these cases, the licence that is granted vide the EULA, is not a licence in terms of Section 30 of the Copyright Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultancy Services v. State of A.P., 2005(1) SCC 308 (see paragraph 27). 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in S.195 of the Income Tax Act to deduct tax at source, as the distribution agreements/ EULAs in the facts of these cases do not create any interest or right in such distributors/endusers, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (S. 9(1) (vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian endusers/distributors to nonresident computer software manufacture/suppliers, as consideration for the resale/use of the computer software through EULAs/ distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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