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TMI Blog2023 (1) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... m each other, having different connotation in terms of the DTAA, there could have been no question of the Tribunal setting up a new case. Be that as it may, we have eloquently discussed the issue above and reached the conclusion that the income from IT Support services, even if viewed independent of software license income, is not chargeable to tax. Decided in favour of assessee. - Shri Satbeer Singh Godara, Judicial Member And Shri Inturi Rama Rao, Accountant Member For the Assessee : Shri Farrokh V. Irani. For the Revenue : Shri Mukundraj M. Chate. ORDER PER SATBEER SINGH GODARA, J.M. This assessee s appeal for A.Y. 2015-16, arises against the ACIT (International Taxation), Circle-1, Pune s assessment vide Din Order No. ITBA/AST/S/143(3)/2022- 23/1044014892(1), framed in consequence to then CIT [DRP3], Mumbai-2, Mumbai s directions in Din Order No. ITBA/DRP/F/144C(5)/2022-23/1043502105(1), dated 21.06.2022, in proceedings under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 [ In short Act ]. Heard both the parties. Case file perused. 2. The assessee pleads the following substantive grounds in the instant appeal : On the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to law. 3. It next transpires during the course of hearing with the able assistance coming from both the sides that the DRP s direction herein have followed its earlier deduction in assessment year 2018-19 for affirming the Assessing Officer s draft assessment dated 27.09.2021 proposing the impugned ALP adjustment. We make it clear that the learned DRP s detailed discussion to this effect in paragraphs 4.2 to 4.2.4 in internal pages 11 to 18 of the corresponding year. And also that the assessee has already succeeded on the very issue in its appeal ITA.No.97/PUN./2022 for assessment year 2018-19 as per learned coordinate bench s order dated 15.07.2022 reading as under : 2. The only effective ground raised in this appeal is against treating receipt of Rs.42,42,96,498/- from Support and Maintenance Services rendered in relation to software sold as chargeable to tax as Fees for Technical Services (in short FTS ) under the Act and also India-Singapore Double Taxation Avoidance Agreement (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the IT Support service charges were covered by clauses (a) and (b) of para 4 of Article 12 of the DTAA, as against his stand in the draft order to the effect that these were governed by Article 12(4)(a) of the DTAA. The DRP held that the IT Support charges were chargeable as Fees for technical services under the DTAA. Giving effect to the directions of the DRP, the AO passed the impugned order including IT Support service charges of Rs.42.42 crore in the total income. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. It is overt from the factual panorama that income from sale of software has been immuned from the tax-net primarily on the ground that no copyright was provided by the assessee to its customers. The issue under consideration is qua the income from IT Support services. At the outset, it has been fairly admitted on behalf of the assessee that the amount under consideration is chargeable to tax under the Act, but the protection is sought under the DTAA. The stand of the assessee has been that the said amount is in lieu of providing technical knowledge a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. .. 6. A cursory look at the above Article transpires that it deals both with royalties and fees for technical services. The terms `Royalties has been defined in para 3 having two clauses. Though the word `or has not been used between the clauses (a) and (b), still the term royalties means consideration received either for the use or right to use of (a) any copyright of a literary, artistic or scientific work etc. or (b) any industrial, commercial or scientific equipment. Both the clauses are independent of each other. A consideration becomes `royalties on satisfaction of the requisite conditions of either of the clauses. The conditions of both the clauses do not require cumulative satisfaction so as to rope in such consideration within the ambit of `royalties . Simply put, if consideration is received for allowing use or right to use copyright in literary, art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO as falling under Article 12(4)(a), because such clause provides that fees for technical services means payment in consideration of services of managerial, technical or consultancy nature etc., if such services are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the payment described in para 3 is received. The DRP held that income from sale of software does not fall under Article 12(3)(a) and hence not chargeable to tax. Now the moot question is whether IT Support service charges in relation to the software sold will still constitute FTS under para 4(a) of Article 12 of the DTAA? 9.2. The writ of Article 12(3)(a) extends to treating consideration for use or right to use any copyright of literary, artistic, scientific work etc. as `Royalties . Para 4(a) provides that the FTS means any consideration for services which are ancillary and subsidiary to the application or enjoyment of right, etc. for which payment described in para 3 is received. Thus, it is evident, in order an income to fall under para 4(a), it is necessary that there should be some amount falling in para 3(a) and the income as per para 4(a) should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d report is available at page 493 of the paper book. Relevant extracts therefrom have been reproduced by the DRP in its direction as well. The AO has discussed the nature of services rendered to Bharati Airtel Ltd., Gurgaon. Para 4.3 of the remand report provides that the: Customer has requested BMC to provide the following services, as time permits, to assist the Customer with the following activities : On the existing 8.1 system Performing a sizing review for new integrations and new lines of businesses being added to the platform and provide recommendations on the existing Remedy 8.1 system to achieve high availability of up to 99.99% Assisting Customer Operations team to perform Remedy operations management tasks to provide consistent user experience and stability. Be a member of the Customer team providing level 3 support. On the new 9.1 system Performing configuration and enhancements on the Remedy platform. Best practices technical advisory, configuration, documentations, integration of Remedy with other systems based on Customer use cases and requirements. Assisting Customer Operations team to perform Remedy operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the AO has discussed terms of Agreement with Wipro Ltd., Bangalore. The assessee s responsibilities have been mentioned as under: BMC Remedy on Demand Activation or BMC Remedy on Demand Public Sector Activation : This Service will activate the BMC remedy on Demand solution as part of the BMC Remedy on Demand subscription service, and enable the customers to leverage the features of the BMC Remedy on Demand solution. The process includes activities that provide system access and basic configuration to enable the service. The process is administered remotely and when completed an email with credentials and general information on accessing and using the service will be sent to the Customer contact. Scope of Service Included : Provision Environments provision three (3) BMC Remedy on Demand environments. 10.5. Next is the Agreement with Cap Gemini, which states that the `Services shall mean facilities management, service bureau, outsourcing, application management and development, or any other information processing or related services. 10.6. On an overview of the nature of foregoing services rendered by the assessee to its customers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l etc. to the recipients for their own application in future without assistance of the assessee. The services provided by the assessee were consumed with their provision. In the hue of the command of Article 12(4)(b), it is palpable that the assessee, with the provision of IT Support services, did not make available any technical knowledge, experience or skill etc. to its customers to apply in future. Ex consequent, receipt for IT Support services does not become FTS under this provision as well. 11. Once it is held that the amount received by the assessee for providing the IT Support services does not fall under para 4(a) and also misses the prescription of para 4(b), the same ceases to be FTS. The same way in which income from sale of software license in the present case broadly falls under para 3(a) of Article 12 but has been held by the DRP to not satisfy the condition of taxability, income from Support and Maintenance charges of the licensed software also largely fall under para 4(a b) but fail to magnetize taxability within its purview. 12. The DRP has arrived at the conclusion of taxability of IT Support service charges as FTS by distinguishing the earlier ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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