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TMI Blog2023 (10) TMI 1262X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER For the Appellant : Mr. Farrokh V Irani For the Respondent : Shri Ganesh Bare, CIT ORDER PER SATBEER SINGH GODARA, J.M. : This assessee s appeal for assessment year 2020-2021 arises against the ACIT (IT) Circle-1, Pune s assessment having DIN Order No. ITBA/AST/S/143(3)/2022-23/1047954768(1), dated 12.12.2022, framed in consequence to the CIT [DRP-3], Mumbai-1, Mumbai s directions in DIN Order No. ITBA/DRP/F/144C(5)/2022-231047508342(1), dated 18.11.2022, in proceedings u/sec. 144C(5) r.w.s.144C(13) of the Income Tax Act, 1961 (in short the Act ). Heard both the parties at length. Case file perused. 2. The assessee pleads the following substantive grounds in the instant appeal : On. the facts and-in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment. 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 (DTAA). 3. Succinctly, the facts of the case are that the assessee is a tax resident of Singapore engaged in selling Software products to end- users and customers. Return was filed declaring total income 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 soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby, 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 and experience etc. and since such services were not made available to the customers, it was not chargeable to tax in terms of Article 12(4)(b) of the DTAA. Au contraire, the AO rejected this philosophy by holding 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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, artistic or scientific work etc., it becomes `royalties . There is no requirement that such use or right to use of the software etc. must necessarily be coupled with the use of any industrial, commercial or scientific equipment, so as to constitute 'royalties'. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be for services ancillary to the enjoyment of the right property etc., `for which a payment described in paragraph 3 is received . If there is no amount falling in para 3(a) which can be described as Royalties for use or right to use any copyright etc., consideration for any services 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 Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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 operations management incident management, bug fixing, patch updates and deployment of major software releases. Be a member of the Customer team providing level 3 support. Review application performance and health check (including sizing and provide recommendations on changes, Quarterly review of activities undertaken and to be provided in following quarter including - Historical performance and availability review Recommendations to improve performance and availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, it is absolutely clear that these are in the realm of attending to the Customers requirements by performing sizing review for new integrations and new lines of businesses and also providing level 3 support along with reviewing applications performance and health checks etc. These services definitely require technical knowledge for their rendition. The question is whether such services make available any technical knowledge, experience, or skill etc. to the customers within the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 years tribunal orders. It held that the Tribunal did not separately examine the nature of Support services charges de hors receipts on account of software licenses and proceeded to treat both as software royalty. Firstly, the DRP in the earlier orders did not draw any such distinction and held the entire amount as chargeable to tax as royalty in the light of the decision in Samsung (supra). When the matter came up before the Tribunal, the decision in Engineering Analysis (SC)( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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