TMI Blog2025 (1) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... provider. Pertinently, while considering identical nature of dispute in assessee s own case in A.Y. 2018-19 [ 2023 (5) TMI 1043 - ITAT MUMBAI] had examined the nature of services provided by the assessee in terms with the agreement and concluded that the receipts are not in the nature of FTS. Whether the receipts from additional services can be treated as FTS under the Treaty provisions? - assessee provide service relating to migration of software from old to new - HELD THAT:- If the Department seeks to invoke Article 12(4)(b) of the treaty the burden is entirely on the department to demonstrate the fulfillment of make available condition through cogent evidence. Unfortunately, the Department has failed to do so. Allegation of the AO that the assessee has offered similar income to tax in A.Y. 2018-19 does not stand to reason in view of the fact that in A.Y. 2018-19, the assessee offered it as business income in view of the fact that it had a service PE in India. Whereas, it is the assertion of the assessee that in the impugned assessment year there was no PE in India. Even, in the assessment order, there is no allegation by the Assessing Officer regarding existence of PE in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sublicensing of software is concerned, the Assessing Officer accepted the contention of the assessee that in view of the decision of the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd., cannot be treated as royalty income. However, in so far as receipts from maintenance and support services and additional services are concerned, the Assessing Officer issued a show cause notice to the assessee to explain why such receipts should not be treated as FTS under Article 12(4) of the India-Singapore Double Taxation Avoidence Agreement ( DTAA ). In response to the show cause notice, the assessee furnished a detailed reply stating that the receipts cannot be treated as FTS under Article 12(4)(a) of the Treaty as the services are not relating to any income in the nature of royalty. Further, the assessee submitted that the receipts cannot be treated as FTS even under Article 12(4)(b) of the Treaty as the make available condition is not satisfied. The Assessing Officer, however, did not agree with the contentions of the assessee. 4. Referring to various clauses of the maintenance agreement, the Assessing Officer observed that in terms of such agreement n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s without requiring the aid and assistance of service provider. Pertinently, while considering identical nature of dispute in assessee s own case in A.Y. 2018-19, the Coordinate Bench in ITA No. 2338/Mum/2022 dated 08.05.2023 had examined the nature of services provided by the assessee in terms with the agreement and concluded that the receipts are not in the nature of FTS. For better appreciation, the relevant observations of the Coordinate Bench in this regard are reproduced hereunder: 6. We have heard both the parties at length and also perused the relevant finding given in the impugned order as well as material referred to before us and the maintenance agreement, which is core issue before us, whether income from rendering maintenance and other support services is taxable in India as FTS under Article 12 (4) of India- Singapore DTAA. The relevant portion of the article reads as under:- The term fees for technical services us used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (b) make available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. The Company also submits that it is a non-resident with no presence / Permanent Establishment in terms of India-Singapore DTAA in India and there is no maintenance team of the Company in India. Annex 5- Maintenance Procedure Clause General Assistance 2.1 Service: MSEA's General Assistance services comprise the provision of telephone and/or email responses to reasonable questions communicated by an In-House Support Team member to the MSEA Office regarding the use or operation of the software program in accordance with the agreement.... Clause 3: Corrective Maintenance 3.1 Service: MSEA's Corrective Maintenance services consist of using reasonable efforts to Resolve an Error or Critical Error in the Software Program identified by SUBLICENSEE during the applicable Maintenance Term, i.e., to identify and reproduce the Error or Critical Error and, to the extent practicable using reasonable efforts, to diagnose the Error or Critical Error, and upon such identification and diagnosis, to the extent practicable using reasonable efforts in the good faith judgment of MSEA, to provide a correction of the Error or Critical Error or, if no correction is availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be competent to know how to use the software program to be able to effectively explain the query / bug to MSEA which would then enable MSEA to identify the issue and resolve the same. Clause 4: In-House Support Team The Maintenance Services provided by MSEA hereunder constitute second level maintenance. Accordingly, SUBLICENSEE must establish and maintain an inhouse technical support team of Users at each Site whose members possess the requisite business and technical competencies and knowledge in respect of each Site and in respect of each Authorized Business and have received appropriate training from MSEA and are competent in the use of the Software Program ( In-House Support Team ) ... 1.3.1 In-House Support. SUBLICENSEE'S inhouse support group in Mumbai ( In-House Support Group ) will be generally responsible for providing Internal and External Users with technical assistance and training regarding the use of the software program( In-House Support ). The In House Support will include general technical assistance and training of SUBLICENSEE'S Internal and External Users. 1.3.2 Maintenance Services. ... The In House support Group will be responsible for all communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software Program as SUBLICENSEE as part of the maintenance services which they are entitled to receive, and provided to SUBLICENSEE as part of the Maintenance Services, or otherwise at no additional sublicense fee or maintenance fee (and Updated Version means the version of the Software Program resulting from the installation of an Update). The maintenance services contract is dependent on the software sublicensing agreement. In case of separate agreements for sublicensing and maintenance, there is a termination clause which provides that maintenance services will automatically terminate if software sublicensing contract is expired or terminated 5.3 Automatic Termination: In the event of the expiration or termination of the Sublicense Agreement. this Maintenance Agreement shall automatically terminate The Company submits that the fees for maintenance services are annual and based on a percentage of licence fee. The said fees are not based on the number of queries / bugs raised / resolved by the Appellant. The said fee increases year on year according to the agreed inflation index which implies that there is no diminishing services and the Indian customers year on year continue wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for resolving such queries / bugs. The in-house support team of the Indian customers is mainly a centralized point of contact for purpose of co-ordination and related activities of Indian customers with the assessee. Since, the role of in-house support team involves coordinating with the assessee regarding MSEA software programme supplied by the assessee, the personnel in such In-House support team / IT team need to be competent to know how to use the software program to be able to effectively explain the query / bug to MSEA which would then enable MSEA to identify the issue and resolve the same. This fact is clearly borne out from the relevant clauses of the agreements which has been filed before us and also which has been noted in the foregoing paragraphs. 11. In so far as the training part is concerned, the assessee company provides training to the end users and in-house team members of the Indian customers only with respect to the proper usage of the program. This training is a akin to training provided for operating any product, software and it is generally provided at the initial stage when the software is sub-licensed and subsequently provided only on need basis. Apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical in the impugned assessment year, respectfully following the decision of the Coordinate Bench in assessee s own case as referred to above, we hold that receipts are not in the nature of FTS. 9. Having held so, let us examine whether the receipts of Rs. 16,93,17,904/- from additional services can be treated as FTS under the Treaty provisions. 10. Briefly stated, while examining the issue, the AO observed that the assessee has provided additional services in relation to implementation and migration of software. In other words, the assessee provide service relating to migration of software from old to new. Before the Assessing Officer, the assessee claimed that the receipt would not qualify as FTS in terms of Article 12(4)(b) of the India-Singapore treaty DTAA. 11. The Assessing Officer, however, was not convinced with the submission of the assessee. Referring to protocol to India- USA Treaty, the Assessing Officer observed that the additional services provided technical assistance and training in connection with the migration of the software delivered to the Indian client from one person to another. He observed while rendering such services, the assessee has transferred a techn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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