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TMI Blog2024 (6) TMI 1434X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 India-Canada DTAA has also been examined.
We find that the facts of the assessee are covered by the decision in case of Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT] after determining various clauses of EULA/ Distribution agreement held that payments made by the Appellant to non-resident vendors shall not be taxable as Royalty under the relevant DTAA.
We hold that payment made by Indian group entities to the Appellant is in consideration for use of software provided by third party vendor and is towards the 'copyrighted article', without any copyrights being granted for its commercial exploitation, hence, the same shall not qualify as 'Royalty' as per Article 12(3) of the India-Canada DTAA. Appeal of assessee allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) of the Income Tax Act, 1961 for A.Y. 2021-22 declaring total income of Rs. 41,36,27,860/- out of which Rs.34,05,55,800/- was declared to be taxed at the rate of 15% and receipts of Rs.7,41,83,452/- being amount cross charged from group companies in India for use of third-party standard software were claimed as non-taxable under India-Canada DTAA. 4. In A.Y. 2021-22, the assessee cross charged Rs. 7,41,83,452/- from group companies for actual use of various third-party standard software like Auto CAD software, Civil 3D, 3ds Max, etc. which is called GIT Infrastructure ('GIT') charges in the books of accounts. The assessee as a measure of commercial expedience, acquires software licenses from thirdparty owners for use in its business of providing engineering services to its clients, and also use of such software licenses by the group companies from which it cross charges the cost of software license plus mark-up based on actual use by the group companies. Excerpts Assessment proceedings u/s 143(3) r.w.s 144C of the Act: 5. The Assistant Commissioner of Income Tax, Circle International Tax-3(1)(1), Delhi issued draft assessment order u/s 144C(1) of the Act dated December 27, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ('FIS') as envisaged under Article 12(4)(b) of the India-Canada DTAA And the allegations made in the assessment order are factually incorrect and there is no basis to hold that the amount cross charged from group companies for use of third-party software meets the conditions of "make available". 11. On the other hand, the ld. DR supported the order of the ld. DRP. 12. Heard the arguments of both the parties and perused the material available on record. 13. Article 12(4) of the India Canada DTAA defines Fee for Technical Services as: "For the purposes of this Article, 'fees for Technical services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 14. Further, as per the above defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;make available' clause. As learned counsel rightly puts it, its not simply the rendition of a technical service which is sufficient to invoke the taxability of technical services under the make available clause. Additionally, there has to be a transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider. The services provided by non residents did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'." 18. Similar views expressed by various forums of the judiciary in a plethora of judgments: * Cushman and Wakefield Pte. Ltd (2008) 305 ITR 208 (AAR) * Invensys Systems Inc., In Re (2009) 317 ITR 438 (AAR) * Federation of Indian Chamber of Commerce and Industry (2010) 320 ITR 124 (AAR) * Ernst & Young (P) Ltd (2010) 323 ITR 184 (AAR) * R. R. Donelley India Outsource Private Ltd (2010) 241 CTR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 thereof), which deal with royalty, not being more beneficial to the appellant have no application in the facts of these cases. Our answer to the question posed before us, is that the amounts paid by resident Indian end- users/distributors to non-resident computer software manufacturers/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 referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act." 22. In the light of above, we hold that payment made by Indian group entities to the Appellant is in consideration for use of software provided by third party vendor and is towards the 'copyrighted article', without any copyrights being granted for its commercial exploitation, hence, the same shall not qualify as 'Royalty' as per Article 12(3) of the India-Canada DTAA. 23. In the result, the Appeal of the assessee is allowed, the Stay Application of the assessee is dismissed as inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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