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TMI Blog2025 (3) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Software application and GSAP maintenance charges is royalty under the DTAA between India and UK? - In assessee's case the payments are made towards cost allocation of of SUN Maintenance Software and GSAP maintenance charges therefore we hold that the amount received towards cost allocation of SUN Maintenance Software and GSAP maintenance charges cannot be treated as royalty and the addition made in this regard is not sustainable. Treatment of cost allocation pertaining to GSAP Go-Live and access of GSAP application as Royalty - HELD THAT:- The assessee during the year under consideration has migrated to GSAP Software and has incurred expenses towards procurement of licence to use the Software also expenses towards customization of the Software for Go-live. These expenses have been allocated across the group on a cost to cost basis based on the number of users. Only when the payment is made towards the right to use the copy right the same would fall within the definition of Royalty under the DTAA. In assessee's case the amount received towards cost allocation of expenses incurred towards acquiring the licence to access GSAP Software and the cost incurred towards modi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 14 Receipts towards GSAP Go Live charges/ Go- Live true up does not constitute income Ground No.10 Ground No.5 -- Ground No. 15 Receipts towards GSAP Go Live charges does not qualify as Royalty Ground No.11 & 12 Ground No. 6 & 7 -- Ground No. 16 & 17 Receipts towards access to GSAP application does not constitute income Ground No.13 -- Ground No.5 Ground No.5 Receipts towards access to GSAP application does not qualify as Royalty Ground No.14 & 15 -- Ground No. 6 to 8 Ground No. 6 to 8 Non granting of TDS credit -- -- Ground No.18 Interest under section 234A, 234B & 234C Ground No.16 Ground No.8 Ground No.15 Ground No. 19 Penalty under section 271(1)(c) -- Ground No. 16 Ground No.20 2. The assessee in all these appeals also raised an additional ground on the legal issue that the final assessment order of the AO is barred by limitation by placing reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs. Roca Bathroom Products (P) Ltd. (2022) 445 ITR 537 (Mad.). However, during the course of hearing, the ld. AR did not press for the admission of the additional ground and accordingly the same is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and perused the materials available on record. It is observed that the assessee has entered into a Cost Contribution Agreement dated 01.04.2008 with SIMPL for general BSS which are in the nature of management support, development and provision of support and business tools, provision of marketing support, promotion of professional competence, legal services, development, communication and audit of standards of performance, contracting and procurement services, taxation advice and services, general financial advice and services, employee relations and public affairs/media advice and other business support services. The assessee contends that the cost incurred by the assessee is to be allocated amongst Shell operating companies based on cost allocation keys as per the terms of CCA and further the said costs are without mark up and are charged to the cost sharers on the basis of actual cost incurred by the assessee. It also contended that the payments received without markup are in the nature of reimbursement and not in the character of income which is chargeable to tax in India. They are merely in the nature of cost-recharge as per the CCA. It is further observed that SIMPL file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived by the assessee from SIMPL is not in the nature of 'fee for technical service' and further held that the services are in the nature of managerial service and not technical service which are made available. The relevant extract of the said decision is cited herein under for ease of reference: 15. Be that as it may, the crux of the matter lies in ascertaining whether the finding of the AAR that services availed by Petitioner from SIPCL or payments made by Petitioner to SIPCL are of/for 'technical/'consultation' services and secondly, whether such services are 'made available' to Petitioner. Article 13 of DTAA reads as under: "ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 16. From the bare words of the Article, it is clear that income of Shivgan SIPCL will be chargeable to tax in India only if the payment by Petitioner is towards fees for 'technical services'. Under Article 13(4), the term 'fees for technical services' means payments of any kind in consideration for the rendering of any technical or consultancy services. Sub-para (c) to Article 13(4) further restricts the meaning of the term to only that which makes available technical knowledge, experience, skill, know-how or processes, or consists of the development or transfer of a technical plan or technical design. 17. The principle of noscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. The word 'consultancy' services follows 'technical' which is further followed by the phrase "which make available technical knowledge, experience, skill, know-how or processes, or consist of development and transfer of a technical plan or technical design." A clear reading indicates that even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requiring expertise in a technology. By Consultancy Services, in this context, would mean advisory services. The categories of technical and consultancy services are to some extent, overlapping. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a payment described in paragraph (3)(a) of Article 13 is received; (2) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of Article 13 is received; or (3) as described in paragraph 4(c), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(c), consultancy services which are not of a technical nature cannot be included services. Thus, the services availed by Petitioner cannot be said to be technical services and Article 13 is wholly inapplicable in the facts and circumstances of the present case. 19. It will be useful to refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue. 15.The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." (emphasis supplied) 22. Similarly, the Delhi High Court in the CIT (International Taxation)-1, Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ploy similar technology or techniques in the future without depending upon the provider. " [Emphasis is ours] 15. We tend to agree with the analysis and conclusion arrived at by the Tribunal." (emphasis supplied) 23. Therefore, even if it is fees for technical or consultancy services, it can be only where fees are paid in consideration for making available technical knowledge, experience etc. Thus the view of the AAR that SIPCL works closely and advises the employees of Petitioner and hence makes available the services is not correct. This view in fact suffers from fallacy since the agreement continues to operate till date. If the view of AAR is to be held as correct then the contract must stand concluded as once the services and the know how, skill etc is transferred to Petitioner, the need of continuing to render said services must end. This is factually not so as the CCA is in effect till date. 24. Considering the above discussion it is clear that the AAR has interpreted the requirements to be satisfied for 'make available' based on its own general notion of the said term without appreciating the applicable law on the subject and also reached an erroneous conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, deem it fit to allow the grounds of appeal raised by the assessee. As the issue relating to permanent establishment of the assessee is not specifically raised before us by both the sides in the grounds of appeal, except for the arguments enhanced by the ld. DR at the time of hearing, we decline to adjudicate on the same." 5. We notice that for the year under consideration also the revenue has placed reliance on the decision of the AAR in the case of SIMPL to hold that the receipts towards BSS is to be treated as FTS in the hands of the assessee which has not been reversed by the Hon'ble Jurisdictional High Court. Since the BSS rendered by the assessee is arising out of the same CCA as in the case of SIMPL, we are of the view that the decision of the Hon'ble High Court has a binding precedence in assessee's case also. Further the facts for the year under consideration are identical to AY 2009-10 and the revenue did not bring anything on record to controvert the same. Therefore in our considered view the above decision of the Co-ordinate Bench on the impugned issue is applicable for the year under consideration also. Accordingly, we direct the AO to delete the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar remittances made to the residents of Germany and France, were held to be not liable for deduction of tax at source. The Tribunal, following the decision of its co-ordinate Bench, in assessee's own case, dismissed the appeal filed by the Revenue by the impugned order. 8. At the outset, Learned Counsel for the parties would fairly state that the question of law as raised in the present appeals, is no more res integra in view of the authoritative pronouncement of the Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. v. CIT [2021] 125 taxmann.com 42/281 Taxman 19/432 ITR 471 In the said case the Assessing Officer, applying Article 12(3) of the DTAA entered between India and U.S.A. as also the provisions of Section 9(1)(vi) of the IT Act to the transaction between the parties, held that the transaction involved copyright, which attracted the payment of royalty and accordingly, tax was required to be deducted at source by the Indian importer. Since this was not done, it was held that the assessee was liable to make good the payment of TDS which it had not deducted. Also interest under Section 201(1)(A) of the Act was levied. The Appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income-tax Act (section 9(1)(v), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessee's, 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 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. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies on a cost to cost basis based on the number of users. The ld. AR drew our attention to the findings given by the DRP in para-12.3.1 of the directions wherein the DRP has held that GSAP maintenance charges are similar to SUN Maintenance Charges to submit that the nature of software being accepted as identical the decision on the issue of SUN software is applicable to GSAP Software also. The ld. AR argued that the licence cost and the Go-live cost are incurred towards obtaining the right to use the GSAP Software and therefore, the decision of the Hon'ble Supreme Court in the case of Engineering Analysis (supra) is applicable for the impugned issue also. 10. We heard the parties and perused the record. The assessee during the year under consideration has migrated to GSAP Software and has incurred expenses towards procurement of licence to use the Software also expenses towards customization of the Software for Go-live. These expenses have been allocated across the group on a cost to cost basis based on the number of users. The contention of the AO is that the amount received by the assessee is in the nature of Royalty as per explanation-4 to section 9(1)(vi) of the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld fall within the definition of Royalty under the DTAA. In assessee's case the amount received towards cost allocation of expenses incurred towards acquiring the licence to access GSAP Software and the cost incurred towards modification for Go-live does not result any right to use the copy right, but only the right to use the copy righted software of GSAP. Therefore in our considered view, the amount paid cannot be treated as Royalty under Article 13 of the DTAA between India and UK. Further the amount received by the assessee is on a cost to cost basis without any income element in it and on that count also, the amount received cannot be treated as taxable in India. In view of this discussion and, respectfully following the above decision of the Hon'ble Supreme Court, we hold that the receipt towards cost allocation of GSAP licence and Go-live of GSAP application cannot be treated as Royalty and the addition made by the AO in this regard is not tenable. Ground No. 11, 12, 14 & 15 are allowed. Ground No. 10 & 13 are left open in view of our decision in Ground No. 11, 12, 14 & 15. 13. Ground No. 16 pertaining to interest under section 234A, 234B & 234C of the Act are cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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