CSG International Ltd., London V. ADIT, New Delhi

ITA 1522/DEL/2011

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 7378 (ITAT-DELHI)
• Duration Of Justice: 13 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-01-2024
• Assessment Year: 2005-2006
• Appeal Filed On: 28-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment
• Section: 143(3); 234B; 195; 208; 13

Judgement Text

I.T.A.No.1522/Del/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER आ .अ.स ं /.I.T.A No.1522/Del/2011 /Assessment Year: 2005-06 CSG International Ltd., (Now Known as Comverse Kenan UK) Level 7, Adelphi Building, 1-11 John Adam Street, London. ब म Vs. ADIT Circle-1(1), International Taxation, New Delhi. PAN No.AACCC3819N अ Appellant /Respondent Assessee by Shri Salil Kapoor, Adv. Ms. Ananya Kapoor, Adv. Revenue by Shri Vivek Kumar Upadhyay, Sr. DR स ु नवाईक तारीख/ Date of hearing: 09.02.2024 उ ोषणाक तारीख/Pronouncement on 07.05.2024 आदेश /O R D E R PER C.N. PRASAD, J.M. This appeal is filed by the Assessee against the order of the Ld.CIT(Appeals)-11, New Delhi dated 18.01.2011 for the AY 2005-06. The assessee raised the following grounds: - “1. That the Learned Commissioner of Income-tax (Appeals) [‘Ld. CIT(A)’] has grossly erred, both on facts and in law in upholding the order of Learned Assessing Officer (‘Ld. AO’) and in taxing the revenue earned by the I.T.A.No.1522/Del/2011 2 Appellant from supply of software as ‘royalty’ under Article 13 of Double Taxation Avoidance Agreement (‘DTAA’) between India and United Kingdom. 2. That the Ld. CIT(A) has grossly erred, both on facts and in law in upholding the order of Ld. AO and in taxing the revenue earned by the Appellant from supply of software as ‘royalty’ under section 9(1)(vi) of the Income-tax Act, 1961. 3. That the Ld. CIT(A) has grossly erred, both on facts and in law in upholding the order of Ld. AO and in taxing the revenue earned by the Appellant from 'maintenance services’ as ‘royalty/ fee for technical services’ under Article 13 of DTAA between India and United Kingdom. 4. That the Ld.CIT(A) has grossly erred, both on facts and in law in upholding the order of Ld. AO and in taxing the revenue earned by the Appellant from ‘maintenance services’ as ‘royalty/ fee for technical services’ under section 9(1)(vi)/(vii) of the Income-tax Act, 1961. 5. That the Ld. CIT(A) has grossly erred, both on facts and in law in dismissing the entire appeal of the Appellant without adjudicating on the following grounds: a) The Ld. AO has grossly erred both on facts and in law in levying interest under section 234B of the Income-tax Act, 1961. b) The Ld. AO has grossly erred both on facts and in law in levying the interest under section 234D of the Income-tax Act, 1961. 6. Without prejudice to ground 5 above, the Ld. CIT (A) has failed to appreciate that the Appellant was not liable to pay advance tax under section 208 and section 209(1)(d) of the Act since tax was deductible under section 195 of the Act on the payments made to the Appellant and hence, no interest under Section 234B was leviable. 7. Without prejudice to ground 5 above, the Ld. CIT (A) has failed to appreciate that no refund was granted to the I.T.A.No.1522/Del/2011 3 Appellant for subject assessment year and hence, no interest under Section 234D was leviable.” 2. The Ld. Counsel for the assessee, at the outset, submits that on identical facts the Tribunal decided the issue of whether the amounts received by the assessee for supply of software and maintenance falls under Royalty u/s 9(1)(vi) of the Act read with Article 13 of DTAA between India and UK. Ld. Counsel submits that the Tribunal held that the amounts received by Assessee for supply of software is not royalty. A copy of the order of the Tribunal in ITA No.264/Del/2008 dated 01.08.2022 is placed on record. Ld. Counsel for the assessee referring to para 20 of the order of the Tribunal for the AY 2003-04 submits that the Tribunal following the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT held that the payments received for supply of software is not taxable as Royalty. 3. Ld. DR strongly placed reliance on the orders of the authorities below. 4. Heard rival submissions. The assessee was incorporated under the laws of United Kingdom (UK) with the primary objective of carrying on the business of specialist, engineers and dealers in computer system. For the assessment year under consideration I.T.A.No.1522/Del/2011 4 Assessee filed its return of income on 31.10.2005 declaring income of Rs.18,13,72,756/-. The Assessee entered into contracts with Indian customers such as Bharti, Ericsson and Motorola (hereinafter relation to its billing software. It is submitted that the Appellant has entered into the following two types of agreements with its customers: • License agreements (like with Ericsson and Motorola) that provide a limited right [i.e. a non- exclusive, personal and non-transferable right] to the said customers to use the software product solely for the purpose of meeting the latter’s obligations to their own customer i.e. BSNL (‘sub-licensee’); and a one- time right to sub-license the software product to the ‘sub-licensee’ is given with further restrictions on the extent and manner of the use of software. The sub- licensee in such a case is also the ultimate user of the software. The ‘sub-licensee’ is identified in the license agreement between the Appellant and its customers and the customers cannot sub-license such software product to any other sub-licensee. • License agreements (like with Bharti) that provide the license to the Appellant's customers to use the software product in its own business without any further sub-licensing rights to any third party. The customers in such a case are the ultimate user of the software. It is submitted that the license does not grant the Appellant’s Customers/sub licensee any right in the copyright (which remains with the Appellant), but merely a copy of computer program. Accordingly, the transaction qualifies as “sale” of “copyrighted I.T.A.No.1522/Del/2011 5 article” and not grants of any “copyright right”. Accordingly, same is classifiable as “Business Profits” and since the Appellant does not have Permanent Establishment (PE) in India, such business profits are not taxable in India. In light of these facts, income from licensing of software has not been offered to tax in the return of income for subject year. 5. However, the Assessing Officer following the findings rendered in the assessment order for the AY 2003-04 held that the amounts received by the assessee during this AY i.e. 2005-06 on account of licensing of software and rendering of maintenance services are taxable under the provisions of Section 9(1)(vi) of the Act as well as under Article 13 of the Tax Treaty between India and UK observing as under: - “3. During A.Y. 2003-04, relevant to F.Y. 2002-03, the assessee had licensed the software and provided the maintenance services to the same customers, from which payments are received during the year. The payments received are on account of the agreements, which were also applicable to A.Y. 2003-04. My predecessor has passed a detailed order u/s 143(3) of the Act on 07.03.2006, in which after examining the agreements, the nature of software licensed, the nature of services rendered and also the provisions of Indian Copyright Act, 1957 and the provisions of the Income Tax Act and Article 13 of the Indo-UK tax treaty, he had held that the revenue from software licensing and maintenance services is taxable @15% under the provisions of Article 13 of Indo-UK tax treaty. I.T.A.No.1522/Del/2011 6 Vide this office letter dated 29.10.2007, the assessee was requested certain information. This letter reads as below: (i) Copy of tax residency certificate of the company. (ii) The details of the customer wise invoices raised, gross amounts received during the year in two categories separately: (a) Amounts, as per assessee are not liable to tax in India & the amount of tax deducted at source in respect of such amounts by the customers. The nature of payment received and why the same is not offered to tax in India? (b) Amounts, which have been offered to tax in India, tax payable & tax deducted at source. (iii) Copy of certificates u/s 197 obtained by the assessee relevant for the year. (iv) Copy of orders u/s 195(2) obtained by payers, of which assessee has a copy. (v) The details of all contracts/ agreements, whether the agreements were entered with final customers, if yes, whether the agreements were performed by the assessee directly or were sub- contracted for performance? (vi) Copy of global accounts of the assessee relevant to the F. Y. 2004-05. (vii) The details of any fixed place of business of the assessee or of its associated enterprise in India. (viii) Details of visits of the employees in the following tabular form: Name of employee Designation Duration the stay Purpose Place of work I.T.A.No.1522/Del/2011 7 (ix) The details of information and documents kept and maintained as per Section 9 2D of the IT Act in respect of all the international transactions. The copy of transfer pricing study report, if any, be also submitted. (x) The details of all the deliverables to the customers. The AR has filed its reply vide letter dated 12.11.2007, wherein it has also explained the reasons for not offering the income from software licensing and maintenance fee to tax. The contentions of the assessee are the same, as were raised during the assessment proceedings for A.Y. 2003-04 The payments during the year under consideration are received from the customers on account of licensing of software and rendering of services, the facts and circumstances of the case remains the same and the arguments of the assessee are also same, therefore, for the detailed reasons discussed in the order for A.Y. 2003-04, it is held that the amounts received by the assessee during this year on account of licensing of software and rendering of maintenance services are taxable under the provisions of Section 9(1 )(vi) of the Act as well as under Article 13 of the tax treaty between India and UK.” 6. The Ld.CIT(A) relying on the order of his predecessor passed for the AY 2003-04 upheld the action of the Assessing Officer for the assessment year under consideration. 7. We observe that for the AY 2003-04 the Tribunal in ITA No.264/Del/2008 dated 01.08.2022 allowed the appeal of the assessee observing as under: - I.T.A.No.1522/Del/2011 8 I.T.A.No.1522/Del/2011 9 I.T.A.No.1522/Del/2011 10 I.T.A.No.1522/Del/2011 11 I.T.A.No.1522/Del/2011 12 I.T.A.No.1522/Del/2011 13 I.T.A.No.1522/Del/2011 14 I.T.A.No.1522/Del/2011 15 I.T.A.No.1522/Del/2011 16 I.T.A.No.1522/Del/2011 17 I.T.A.No.1522/Del/2011 18 I.T.A.No.1522/Del/2011 19 I.T.A.No.1522/Del/2011 20 I.T.A.No.1522/Del/2011 21 I.T.A.No.1522/Del/2011 22 I.T.A.No.1522/Del/2011 23 I.T.A.No.1522/Del/2011 24 I.T.A.No.1522/Del/2011 25 I.T.A.No.1522/Del/2011 26 I.T.A.No.1522/Del/2011 27 I.T.A.No.1522/Del/2011 28 I.T.A.No.1522/Del/2011 29 I.T.A.No.1522/Del/2011 30 I.T.A.No.1522/Del/2011 31 I.T.A.No.1522/Del/2011 32 8. Further on perusal of the assessment order, we observe that it is the finding of the Assessing Officer that the facts and circumstances of the case for the AY 2005-06 remains the same and the arguments of the assessee are also same as was made in the AY 2003-04. Similarly the Ld.CIT(Appeals) also following the order of his predecessor for AY 2003-04 upheld the action of the AO in characterizing the income from software licensing as Royalty within the meaning of section 9(1)(vi) of the Act read with Article 13 of DTAA. The Tribunal allowed the appeal of the assessee for the AY 2003-04. Thus, facts being identical respectfully following the I.T.A.No.1522/Del/2011 33 order of the Tribunal, we allow the grounds of appeal of the assessee. 9. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 07/05/2024 Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07/05/2024 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order Assistant Registrar, ITAT: Delhi Benches-Delhi