M/s. Ansys Inc, Pune V. Assistant Commissioner of Income-tax, (IT) Circle -1, , Pune

ITA 1755/PUN/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3273 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-04-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 16-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PASSED
• Keywords: Double taxation relief; Permanent establishment
• Section: 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.175 & 1755/PUN/2018 / ASSESSMENT YEARS: 2009-10 & 2014-15 M/S. ANSYS INC., C/O. FLUENT INDIA PVT. LTD., PLOT NO.34/1, RAJIV GANDHI INFOTECH PARK, MIDC,HINJEWADI, PUNE 411 057 PAN : AAJCA1637K VS. ACIT(IT), CIRCLE-1, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE FINAL ASSESSMENT ORDERS DATED 20-11-2017 AND 14-09-201 8 PASSED BY THE ASSESSING OFFICER (AO) U/S. 147 R.W.S. 14 4(1)(B) R.W.S. 144C(13) IN RELATION TO THE ASSESSMENT YEAR 2009-1 0 AND U/S.144C(13) R.W.S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN RELATION TO THE ASSESSMENT YEA R 2014-15. SINCE A COMMON ISSUE IS RAISED IN THESE APPEALS, WE ARE, ASSESSEE BY SHRI V. NARENDRA SHARMA REVENUE BY SHRI MAHADEVAN A.M. KRISHNAN DATE OF HEARING 15-06-2021 DATE OF PRONOUNCEMENT 15-06-2021 ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 2 THEREFORE, PROCEEDING TO DISPOSE THEM OFF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. A.Y. 2009-10 : 2. THE ONLY ISSUE RAISED ON MERITS IS AGAINST THE TAXABILITY OF RS.2,42,02,485/- AS INCOME FROM ROYALTY WITHIN THE MEAN ING OF SECTION 9(1)(VI) OF THE ACT R.W. ARTICLE 12 OF THE DOUBLE TA XATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA (HEREINAFTER ALSO CALLED AS DTAA). BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY REGISTERED IN, AND A TAX RESIDENT OF THE UNITED STATES OF AMERICA. NO RETURN OF INCOME WAS FILED FOR THE YEAR UNDER CONSIDERATION. THE AO INITIATED THE RE-ASSESSMENT PROCEEDINGS BY RECORDING THAT A RECEIPT OF RS.2.42 CRORE AS A CONSIDERATION FOR SALE OF SOFTWARE/LICENSE RELATING TO DEVELOPM ENT OF SOFTWARE FROM M/S. HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT. LTD. ESCAPED ASSESSMENT AS IT WAS IN THE NATURE OF ROYALTY CHARGEABLE TO TAX IN INDIA. APART FROM RAISING OBJECTIONS AG AINST AND CHALLENGING THE INITIATION OF RE-ASSESSMENT PROCEEDINGS, THE ASSESSEE, ON MERITS, RELIED ON ARTICLE 12 OF THE DTAA TO CO NTEND THAT THE AMOUNT RECEIVED FROM M/S. HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT. LTD. WAS NOT IN THE NATURE OF ROYALTY. TAKING ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 3 COGNIZANCE OF EXPLANATION 4 TO SECTION 9(1)(VI), THE AO HE LD THAT THE RECEIPT WAS IN THE NATURE OF INCOME, CHARGEABLE TO TAX IN INDIA NOT ONLY UNDER THE ACT BUT ALSO UNDER THE DTAA. IN REACH ING THIS CONCLUSION, THE AO RELIED ON CERTAIN JUDGMENTS UPHOLDING HIS P OINT OF VIEW. IT IS THIS TAXABILITY OF RS.2.42 CRORE AS INCOME FRO M ROYALTY BY THE AO IN THE FINAL ASSESSMENT ORDER THAT HAS BEEN ASSAILED BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND GO NE THROUGH THE RELEVANT MATERIAL ON RECORD. WHEREAS THE CASE OF THE ASSESSEE IS THAT THE RECEIPT FROM M/S. HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT. LTD. IS `BUSINESS PROFITS COVERED UNDER A RTICLE 7 OF THE DTAA, THE REVENUE HAS SET UP A CASE THAT IT IS IN TH E NATURE OF ROYALTIES UNDER THE ARTICLE 12. THE ASSESSEE IS A N AMERICAN COMPANY AND HENCE GOVERNED BY THE DTAA. ARTIC LE 12 OF THE DTAA DEFINES THE TERM ROYALTIES IN PARA 3 AS UNDE R: THE TERM ROYALTIES' AS USED IN THIS ARTICLE MEANS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATIO N FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERAR Y, ARTISTIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR W ORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONN ECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFO RMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 4 PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF; AND (B) PAYMENT OF ANY KIND RECEIVED AS CONSIDERATION F OR THE USE OF, OR THE RIGHT TO USE, THE INDUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERP RISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARAGRAPH 2(C) OR 3 OR ARTICLE 8. 4. THE ABOVE PARAGRAPH CLEARLY INDICATES THAT THE ROYALTY MEANS CONSIDERATION FOR USE OR RIGHT TO USE ANY COPYRIGHT OF A LITER ARY, ARTISTIC OR SCIENTIFIC WORK ETC. THE QUESTION WHETHER THE SALE OF COMPUTER SOFTWARE WOULD PARTAKE OF THE CHARACTER OF ROYA LTIES OR BUSINESS PROFITS, RECENTLY CAME UP FOR CONSIDERATION BEFORE THE HONBLE SUPREME COURT IN ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. VS. CIT (2021) 432 ITR 472 (SC). AFTER ANALYZING THE IDENTICAL ISSUE IN THE BACKDROP OF SIMILAR EXPRES SION AS USED IN ARTICLE 12(3), IT CAME TO HOLD THAT OWNERSHIP OF COPYRIGHT IN A WORK IS DIFFERENT FROM THE OWNERSHIP OF THE P HYSICAL MATERIAL IN WHICH THE COPYRIGHTED WORK MAY HAPPEN TO BE EMBODIED. PARTING WITH COPYRIGHT ENTAILS PARTING WITH THE RIGHT TO DO ANY OF THE ACTS MENTIONED IN SECTION 14 OF THE COPYRIGHT A CT. WHERE THE CORE OF A TRANSACTION IS TO AUTHORIZE THE END-USER TO HAVE ACCESS TO AND MAKE USE OF THE LICENSED COMPUTER SOFTW ARE ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 5 PRODUCT OVER WHICH THE LICENSEE HAS NO EXCLUSIVE RIGHTS, N O COPYRIGHT IS PARTED WITH. 5. IT IS DISCERNIBLE FROM THE IMPUGNED ORDER THAT THE A O INVOKED EXPLANATION 4 TO SECTION 9(1)(VI) OF THE ACT TO HOLD THE RECEIPT AS ROYALTY UNDER THE ACT. IN THIS REGARD, THE HONBLE SUPREME COURT IN THE AFORENOTED CASE FURTHER HELD THAT EXPLANATION 4 TO SECTIO N 9(1)(VI) INSERTED VIDE THE FINANCE ACT 2012 IS NOT CLARIFICATOR Y AS IT EXPANDS THE SCOPE AND HENCE PROSPECTIVE. THE ASSESSM ENT YEAR UNDER CONSIDERATION IS 2009-10. 6. ADVERTING TO THE FACTS OF THE EXTANT CASE, IT IS SEEN THA T THE DISPUTED RECEIPT OF RS.2.42 CRORE FROM M/S. HONEYWELL TEC HNOLOGY SOLUTIONS LAB PVT. LTD. IS ON ACCOUNT OF SALE OF SOFTWARE/LICE NSE AND NOT FOR PARTING WITH THE COPYRIGHT OF THE SOFTWARE. SINCE FACTS OF THE PRESENT CASE ARE SIMILAR TO THOSE CONSIDERED AND D ECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. (SUPRA), RESPECTFULLY FOLLOWING THE PRECEDENT, WE HOLD THAT THE AMOUNT CANNOT BE BROUGHT WITHIN THE AMBIT OF ROYALTIES UNDER ARTICLE 12 OF THE DTAA. 7. AU CONTRAIRE, THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW HAS BEEN THAT THE RECEIPT IS NOT IN THE NATURE OF ROYA LTY, BUT ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 6 BUSINESS PROFITS. IN ORDER TO BRING `BUSINESS PROFITS OF A RESIDENT OF THE OTHER COUNTRY TO TAX IN INDIA WITHIN THE AMBIT OF ARTICLE 7 , IT IS SINE QUA NON THAT THE FOREIGN ENTERPRISE MUST HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA IN TERMS OF ARTICLE 5 OF THE DTAA. IN THE ABSENCE OF A PE, THE TAXABILITY UNDER ARTICLE 7 DOES NOT TRIGGER. THE ASSESSEE CATEGORICALLY SUBMITTED BEFORE THE DRP THAT IT DID N OT HAVE ANY PE IN INDIA. THE DISPUTE RESOLUTION PANEL (DRP) IN PA RA 6.6. OF ITS DIRECTION HAS UNEQUIVOCALLY NOTED THAT: W E FIND THAT THERE SEEMS NO DISPUTE ON THE FACT THAT THE APPELLANT DOES NO T HAVE A PE IN INDIA . AS THE ASSESSEE DID NOT HAVE A PE IN INDIA DURING THE RELEVANT YEAR, THE MANDATE OF ARTICLE 7 CANNOT ACTIVATE. A FORTIORI , THE RECEIPT CANNOT BE CHARGED TO TAX IN INDIA AS BUSINES S PROFITS EITHER. IN VIEW OF THE FOREGOING DISCUSSION, WE A RE SATISFIED THAT THE AMOUNT OF RS.2.42 CRORE RECEIVED BY THE ASSESSEE FROM SALE OF SOFTWARE/LICENSE TO M/S. HONEYWELL TECHNOLOGY SOLUTIONS LAB PVT. LTD. CEASES TO CHARGEABLE TO TAX IN INDIA. THIS ISSUE IS, THEREFORE, DECIDED IN ASSESSEES FAVOUR. 8. IN VIEW OF OUR DECISION ON MERITS ABOUT THE NON-TAXABILITY OF RS.2.42 CRORE, WHICH IS THE ONLY ADDITION MADE BY THE AO IN THE ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 7 ASSESSMENT ORDER, THERE IS NO NEED TO DEAL WITH THE GROUND CHALLENGING THE RE-ASSESSMENT. A.Y. 2014-15 : 9. THE ONLY ISSUE ESPOUSED BY THE LD. AR IN THIS APPEAL IS A BOUT THE CHARGEABILITY OF RS.86,05,13,407/-, BEING, INCOME FROM SALE OF SOFTWARE LICENSE WHICH WAS HELD BY THE AO TO BE AN INCOME IN THE NATURE OF ROYALTY. IN FACT, THE LD. AR SIMPLY ADOPTED THE ARGUMENTS MADE FOR THE A.Y. 2009-10 WITHOUT GOING INTO DETA ILS FOR THE YEAR UNDER CONSIDERATION. THE LD. DR ALSO CANDIDLY ADMITTED THE POSITION THAT THE ISSUE IS SIMILAR TO THE EARLIER Y EAR. 10. IN VIEW OF THE RIVAL BUT COMMON SUBMISSIONS AND FOLLOWIN G THE VIEW TAKEN HEREINABOVE ON THIS ISSUE, WE HOLD THAT RECEIP T OF SOFTWARE LICENSE AMOUNTING TO RS.86,05,13,407/- CANNOT BE CHARGED TO TAX AS ROYALTIES UNDER THE DTAA. IN THE SAM E MANNER, THE AMOUNT WILL ESCAPE TAXATION AS BUSINESS PROFITS UNDER ARTICLE 7 ALSO BECAUSE OF IT NOT HAVING ANY PE IN INDIA. ALBEIT EXPLANATION 4 TO SECTION 9(1)(VI) IS APPLICABLE TO THE YEAR UNDER CONSIDERATION, BUT SECTION 90(2) OF ACT STATES THAT WHE RE THE CENTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA UNDER SUB-SECTION (1), ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 8 THEN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APP LIES, THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MO RE BENEFICIAL TO THAT ASSESSEE. IN OTHER WORDS, THE PROVISIONS O F THE ACT OR THE DTAA, WHICHEVER ARE MORE BENEFICIAL TO THE ASSE SSEE WOULD APPLY. COMING BACK TO THE FACTUAL PANORAMA, WE FIND THAT THE PROVISION OF THE DTAA, BEING MORE BENEFICIAL THAN THAT OF THE ACT WOULD APPLY MAKING THE RECEIPT FROM SALE OF SOFTWARE LICE NSE AS NOT CHARGEABLE TO TAX IN INDIA. 11. THE OTHER GROUNDS RELATING TO CHARGEABILITY OF INTEREST E TC., ARE CONSEQUENTIAL AND ALLOWED PRO TANTO. 12. IN THE RESULT, THE APPEAL FOR THE A.Y. 2009-10 IS PARTLY ALLOWED AND THAT FOR THE A.Y. 2014-15 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JUNE, 2021. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE P RESIDENT PUNE; DATED : 15 TH JUNE , 2021 SATISH ITA NOS.175 & 1755/PUN/2018 M/S. ANSYS INC., 9 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. THE PR.CIT-5, PUNE , , C / DR C, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 15-06-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 15-06-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *