TSYS Card Tech Ltd, United Kingdom V. DCIT Circle 3(1)(1) Int.Taxation, New delhi

ITA 2006/DEL/2022

AI Insights

The case involves TSYS Card Tech Ltd, a company based in the UK, which appealed against the final assessment order passed by the AO concerning the taxability of certain receipts in India. The receipts included software license fees and fees for related services, which the AO had classified as FTS, thus taxable in India. The appellant contested this classification, arguing that these receipts should be considered business income under Article 7 of the India-UK DTAA, as they did not have a permanent establishment in India. The Dispute Resolution Panel (DRP) had earlier directed the AO to exclude these receipts from FTS, a direction which the AO did not follow. The Tribunal, after examining the agreements and the nature of the services provided, ruled in favor of the appellant, allowing the appeal and setting aside the AO's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131056 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-11-2022
• Assessment Year: 2019-2020
• Appeal Filed On: 24-08-2022
• Other Referred Cases: Excel Engineering Analysis Centre Pvt Ltd Vs CIT (Civil Appeal Nos. 8733-8734 of 2018)
• Laws Referred To: Income Tax Act, India-UK Double Taxation Avoidance Agreement
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 73; 72; 13

Judgement Text

Page | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Saktijit Dey, Judicial Member ITA No. 2006/Del/2022: Asstt. Year: 2019-20 TSYS Card Tech Ltd, Fulford Moor House, Fulford Road York YO10 4EY, United Kingdom, UK, Vs DCIT, Circle-3(1)(1), International Taxation, New Delhi (APPELLANT) (RESPONDENT) PAN No. AADCT5168J Assessee by : Sh. Kamal Sawhney, Adv Shri Arun Bhadauria, Adv Shri Prashnat Meharchandani, Adv Revenue by : Sh. Gangadhar Panda, CIT-DR Date of Hearing: 07.11.2022 Date of Pronouncement: 24.01.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: T he pr e s e nt app e al h as b e e n f i l e d by the as se s s e e ag ai ns t t he o r d e r o f t he ld. AO da t e d 2 8 .0 6. 20 2 2 . 2 . T he as se s se e h as ra is e d t he f o l lo w ing g r ou nd s o f ap pe al: - “1. On the facts and circumstances of the case and in law, the final assessment order passed by the Ld. AO is bad-in-law and liable to be quashed. 2. On the facts and circumstances of the case and in law, the Ld. AO has grossly erred in passing the final assessment order without considering the material available on record and is bad in law and void ab initio since it has been passed without giving sufficient opportunity to the appellant. 3. On the facts and circumstances of the case and in law, the Ld. AO has grossly erred in passing the final Page | 2 assessment order without giving the cognizance to the directions passed by the Ld. DRP and accordingly, the final assessment order is bad in law. 4. On the facts and in the circumstances of the case and in law, Ld. AO has erred in alleging that receipts in the nature of software license fee amounting to Rs 5,21,17,082 is taxable as Fees for Technical Services (FTS’) as per the Act and also as per the provisions of India-UK Double Taxation Avoidance Agreement ( DTAA ). 4.1 In doing so, the Ld. AO has erred in not following the directions of Ld. DRP, wherein it was directed to exclude the receipts related to software license fee amounting to Rs 5,21,17,082. As per directions of the Ld. DRP, such receipts will constitute business income under Article 7 of the India-UK DTAA and will not be taxable in India because undisputedly, Appellant does not have any PE in India. 5. On the facts and in the circumstances of the case and in law, Ld. AO/ DRP has erred in alleging that receipts from provision of other related services amounting to Rs 12,01,30,877 is taxable as FTS as per the Act read with India- UK DTAA. 6. On the facts and in the circumstances of the case and in law, Ld. AO has erred in proposing to tax the receipts amounting to Rs 7,24,821 as FTS as per the Act read with the India-UK DTAA, as the same is in thejature of reimbursement which does not involve any income element and hence not chargeable to tax in India in the hands of the appellant. 6.1 On the facts and circumstances of the case and in law, the Ld. AO has erred in not following the directions of Ld. DRP, wherein it was directed that the Ld. AO to verify the details regarding the reimbursement and to exclude receipts which are in the nature of reimbursement. 7. On the facts and circumstances of the case and in law, the ld AO erred in initiating penalty proceedings under section 270A of the Act.” 3 . G r ound No . 1 , 2 and 3 ar e g ene r a l i n nat ur e and the r e f o r e , s ame ar e di s m is se d . Page | 3 4 . Br ie f f ac ts o f t he case is that th e as se s s e e M /s T SY S Car d T e ch Ltd . L td is a c om p a ny. A s se s s e e i s e n g ag ed in the b us i ne s s o f p r ov id ing inf or m a t io n te ch no lo g y r elate d se r v ice s t o f i na n ci al pay m e n t s ind ust ry . Dur ing t he s ub je ct AY , the a sse s se e had e arne d r e v e nue f r o m Ind i an Custo m e r p r im ar i ly fo r r e nd it io n o f so ft w ar e li ce n se ( r ef e r re d to as ‘ P R IME) a nd p r ov is io n o f so f t war e r e la te d se r v ice s i nc lud ing imp le m e nta t io n s e r v ic e s , e nhan ce m e n t s e r vic e s , a nn ua l m ain te na nc e se r v ice s a nd c o ns ul ta ncy se r v i ce s as p er the r e que s t o f the Cu sto m e r s . 5 . Dur ing t he y e ar the a s se s s e e r e c e iv e d an am o un t o f Rs . 5 ,2 1, 17 ,0 8 2/ - o n a cco un t o f s of tw ar e ( P r im e) L ic e ns e fe e and f e e f o r pr o v isio n fo r o t he r r e la te d par t ie s o f Rs . 1 2, 01 ,3 0 ,8 77 / - and r e ce ip t in na tur e o f r e i m bur s e me nt o f Rs . 7 ,2 4 ,8 21 / - to ta l ing to Rs . 1 7 ,2 9, 72 ,7 8 0/ - . 6 . As r eg ar d s t he fir st s e t of r e c e ipt s o n ac c o u nt o f So f tw ar e ( P r im e ) Lice nse Fe e o f Rs . 5 ,2 1 , 17 , 0 8 2, the ass e s se e f ile d a c op y o f " P ri m e a nd O nl i ne S o ft w ar e L ice ns i ng Ag r e e me n t d ate d 09 .1 1 .2 00 5 wi th UT I Ba nk ( Ax is Ba nk ) and S o f tw ar e L ic e ns e Ag r e e m en t w it h IC IC I Ba nk L td d ate d 03 .0 3 .2 0 0 4 b e fo r e t he ld DR P . 7 . It i s p r o v id e d th a t, inte r a li a , the L ice nse e s ha ll: “ 5. Re f r ai n fr o m m o dif y ing P R IM E a n d t he O pe r a ti ng Env i r o n me n t o n w hic h it r e sid e s un le s s aut ho r i se d o r in s t ru c te d i n wr i ti ng b y the L ice nso r . 6 . Ne i ther t r an sf e r P R IME ( o r po r t io n s o f it) no r d iv ulg e i t , i ts s p e c if ic a tio ns o r ma nu al s t o a ny th ir d p ar t y unle s s au t ho r ise d in w r i t i ng by t he L ice nso r . 7 . Re f r ai n f r o m t a k ing mo r e t ha n t wo co p ies o f P R IM E, su ch c o p ie s be i ng fo r b ack up p ur p o se s o nly . O ne fur ther co p y o f P R IM E m ay b e m ad e f o r d is a ste r re c o v e ry p ur p o se s . .. Page | 4 8 . Re f r ai n fr o m tak i ng c o pie s o f the P R IME M an ual s unle s s au t ho ri s e d i n wr i t ing b y th e L i c en s or . 9 . Re f r ai n fr o m a tte m p t i ng to r ev e r s e c o mp i le P R IM E. 8 . H av ing g o ne t hr o ug h t he ag r e e me nt si nce the use r has no r ig h t to m ak e co p ie s o r c o mm e r ci al ly e x plo it t he r ig h t i n the c op y r ig ht o f suc h s o f tw are the ld DRP fo llo w i ng the r at io la id d o wn b y Ho n' b le Supr e m e Co ur t i n t he c onte x t o f Bus ine ss In co m e /R o y alt y i n Eng i ne e r i ng A na ly s is Ce ntr e o f Ex ce l le nc e P r iv at e Ltd . Vs . C IT ( Civ i l Ap p e al No s. 8 73 3 - 8 73 4 o f 2 0 18 ) di r e ct e d to e x c lud e r e ce ip ts r e l at i ng to s a le o f s o f tw ar e l ic e ns e s i n ac c o r dan c e w it h a nd to t h e e x te nt co v e r e d und e r the app l ic ab le ca te g o r ie s co n t ai ne d in H o n' b le S up r e m e Co ur t d e c is io n. T he ld D RP he ld t hat the r e is no d is pu te r e g ar ding t he f ac t t ha t the as se s se e d o es no t have a p e rm ane nt e s tab l is hme nt i n Ind i a. A c co r d i ng ly , s uc h r e ce ip t s w i ll c on st it ute b us ine s s in co m e u nd e r A r t ic le 7 o f the DT A A i n l in e w it h t he ab o v e -m e nt io ne d d ec i sio n o f H o n’ b le S up r e m e Co ur t and w i ll no t b e t ax ab le i n Ind ia i n the ab se nce o f P E. 9 . H o we v e r , t he ld D RP he ld t ha t t he se co nd s e t o f r e ce ip t s o f R s . 1 2, 01 , 30 ,8 7 7 o n acc o un t o f p r o vis ion o f o the r r e la te d se r v ic es , i t i s w e l l se t t le d that s uch se r v ice s fr o m a d is t inc t s e t o f r e ce ip ts w hi ch ne e d to be e xami ne d ind e p e nde n t ly i n te r m s o f t he ir tax ab i l i ty o r o the rw i s e und e r sp e ci f ic Ar t ic le 13 ( Ro y al ty / FT S ) a nd c an no t b e cl ub be d as b us in e ss i n co m e und e r Ar t i cle 7 o f t h e DTA A. T he ld DR P he ld t hat t ax able und er Ar t i cle 13 Ind ia- U K DT A A u nde r t he he ad ‘ FT S’ . T he l d DR P he ld t ha t t he m ak e av ailab le c la use unde r A r t ic le 1 3 ar e al s o s ta nd sati sf ie d. T he ma in ar g u me n t t ak e n be f o r e us is t hat the o the r r e lat e d se r v ice s p r o v ide d ar e in c o nne c t io n w i th uti l i za ti o n Page | 5 o f t he s o f tw ar e ( PR IME) w hic h ar e in tr i ca te ly and ex tr ic ab ly ass o c iat e d. T he se r v ice s are in re s p ec t o f tr a i ni ng p r og r am me a nd up d at io ns in co n ne c ti o n w it h ut ili za tio n o f the s of tw ar e P R IM E. H e nce , we ho ld t ha t w he n so f tw ar e i tse lf i s no t t ax a b le , t he tr a i n ing and the r e l ate d ac t ivi t ie s co n ce r ne d wi th u t il i za t io n and ins t a lla t io n c an no t b e he ld to b e FT S . F ur the r , s im p ly l a tc hi ng o n to use of w o r d s “M ak e Av ai l able ” i n t he ag r e e me n t , it ca n no t be said t hat co nd it io ns o f A r ti cle 1 3 (4 ) ( c) ar e s at i sf ie d . B ur den is o n the Re v e nue to d e m o ns tr a te t ha t m ak e av ailab le c o nd i t ion i s sa ti s f ie d. A pp e al o f t he a sse s se e o n G r o und No s . 4 and 5 ar e a l lo we d . 1 0. Wi th r e g ar d to the g r o u nd N o . 6 p er t ain i ng to r e imb ur se m e nt of Rs . 7 ,2 4 , 82 1 / - w e find t ha t t h e ld DR P has r e m a nd e d t h e m a tte r to t he AO to e x am i ne t r av e ll i ng and lo d g ing e x p e ns e s r e i m bur se d . H o we v e r , t he A O has wr o ng ly t axe d t he s am e u nd e r FT S . H e nc e , the ac t io n o f the A O ca n no t b e sup p or t ed . T he add i tio n m ade i s her e b y d ir e c te d to b e d e le te d . 1 1. In t he r e su l t , the ap pe al is a llo w e d . Or d e r Pr o n o u n c e d i n t h e O p e n C o u r t o n 2 4 /0 1 /2 0 2 3 . S d / - S d / - (Saktijit Dey) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 24/01/2023 *Ajay Kumar Keot, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR