Attachmate Corporation , Bangalore V. DCIT, International Taxation, Circle- 1(1)(1), New Delhi

ITA 7379/DEL/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1061 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 05-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA ANAND
• Keywords: Double taxation relief; Advance ruling; Set aside
• Section: 143(3); 142(1); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘D’: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND Ms. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.7379/DEL/2019 [Assessment Year: 2016-17] Attachmate Corporation, M/s King & Partridge Advocates, No.48, Lavelle Road, Bangalore-560001 Vs The Deputy Commissioner of Income Tax Circle-1(1)(1), International Taxation, New Delhi PAN-AALCA1395C Assessee Revenue Assessee by None Revenue by Ms. Anupama Anand, CIT-DR Date of Hearing 23.05.2022 Date of Pronouncement 26.05.2022 ORDER PER SHAMIM YAHYA, AM, This appeal by the assessee against the order of the Assessing Officer dated 26.06.2019 pertaining to Assessment Year 2016-17 passed u/s 143(3) r.w.s. 144C of the Act. 2. Grounds of appeal reads as under:- The grounds hereinafter taken by the Appellant are without prejudice to one another. 1. That the order of the Learned Deputy Commissioner of Income Tax, Circle 1(1)(1), International Taxation, New Delhi ("the learned Assessing Officer" or the "the learned AO") passed pursuant to the direction of the learned Dispute Resolution Panel ("the learned Panel" or "the learned DRP") is bad in law and liable to be quashed. 2. The learned AO/DRP erred in holding that the payments received by the Appellant on sale of software to Indian 2 ITA NO.7379/DEL/2019 Attachmate Corporation, Bangalore resellers /distributors is in the nature of 'royalty' chargeable to tax under Section 9( l)(vi) of the Income-tax Act, 1961 ("the Act") and under Article 12 of the India- USA Double Taxation Avoidance Agreement ("the DTAA"). 3. That the learned AO/DRP overlooked the difference between the transfer of right to use a copyrighted article as against the transfer of copyright itself and that in the case of the Appellant, it is the former that has taken place. 4. That the learned AO/DRP erred in not appreciating that the consideration received by the Appellant for sale of software to Indian resellers/distributors does not constitute payments in respect of a secret process. 5. That the learned AO/DRP failed to appreciate that since the payment received by the Appellant from its customers was not to be measured with reference to the productivity or use of the software, it could not be construed as 'royalty'. 6. That the learned AO/DRP erred in not following decision delivered by the jurisdictional High Court and this Hon'ble Tribunal, and the Authority for Advance Ruling on the issues arising in the Appellant's case. 7. That the learned AO/DRP erred in classifying the consideration received by the Appellant towards maintenance and technical support services /ancillary support services as fees for technical/included services under Article 12 of the DTAA. 8. That without prejudice, the AO erred in treating the entire amount of Rs.3,51,92,160 as income from royalty, contrary to the directions of the DRP to treat the consideration received by the Appellant towards maintenance and technical support services /ancillary support services as fees for technical/included services and the consideration received towards sale of licenses as royalty. 9. That, without prejudice, the learned AO/DRP erred in bringing to tax the entire amount of Rs. 3,51,92,160 as per Form 26AS as against Rs. 2,71,47,185 as per the invoices raised during the relevant year (comprising of Rs. 52,50,606 towards provision of ancillary services and Rs. 2,18,96,579 towards sale of software licenses). 10. The learned AO erred in law and on the facts and circumstance of the case by initiating penalty proceedings under section 271(l)(c) of the Act for furnishing inaccurate particulars of income. 3 ITA NO.7379/DEL/2019 Attachmate Corporation, Bangalore 11. That the impugned order passed by the learned AO is otherwise unsustainable in law and on facts and is thus liable to be set aside by this Hon'ble Tribunal. 3. Brief facts of the case are that the assessee is a company incorporated in the United States of America (USA) and is engaged in the business of developing, manufacturing and distribution of software products. The assessee has entered into international Distributor/Reseller Agreements with distributors in India for supplying software products and for providing ancillary support services. During the year under consideration, assessee has received an amount of USD 422376 which is from supply of software products to the end customers in India. The AO noticed that assessee has not offered this amount to tax in its return of income. Vide notice issued u/s 142(1) of the I.T. Act, 1961 on different dates, assessee was asked to explain nature of its revenue received in India and how the same is not taxable in India. In this regard, assessee furnished a reply through ITBA e-assessment module and contended that in view of the provisions of India-USA DTAA assessee’s income from sale of software is not taxable in India. The assessee further submitted that there is no change in the factual matrix as compared to earlier AY’s. The assessee also placed reliance on various judgments in support of its claim. Assessee also discussed various provisions of the Income Tax Act, 1961, India US DTAA and relevant provisions of Copyright Act, 1957, etc. to reinforce its arguments and claims. However, the Assessing Officer was not satisfied. The Dispute Resolution Panel (in short ‘DRP’) also agreed with the Assessing Officer. Hence, the Assessing Officer concluded that revenue received by the 4 ITA NO.7379/DEL/2019 Attachmate Corporation, Bangalore assessee on sale of software amounting to Rs.3,51,92,160/- is to be treated as income of royalty to be taxed @ 15% as per Article-12 of the India USA DTAA. 4. Against the above order, the assessee is in appeal before us. 5. We have heard the ld. DR and perused the record. None appeared on behalf of the assessee despite notice issued. At the outset, we note that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. dated 02.03.2021. In this case, on the issue of whether payments in different cross-border software transactions, i.e. payments made by end users or distributors (resident as well as non-resident) of software and payments made in respect of software embedded in the hardware, qualify as “royalty” under the Income Tax Act (ITA) as well as various Double Taxation Avoidance Agreements (DTAAs), the Hon’ble Supreme Court has answered in terms of following the Hon’ble Supreme Court referred to the terms of the agreements entered into with various parties for the use of software and noted that distributors were granted a non-exclusive and non- transferable license to resell the software. Furthermore, end users were granted a limited right to use the software without any right to sub- license, transfer, reverse engineer, modify or reproduce the software, in this light, the Hon’ble Supreme Court examined various provisions of the Copyright Act, 1957 in force in India (ICA) and held that a limited right to use the software, make copies of the software for the purpose for which it 5 ITA NO.7379/DEL/2019 Attachmate Corporation, Bangalore was granted and without grant of rights of the copyright owner (such as reproduction, issuing copies, commercial exploitation), does not qualify as grant of a copyright under the ICA. 6. The Hon’ble Supreme Court noted that the definition of royalty under the ITA, prior to amendment in 2012, as well as the DTAAs under consideration [which are similar/identical to the OECD Model Convention (MC)], necessarily requires grant of a copyright in software to the licensee for the payment to qualify as royalty. Since the payment made by end users and distributors did not involve payment for grant of any right specified under the ICA, payments made by the distributors and end users do not qualify as royalty under the DTAA, as well as the pre-amended provisions of the ITA. Such payments qualify as business income not taxable in India under the DTAA. 7. In addition, the Hon’ble Supreme Court held that the machinery provisions of withholding under the ITA in respect of payment made to non-resident (NR) taxpayers is triggered only in respect of payments chargeable to tax in India after considering the provisions of the ITA as well as the DTAA. In case where a payment is not chargeable to tax in India under the DTAA, then no withholding is required on such payments. In doing so, the Honb’le Supreme Court distinguished its earlier decision in the case of PILCOM on the grounds that in that ruling, the SC was concerned with payments to NR sportspersons and the withholding provisions in respect of such persons were governed by 6 ITA NO.7379/DEL/2019 Attachmate Corporation, Bangalore different provisions of the ITA which were not linked to the chargeability of income. 8. We find that above exposition by Hon’ble Supreme Court is squarely applicable here. In this regard, the Ld. DR did not dispute that the ratio emanating from the above said order of the Hon’ble Supreme Court is not applicable on the facts of the present case or that there is any difference in the facts of the present case. Accordingly, respectfully following the precedent from the Hon’ble Supreme Court as above, we set-aside the orders of the authorities below and decide the issue in favour of the assessee. 9. In the result, the appeal of the assessee stands allowed. Order pronounced in the open court on 26.05.2022. Sd/- Sd/- [ASTHA CHANDRA] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated: 26 th May, 2022. f{x~{tÜ? f{x~{tÜ?f{x~{tÜ? f{x~{tÜ? Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi