NETCRACKER TECHNOLOGY SOLUTIONS LLC, MUMBAI V. DCIT CIR (IT) 3(3)(1), MUMBAI

ITA 783/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7839 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 03-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMUEL DARSELD
• Assessee Lawyers: HIRALI DESAI LD
• Keywords: Business income; Residential status; Double taxation relief; Retrospective amendment; TDS
• Section: 271(1)(c); 143(3); 234B; 195; 208; 90; 2

Judgement Text

1 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.783/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) NETCRACKER TECHNOLOGY SOLUTIONS LLC (FORMERLY KNOWN AS CONVERGYS INFORMATION MANAGEMENT GROUP INC.) C/O. PRICEWATER HOUSE COOPERS PVT. LTD., PWC HOUSE, PLOT 18/A GURU NANAK ROAD, (STATION ROAD) BANDRA (W), MUMBAI-400 050 / VS. D CIT - CIRCLE - 3(3)(1) INTERNATIONAL TAXATION MUMBAI. ! ./ ! ./PAN/GIR NO. AACCC-8990-N ( <= /APPELLANT ) : ( >?<= / RESPONDENT ) <=@ / APPEL LANT BY : MS. HIRALI DESAI - LD. AR >?<=@ / RESPONDENT BY : SHRI SAMUEL DARSE - LD. CIT - DR / DATE OF HEARING : 01/10/2019 / DATE OF PRONOUNCEMENT : 14/10/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2012-13 CONTEST THE FINAL ASSESSMENT OR DER DATED 28/11/2016 PASSED BY DY. COMMISSIONER OF INCOME TAX(I.T.)-3(3) (1), MUMBAI [AO] U/S. 2 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 143(3) R.W.S. 144C(13) & 92CA OF THE INCOME TAX ACT PURSUANT TO THE DIRECTIONS OF DISPUTE RESOLUTION PANEL-2, MUMBAI, [ IN SHORT REFERRED TO AS DRP] U/S 144C(5) DATED 29/09/2016. THE GROUNDS RAIS ED BY ASSESSEE READ AS UNDER: - 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ DRP ERRED IN ASSESSING THE INCOME OF THE APPELLANT AT RS. 7,5 2,34,100 AGAINST THE RETURNED INCOME OF RS. 44,11,290. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. DRP/ AO ERRED IN MAKING AN ADDITION OF RS.1,42,77,485 RECEIVED ON ACCOUNT OF INTERNATIONAL PRIVATE LEASED CIRCUIT CIPLC) CHARGES BY STATING TH AT LINK CHARGES CONSTITUTE AS FEE FOR TECHNICAL/ INCLUDED SERVICES ('FTS/ FIS') A S WELL AS ROYALTY UNDER SECTION 9 THE PROVISIONS OF THE ACT READ WITH THE P ROVISIONS OF ARTICLE 12 OF THE INDIA-USA DOUBLE TAXATION AVOIDANCE AGREEMENT ('THE DTAA'). 3. THAT THE LD. DRP/ AO GROSSLY ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION TO THE RETURNED INCOME IN RESPECT OF SUPPORT AND MAINT ENANCE FEES, AMOUNTING TO RS. 2,20,77,105, BY STATING THAT THE RECEIPTS ON AC COUNT OF SUPPORT AND MAINTENANCE FEES BEING ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF RIGHT TO USE THE SOFTWARE ARE TAXABLE AS FIS UNDER PARA 4(3) OF ARTICLE 12 OF THE DTAA. 4. THAT THE LD. DRP/ AO GROSSLY ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION TO THE RETURNED INCOME IN RESPECT OF SERVICE FEES, AMO UNTING TO RS. 3,44,68,220, BY STATING THAT THE RECEIPTS ON ACCOUNT OF SERVICE FEE S BEING ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF RIGHT TO USE THE SOFTWARE ARE T AXABLE AS FIS UNDER PARA 4(3) OF ARTICLE 12 OF THE DTAA. 5. THAT THE LD. AO ERRED IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN PROPOSING TO INITIATE THE PENALTY PROCEEDINGS UNDER SECTION 271(1)( C) OF THE ACT. AS EVIDENT FROM GROUNDS OF APPEAL, THE ASSESSEE IS PRIMARILY CONTESTING THE ACTION OF LOWER AUTHORITIES IN MAKING ADDITIONS BY TREATING CERTAIN RECEIPTS AS FEES FOR TECHNICAL SERVICES / FEES FOR INCLUDED SER VICES WITHIN THE MEANING OF ARTICLE 12 OF INDIA-USA DOUBLE TAXATION AVOIDANC E TREATY (DTAA). GROUND NO. 1 IS GENERAL IN NATURE WHEREAS GROUND NO . 6, ASSAILING PENALTY U/S 271(1)(C) IS PREMATURE AT THIS STAGE. 3 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 2. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ISSUES UNDER APPEAL STOOD SQUARE LY COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FO R AYS 2009-10 TO 2011- 12, ITA NOS. 1701/M/2014, 1439/M/15, 1995/M/16 COMM ON ORDER DATED 30/08/2019, A COPY OF WHICH HAS BEEN PLACED ON RECO RD. THE LD.CIT-DR COULD NOT POINT OUT ANY DISTINGUISHING FEATURES IN THIS AY. NOTHING IS ON RECORD TO SUGGEST THAT AFORESAID RULING IS NOT APPL ICABLE TO THE FACTS OF THIS AY ALSO. 3. IN THE ABOVE BACKGROUND, THE ASSESSEE BEFORE US IS A NON-RESIDENT CORPORATE ASSESSEE. THE ASSESSMENT WAS FRAMED ON 28 /11/2016 WHEREIN THE INCOME WAS DETERMINED AT RS.752.34 LACS AFTER C ERTAIN ADDITIONS AS AGAINST NIL RETURN FILED BY THE ASSESSEE ON 27/03/2014. DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED THAT THE ASSESSEE RECEIV ED AGGREGATE AMOUNT OF RS.752.34 LACS WHICH INTER-ALIA COMPRISED-OFF OF DATA ACCESS / LINK CHARGES OF RS.142.77 LACS, SUPPLY OF OFF-THE-SHELF SHRINK-W RAPPED SOFTWARE FOR RS.220.77 LACS & SUPPLY OF SERVICES FOR RS.344.68 L ACS. THE THREE AMOUNTS WERE CLAIMED TO BE NOT TAXABLE IN TERMS OF INDIA-USA DOUBLE TAXATION AVOIDANCE TREATY (DTAA). IN DEFENSE, THE A SSESSEE SUBMITTED THAT IT PROVIDES COMMUNICATION LINKS KNOWN AS INTER NATIONAL PRIVATE LEASED CIRCUITS (IPLC) WHICH IS A POINT-TO-POINT PRIVATE L INE USED BY THE ORGANIZATION FOR COMMUNICATION. THIS LINK COULD BE USED FOR INTE RNET ACCESS, BUSINESS DATA EXCHANGE, VIDEO CONFERENCING OR ANY OTHER FORM OF TELECOMMUNICATION. THESE LINKS WERE STATED TO BE PROCURED BY THE ASSES SEE FROM THIRD PARTY SERVICE PROVIDER WHICH WERE CHARGED TO CUSTOMERS IN INDIA. HOWEVER, THE 4 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 SAID SERVICE WOULD NOT QUALIFY AS FEES FOR INCLUDED SERVICES SINCE NO TECHNICAL KNOWLEDGE IS MADE AVAILABLE AND THE SAME WOULD NOT CONSTITUTE ROYALTY ALSO SINCE THE SERVICES WOULD NOT CONSTITUT E USE OR RIGHT TO USE ANY PROCESS. HOWEVER, DISREGARDING THE SAME, LD. AO OPI NED THAT THE SAID SERVICES WOULD CONSTITUTE FEES FOR INCLUDED SERVICE S AS WELL AS ROYALTY UNDER ARTICLE 12 OF DTAA READ WITH SECTION 9(1)(VI) AS HELD IN AYS 2007-08 TO 2010-11. THE OTHER TWO RECEIPTS WERE ALSO HELD T O BE TAXABLE AS FEES FOR TECHNICAL SERVICES UNDER PARA 4(A) OF ARTICLE 12 OF THE TREATY, AS HELD IN EARLIER YEARS. 4. THE LD. DRP FOLLOWING DIRECTIONS GIVEN IN AYS 20 09-10 TO 2011-12 UPHELD THE TAXABILITY OF ALL THE THREE ITEMS. CONSE QUENTLY, FINAL ASSESSMENT ORDER WAS PASSED ON 28/11/2016 ASSESSING TOTAL INCO ME AT RS.752.34 LACS. AGGRIEVED, THE ASSESSEE IS UNDER FURTHER APPEAL BEF ORE US. 5. AS NOTED IN THE OPENING PARAGRAPHS, WE FIND THAT ALL THE ISSUES HAVE BEEN DEALT WITH BY THE CO-ORDINATE BENCH OF THIS TR IBUNAL FOR AYS 2009-10 TO 2011-12 COMMON ORDER DATED 30/08/2019. THE RELEVANT PORTION OF THE ORDER, FOR EASE OF REFERENCE, COULD BE EXTRACTED IN THE FO LLOWING MANNER: - 19. WE HAVE FURTHER NOTED THAT DRP HAS ALSO RELIED UPON THE DECISION OF RAYMOND LTD. (SUPRA) HELD THAT SECTION 9(1)(VII) STOPS WITH THE 'RENDERING' OF TECHNICAL SERVICES, THE DTA GOES FURTHER AND QUALIFIES SUCH RENDERING OF SE RVICES WITH WORDS TO THE EFFECT THAT THE SERVICES SHOULD ALSO MAKE AVAILABLE TECHNICAL K NOWLEDGE, EXPERIENCE, SKILLS ETC. TO THE PERSON UTILISING THE SERVICES. THESE WORDS ARE 'WHICH MAKE AVAILABLE'. THE MEANING ASCRIBED BY MR. KAPILA FOR THE DEPARTMENT IS THAT T HESE WORDS MERELY MEAN 'TO ALLOW SOMEBODY TO MAKE USE OF, WHETHER ACTUALLY MADE USE OF OR NOT', BUT IN OUR OPINION AND WITH RESPECT, THIS MEANING DOES NOT TAKE DUE NOTE O F THE ADDITION OF SUCH WORDS TO THE 'RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES '. THE MEANING SUGGESTED BY MR. KAPILA IS EMBEDDED IN THE 'RENDERING' OF THE SERVIC ES ITSELF. WHEN SOMEBODY 'RENDERS' SERVICES, IT PRESUPPOSES THAT SOMEBODY ELSE IS 'MAK ING USE' OF THE SAME. BUT THE 'MAKING USE OF' SHOULD BE CONTRASTED WITH THE 'MAKI NG AVAILABLE'. THE 'MAKING 5 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 AVAILABLE', IN OUR OPINION, REFERS TO THE STAGE SUB SEQUENT TO THE 'MAKING USE OF' STAGE. THE QUALIFYING WORD IS 'WHICH' THE USE OF THIS RELA TIVE PRONOUN AS A CONJUNCTION IS TO DENOTE SOME ADDITIONAL FUNCTION THE 'RENDERING OF S ERVICES' MUST FULFIL. AND THAT IS THAT IT SHOULD ALSO 'MAKE AVAILABLE' TECHNICAL KNOWLEDGE, E XPERIENCE, SKILL ETC. IN OUR VIEW THE CONCLUSION ARRIVED BY THE TRIBUNAL DOES NOT SUPPORT THE VIEW TAKEN BY THE LOWER AUTHORITIES. 20. FURTHER, THE CO-ORDINATE BENCH OF DELHI TRIBUNA L IN GEO CONNECT VS. DCIT (SUPRA) WHILE EXAMINING THE TAXABILITY OF IPLC CHARGES PAID TO AT & T ALSO HELD THAT AGREEMENT WAS ONLY FOR THE PROVISION OF SERVICES AND NOT FOR USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT OR PROCESS BETWE EN THE NON-RESIDENT AND ASSESSEE FOR USE OF DEDICATED PRIVATE BANDWIDTH IN UNDERWATE R SEA CABLE AND THEREFORE, CONSIDERATION PAID TO AT & T WOULD NOT CONSTITUTE ROYALTY. THE TRIBUNAL FURTHER HELD THAT PAYMENT TO ICLC CHARGE DOES NOT CONSTITUTE FTS EITHER UNDER THE ACT OR THE TREATY. THE RELEVANT PART OF DECISION IS EXTRACTED BELOW: 10.13 IN THE CASE OF INSTANT ASSESSEE, THE CONTROL OF EQUIPMENT WAS WITH THE NON-RESIDENT PARTIES AND THEY HAVE NOT LEASED THE EQUIPMENT, I.E. THE UN DERSEA CABLE ETC. TO THE ASSESSEE. THE EQUIPMENT WERE OWNED AND USED BY THE NON-RESIDENT P ARTIES ONLY AND THEREFORE IT CANNOT BE SAID THAT THE CONSIDERATION PAID WAS FOR USE OF EQUIPMEN T BY THE ASSESSEE. SIMILARLY THE NON-RESIDENT PARTIES HAVE NOT PROVIDED USE OF ANY PROCESS TO THE ASSESSEE, WHICH ARE OF PATENTABLE NATURE HAVING EXCLUSIVE OWNERSHIP RIGHTS. THE ASSESSEE WAS NOT CONCERNED WITH ANY OF THE PROCESS INVOLVED IN TRANSMISSION OR CONNECTIVITY OF CALL DA TA. THE ONLY CONCERN OF THE ASSESSEE WAS TRANSMISSION OF CALL DATA BEYOND THE BOUNDARIES OF INDIA TO THE PERSON IN USA TO WHOM CALL WAS MADE. ------- 10.15 FURTHER THE ASSESSEE IN SUPPORT OF THE PROPOS ITION THAT AMENDMENT UNDER SECTION 9(1)(VI) OF THE ACT BY FINANCE ACT 2012 HAS NO BEARING ON THE P ROVISIONS OF DTAA HAS RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF NEW SKY SATELLITE BV, (SUPRA) IN ITA 473/2012. IN THE INSTANT CASE ALSO THE ASSESSMENT YEAR INVOLVED IS 2002-2003, AND THUS THE EXPLANATION-5 AND 6 AND MEMORANDUM OF EXPLANATION CANNOT BE BROUGHT I NTO ACTION AS THERE HAS NOT BEEN ANY CORRESPONDING CHANGE IN THE DEFINITION OF THE TERM ROYALTY IN THE DTAA BETWEEN INDIA AND THE USA. ACCORDINGLY, WE ARE OF THE OPINION THAT UNDER THE DTAA, THE RESTRICTED MEANING OF THE ROYALTY SHALL CONTINUE TO OPERATE DESPITE THE AMEND MENT IN LAW. ----------- 10.16 AS FAR AS THE ASSESSEE IS CONCERNED, IN CASE OF DIFFERENCE BETWEEN PROVISIONS OF THE ACT AND AN AGREEMENT UNDER SECTION 90 I.E. (DTAA), THE PROVISIONS OF THE AGREEMENT SHALL PREVAIL OVER THE PROVISIONS OF THE ACT. 10.17 IN VIEW OF OUR DISCUSSION ABOVE, WE HOLD THAT THE PAYMENTS MADE BY THE ASSESSEE ARE NOT IN THE NATURE OF ROYALTY EITHER UNDER THE DOMESTIC LAW OR RELEVANT DTAA ....................... ............ 19. FURTHER IN PARA- 40 OF THE DECISION IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), THE TRIBUNAL HAS HELD THAT WHERE MAKE AVAILABLE CLAUSE IS FOUND IN T HE TREATY AND THERE IS NO IMPARTING AS CONTEMPLATED IN THE TREATIES, THE PAYMENT CANNOT BE TREATED AS FEE FOR TECHNICAL SERVICES (FTS) UNDER THE DTAA. THE RELEVANT PARAGRAPH OF THE DECIS ION IS REPRODUCED AS UNDER: '40. THE SECOND ASPECT OF THE ISSUE ARE BEFORE US, IS WITHOUT PREJUDICE TO THE FINDING UNDER THE DOMESTIC LAW, WHETHER THE PAYMENT TO FTOS FOR 'IUC' IS FEE FOR TECHNICAL SERVICES UNDER THE DTAA, WHEREVER 'MAKE AVAILABLE CLAUSE' IS FOUND IN THESE AGREEMENTS. IN VIEW OF OUR FINDING THAT THE PAYMENT IS NOT FEE FOR TECHNICAL SERVICES UNDER THE ACT, IT WOULD BE AN AC ADEMIC EXERCISE TO EXAMINE WHETHER THE PAYMENT IN QUESTION WOULD BE FEE FOR TECHNICAL SERV ICES UNDER DTAA'S. SUFFICE TO SAY WHEREVER TREATIES CONTAIN 'MAKING AVAILABLE' CLAUSE, THEN IN TERMS OF THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ORS. V. DE BEERS IN DIA MINERALS (P.) LTD. [2012] 346 ITR 0467; THE 6 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 PAYMENT CANNOT BE TREATED AS FTS UNDER THE DTAA AS ITA NOS. 3593 TO 3596/DEL/2012 [BHARTI AIRTEL LTD. V. ITO(TDS)] & ITA NOS. 4076 TO 4079/DE L/2012 [ITO(TDS) V. BHARTI AIRTEL LTD.] THERE IS NO IMPARTING AS CONTEMPLATED IN THE TREATIES. SI MILAR ARE THE PROPOSITIONS ON THE ISSUE OF 'MAKE AVAILABLE' IN THE DECISIONS IN THE CASE OF MA HINDRA & MAHINDRA LTD. V. DCIT 313 ITR 263; RAYMOND LTD. V. DCIT 86 ITD 791; CABLE AND WIRELESS NETWORKS INDIA P. LTD. [2009] 315 ITR 72.' 20. WE FIND THAT IN THE DTAA BETWEEN INDIA AND THE USA THE MAKE AVAILABLE CLAUSE IS IN EXISTENCE. THE ARTICLE 12(4) OF THE TREATY IS REPRO DUCED AS UNDER: 'FOR PURPOSES OF THIS ARTICLE, 'FEES FOR INCLUDED S ERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TE CHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR O THER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS REC EIVED ; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN.' 21. SINCE IN THE CALL CONNECTIVITY AND TRANSMISSION FROM END OF THE INDIAN TERRITORY AT MUMBAI TO THE TERMINATION OF CALL IN USA, NO TECHNICAL KNOWLE DGE HAS BEEN MADE AVAILABLE TO THE ASSESSEE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF BHARTI AIRTEL LTD. (SUPRA), WE HOLD THAT PAYMENT FOR THE SERVICES OF CALL TRANSMISSION THROUGH DEDICATED BANDWIDTH PROVIDED BY THE NON-RESIDENT PARTIES TO THE ASSESSEE, CANNOT BE TER MED AS FEE FOR TECHNICAL SERVICES UNDER THE TREATY ALSO, IN THE HANDS OF THE RECIPIENTS. 21. THE MUMBAI TRIBUNAL IN INTERROUTE COMMUNICATION LTD. VS. DDIT (SUPRA) HELD AS UNDER: 9. ESSENTIALLY, THE ROLE PLAYED BY THE INTERROUTE F ACILITY IS CONNECTING THE CALL TO THE END OPERATOR, AND, IN THAT SENSE, IT WORKS LIKE A CLEARING HOUSE. SIMILARLY, IN THE CASE OF INCOMING CALLS, CALLS ORIGINATING FROM EUROPE AND USA, WHICH ARE TO END I N INDIA, ARE ROUTED TO THE RESPECTIVE OPERATORS. IN THE PRESENT FACT SITUATION, THE PAYME NT MADE BY THE INDIAN ENTITIES CAN BE HELD TO BE ROYALTY ONLY WHEN IT IS PAYMENT FOR SCIENTIFIC WORK , ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCE RNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. IT IS NOT FOR A PAYMENT FOR A SCIENTIFI C WORK NOR THERE IS ANY PATENT, TRADEMARK, DESIGN, PLAN OR SECRET FORMULA OR PROCESS FOR WHICH THE PAY MENT IS MADE. THERE CAN HARDLY BE ANY DISPUTE THAT THE PAYMENT IS MADE FOR A SERVICE, WHI CH IS RENDERED WITH THE HELP OF CERTAIN SCIENTIFIC EQUIPMENT AND TECHNOLOGY, RENDERED BY TH E ASSESSEE. THE SERVICE IS CONNECTIVITY TO THE TELECOM OPERATORS IN THE CALL END JURISDICTION. THE FACILITY IS A STANDARD FACILITY WHICH IS USED BY OTHER TELECOM COMPANIES AS WELL. AS FOR THE DEDICAT ED PORTS, THESE THINGS ONLY PROVIDE A CERTAIN LEVEL OF CAPACITY IN ACCESS BUT THE PAYMENT IS FOR THE SERVICE NEVERTHELESS. MERELY BECAUSE THE PAYMENT INVOLVES A FIXED AS ALSO A VARIABLE PAYMENT DOES NOT ALTER THE CHARACTER OF SERVICE. DEALING WITH SUCH A TYPE OF CONSIDERATION, A COORDI NATE BENCH OF THIS TRIBUNAL, IN THE CASE KOTAK MAHINDRA PRIMUS LTD. V. DY. DIT[2007] 11 SOT 578 (B OM.), HAD HELD THAT 'THIS TYPE OF PRICING OF A SERVICE, BY SEGREGATING THE FIXED AND VARIABLE PR ICE, IS NOT UNUSUAL'. THAT DOES NOT, HOWEVER, ALTER THE CHARACTER OF ARRANGEMENT. THE PAYMENT CON TINUES TO BE FOR SERVICE ALONE. THE ASSESSEE MAY CHARGE A FIXED AMOUNT TO COVER ITS COSTS IN EMP LOYING ENHANCED CAPACITY SO AS NOT TO INCUR LOSSES WHEN THIS CAPACITY IS NOT USED, BUT WHAT THE CUSTOMER IS PAYING FOR IS A SERVICE AND NOT THE USE OF EQUIPMENT INVOLVED IN ADDITIONAL CAPACITY, N OR, AS WE HAVE SEEN ABOVE, FOR ANY SCIENTIFIC WORK, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. IT CANNOT, THEREFORE, BE TAXED AS ROYALTY UNDER ARTICLE 13 OF THE INDO-UK TAX TREATY. THE PAY MENT FOR A SERVICE CAN BE BROUGHT TO TAX UNDER ARTICLE 13 ONLY WHEN IT MAKES AVAILABLE THE TECHNOL OGY IN THE SENSE THAT RECIPIENT OF SERVICE IS ENABLED TO PERFORM THE SAME SERVICE WITHOUT RECOURS E TO THE SERVICE PROVIDER. AS HELD BY THIS TRIBUNAL, IN THE CASE OF C.E.S.C. LTD. V. DY. CIT[2 003] 87 ITD 653 (KOL.) (TM), '....IN ORDER TO BE COVERED BY THE PROVISIONS OF ART. 13(4)(C) OF THE I NDIA-UK DTAA, NOT ONLY THE SERVICES SHOULD BE OF TECHNICAL IN NATURE BUT SUCH AS TO RESULT IN MAK ING THE TECHNOLOGY AVAILABLE TO THE PERSON RECEIVING THE TECHNICAL SERVICES. WE ALSO AGREE THA T MERELY BECAUSE THE PROVISION OF THE SERVICE MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE, IT CANNOT BE SAID THAT TECHNICAL 7 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 KNOWLEDGE, SKILLS, ETC. ARE MADE AVAILABLE TO THE P ERSON PURCHASING THE SERVICE. AS TO WHAT ARE THE CONNOTATIONS OF 'MAKING THE TECHNOLOGY AVAILABL E TO THE RECIPIENT OF TECHNICAL SERVICES', AS IS APPROPRIATELY SUMMED UP IN PROTOCOL TO INDO-US DTAA , 'GENERALLY SPEAKING, TECHNOLOGY WILL BE CONSIDERED 'MADE AVAILABLE' WHEN THE PERSON ACQUIRI NG THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY.' IN THE CASE BEFORE US, NO SERVICES ARE MADE AVAILABLE IN THE SENSE THAT THE RECIPIENT OF SERVICE IS ENABLED TO APPLY THE TECHNOLOGY, AND DO THE SAME WORK WITHOUT RECOURSE TO THE SERVICE PROVIDER. THERE IS NO TRANSFER OF TECHNOLOG Y HERE, AND IN THAT SENSE TECHNICAL SERVICES ARE NOT MADE AVAILABLE. UNDOUBTEDLY, THE SERVICES RENDE RED BY THE ASSESSEE REQUIRES TECHNICAL INPUTS, BUT THAT ALONE, AS WE HAVE SEEN ABOVE, DOES NOT BRING IT IN THE AMBIT OF FEES FOR TECHNICAL SERVICES TAXABLE UNDER ARTICLE 13 OF INDIA-UK TAX T REATY. 22. IN VIEW OF THE ABOVE FACTUAL AND LEGAL DISCUSSI ONS, WE ARE OF THE VIEW PAYMENT MADE BY THE ASSESSEE IS ONLY IN RESPECT OF STANDARD SERVICES PROVIDED BY AT&T AND SPINET, WHICH CANNOT BE HELD TO BE ROYALTY. ONLY THOSE PAYMENT, WHEN IT MADE FOR SCIENTIFIC WORK, ANY PATENT, TRADEMARK, DESIGN OR M ODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIA L OR SCIENTIFIC EXPERIENCE, WHICH IS ABSOLUTELY MISSING IN THE PRESENT CASE. THE PAYMENT IN THE PRESENT CASE IS NOT FOR A PAYMENT FOR A SCIENTIFIC WORK NOR THERE ANY PATENT, TRADEMARK, DESIGN, PLAN OR SECRET FORMULA OR PROCESS FOR WHICH THE PAYMENT MADE. THE SERVICE IS CONNECTIVITY TO THE TELECOM OPERATORS IN THE CALL END JURISDICTION. THE FACILITY IS A STANDARD FACILITY WHICH IS USED BY OTHER TELECOM COMPANIES AS WELL. THEREFORE, THE ACTION OF THE ASSESSING OFFICER, WHICH WAS UPHELD BY LD. DRP, IN TREATING THE RECEIP T AS FEE FOR FIS/ FTS OR FOR THE ROYALTY IS NOT JUSTIFIED. IN THE RESULT THE GROUND NO. 2 OF THE APPEAL IS ALLOWED. 23. GROUND NO. 3 RELATES TO TAXABILITY OF INCOME F ROM SALE OF SHRINK- WRAPPED SOFTWARE AS ROYALTY. THE LD AR FOR THE ASSESSEE SUBMITS TH AT THE ASSESSEE SOLD CERTAIN OFF-THE SELF /SHRINK WRAPPED SOFTWARE TO TCS FOR AN AMOUNT OF RS. 4,05,24,300/-. THE MAIN FEATURES OF CONTRACT FOR SALE OF SHRINK WRAPPED SOF TWARE BY ASSESSEE TO TCS WERE VIZ, (I) THE ASSESSEE GRANTED A PERSONAL, NON-TRANSFERABLE A ND NON-EXCLUSIVE LICENSE TO TCS, (II) THE ASSESSEE IS THE OWNER OF THE PATENTS, COPY RIGHT, TRADE SECRET, TRADEMARK AND ANY OTHER INTELLECTUAL PROPERTY RIGHT WHICH SUBSIST IN THE SOFTWARE, (III) THE TITLE OF THE SOFTWARE SHALL REMAIN WITH THE ASSESSEE, (IV) THE TCS WAS NO T ALLOWED TO MAKE COPY OR PRINT OUT OF THE SOFTWARE EXCEPT FOR REASONABLE NUMBER OF COP IES BUT ONLY FOR ITS OWN INTERNAL BACK-UP, ARCHIVAL, DEVELOPMENT, TRAINING AND TESTIN G PURPOSE, (V) TCS WAS NOT ALLOWED TO REVERSE ENGINEER, DECOMPILE OR DISSEMBLE THE SOF TWARE,(VI) TCS WAS NOT ALLOWED TO SELL, ASSIGNED, LICENSING LEASE, RENT, LEND, TRANSM IT NETWORK OR OTHERWISE DISTRIBUTE, TRANSFER OR MAKE AVAILABLE THE SOFTWARE IN ANY MANN ER TO THE THIRD PARTY, (VI) THE SOFTWARE WAS TO BE USED FOR INTERNAL PURPOSE ONLY A ND WAS NOT ALLOWED TO USE THE SOFTWARE TO PROVIDE SERVICES THROUGH A SERVICE BURE AU OR OTHER ARRANGEMENTS,(VII) TCS WAS EXPRESSLY PROHIBITED FROM ADAPTING, MODIFYING M ERGING, REVISING, IMPROVING, TRANSLATING, UPGRADING, ENHANCING AND CREATING DERI VATIVE WORKS OF THE SOFTWARE FOR ANY PURPOSE, INCLUDING ERROR CORRECTION OR ANY OTHER TY PE OF MAINTENANCE. 24. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED TH AT INCOME ARISING FROM THE SALE OF SOFTWARE WAS NOT TAXABLE IN INDIA AS THE SAME WAS N OT COVERED WITHIN THE DEFINITION OF ROYALTY. THE ASSESSING OFFICER TREATED THE SAID CONSIDERATION FOR THE RIGHT TO USE THE COPYRIGHT OF SOFTWARE AND ACCORDINGLY PROPOSED TO T AX THE INCOME FROM SALE OF SOFTWARE AS ROYALTY, UNDER THE INCOME TAX ACT AND INDIA US A TAX TREATY. ON OBJECTIONS BEFORE DRP, THE ACTION OF THE ASSESSING OFFICER WAS UPHELD . 8 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 25. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER TREATED THE SALE OF SOFTWARE AS ROYALTY, BY TAKING VIEW BY VIRTUE OF RETROSPECTIVE AMENDMENT INTRODUCED IN EXPLANATION 4 IN THE DEFINITION OF ROYALTY UND ER SECTION 9 (1)(VI) OF INCOME TAX ACT BY VIRTUE OF FINANCE ACT 2012. THE ASSESSING OFFICER F AILED TO APPRECIATE THAT THERE WAS NO CORRESPONDING CHANGE INTRODUCED IN THE DEFINITION I N THE TERM ROYALTY UNDER THE INDIA USA TAX TREATY. THE ASSESSEE BEING TAX RESIDENT OF USA, IS ELIGIBLE FOR BENEFICIAL PROVISION OF INDIA USA TAX TREATY IN TERM OF SECTIO N 90(2) OF THE ACT. THEREFORE, EVEN IF THE CONSIDERATION FOR SALE OF SOFTWARE IS COVERED W ITHIN THE DEFINITION OF ROYALTY UNDER THE ACT, IT CANNOT BE TAXED AS SUCH UNLESS IT FALLS WITHIN THE DEFINITION OF ROYALTY AS DEFINED IN INDIA USA TAX TREATY, THEREFORE THE ASSE SSEE IS ENTITLED FOR AVAILING BENEFICIAL PROVISION OF INDIA USA TAX TREATY. TO SUPPORT THEI R CONTENTION THAT PAYMENT RECEIVED FROM TCS FOR SALE OF PRODUCT IS NOT LIABLE TO TAX I N INDIA AS ROYALTY INCOME. ARTICLE 12(3) OF INDIA US TAX TREATY DEFINED THE ROYALTY PAYMENT MADE FOR THE USE OF RIGHT TO USE OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WOR K. ACCORDINGLY, IN ORDER TO QUALIFY AS ROYALTY PAYMENT AS INCOME, PROVIDED IN ARTICLE 12 OF INDIA USA TAX TREATY, THE INCOME OF THE APPELLANT SHOULD HAVE BEEN GENERATED BY USE OF OR RIGHT TO USE OF ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. TCS SHOULD HAVE ACQUIRED ALL OR ANY RIGHT IN THE COPYRIGHT WHICH THE COPYRIGHT HOLDER HAS. A DISTINC TION HAS TO BE MADE BETWEEN COPYRIGHT AND A COPYRIGHTED ARTICLE. A COPYRIGH T IS AN INTANGIBLE RIGHT INDEPENDENT OF COPYRIGHTED ARTICLE. THE ASSESSEE HAS TRANSFERRED T O COPYRIGHTED ARTICLE AND THERE IS NO TRANSFER OF ANY COPYRIGHT. A RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM THE SALE CONSIDERATION PAID FOR COPYRIGHTED ARTICLE. THE LIC ENSING AGREEMENT BETWEEN THE ASSESSEE AND THE TCS SHOWS THAT LICENSE IS NON-EXCL USIVE NON-TRANSFERABLE AND THAT SOFTWARE IS TO BE USED IN ACCORDANCE WITH THE AGREE MENT, ONLY ONE COPY OF SOFTWARE IS SUPPLIED BY THE ASSESSEE TO TCS. 26. TO STRENGTHEN HIS SUBMISSION THE LEARNED AR FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF DELHI HIGH COURT IN DIT VERSUS INFRASOF T LTD (264 CTR 329), PCIT VS M. TECH INDIA P. LTD (2016) 382 ITR 31 (DELHI), MUMBAI TRIBUNAL IN TATA COMMUNICATIONS LTD. (ITA NO. 1473 /MUMBAI/2009 AND DELHI TRIBUNAL IN ASSESSEES GROUP CASE IN CONVERGES CUSTOMER MANAGEMENT GROUP INC VERSUS ADIT (ITA NO. 1443/DELHI/2012 AND 5 TO 43/DELHI/2011). 27. ON THE OTHER HAND THE LEARNED AR FOR THE REVENU E SUPPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE FURTHER SUB MITS THAT THE SOFTWARE SUPPLIED BY THE ASSESSEE IS NOT A COPYRIGHTED ARTICLE. ON THE POINT OF THE ISSUE OF AMENDMENT IN SECTION 9(1)(VI) THE LD DR SUBMITS THAT THE AMENDMENT IS CL ARIFICATORY IN NATURE. IN SUPPORT OF HIS SUBMISSION THE LEARNED DR OF THE REVENUE RELIED UPO N THE DECISION OF HONOURABLE KARNATAKA HIGH COURT IN CASE OF SAMSUNG ELECTRONICS CO LTD (2009) (185 TAXMAN 313). 28. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE IN THE RETURN OF INCOME, T HE ASSESSEE HAS SHOWN A RECEIPT OF RS. 4.05 CRORE ON ACCOUNT OF SUPPLY OF SOFTWARE TO TCS. THE ASSESSEE CLAIMED THAT SAID SOFTWARE IS THE NATURE OF SHRINK WRAPPED SOFTWARE A ND NO USE OR RIGHT TO USE ANY COPYRIGHT OR INTELLECTUAL COPY RIGHT IN THE SOFTWAR E WAS GRANTED TO THE TCS. THE TCS WAS PROVIDED A COPYRIGHTED ARTICLE; THE SAID ARISIN G OF SAID SOFTWARE IS NOT TAXABLE IN INDIA AS THE SAME IS NOT COVERED BY THE DEFINITION OF ROYALTY UNDER INDIA-US TAX TREATY. 9 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 THE ASSESSING OFFICER TREATED THE SAID RECEIPT FOR THE USE OF COPYRIGHT AND PROPOSED TO TAX IN THE FORM OF SALE OF SOFTWARE AS ROYALTY UNDE R INDIA-US TAX TREATY. THE DRP UPHELD THE ACTION OF ASSESSING OFFICER. WE HAVE GON E THROUGH THE LICENCE AGREEMENT WHEREIN THE ASSESSEE GRANTED LICENCE TO TCS IN ACCO RDANCE WITH THE TERM AND CONDITION OF THE AGREEMENT. THE TERM AND CONDITION OF THE LIC ENCE IS PROVIDED UNDER CLAUSE 2.1. FURTHER, IN CLAUSE 4 OF THE AGREEMENT, THE ASSESSEE HAS PUT A RESTRICTION ON LICENCE. THE PERUSAL OF LICENSING AGREEMENT FURTHER SHOWS THAT L ICENCE IS NON-EXCLUSIVE, NON- TRANSFERABLE AND THAT THE SOFTWARE IS TO BE USED ST RICTLY IN ACCORDANCE WITH AGREEMENT, AND ONLY ONE COPY OF SOFTWARE IS SUPPLIED TO THE TC S. THE TCS IS ONLY PERMITTED TO MAKE ONE COPY OF SOFTWARE FOR INTERNAL BACK AND ARC HIVAL PURPOSES. FURTHER, SOFTWARE IS TO BE USED BY TCS ONLY FOR ITS OWN BUSINESS AND CAN NOT BE RENTED, SOLD SUB-LICENCE OR TRANSFER TO ANY THIRD PARTY AS THE TCS IS RESTRICTE D FROM MAKING COPIES, DECOMPILE DISASSEMBLE OR REVERSE ENGINEER THE SOFTWARE. THE T ITLE AND OWNERSHIP OF THE SOFTWARE IS WITH THE ASSESSEE. WE HAVE NOTED THAT ARTICLE 12(3) OF THE INDIA-US TAX TREATY DEFINE THE ROYALTY AS A PAYMENT MADE FOR USE OF A COPYRIGH T OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. THEREFORE, FOR TAXING ROYALTY INCOME COVERED BY ARTICLE 12 OF INDIA-US TAX TREATY. THE INCOME SHOULD HAVE BEEN GENERATED BY TH E USE OF OR RIGHT TO USE OF ANY COPYRIGHT. IN OUR VIEW, THE PAYMENT RECEIVED BY ASS ESSEE IS FOR THE SALE OF SOFTWARE, WHICH CANNOT BE TREATED AS CONSIDERATION FOR TRANSF ER OF ANY COPYRIGHT AND CANNOT BE TREATED AS ROYALTY UNDER ARTICLE 12 OF THE INDIA US TAX TREATY. THE DELHI TRIBUNAL IN CONVERGES CUSTOMER MANAGEMENT GROUP INC. (SUPRA) HE LD THAT THE CONSIDERATION RECEIVED FOR SALE OF SHRINK WRAPPED SOFTWARE DOES N OT CONSTITUTE ROYALTY AS THE SAME IS FOR THE SALE OF COPYRIGHTED ARTICLE AND NOT FOR THE USE OF COPYRIGHT. FURTHER, MUMBAI TRIBUNAL IN CASE TATA CO MMUNICATION LTD. (SUPRA) ALSO HELD THAT PAYMENT MADE FOR COPYRIGHTED ARTICLE AND NOT C OPYRIGHT PER SE AND HENCE, THE SAME IS NOT TAXABLE IN INDIA. 29. THE HONBLE DELHI HIGH COURT IN DIT VS. INFRASO FT LTD. (SUPRA) ALSO HELD THAT WHEN THEY RIGHT TRANSFER IS NOT THE RIGHT TO USE THE COP YRIGHT BUT IT IS LIMITED TO RIGHT TO USE THE COPYRIGHTED MATERIAL AND THE SAME DOES NOT GIVE RIS E TO ROYALTY INCOME AND WOULD BE BUSINESS INCOME. IT WAS ALSO HELD THAT CONSIDERATIO N RECEIVED BY ASSESSEE ON GRANT OF LICENCE FOR USE OF SOFTWARE IS NOT ROYALTY WITHIN T HE MEANING OF ARTICLE 12(13) OF INDIA- US TAX TREATY. THE DECISION RELIED BY LD. DR IN SAM SUNG ELECTRONICS (SUPRA) HAS BEEN DISTINGUISHED BY HONBLE DELHI HIGH COURT IN DIT VS . INFRASOFT LTD. (SUPRA). THE RELEVANT PART OF DECISION OF HONBLE DELHI COURT IS EXTRACTE D BELOW: 98. WE ARE NOT IN AGREEMENT WITH THE DECISION OF T HE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD (SUPRA) THAT RIGHT TO M AKE A COPY OF THE SOFTWARE AND STORING THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AN D TAKING BACKUP COPY WOULD AMOUNT TO COPYRIGHT WORK UNDER SECTION 14(1) OF THE COPYRIGHT ACT AND THE PAYMENT MADE FOR THE GRANT OF THE LICENCE FOR THE SAID PURPOSE WOULD CONSTITUTE R OYALTY. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME A ND STORING IT IN THE COMPUTER FOR HIS OWN USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND I S QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PROVISION BECAUSE IT IS ON LY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. THE RIGHT TO MAKE A BACKUP COPY PURELY AS A TEMPORA RY PROTECTION AGAINST LOSS, DESTRUCTION OR 10 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 DAMAGE HAS BEEN HELD BY THE DELHI HIGH COURT IN NOK IA NETWORKS OY (SUPRA) AS NOT AMOUNTING TO ACQUIRING A COPYRIGHT IN THE SOFTWARE. 30. IN VIEW OF AFORESAID DISCUSSION, WE ARE OF THE VIEW THAT THE RECEIPT ON ACCOUNT OF SALE OF COPYRIGHTED/SHRINK WRAPPED SOFTWARE IS NOT TAXABLE AS PER ARTICLE 12(14) OF INDIA-US TAX TREATY. FURTHER, THE RECEIPT IS ALSO N OT TAXABLE UNDER THE PROVISIONS OF INCOME-TAX ACT AS THE ASSESSEE IS ELIGIBLE FOR BENE FICIAL PROVISION OF INDIA-US TAX TREATY IN TERM OF SECTION 90(2) OF INCOME-TAX ACT. MOREOVER, AFTER THE AMENDMENT INTRODUCED IN EXPLANATION (4) IN DEFINITION OF ROYA LTY UNDER SECTION 9(1)(6) BY FINANCE ACT, 2012, THERE IS NO CORRESPONDING CHANGE MADE IN DEFINITION IN TERM OF ROYALTY UNDER INDIA-US TAX TREATY. THEREFORE, IN VIEW OF THE AFOR ESAID DISCUSSION, THE GROUND NO.3 OF THE APPEAL IS ALLOWED IN FAVOUR OF ASSESSEE. 31. GROUND NO. 4 RELATES TO TAXABILITY OF SUPPORT A ND MAINTENANCE SERVICES AS FIS. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE RECEIVED RS. 2,29,63,770/- FROM TCS AND TC L IN RELATION TO SUPPORT AND MAINTENANCE SERVICES RENDERED IN CONNECTION WITH TH E SOFTWARE SUPPLIED BY THE ASSESSEE. UNDER THE CONTRACT WITH TCS, THE ASSESSEE WAS TO RENDER THE SUPPORT AND MAINTENANCE SERVICES IN THE FORM OF VERSION UPDATES , BUCKS FIXING, CALL SUPPORT ETC, IN CONNECTION WITH THE SOFTWARE SUPPLIED TO TCS. THE S UPPORT AND MAINTENANCE SERVICES WERE RENDERED REMOTELY FROM OUTSIDE INDIA. THE MAIN FEATURE OF THE CONTRACT CONSISTS OF VIZ, (I) TO ADDRESSES STANDARD SOFTWARE CODE PRODUC T DEFECT, BUG, ISSUE OR TECHNICAL QUERY,(II) THE PROBLEM INCLUDE BUT IS NOT LIMITED T O NEW STANDARD SOFTWARE PROBLEM, RELATED PROBLEM, RE- OCCURRENCE OF ALL PROBLEMS, DU PLICATE PROBLEMS OR PROBLEMS THAT WE ARE SIMILARITIES TO ISSUE WHICH HAVE BEEN PREVIOUSL Y RAISED, AND ANY TECHNICAL QUARRIES ON STANDARD CORE SOFTWARE, (III) THE PROBLEM WAS T O BE REPORTED EITHER BY WAY OF TELEPHONE OR BY EMAIL. THE AGREEMENT SPECIFICALLY M ENTIONED THAT ASSESSEE SHALL NOT BE UNDER NO OBLIGATION TO PROVIDE SUPPORT AND MAINTENA NCE SERVICE IN RESPECT VIZ,(A) PROBLEM RESULTING FROM ANY MODIFICATION OF CUSTOMIS ATION IF THE SOFTWARE IS NOT MADE BY THE ASSESSEE LIST OF ANY SOFTWARE OTHER THAN SOFTWA RE SUPPLIED BY ASSESSEE, (B) ANY SOFTWARE OTHER THAN THE SOFTWARE SUPPLIED BY THE AS SESSEE, (C) INCORRECT OR UNAUTHORISED USE OF THE SOFTWARE SUPPLIED BY THE ASSESSEE OR OP ERATION IS NOT IN ACCORDANCE WITH THE DOCUMENTATION, (D) ANY FAULT IN THE EQUIPMENT ON WH ICH SOFTWARE IS INSTALLED, (E) ANY PROGRAMME USED IN CONJUNCTION WITH SOFTWARE SUPPLIE D, (F) USE OF ELEMENT OF THE SOFTWARE SUPPLIED IN ANY COMBINATION OTHER THAN THO SE SPECIFIED IN THE DOCUMENTATION, (G) USE OF SOFTWARE SUPPLIED WITH COMPUTED HARDWARE , OPERATING STEM OR OTHER SUPPORTING SOFTWARE OTHER THAN THOSE SPECIFIED IN T HE DOCUMENTATION. ACCORDINGLY THE SUPPORT AND MAINTENANCE SERVICES RENDERED BY ASSESS EE WORK ONLY IN CONNECTION WITH THE SOFTWARE SUPPLIED AND ANCILLARY AND SUBSIDIARY AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED TO SOFTWARE SUPPLIED. 32. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED TH AT SAID RECEIPT WERE NOT TAXABLE IN INDIA UNDER INDIA US TAX TREATY. THE ASSESSING OFFI CER IN THE DRAFT ASSESSMENT HELD THAT SUPPORT AND MAINTENANCE FEES WERE ANCILLARY AND SUB SIDIARY TO ENJOYMENT OF RIGHT TO USE OF THE SOFTWARE FOR WHICH ROYALTIES BEING PAID AND HENCE PROPOSED TO TAX THE AMOUNT AS FIS IN TERM OF ARTICLE 12(4)(A) OF INDIA US TAX TREATY. THE LEARNED DRP REJECTED THE OBJECTION OF ASSESSEE AND CONFIRM THE VIEW TAKEN BY ASSESSING OFFICER. 11 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 33. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT ASS ESSEE, BEING TAX RESIDENT OF USA IS ELIGIBLE FOR BENEFICIAL PROVISIONS OF INDIA USA TAX TREATY WHICH CONTAINS MORE RESTRICTIVE DEFINITION OF FTS AS COMPARED TO THE AC T. ACCORDINGLY, THE SUBJECT RECEIPT CANNOT BE TAXABLE AS FTS UNLESS IT IS COVERED BY TH E DEFINITION OF FTS IN THE INDIA US TAX TREATY, EVEN IF DISCOVERED BY THE DEFINITION OF FTS UNDER THE ACT. THE LEARNED AR OF THE ASSESSEE AGAIN REITERATED THE PROVISION OF ARTI CLE 12 OF INDIA USA TAXABILITY WHEREIN DEFINITION OF ROYALTY AND FEES FOR INCLUDED SERVI CES IS DEFINED. 34. THE LEARNED AR FURTHER SUBMIT THAT IT IS AN UND ISPUTED FACT THAT THE SUPPORT AND MAINTENANCE SERVICES ARE ANCILLARY AND SUBSIDIARY, AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED, TO THE SOFTWARE SUPPLIED, THERE FORE, THE SERVICES WOULD BE DEPENDENT ON THE TAXABILITY OF SOFTWARE SUPPLIED. THE SERVICE S CAN BE CONSIDERED AS FTS UNDER CLAUSE- (A) OF PARAGRAPH 4 OF ARTICLE 12, ONLY IF T HE SOFTWARE IS TAXABLE AS ROYALTY UNDER PARAGRAPH 3 OF ARTICLE 12 OF THE TAX TREATY. IT WAS ARGUED THAT IN CASE GROUND NO. 2 IS ALLOWED IN FAVOUR OF ASSESSEE, SUPPORT AND MAINTENA NCE SERVICES CANNOT BE TAXABLE UNDER ARTICLE 12(4) OF TAX TREATY. 35. THE LEARNED AR IN ALTERNATIVE SUBMISSION SUBMIT THAT THE RECEIPT ON ACCOUNT OF SUPPORT AND MAINTENANCE SERVICE ARE NOT TAXABLE UND ER ARTICLE 12(4)(B) OF TAX TREATY AS THE SERVICE DO NOT MAKE AVAILABLE TECHNICAL KNOWLED GE, EXPERIENCE, SKILL FOR NO OR PROCESS. THE LEARNED AR ALSO RELIED UPON THE MOU TO THE INDIA US TAX TREATY. IN SUPPORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE AL SO RELIED UPON THE DECISION OF KARNATAKA HIGH COURT IN CASE OF CIT V/S DE BEERS IN DIA MINERALS LTD 2012 346 ITR 467(KARNATAKA), DECISION OF PUNE TRIBUNAL IN SANDVI K AUSTRALIA PTY LTD VS DDIT (ITA NO. 93/PUNE/2011), BHARTI AXA GENERAL INSURANCE CO. LTD (2010) 326 ITR 477 (AAR). THE ASSESSEE HAS ALSO PLACED ON RECORD THE COPY OF SOFTWARE LICENCE AGREEMENT DATED 15.11.2007 WITH TCS (PAGE NO.126 TO 137 OF PB). 36. ON THE OTHER HAND THE LEARNED AR FOR THE REVENU E SUPPORTED THE ORDER OF ASSESSING OFFICER AND THE DIRECTION OF THE DRP. THE LD. DR FO R THE REVENUE FURTHER SUBMITS THAT THIS GROUND OF APPEAL IS LINKED TO THE GROUND NO.3. 37. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE P ARTIES PRODUCE THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED ON VARI OUS CASE LAWS RELIED BY LOWER AUTHORITIES AND THE LEARNED AR OF THE ASSESSEE. WE HAVE NOTED THAT THE ASSESSEE PROVIDED SUPPORT AND MAINTENANCE SERVICES LINKED WI TH THE SOFTWARE SUPPLIED. ACCORDINGLY, THE TAXABILITY OF SUCH SERVICES IS DEP ENDENT ON THE TAXABILITY OF SOFTWARE SUPPLIED. AS WE HAVE HELD THAT THE RECEIPT EARNED O N SALE OF SOFTWARE IS NOT TAXABLE UNDER ARTICLE 12 OF INDIA-US TAX TREATY, THEREFORE, THE SERVICES THE RECEIPT FROM SUPPORT AND MAINTENANCE SERVICES ARE ALSO NOT TAXABLE UNDER 12(4)(B) OF INDIA US TAX TREATY. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 38. GROUND NO. 5 RELATES TO TAXABILITY OF SERVICE F EE AS FTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RENDERED CERTAIN SERVIC ES TO TCS. THE SERVICES COMPRISED OF IN GENEVA HEALTH CHECK FOR RETAIL INSTANCES (GEN EVA BILLING SYSTEM PERFORMANCE TUNING) AND OTHER PROFESSIONAL AND CONSULTANCY SERV ICES. THESE SERVICES WERE CLAIMED TO HAVE BEEN SUBCONTRACTED BY ASSESSEE TO INDIAN EN TITY CIM ON A PRINCIPAL TO PRINCIPAL BASIS. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED THAT THE SAID RECEIPT ARE NOT TAXABLE IN INDIA UNDER THE INDIA US TAX TREATY. HOWEVER THE ASSESSING OFFICER IN THE ASSESSMENT 12 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 ORDER HELD THAT SERVICES ARE ANCILLARY AND SUBSIDIA RY TO THE ENJOYMENT TO USE THE SOFTWARE FOR WHICH ROYALTIES BEING PAID AND HENCE P ROPOSED TO TAX THE AMOUNT AS FIS. ON OBJECTION BEFORE DRP THE ACTION OF ASSESSING OFF ICER WAS UPHELD. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THE SERVICES RENDERED BY ASSESSEE ARE NEITHER ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE R IGHT, PROPERTY OR INFORMATION FOR WHICH A ROYALTY PAYMENT IS DESCRIBED IN ARTICLE 12(3) OF TAX TREATY IS RECEIVED NOR DO THEY MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW-HOW OR PROCESS OR CONSIST OF THE DEVELOPMENT OF TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN. THE LEARNED AR FURTHER SUBMITS THAT UNLESS, THE SERVICES SATISFY A MAKE AVAILABLE TEST, THE SAME COULD NOT BE TAXED AS FIS INCOME. THE LEARNED AR RETREATE D THE CONTENTS OF MOU TO THE INDIA US TAX TREATY. 39. ON THE OTHER HAND LEARNED AR FOR THE REVENUE SU PPORTED THE ORDER OF LOWER AUTHORITIES. 40. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE ORDER OF LOWER AUTHORITIES. DURING THE RELEVANT PERIOD FOR A .Y. UNDER CONSIDERATION, THE ASSESSEE RENDERED CERTAIN SERVICES TO TCS. THOSE SERVICES WE RE SUB-CONTRACTED BY ASSESSEE TO INDIAN ENTITY CIM ON PRINCIPLE TO PRINCIPLE BASIS I N THE RETURN OF INCOME, THE ASSESSEE CLAIMED SAID RECEIPT ARE NOT TAXABLE IN INDIA. THE ASSESSING OFFICER TREATED THE SAID RECEIPT AS SUBSIDIARY AND ANCILLARY TO THE RIGHT TO USE OF SOFTWARE WHICH IS ROYALTY AND PROPOSED TO TAX AS FIS UNDER ARTICLE 12(4)(A). THE OBJECTION OF ASSESSEE WAS REJECTED BY DRP. THE DRP CONCLUDED THAT PAYMENT HAVE BEEN RE CEIVED FOR PROVIDING SPECIALIZED TECHNICAL INPUT SERVICES RENDERED BY AS SESSEE AND WILL BE COVERED BY THE DEFINITION OF FIS/FTS. 41. THE FEES FOR INCLUDED SERVICES IS DEFINED IN AR TICLE 12(4) OF INDIA-US TAX TREATY, WHEREIN FEES FOR INCLUDED SERVICES MEANS PAYMENT OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR RENDERING OF ANY TECHNICAL OR CON SULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PER SONNEL IF SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OR RIGHT , PROPERTY OR INFORMATION FOR WHICH PAYMENT IS RECEIVED OR MAKE AVAILABLE TECHNICAL KNO WLEDGE, EXPERIENCE, SKILL NO-HOW OR PROCESS OR CONSIST OF DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. WE HAVE NOTED THAT THE ASSESSEE HAS CLAIMED THAT SE RVICES RENDERED ARE ANCILLARY AND SUBSIDIARY AND INEXTRICABLY ESSENTIALLY LINKED WITH THE SOFTWARE SUPPLIED. IN OUR VIEW, UNLESS THE SERVICES SATISFY THE MAKE AVAILABLE TEST , THE SAME CANNOT BE TAXED AS FIS. FURTHER, MERE FACT THAT PROVISION OF SERVICE MAY RE QUIRE TECHNICAL INPUT BY THE PERSON PROVIDING SERVICES DOES NOT PER SE MEAN THE TECHNIC AL KNOWLEDGE. IN OUR VIEW, THE RECEIPT ON ACCOUNT OF SUPPORT AND MAINTENANCE SERVI CES ARE NOT TAXABLE UNDER ARTICLE 12 AS THE SERVICES DO NOT MAKE AVAILABLE TECHNICAL KNO WLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS OR CONSIST OF ANY DEVELOPMENT AND TRANSF ER OF ANY DESIGN. IN THE RESULT, GROUND NO.5 OF THE APPEAL IS ALLOWED. 13 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 SINCE FACTS ARE STATED TO BE PARI-MATERIA THE SAME IN THIS AY, APPLYING THE AFORESAID DECISION OF THE TRIBUNAL, WE DELETE IMPUG NED THREE ADDITIONS MADE BY LD. AO. GROUND NOS. 2 TO 4 OF THE APPEAL ST ANDS ALLOWED. 6. IN GROUND NO.5, THE ASSESSEE IS CONTESTING THE L EVY OF INTEREST U/S 234B BY RELYING UPON THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN DIT V/S NGC NETWORK ASIA LLC (313 ITR 187). WE FIND THAT SIMILAR ISSUE, IN THE AFORESAID DECISION OF THE TRIBUNAL HA S ALSO BEEN DEALT WITH IN THE FOLLOWING MANNER: - 42. GROUND NO. 6 RELATES TO LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. THE LEARNED AR OF THE ASSESSEE SUBMITS THAT IN THE ASSESSMENT O RDER, THE ASSESSING OFFICER LEVIED INTEREST UNDER SECTION 234B OF THE ACT AMOUNTING TO 37,58,522/-ON ACCOUNT OF SHORTFALL IN PAYMENT OF ADVANCE TAX AND SELF-ASSESSMENT TAX. THE LEARNED AR SUBMITTED THAT THE ASSESSEE BEING TAX RESIDENT OF INDIA AND IS FOREIGN COMPANY UNDER THE INCOME TAX LAWS, ACCORDINGLY, AS PER SECTION 195 OF THE ACT TAXES DE DUCTIBLE AT THE SOURCE ON ALL ITS RECEIVED. THEREFORE THERE CAN BE NO LIABILITY TO PA Y ADVANCE TAX UNDER SECTION 208 OF THE ACT IN ABSENCE OF ANY LIABILITY TO PAY ADVANCE TAX. THE PROVISION OF SECTION 234B OF THE ACT CANNOT BE INVOLVED. IN SUPPORT OF HIS SUBMISSIO N THE LEARNED AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONOURABLE BOMBAY HIGH COURT IN CASE OF DIT VERSUS NGC NETWORK ASIA LLC (313 ITR 187 ) 43. ON THE OTHER HAND THE LEARNED AR FOR THE REVENU E SUBMITS THAT SUITABLE DIRECTION MAY BE GIVEN TO THE ASSESSING OFFICER TO RECOMPUTE THE INTEREST AS PER LAW. 44. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PARTIES AND FIND THAT ASSESSEE IS A FOREIGN COMPANY AND TAX RESIDENT OF USA AND AS PER SECTION 195 OF THE ACT TAXES DEDUCTIBLE AT SOURCE ON ALL ITS RECEIVED AND ACCORD INGLY THE ASSESSEE WAS NOT LIABLE TO PAY ADVANCE TAX. THEREFORE WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE TAX BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN CASE OF NGC NETWORK ASIA LLC (SUPRA). THE ISSUE BEING SIMILAR, WE DIRECT LD.AO TO FOLLOW THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN DIT V/S NGC NETWORK ASIA LLC (313 ITR 187). THIS GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 7. RESULTANTLY, THE APPEAL STANDS PARTLY ALLOWED. 14 ITA NO.783/MUM/2017 NETCRACKER TECHNOLOGY SOLUTIONS LLC ASSESSMENT YEAR-2012-13 ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14/10/2019 SR.PS:-JAISY VARGHESE => ?> / COPY OF THE ORDER FORWARDED TO : 1. <= / THE APPELLANT 2. >?<= / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. R S > T , T , / DR, ITAT, MUMBAI 6. S UVW / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.