I2 Technologies US Inc, Bangalore V. DDIT, Bangalore

ITA 788/BANG/2010

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6814 (ITAT-BANGALORE)
• Duration Of Justice: 8 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-03-2019
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Business income; Double taxation relief; Permanent establishment; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO. 788/BANG/2010 ASSESSMENT YEAR : 2006-07 JDA SOFTWARE INC (SUCCESSOR IN INTEREST TO I2 TECHNOLOGIES US INC.) C/O. JDA SOFTWARE PRIVATE LIMITED, MANTRI COMMERCIO, NEAR SAKRA WORLD HOSPITAL, BELLANDUR, OUTER RING ROAD, BANGALORE [PAN: AABCI5282J] VS. THE DEPUTY DIRECTOR OF INTERNATIONAL TAX, CIRCLE-1(1), BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI T. SURYANARAYANA, ADVOCATE RESPONDENT BY : SMT. PRISCILLA SINGSIT, CIT-DR SHRI R.N. SIDDAPPAJI, ADDL.CIT DATE OF HEARING : 16-04-2019 DATE OF PRONOUNCEMENT : 26-04-2019 O R D E R PER N V VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 30-03-2010 OF THE COMMISSIONER OF INCOME TAX (APPEA LS)-IV, BANGALORE, RELATING TO ASSESSMENT YEAR 2006-07. : 2 : ITA NO. 788/BANG/2010 2. THE ASSESSEE IS A NON-RESIDENT COMPANY, INCORPOR ATED UNDER THE LAWS OF THE UNITED STATES OF AMERICA (USA) AND A TA X RESIDENT OF USA. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SU PPLY OF SOFTWARE TO INDIAN CUSTOMERS. ASSESSEE ALSO PROVIDES MAINTENAN CE SERVICES AND OTHER TECHNICAL SERVICES IN CONNECTION WITH SOFTWAR E SUPPLIED BY IT IN INDIA. DURING THE PREVIOUS YEAR, THE ASSESSEE RECE IVED MAINTENANCE REVENUE OF RS. 1,31,74,984/-. THE QUESTION IN THIS APPEAL IS AS TO WHETHER THE AFORESAID SUM RECEIVED BY THE ASSESSEE AS MAINTENANCE REVENUE IS CHARGEABLE TO TAX IN INDIA OR NOT? THE NATURE OF MAINTENANCE TO BE RENDERED BY THE ASSESSEE AS EXPLA INED IN THE MAINTENANCE AGREEMENT BETWEEN THE ASSESSEE AND THE CLIENT IS AS FOLLOWS: MAINTENANCE : UPON PAYMENT BY CUSTOMER OF MAINTENA NCE FEES (MAINTENANCE FEES), I2 SHALL PROVIDE CUSTOMER WITH CORRECTIVE MAINTENANCE, UPDATES, ENHANCEMENTS OR MODIFICATIONS TO THE LICENSED SOFTWARE WHICH I2 INCORPORATES INTO AND MAKES PART OF THE LICENSED SOFTWARE AND DOES NOT SEPARATELY PRICE OR MARKET (COLLECTIVELY, THE 'ENHANCEMENTS '') AND TELEPHONE SUPPORT DURING I2 'S REGULAR BUSINESS HOURS (8 AM -5PM CST, MONDAY -FRIDAY) FOR THE SOLE PURPO SE OF REPORTING PROBLEMS WITH THE SYSTEM (COLLECTIVELY REFERRED TO HEREIN AS 'MAINTENANCE). TELEPHONE SUPPORT SHALL BE PROVIDED TO ONLY ONE CUS TOMER DESIGNATED REPRESENTATIVE OR ALTERNATE AT ONE CENTRAL SITE AS DESIGNATED BY CUSTOMER. SUCH TELEPHONE SUPPORT WILL BE PROVIDED ONLY TO THO SE CUSTOMER DESIGNATES WHO HAVE ATTENDED THE SYSTEM TRAINING CLASS. I2 SHA LL NOT BE OBLIGATED TO PROVIDE TELEPHONE SUPPORT TO ANY LOCATION OTHER THA N THE SITE LOCATIONS. TWENTY-FOUR HOURS A DAY, SEVEN DAYS A WEEK MAINTENA NCE ('24 X 7 MAINTENANCE'') WILL ONLY BE PROVIDED IF NOTED ON AD DENDUM A. UNLESS OTHERWISE SPECIFIED ON AN ADDENDUM, I2'S MAINTENANC E OBLIGATIONS APPLY ONLY TO I2'S STANDARD SYSTEM INCLUDING ENHANCEMENTS AS RELEASED TO THE .GENERAL CLIENT BASE. FOLLOWING THE FIRST ANNIVERSA RY OF THE AGREEMENT DATE, AS LONG AS I2 IS OFFERING MAINTENANCE, CUSTOMER MAY AT CUSTOMER'S OPTION RENEW MAINTENANCE. IN THE EVENT CUSTOMER ALLOWS MAI NTENANCE TO LAPSE, IT : 3 : ITA NO. 788/BANG/2010 MAY THEREAFTER RENEW SUCH SUPPORT FOR THE AFFECTED SOFTWARE BY PAYING THE THEN CURRENT ANNUAL MAINTENANCE FEES PLUS AN AMOUNT EQUAL TO THE AGGREGATE MAINTENANCE FEES THAT WOULD HAVE BEEN PAY ABLE FOR THE AFFECTED SOFTWARE DURING THE PERIOD OF LAPSE. I2 SHALL PROVI DE MAINTENANCE FOR THE CURRENT AND THE IMMEDIATE PRIOR VERSIONS OF THE LIC ENSED SOFTWARE. MAINTENANCE DOES NOT INCLUDE THE CORRECTION OF ERRO RS OR DEFECTS CAUSED BY OPERATION OF THE SYSTEM IN A MANNER OTHER THAN THAT EXPRESSLY OR IMPLIEDLY AUTHORIZED BY I2, THE INCORRECT USE OF THE SYSTEM B Y CUSTOMER OR HARDWARE MAINTENANCE. (EMPHASIS SUPPLIED IN BOLD LETTERS) 3. THE ASSESSING OFFICER (AO) WAS OF THE VIEW THAT THE MAINTENANCE REVENUE RECEIVED BY THE ASSESSEE IS NOT HING BUT ROYALTY, WHICH IS CHARGEABLE TO TAX IN INDIA. THE DEFINITIO N OF ROYALTY AS IT STOOD IN AY. 2006-07 IS EXTRACTED IN THE ORDER OF T HE AO AND IS AS FOLLOWS: DEFINITION OF ROYALTY AS PER THE I T. ACT- EXPLANATION 2 :- FOR THE PURPOSES OF THIS CLAUSE, 'ROYALTY' MEANS CO NSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSID ERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR- (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENSE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECR ET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORM ULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; : 4 : ITA NO. 788/BANG/2010 (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TE CHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL; (V) THE USE OF RIGHT TO USE ANY INDUSTRIAL, COMMERC IAL OR SCIENTIFIC EQUIPMENTS BUT NOT INCLUDING THE AMOUNT REFERRED TO IN SECTION 44BB; (VI) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCI ENTIFIC WORK INCLUDING FILMS OR VIDE TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDI NG CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR (VII) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND (V). 3.1. THE CASE OF THE ASSESSEE ON THE OTHER HAND IS THAT THE MAINTENANCE REVENUE RECEIVED IS NOT IN THE NATURE O F ROYALTY AS PER THE DEFINITION OF ROYALTY AS GIVEN IN EXPLANATION-2 TO SECTION 9(1)(VI) OF THE OF THE INCOME TAX ACT, 1961 (ACT). THE FURTHER PLEA OF THE ASSESSEE IS THAT AS PER THE DEFINITION OF ROYALTY AS CONTAIN ED IN ARTICLE 12(3)(4) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA (HEREINAFTER REFERRED TO AS DTAA), THE MAINTENANC E CHARGES ARE NOT CHARGEABLE TO TAX IN INDIA BECAUSE THERE WAS NO RIG HT TO USE AS IS CONTEMPLATED UNDER THE DEFINITION OF ROYALTY UNDER ARTICLE 12(3) OF DTAA. THE ASSESSEE ALSO CONTENDED THAT THE SUM-IN-Q UESTION CANNOT BE CONSIDERED AS FEES FOR INCLUDED SERVICES FOR THE REASON THAT THE FEES RECEIVED IS NOT FOR SERVICES COVERED BY ARTICLE 12( 4)(A) I.E., IT IS NOT ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJO YMENT OF THE RIGHT : 5 : ITA NO. 788/BANG/2010 CONFERRED UNDER ARTICLE 12(3) OR ARTICLE 12(4)(B) I.E., MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, O R PROCESSES, OF THE DTAA. ARTICLE 12(3) & (4) OF THE DTAA IS AS FOLLOWS : DEFINITION OF ROYALTY AS PER ARTICLE 12(3) OF DTAA 12(3) THE TERM 'ROYALTIES' AS USED IN THIS ARTICL E MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE RIGHT TO U SE OF, OR THE RIGHT TO USE (A)ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTI FIC WORK, INCLUDING CINEMATOGRAPH FILM OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIA L, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT, PROPERTY OR INFORMATION; (B)ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPME NT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE FROM ACTIVITIES DESCRIBED IT PARAGRAPH 4(B) OR 4(C) OF ARTICLE 8. FEES FOR INCLUDED SERVICES AS PER ARTICLE 12(4) OF DTAA ARE AS UNDER : 12 (4) FOR PURPOSES OF THIS ARTICLE, 'FEES FOR INC LUDED SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES [INCLUDING THROUG H THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL] IF SUCH S ERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIB ED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSF ER OF A TECHNICAL PLAN OR TECHNICAL DESIGN' 3.2. THE AO, HOWEVER, DID NOT AGREE WITH THE CONTEN TIONS PUT-FORTH BY THE ASSESSEE. HE HELD THAT THERE WAS SALE OF SO FTWARE BY THE ASSESSEE : 6 : ITA NO. 788/BANG/2010 TO ITS CUSTOMERS AND BY DOING SO THERE WAS A RIGHT TO USE CONTEMPLATED BY THE ARTICLE 12(3) OF THE DTAA. SINCE THE MAINTE NANCE SERVICES ARE IN RELATION TO RIGHT TO USE IN RESPECT OF A COPY RI GHT, THE MAINTENANCE SERVICES PERFORMED IN RESPECT OF SOFTWARE SOLD BY T HE ASSESSEE WOULD BE SERVICES IN CONNECTION WITH THE RIGHT TO USE COP Y RIGHT IN THE SOFTWARE AND WOULD THEREFORE BE ROYALTY WITHIN THE DEFINITION OF THE TERM AS GIVEN IN EXPLANATION-2(VI) OF THE ACT. THE AO DID NOT DEAL WITH THE ARGUMENT OF THE ASSESSEE ON ARTICLE 12(4) OF THE DTAA. 4. ON APPEAL BY ASSESSEE, THE CIT(A) NOTICED THAT T HE SOFTWARE WAS ORIGINALLY SOLD BY I2 TECHNOLOGIES (NETHERLANDS) BV , WHICH IS ALSO ANOTHER GROUP ENTITY, BUT NEVERTHELESS A DIFFERENT ENTITY. WITH EFFECT FROM 01-04-2005, I2 TECHNOLOGIES (NETHERLANDS) BV, TRANSFERRED THE ENTIRE MAINTENANCE CONTRACT IN RESPECT OF THE SOFTW ARE SOLD BY THEM IN INDIA TO THE ASSESSEE. THESE FACTS ARE CLEAR FROM READING OF PARA 4.3.2 OF THE ORDER OF CIT(A) IN WHICH THE CIT(A) HAS NOTI CED THE TERMS OF THE SOFTWARE LICENSE AGREEMENT BETWEEN I2 TECHNOLOG IES (NETHERLANDS) BV AND THE INDIAN CUSTOMERS TO WHOM S OFTWARE WAS SUPPLIED BY THE SAID ENTITY, WHICH IS AS FOLLOWS: 4.3.2 IN THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS FURNISHED COPIES OF SOFTWARE LICENSE AGREEMENTS BETWEEN I2 TECHNOLOGIES (NETHERLANDS) BV AND THE INDIAN CUSTOMERS TO WHOM S OFTWARE WAS SUPPLIED. THE APPELLANT HAS ALSO FURNISHED A CONFIR MATION FROM I2 TECHNOLOGIES (NETHERLANDS) BV THAT W.E.F. 01.04.200 5, ALL MAINTENANCE CONTRACTS IN THE NAME OF I2 TECHNOLOGIES (NETHERLAN DS) BV (HEREINAFTER REFERRED TO AS 'I2') STAND TRANSFERRED TO THE APPEL LANT ALONG WITH ALL RISKS AND REWARDS ATTACHED THERETO.. : 7 : ITA NO. 788/BANG/2010 4.1. THE LD.CIT(A) FOUND THAT IN THE CASE OF I2 TEC HNOLOGIES (NETHERLANDS) BV, THEY WERE ASSESSED IN MUMBAI AND THE REVENUE I.E., THE AO AT MUMBAI HAS TAXED THE SUPPLY OF SOFTWARE A S ROYALTY IN THE HANDS OF I2 TECHNOLOGIES (NETHERLANDS) BV. SINCE T HE SALE OF SOFTWARE HAS BEEN CONSIDERED AS ROYALTY IN THE HANDS OF I2TE CHNOLOGIES (NETHERLANDS) BV, THE CIT(A) WAS OF THE VIEW THAT T HE MAINTENANCE SERVICES ARE ALSO BE CONSIDERED AS ROYALTY. THESE F ACTS EMANATE FROM READING OF PARA NOS. 4.3.4 & 4.3.5 OF THE ORDER OF CIT(A), WHICH ARE AS FOLLOWS: 4.3.4. THERE CAN BE NO DISPUTE THAT THE RECEIPTS ON ACCOUNT OF MAINTENANCE CHARGES ARE INCIDENTAL TO SOFTWARE RECE IPTS AND BEAR THE SAME CHARACTER AS THAT OF SOFTWARE RECEIPTS. IT IS GATHE RED THAT I2 (ASSESSED AT MUMBAI) HAS BEEN CLAIMING IN ITS IT RETURNS THAT IT S SOFTWARE RECEIPTS ARE NOT TAXABLE IN INDIA. HOWEVER, THE AO AT MUMBAI AN D THE CONCERNED CIT(A) HAVING JURISDICTION OVER THAT CASE HAVE HELD SUCH SOFTWARE RECEIPTS TO BE IN THE NATURE OF ROYALTY LIABLE TO TAX IN I NDIA BOTH UNDER THE ACT AND THE RELEVANT DTAA. THE MATTER IS SAID TO BE PE NDING IN FURTHER APPEAL BEFORE THE HON'BLE TRIBUNAL. AS FAR AS THE CASE OF THE APPELLANT IS CONCERNED, I AM IN AGREEMENT WITH THE VIEW OF THE A O THAT THE PAYMENTS FOR LICENSED SOFTWARE ARE INDEED IN THE NATURE OF 'ROYA LTY' WITHIN THE MEANING OF CLAUSE (VII) OF EXPLANATION 2 TO SECTION 9(1)(VI ) OF THE ACT. THE AO IS ALSO PERFECTLY JUSTIFIED IN TREATING THE PAYMENTS FOR 'M AINTENANCE SERVICES' IN CONNECTION WITH THE LICENSED SOFTWARE AS 'FEES FOR INCLUDED SERVICES' AS PER ARTICLE 12(4)(A) OF THE RELEVANT DT AA IN SO FAR AS SUCH MAINTENANCE SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE USE OF SOFTWARE . 4.2. THE CIT(A) ALSO DEALT WITH THE ARGUMENT OF TH E ASSESSEE THAT THE SUM IN QUESTION CANNOT BE CONSIDERED AS FEES FOR INCLU DED SERVICES UNDER ARTICLE 12(4) OF THE DTAA. 4.3.5 A PERUSAL OF THE MOU CONCERNING 'FEES FOR INC LUDED SERVICES' IN ARTICLE 12 OF THE RELEVANT DTAA SHOWS THAT IN ORDER FOR A S ERVICE FEE TO BE CONSIDERED ANCILLARY AND SUBSIDIARY TO THE APPLICAT ION OR ENJOYMENT OF SOME : 8 : ITA NO. 788/BANG/2010 RIGHT, PROPERTY OR INFORMATION FOR WHICH A ROYALTY PAYMENT IS RECEIVED, THE SERVICE MUST BE RELATED TO THE APPLICATION OR ENJOY MENT OF THE RIGHT, PROPERTY OR INFORMATION. IN ADDITION, THE CLEARLY PREDOMINAN T PURPOSE OF THE ARRANGEMENT UNDER WHICH THE PAYMENT OF THE SERVICE FEE AND SUCH OTHER PAYMENTS ARE MADE MUST BE THE APPLICATION OR ENJOYM ENT OF THE RIGHT, PROPERTY OR INFORMATION DESCRIBED IN PARAGRAPH 3 OF ARTICLE 12. IN THE INSTANT CASE, IT IS EVIDENT THAT THE MAINTENANCE SE RVICES PROVIDED BY THE APPELLANT FACILITATE THE EFFECTIVE APPLICATION AND IMPLEMENTATION OF THE SOFTWARE LICENSED TO ITS CLIENTS. WITHOUT SUCH MAIN TENANCE SERVICES, THE CUSTOMERS OF THE APPELLANT WILL NOT KNOW HOW TO DEA L WITH BUGS OR DEFECTS IN THE SOFTWARE WHICH MAY SERIOUSLY AFFECT THE APPLICA TION OF SUCH SOFTWARE AS WELL AS BUSINESS OPERATIONS OF THE CLIENTS. NOR WIL L THE CUSTOMERS BE ENTITLED TO UPDATES, ENHANCEMENTS OR MODIFICATIONS TO THE LI CENSED SOFTWARE WHICH IS PROVIDED BY THE APPELLANT AS PART OF MAINTENANCE SE RVICES. IN VIEW OF THE ABOVE DISCUSSION, THE ACTION OF THE AO IN TAXING TH E MAINTENANCE RECEIPTS/ REVENUE AS 'ROYALTY' U/S 9(L)(VI) OF THE ACT AND AR TICLE 12(4)(A) OF THE RELEVANT DTAA IS UPHELD. GROUNDS BEARING NOS. L TO 5 TAKEN UP BY THE APPELLANT ARE FOUND TO BE DEVOID OF SUBSTANCE AND A RE ACCORDINGLY DISMISSED. 4.3. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE FIL ED AN APPEAL BEFORE THE TRIBUNAL, RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) [CIT(A)] ERRED IN HOLDING THAT THE RECEIPTS ON ACCOUNT OF MAINTENANCE CHARGES ARE INCIDENTAL TO SOFTWARE RECEIPTS AND BEAR THE SAME CHARACTER AS THAT OF SOFTWARE RECEIPTS. 2. THE LEARNED CIT(A) ERRED IN CONCLUDING THAT THE SALE OF LICENSES ARE IN THE NATURE OF ROYALTY INCOME AND THEREBY CONCLUDING THA T MAINTENANCE SERVICES IN RELATION TO THE SALE OF THE SAID LICENSES ARE AN CILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION UNDER SUB- CLAUSE (VI) TO EXPLANATION 2 OF SECTION 9(1)(VI) OF THE INCOME TAX ACT, 1961 (THE ACT). 3. THE LEARNED CIT(A) HAS FURTHER ERRED IN TREATING THE PAYMENT FOR MAINTENANCE SERVICES AS FEES FOR INCLUDED SERVICES UNDER ARTICLE 12(4)(A) OF THE INDO-US-DTAA. THE LEARNED CIT(A) ERRED IN HOLD ING THAT MAINTENANCE : 9 : ITA NO. 788/BANG/2010 SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE APPLIC ATION OR ENJOYMENT OF THE RIGHT OR PROPERTY. 4. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T THE SALE OF SOFTWARE LICENSES DOES NOT FALL WITHIN THE PURVIEW OF ARTICL E 12(3)(A) AND CONSEQUENTLY THE MAINTENANCE SERVICES DO NOT FALL U NDER ARTICLE 12(4)(A). 5. THE LEARNED CIT(A) FURTHER OUGHT TO HAVE APPRECI ATED THAT THE MAINTENANCE SERVICES DO NOT FALL UNDER ARTICLE 12(4 )(B) OF THE INDO-US DTAA AS NO TECHNICAL KNOWLEDGE IS MADE AVAILABLE AT THE TIME OF PROVIDING THE MAINTENANCE SERVICES. 6. FOR THE ABOVE AND ANY OTHER GROUNDS, WHICH MAY B E ADVANCE AT THE TIME OF HEARING, YOUR APPELLANT PRAYS THAT THE ORDER OF THE LEARNED CIT(A) MAY BE PLEASE SET ASIDE. 7. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR A MEND ALL OR ANY OF THE AFORE-STATED GROUNDS OF APPEAL 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ONLY BASIS ON WHICH THE MAINTENANCE REVENUE WAS CONSIDERED AS IN THE NATURE OF ROYALTY TAXABLE IN THE HANDS OF ASSESSEE IN INDIA I S OWING TO THE FACT THAT THE REVENUE FROM SUPPLY OF SOFTWARE, WHICH WAS MADE BY I2 TECHNOLOGIES (NETHERLANDS) BV, WAS REGARDED AS IN T HE NATURE OF ROYALTY AND TAXED IN THE HANDS OF I2 TECHNOLOGIES ( NETHERLANDS) BV. IN THE CASE OF ASSESSEE, THE CONCLUSION IS THAT THE MAINTENANCE REVENUE IS ALSO ROYALTY, BASED ONLY ON THE FACT THAT THE RE VENUE FROM SUPPLY OF SOFTWARE WAS REGARDED AS ROYALTY AND THEREFORE, MAI NTENANCE SERVICES ARE ALSO BE CONSIDERED AS ROYALTY AS THEY ARE ANCIL LARY TO THE SUPPLY OF SOFTWARE . LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTIC E THE DECISION OF THE HON'BLE ITAT OF MUMBAI BENCH IN THE CASE OF M/S. I2 TECHNOLOGIES (NETHERLANDS) BV VS. ACIT (INTERNATION AL TAXATION) IN : 10 : ITA NO. 788/BANG/2010 ITA NOS. 2410/MUM/2007 AND 6449/MUM/2008, AYS. 2002 -03 & 2004-05, WHEREIN THE ITAT, MUMBAI CAME TO THE CONCL USION THAT THE SUPPLY OF SOFTWARE BY I2 TECHNOLOGIES (NETHERLANDS) BV TO INDIAN CUSTOMERS AND TO WHOM THE ASSESSEE RENDERED MAINTEN ANCE SERVICES, CANNOT BE TAXED AS ROYALTY AND WAS IN THE NATURE OF BUSINESS INCOME AND SINCE I2 TECHNOLOGIES (NETHERLANDS) BV, DID NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA, THE SUM-IN-QUESTION CA NNOT BE TAXED IN INDIA . IT MAY BE MENTIONED THAT THE TRIBUNAL WHILE COMIN G TO THE ABOVE CONCLUSION THAT REVENUE FROM SALE OF SOFTWARE AND T HE REVENUE RECEIVED FROM SUCH SALE CANNOT BE REGARDED AS ROYALTY AND PL ACED RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF DIT VS. INFRASOFT LTD., (2013) [39 TAXMANN.COM 88]. LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE VERY BASIS OF THE CONCLUSION BY THE REVENUE AUTHORITIES THAT THE MAINTENANCE REVENUE RE CEIVED BY THE ASSESSEE WAS IN THE NATURE OF ROYALTY IS BASED ON T HE CONCLUSION IN THE CASE OF M/S. I2 TECHNOLOGIES (NETHERLANDS) BV VS. A CIT (INTERNATIONAL TAXATION) (SUPRA), THAT THE SUPPLY OF SOFTWARE BY THEM IS IN THE NATURE OF ROYALTY AND THEREFORE, THE MAINTEN ANCE SERVICES WHICH ARE INCIDENTAL TO SUPPLY OF SOFTWARE SHOULD ALSO BE REGARDED AS ROYALTY, HAS NOW BEEN REVERSED THE NATURAL CONSEQUENCES WILL BE THAT THE SUM RECEIVED AS MAINTENANCE REVENUE, IT CANNOT BE REGAR DED AS CHARGEABLE TO TAX IN INDIA AS A ROYALTY. IT WAS SUBMITTED THA T EVEN OTHERWISE THERE WAS NO DISPUTE THAT THE RECEIPT IN QUESTION WOULD B E IN THE NATURE OF BUSINESS INCOME AND SINCE THE ASSESSEE DID NOT HAVE A PERMANENT : 11 : ITA NO. 788/BANG/2010 ESTABLISHMENT (PE) IN INDIA, THE SAID RECEIPT WOULD NOT BE CHARGEABLE TO TAX IN INDIA. 6. THE LD.DR PLACED RELIANCE ON THE ORDER OF CIT(A) . 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ARE OF THE VIEW THAT IN THE LIGHT OF THE CONCLUSIONS IN TH E CASE OF M/S. I2 TECHNOLOGIES (NETHERLANDS) BV VS. ACIT (INTERNATION AL TAXATION) (SUPRA), BY THE MUMBAI BENCH OF ITAT, WHICH WOULD H OLD GOOD FOR AY. 2006-07 ALSO AS THE FACTS ARE IDENTICAL, THE SU M-IN-QUESTION CANNOT BE REGARDED AS ROYALTY BECAUSE THE RECEIPTS IN QUES TION CANNOT BE SAID TO BE ANCILLARY TO SUPPLY OF SOFTWARE WHICH WAS REG ARDED AS ROYALTY. 7.1. LD. COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT IN AYS. 2008- 09 AND 2010-11, THIS TRIBUNAL IN THE CASE OF I2 TEC HNOLOGIES US INC., VS. DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXAT ION) IN IT(TP) APPEAL NOS. 1303/BANG/2011 AND 226/BANG/2014 (AYS. 2008-09 AND 2010-11) RESPECTIVELY, TOOK A CONTRARY VIEW BUT THA T WOULD NOT APPLY TO AY. 2006-07 BECAUSE IN THOSE ASSESSMENT YEARS I.E., AYS. 2008-09 AND 2010-11, THE ASSESSEE DIRECTLY SOLD SOFTWARE AND AL SO CARRIED OUT MAINTENANCE SERVICES UNDER AGREEMENTS WITH THE PERS ONS TO WHOM SOFTWARE LICENSES WERE SOLD. CONSEQUENTLY, THE MAI NTENANCE SERVICES WHICH WERE ALSO IN CONNECTION WITH THE SUPPLY OF SO FTWARE WERE REGARDED AS ROYALTY. IN THE PRESENT CASE, HOWEVER, THE SUPPLY OF SOFTWARE HAS ALREADY BEEN HELD TO BE NOT IN THE NAT URE OF ROYALTY BY THE DECISION OF ITAT, MUMBAI. : 12 : ITA NO. 788/BANG/2010 7.2. WE ALSO MAKE IT CLEAR THAT WE HAVE NOT GONE IN TO THE QUESTION REGARDING THE APPLICABILITY OF ARTICLE 12(3) AND AL SO THE DEFINITION OF ROYALTY IS GIVEN IN EXPLANATION-2 TO SECTION 9(1)(V I) OF THE ACT AND OUR CONCLUSIONS IN THESE APPEALS AND ARE GUIDED ONLY BY THE RULING OF THE MUMBAI BENCH OF THE ITAT IN THE CASE OF M/S. I2 TEC HNOLOGIES (NETHERLANDS) BV VS. ACIT (INTERNATIONAL TAXATION) (SUPRA). 7.3. IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE O F THE VIEW THAT THE MAINTENANCE REVENUE RECEIVED BY THE ASSESSEE CANNOT BE REGARDED AS A ROYALTY CHARGEABLE TO TAX IN INDIA. THE ADDITION M ADE IS THEREFORE DIRECTED TO BE DELETED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF APRIL, 2019 SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASU DEVAN) ACCOUNTANT MEMBER VICE PRESIDEN T BANGALORE, DATED, THE 26 TH APRIL, 2019 TNMM : 13 : ITA NO. 788/BANG/2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE