DCIT(International Taxation), Circle-2(2)(1), New Delhi V. Microstrategy Singapore Pte Ltd, Mumbai

MA 186/DEL/2022

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Microstrategy Singapore Pte Ltd., a company incorporated and tax-resident in Singapore, engaged in software distribution and maintenance, faced an assessment where the sale of software was treated as royalty income and service charges as 'Fee for Technical Services' by the Assessing Officer. The Tribunal initially overlooked Ground No.2 of the appeal, considering it superfluous. However, upon the assessee's application for rectification, the Tribunal recognized the error and acknowledged the interconnection of all grounds, leading to a decision in favor of the assessee, aligning with the judgment in a similar case for the Assessment Year 2014-15.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121600 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 05-01-2023
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-01-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 20-07-2022
• Other Referred Cases: Engineering Analysis Center of Excellence Pvt. Ltd. (2021) 125 taxmann.com 42, CIT vs. Reliance Telecom Ltd. (Civil Appeal) No.7110 of 2021
• Laws Referred To: Income Tax Act
• Court: TRIBUNAL
• Section: 254(2); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D” DELHI BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI ANUBHAV SHARMA, JUDICIAL MEMBER MAs No.185 to 187/DEL/2022 (Arising from ITAs No.2561, 6676/Del/2019 & 318/Del/2021) Assessment Years 2013-14, 2016-17 & 2017-18 Microstrategy Singapore Pte Ltd., C/o 3A116 Wework enam, C-20, G Block BKC Bandra, Mumbai, Maharasthra. vs. DCIT, New Delhi. TAN/PAN: AAHCM4978D (Appellant) (Respondent) Appellant by: Shri Rajan Vora, CA, Ms. Preeti Goel, AR Respondent by: Shri Shankar Lal Verma, Sr.DR Date of hearing: 06 01 2023 Date of pronouncement: 06 01 2023 O R D E R PER PRADIP KUMAR KEDIA - A.M.: By these Misc. Applications, the assessee has urged for recalling/rectification of order dated 27.06.2022 passed in ITAs No.2561, 6676/ D el/ 20 19 & 31 8/ Del /2 02 1 concerning Assessment Years 2013-14, 2016-17 & 2017-18. 2. As per the captioned Misc. Applications, it was pointed out on behalf of the assessee that the Tribunal has committed error of apparent nature by observing that Grounds No.2 of the assessee’s appeal is superfluous and thus does not call for adjudication which is factually incorrect. 3. The ld. counsel for the assessee submitted that the assessee is company incorporated in and is a tax resident of Singapore and is engaged in distribution and maintenance of software to customers in the Asian markets. In the process, it 2 has entered into agreement with Indian distributors / partners for provisions of Mircostrategy Software Project and related maintenance support services. Such maintenance support services include upgradation of software versions, addressing critical defect communications and hotline support. The agreements entered for distribution of software license is a composite contract which also includes provision and incidental support services like installation, maintenance, trouble shooting, upgradation of software patches etc. As per the composite contract, the amounts are charged for (i) sale of software and (ii) rendering of services by raising consolidated invoices. The Assessing Officer had treated the sale of software as royalty income in the hands of the assessee whereas the consideration received for rendering of services in connection thereto was treated as ‘Fee for Technical Services’ by the Assessing Officer. 4. Identical controversy countered in the Assessment Year 2014-15, where the relief was granted to the assessee on both the counts by following the judgment rendered in the case of Engineering Analysis Center of Excellence Pvt. Ltd. (2021) 125 taxmann.com 42. On the identical line, the additions made on account of sale of software and amount received on account of service charges by the Assessing Officer has been disputed by the assessee in Assessment Years 2013-14, 2016-17 and 2017-18 in question. Ground No.2 relates to chargeability of income from sale of software whereas Grounds No. 3 and 4 relates to income earned on account of provisions of services. 5. It was thus contended on behalf of the assessee that Ground No.2 and Grounds No.3 and 4 are integrally connected and cannot be seen in isolation. On an enquiry, from the Bench, it was further pointed out that the Assessing Officer has made an addition on both the counts, i.e., sale of software and consideration received towards services, although some error has been committed by the Assessing Officer in describing the nature of addition. 6. The ld. counsel thus submits that the assessee is prejudiced on account of the revenue stream arising from sale of software as well as provision of services 3 and Ground No.2, therefore, in no manner could have been regarded as superfluous, as erroneously observed by the Tribunal. It was contended that Ground No.2 thus needs to be decided along with Grounds No.3 and 4 failing which grave prejudice will be caused to the assessee without any fault on his part. Ld. counsel further submitted that the issue is squarely covered in favour of the assessee in the Assessment Year 2014-15 in ITA No.2686/del/2018 order dated 29 th April, 2022 and therefore, there was no reason for the assessee to make an averment adverse to the assessee. The ld. counsel thus urged for recall of observation about Ground No.2 remaining not pressed. 7. The ld. DR for the Revenue, on the other hand, opposed the Miscellaneous Application of the assessee and contended that such mistake, if any, does not fall within sweep of Section 254(2) of the Act. The ld. DR for the Revenue pointed out that the grounds has been decided by the Tribunal by observing that the ground is superfluous and therefore, the Tribunal should not indulge review of its action on the issue. The ld. DR for the Revenue sought to place reliance upon the judgment rendered in the case of CIT vs. Reliance Telecom Ltd. (Civil Appeal) No.7110 of 2021, judgment dated 3 rd December, 2021. 8. We have carefully heard the rival submissions. On appraisal of the facts and circumstances of the case narrated above, we find prima facie merit in the plea of the assessee. It is a matter of record that the assessee is engaged in sale of software as well as deriving income on sale of services. The additions have been made by the Assessing Officer on both counts and the assessee has also challenged such additions on both counts before the Tribunal vide Ground No.2 and Grounds No. 3 and 4. In such scenario, Ground no.2 is inseparable from Grounds No.3 and 4 for all intents and purposes. Non-adjudication of Ground No.2 will cause serious prejudice to the assessee without attributing any fault on its part. It is apparent from the order of the Tribunal that Ground No.2 has not been adjudicated on merits and has been ignored under the erroneous impression of its being superfluous. 4 9. We have considered the objections on behalf of the Revenue however see no merit therein. Non-adjudication of ground taken by a party before the Tribunal is squarely covered within the expression ‘apparent mistake’ contemplated under Section 254(2) of the Act. Without delineating further, we are of the firm opinion that Ground No.2 dealing with revenue generated on sale of software needs to be adjudicated on merit and thus finding requires to be recalled. 10. In the result, all the captioned Miscellaneous Applications are allowed. ITAs No.2561, 6676/Del/2019 & 318/Del/2021 Assessment Years 2013-14, 2016-17 & 2017-18 11. Having recalled findings on Ground No.2 on merit in regard to issue relating to sale of software, we notice that while adjudicating Grounds No.3 and 4 of the appeal, the taxability of sale of software was also addressed in paragraph 6 of the appellate order. In consonance with the observations made in ITA No.2686/Del/2018 in relation to Assessment Year 2014-15 in assessee’s own case as quoted in paragraph 6 of the appellate order, we find merit in the plea of the assessee for non taxability of income arising from sale of software wrongly treated by the Assessing Officer as ‘Royalty Income’. The observations made in relation to Grounds No.3 and 4 shall thus apply mutatis mutandis to Ground No.2 as well and consequently Ground No.2 of the appeal of the assessee, in all three appeals stands allowed. 12. In the result, all the three appeals of the assessee are allowed. Order was pronounced in the open Court on 06 January, 2023. Sd/- Sd/- [ANUBHAV SHARMA] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: January, 2023 Prabhat