TIBCO Software B.V. Vs ACIT (IT) (ITAT Pune)
Fee for grant of software license, including software maintenance, consulting charges and training fees, is not taxable in India
Facts- The appellant, is a non-resident company, engaged in sale of Software licences and provision of Software maintenance, Consulting and Training services in India. The ROI for AY 2011-12 was not filed by assessee. Thereafter, on receipt of information that the appellant had received income of Rs.33,96,623/- on which TDS had been deducted, the AO formed an opinion that income had escaped assessment to tax, then issued notice u/s 148 on 29.03.2018 after recording reasons u/s 147. In response to notice u/s 148, the appellant had filed return of income on 26.04.2018. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax (International Taxation), Circle-2, Pune. During the previous year relevant to the assessment year under consideration, it is stated that the appellant company had received a sum of Rs.98,72,321/- towards Software licenses, Software maintenance and Customer support, Consultancy services and Training services in India.
Conclusion- In the light of the judgment of Hon’ble Supreme Court, in the case of Engineering Analysis Centre of Excellence Pvt. Ltd., we hold that fee for grant of software license cannot be taxed in India. Since we have held that the subject transaction of receipt of consideration for grant of software license is held not to be Royalty under the provisions of Income Tax Act, 1961, the question of consideration of the issue under the provisions as per DTAA between India and Netherland does not arise.
Further, software maintenance fees, consulting charges and training fees which are incidental to software license fee, assumes same character as that of software license fee.
We held that the consideration received towards software license fee cannot be termed as “Royalty”. Hence, what follows from this, is that even the software maintenance, consulting charges and training fees which are incidental to software maintenance fee cannot come within the purview of FTS within clause 5 of Article 12 of the treaty.
FULL TEXT OF THE ORDER OF ITAT PUNE
These are appeals filed by the assessee directed against the separate final assessment orders dated 04.07.2019 for A.Y. 2011-12 and dated 18.07.2018 for A.Y. 2015-16 passed u/s.144C(13) r.w.s. 143(3) of the Income Tax Act, 1961 (‘the Act’) respectively.
2. Since the identical facts and issues are involved in both the appeals, except the addition of amounts, we proceed to dispose of the same by this common order.
3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA No.1348/PUN/2019 for the assessment year 2011-12 are stated herein.
ITA No.1348/PUN/2019, A.Y. 2011-12 :
4. The appellant raised the following grounds of appeal :
“Ground No.1:
On the facts and circumstances of the case, and in law, the Hon’ble DRP erred in directing the Ld. AO to tax receipt of INR 26,02,184 towards software license fees as ‘Royalty’ as per the provisions of the Income Tax Act, 1961 read with the provisions of the India-Netherlands Double Taxation Avoidance Agreement.
It is thus prayed that the addition proposed by the Ld. AO and confirmed by the Hon’ble DRP be deleted.
Ground No.2:
On the facts and circumstances of the case, and in law, the Hon’ble DRP erred in directing the Ld. AO to tax the receipt of INR 29,05,513 towards software maintenance fees as Fees for Technical Services within the meaning of Article 12(5)(a) of the India-Netherlands Double Taxation Avoidance Agreement.
It is thus prayed that the addition proposed by the Ld. AO and confirmed by the Hon’ble DRP be deleted.
Ground No.3:
On the facts and circumstances of the case, and in law, the Hon’ble DRP erred in directing the Ld. AO to tax the receipt of INR 3,78,346 towards consulting service fees as Fees for Technical Services within the meaning of Article 12(5)(a) of the India-Netherlands Double Taxation Avoidance Agreement.
It is thus prayed that the addition proposed by the Ld. AO and confirmed by the Hon’ble DRP be deleted.
Ground No.4:
On the facts and circumstances of the case, and in law, the Hon’ble DRP erred in directing the Ld. AO to tax the receipt of INR 34,23,769 towards training fees as Fees for Technical Services within the meaning of Article 12(5)(a) of the India-Netherlands Double Taxation Avoidance Agreement.
It is thus prayed that the addition proposed by the Ld. AO and confirmed by the Hon’ble DRP be deleted.
Ground No.5:
On the facts and circumstances of the case, and in law, the Hon’ble DRP erred in directing the Ld. AO to tax the receipt of INR 2,65,424 towards other services fees as Fees for Technical Services within the meaning of Article 12(5)(a) of the India-Netherlands Double Taxation Avoidance Agreement.
It is thus prayed that the addition proposed by the Ld. AO and confirmed by the Hon’ble DRP be deleted.
Ground No.6:
On the facts and circumstances of the case and in law, the Ld. AO erred in granting short credit for Tax Deducted at Source (‘TDS’) to the extent of INR 9,59,092.
It is thus prayed that the Company be granted with appropriate credit for TDS.
Ground No.7:
On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Income-tax Act, 1961.
The levy of interest is consequential to the short grant of TDS credit. It is prayed that the Company be granted with appropriate credit for TDS post which the interest levy shall become inapplicable.
Ground No.8:
On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings against the Company under section 274 r.w.s. 271F of the Income-tax Act, 1961.
It is prayed that the revenue earned in India from the aforementioned income is not liable to tax in India during the year and therefore the Company was not under an obligation to file a return of income in this regard. Hence, the subject penalty proceedings be overturned.
Ground No.9:
On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings against the Appellant under section 274 r.w.s. 271(1)(c) of the Income-tax Act, 1961.
It is prayed that the additions made by the Ld. AO merely represent a difference in opinion and the Company has not furnished any inaccurate particulars of income and thus, the subject penalty proceedings be overturned.
The above grounds are without prejudice to each other.”
5. Briefly, the facts of the case are as under :
The appellant TIBCO Software B.V. is a non-resident company incorporated in Netherlands. The company is engaged in sale of Software licences and provision of Software maintenance, Consulting and Training services in India. The return of income for the assessment year 2011-12 was not filed by assessee-company. Thereafter, on receipt of information that the appellant had received income of Rs.33,96,623/- on which TDS had been deducted, the Assessing Officer formed an opinion that income had escaped assessment to tax, then issued notice u/s 148 on 29.03.2018 after recording reasons u/s 147. In response to notice u/s 148, the appellant had filed return of income on 26.04.2018. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax (International Taxation), Circle-2, Pune (‘the Assessing Officer’). During the previous year relevant to the assessment year under consideration, it is stated that the appellant company had received a sum of Rs.98,72,321/- towards Software licenses, Software maintenance and Customer support, Consultancy services and Training services in India. The break-up of the above is as under :
