Trimble Solutions Corporation Vs DCIT (ITAT Mumbai)
We find that the issue involved in the present appeal i.e as to whether the payments received by the assessee from its distributor for sale of specialized software and maintenance and support services (including upgrades) could be held as “royalty” as per Article 12 of the India-Finland tax treaty, and also as per the Explanation 2 to Sec. 9(1)(vi) of the Act, had came up for adjudication before the Tribunal in the assessee‟s own appeals for A.Y 2010-11 (ITA No. 6481/Mum/2017) & A.Y 201112 (ITA No. 6482/Mum/2017) viz. Trimble Solutions Corporation Vs. Deputy Commissioner Of Income-tax, Circle (IT)(4)(1)(2), Mumbai. The Tribunal after deliberating at length on the issue therein involved had in its aforesaid order, had concluded, that the amount received by the assessee from its distributors for sale of specialized software and maintenance and support services (including upgrades) cannot be held as being in the nature of”royalty” as per Article 12 of the India-Finland tax treaty
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeals filed by the assessee company are directed against the respective orders passed by the A.O under Sec. 144C(13) r.w.s 143(3) of the Income Tax Act, 1961 (for short „Act‟) for Assessment Years 2013-14 and 2014-15, dated Nil and 13.07.2028, respectively. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, therefore, the same are being taken up and disposed off by way of a common order. We shall first advert to the appeal of the assessee for A.Y 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us :
“Based on the facts and circumstances of the case, Trimble Solutions Corporation (hereinafter referred to as the’ Appellant’ or ‘Trimble Corporation’) respectfully craves to prefer an appeal against the order passed under Section 144C(13) read with Section 143(3) of the Income-tax Act, 1961 (‘the Act’) by the Deputy Commissioner of Income-tax (International Taxation) – 4(1)(2), Mumbai (hereinafter referred to as the ‘AO’) dated 16 October 2017 (received on 30 October 2017) in pursuance of the directions issued by the Hon’ble Dispute Resolution Panel – 2, Mumbai (hereinafter referred to as the ‘DRP’) on the following grounds:
General Ground
1. On the facts and circumstances of the case, the learned Aa has erred in determining the total taxable income of the Appellant for the subject AY at Rs 29,95,51,758/- as against ‘Nil’ income reported in the return of income filed by the Appellant for the subject AY;
Taxability of receipt from sale of ‘off-the shelf’ software amounting to Rs 28,39,87,816/- as ‘Royalty’
2. On the facts and circumstances of the case, the learned At) has erred in holding that payments of Rs 28,39,87,816/- received by the Appellant towards sale of ‘off-the shelf software are in the nature of ‘Royalty’ as per the provisions of Section 9(1)(vi) of the Act;
3. On the facts and circumstances of the case, the learned Aa has erred in holding that payments of Rs 28,39,87,816/- received by the Appellant towards sale of ‘off-the shelf software are in the nature of ‘Royalty’ under the India-Finland Tax Treaty;
Taxability of receipt from maintenance and support services (including upgrades) amounting to Rs 57,98,262/- as ‘Royalty‘
4. On the facts and circumstances of the case, the learned AO has erred in holding that payments of Rs 57,98,262/- received by the Appellant towards maintenance and support services (including upgrades) are in the nature of ‘Royalty’ as per the provisions of Section 9(l)(vi) of the Act;
5. On the facts and circumstances of the case, the learned AO has erred in holding that payments of Rs. 57,98,262/- received by the Appellant towards maintenance and support services (including upgrades) are in the nature of ‘Royalty’ under Article 12 of the India-Finland Tax Treaty;
Taxability of receipt of management fees of Rs. 97,65,680/- as “Fees for Technical Services”
6. On the facts and the circumstances of the case, the learned A.O has erred in holding that the payment of Rs. 97,65,680/- received by the Appellant towards management fees are taxable as “Fees for Technical Services” under the provisions of Section 9(1)(vi) of the Act.
7. On the facts and the circumstances of the case, the learned A.O has erred in holding that the payment of Rs. 97,65,680/- received by the Appellant towards management fees are taxable as “Fees for Technical Services” under Article 12 of the India-Finland Tax Treaty.
Interest under Section 234A of the Act
8. On the facts and circumstances of the case, the learned AO has erred in upholding the levy of interest under Section 234A of the Act;
Interest under Section 234B of the Act
9. On the facts and circumstances of the case, the learned AO has erred in upholding the levy of interest under Section 234B of the Act; and
Penalty proceedings under Section 271(1)(c) of the Act
10. On the facts and circumstances of the case, the learned AO has erred in initiating penalty proceedings under Section 27I(l)(c) of the Act.
The Appellant respectfully submits that the above grounds of appeal are independent and without prejudice to each other.
The Appellant further prays that any other relief as the Hon’ble ITAT may deem fit be granted.
The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal, to enable the Hon’ble ITAT to decide the appeal according to law.”
2. Briefly stated, the assessee which is a foreign company incorporated in Finland is engaged in the business of developing and marketing specialized off-the-shelf software products which are used in industries like building and construction, energy distribution and infrastructure management. In India, the assessee markets and distributes the specialized software products to the end user customers through a distribution channel which inter alia consisted of its subsidiary. Return of income for A.Y 2013-14 was filed by the assessee company on 29.11.2013, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
3. During the course of the assessment proceedings it was observed by the A.O that the assessee in order to facilitate distribution of its software products in India had appointed its wholly owned subsidiary company viz. M/s Trimble Solutions India Private Limited (earlier known as Tekla India Pvt. Ltd.), vide an „agreement‟ dated 28.01.2008, as its non-exclusive reseller/distributor for the Indian territory. On a perusal of the records, it was observed by the A.O that the assessee had during the year received the following payments from its distributors:
