EY Global Services Ltd Vs ACIT (ITAT Delhi)
These are appeals by the assessee against the respective orders of the ld. CIT (Appeals) for the concerned assessment years.
2. Since issues are common and connected and the appeals were heard together, these are being disposed off by this common order.
3. Since grounds are common we are referring to grounds of appeal for AY 2012-13 which read as under :-
“General Grounds:
1.1. That the Commissioner of Income Tax (Appeals)-42, New Delhi (hereinafter referred to as “Ld. CIT(A)” has erred in facts and in law in upholding the assessment order and assessing the income at INR 6,67,66,000 as against return income of NIL.
1.2. That the Ld. CIT(A) has also erred in omitting to consider and give effect to the Application u/s 158A filed by the Appellant.
Grounds on taxability of Software License:
3. That on facts and in law, the Ld. CIT (A) has erred in not accepting the contentions of the Appellant that reimbursement of actual costs relating to Software License and maintenance charges amounting to INR 5,21,55,780 are not in the nature of Royalty under the Act as well as Double Taxation Avoidance Agreement between India and UK (hereinafter referred to as “treaty”) by following the ruling of Hon’ble AAR in appellant’s own case and ignoring the rulings of various Hon’ble High Courts on similar issue including jurisdictional Hon’ble Delhi High Court and also ruling by Hon’ble Supreme Court in case of A.P. Moller Maersk AS (2017) 392 ITR 186 holding that reimbursement of communication network charges is not taxable.
3.1. That the Ld. CIT(A) has also erred in facts and in law in holding that no appeal is maintainable on above ground as the matter has already been decided by AAR in appellant’s own case, and while doing so has ignored the rulings of Hon’ble High Courts on similar issue including jurisdictional Hon’ble Delhi High Court.
Grounds on taxability of Global technology charges and GW AN connectivity charges:
4. That the Ld CIT(A) has failed to consider and appreciate that the reimbursement of actual costs relating to Global technology charges and GWAN connectivity charges amounting to INR 44,21,795 and INR 1.01,88,428 are not and cannot be considered as software and thus, is not in the nature of “royalty” either under the Act or under the treaty, and are thus not taxable in India in the absence of a PE of the Appellant Company in India. Further, the Ld. CIT(A) has completely ignored the ruling by Hon’ble Supreme Court in case of A.P. Moller Maersk AS (2017) 392 ITR 186 wherein it was held that reimbursement of communication network charges is not taxable.
4.1. That the Ld. CIT(A) has also failed to appreciate that the Hon’ble AAR while pronouncing its order has held only software charges as Royalty, and thus has erred in taxing Global technology charges and GWAN connectivity charges as Royalty .
4.2. That the Ld. CIT(A) has erred in facts and in law in holding that no appeal is maintainable on above ground as the matter is pending under rectification application filed before Hon’ble AAR in appellant’s own case.”
4. Brief facts of the case are that EY Global Services Limited (hereinafter referred to as ‘the assessee’) is providing technology and other support services and software licenses to the member firms of the EY Network. The assessee is said to be established as a non-profit central service provider to enable EY member firms to share the costs of centralized services. Accordingly, the assessee enters into agreements with each member firm, pursuant to which it provides services required by member firms and thereafter, recovered various costs incurred by it from the member firms on actual usage basis. Given the above, the assessee filed a ‘NIL’ return of income on 30th March 2012 contending that the payments received by the assessee from Indian member firms are mere reimbursement of costs and not taxable under the Act as well as the Double Taxation Avoidance Agreement between India and United Kingdom (hereinafter referred as “the treaty”).
4.1 To seek certainty on the above tax position and avoid litigation with the Tax Department, the assessee had filed an application before the Authority of Advance Ruling (“AAR”) to seek an advance ruling that the payments so received by the assessee are not taxable in India under the Act or under the treaty. The Hon’ble AAR while pronouncing its ruling held that owing to the nature of services rendered by the assessee, all services except software charges are not taxable in India. Accordingly, the Hon’ble AAR held that software charges are taxable as “Royalty” as per the provisions of the Act and the treaty.
4.2 In background of the AAR order, the Ld. AO proceeded to frame assessment for the subject year and passed the final assessment order vide order dated 30.11.2018 whereby, the following payments were held taxable @ 10% as “Royalty” under the Act as well as the treaty:
