Taxability of sale of software and support services under India US DTAA

Assessee, a US company, entered into agreements with various customers in India for rendering software services – Assessing Officer held that payments received by assessee from sale of software and provision of maintenance and other support services to customers in India, were taxable as ‘royalty’ and accordingly made additions. HELD, in view of decision of Jurisdictional High Court in case of DIT v. Infrasoft Ltd. [2014] 220 Taxman 273/[2013] 39 taxmann.com 88 (Delhi), payment received by assessee from sale of software and provisions of maintenance and other supports services to customers in India were not taxable as ‘royalty’, in terms of article 12 of India US Double Taxation Avoidance Agreement.

IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH ‘C’ NEW DELHI)
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
AND
SHRI J.S. REDDY, ACCOUNTANT MEMBER

I.T.A. No.5209/Del/2011 Assessment year: 2008-09

M/s Halliburton Export Inc.   Vs. Asstt. D.I.T.,

ORDER

PER U.B.S. BEDI, JM:

This appeal of the assessee emanates from the order passed by Assessing Officer u/s 144C(1) read with section 143(3) dated 23^rd September, 2011 relevant to assessment year 2008-09 whereby besides challenging action of the Assessing Officer in holding that payment received by the assessee from sale of software and provisions of maintenance and other supports services to customers in India were taxable as “Royalty”, in terms of section 9(1)(vi) of the Income-tax Act, 1961 as well in Article 12 of India US Double Taxation Avoidance Agreement, assessee has also challenged charging of interest u/s 234B of the Act.

Facts indicate that assessee had filed original return of income for the relevant assessment year on 29.09.2008 declaring nil income and claimed a refund of Rs.61,58,059/-. Thereafter, the return was revised on 19.02.2010 wherein the assessee declared nil income and claimed a refund of Rs. 121,24,329/-. Notice u/s 143(2) along with questionnaire issued was duly served upon the assessee. In response thereto representative of the assessee appeared before the Assessing Officer from time to time, filed requisite details and case was discussed with him by the Assessing Officer.

2.1 Assessing Officer noted in the assessment order that M/s Halliburton Export Inc., (hereinafter referred to as the assessee) is a company incorporated in the USA and is engaged in the business of supplying pre­packaged software and providing maintenance and other support services associated with it. The assessee has entered into agreements with various customers in India for rendering the above services.

2.2 The Assessing Officer further noted that assessee is a tax resident of USA and it has filed a tax return relying on the provisions of DTAA between India and USA. In the return of income, assessee has claimed that it does not have a permanent establishment in India in terms of Article 5 of the India US DTAA and accordingly, the income received from the aforesaid supply/maintenance of software is not taxable in India. During the assessment proceedings a letter was written by the Assessing Officer on 9.12.2010 stating therein that assessee has received a gross amount of Rs. 6,03,64,143/- for sale and maintenance of software from its Indian customers in relation the agreements entered into by it. During the course of assessment proceedings, assessee was asked to show cause as to why receipt in sale of software should not be regarded as royalty and receipt in lieu of provision of maintenance services associated with it should not be regarded as royalty/fee for technical services in terms of the provisions of Income Tax read with article 12 of the Indian US DTAA and taxed accordingly.