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Facts
The assessee, a Singapore tax resident, received income from software licenses, hardware appliances, maintenance support, training services, and education services, which it claimed as non-taxable under the India-Singapore DTAA. The Assessing Officer (AO) proposed to treat a portion of this income as Fees for Technical Services (FTS), while the Dispute Resolution Panel (DRP) partially agreed, considering some services as FTS. The assessee appealed this decision.
Held
The Tribunal held that the income from maintenance support and training services are intricately linked with the utilization of software and are not taxable as FTS. They also found that the 'make available' condition under Article 12(4)(b) of the DTAA was not satisfied, and the revenue did not provide sufficient evidence to demonstrate otherwise. The Tribunal relied on its previous decision in the assessee's own case.
Key Issues
Whether income from maintenance support and training services, provided in connection with software utilization, is taxable as Fees for Technical Services (FTS) under the India-Singapore DTAA, and if the 'make available' clause is satisfied.
Sections Cited
143(3), 144C(13), 9(1)(vii), 115A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI VIJAY PAL RAO, & SHRI NAVEEN CHANDRA
This appeal by the assessee is directed against the order dated 29.04.2023 u/s 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 [the Act, for short] for A.Y 2020-21.
Page 1 of 10 appeal is as under:
Ground 1-The Learned AO violates the Principle of Consistency and Judicial Discipline. 1.1 The learned AO grossly erred in re-characterizing the transaction in relation to income from the sale of maintenance support and training services as Fees for Technical Services (FTS), where under the same circumstances, for AY 2016-17, the Department has allegedly assessed the same as Royalty. 1.2 This Hon'ble Tribunal in the Assessee's own case in ITA 9428/DEL/2019 has held that "Income from sale and maintenance services of software license is not Royalty in the light of the decision of the Hon'ble Supreme Court in Engineering Analysis Center of Excellence Pvt Ltd. [2021] 432 ITR 471 and thus, not taxable in India. 1.3 The learned AO, violating the principle of consistency and judicial discipline, has now alleged the same income as FTS. For this reliance is placed on the judgments of the Hon'ble Supreme Court in the cases of Radhasoami Satsang v Commissioner of Income-tax, [1992] 60 Тахman 248 (SC) and Union of India v. Kamlakshi Finance Corporation Ltd., 1991 (55) E.L.T. 433 (S.C.). Ground 2-The learned AO and the learned DRP have erred in considering the fact that maintenance support and training services are provided in connection with the utilization of software only. 2.1 The learned AO and the learned DRP have erred in concluding that the income from the rendition of maintenance support and training services is taxable under India-Singapore Double Taxation Avoidance Agreement ('DTAA') without appreciating the fact that these services are provided in connection with the utilization of software which are intricately and inextricably associated. When the income from the sale of the software is not taxable, income from the sale of related services could not be held as FTS as held by this Hon'ble Tribunal in the case of TSYS Card Tech Ltd v DCIT, Circle- 3(1)(1), International Taxation, New Delhi, ITA 2006/DEL/2022. Ground 3-The learned AO and the learned DRP have erred in concluding that the income from the rendition of services is taxable in India. Page 2 of 10
3.1 The learned AO and the learned DRP have erred in concluding that the income from the rendition of services is taxable under India- Singapore Double Taxation Avoidance Agreement ('DTAA') without appreciating that the pre-condition under Article 12 to India Singapore DTAA of the services 'making available' technical know-how, knowledge, experience, etc. is not satisfied in the facts and circumstances of the present case. 3.2 The learned AO and the learned DRP ought to have appreciated that the receipt from the rendition of services is in the nature of business income, not chargeable to tax in light of Article 7 of the India Singapore DTAA. Ground 4-Without Prejudice to the above grounds, the learned AO has wrongly demanded interest without highlighting the relevant statutory provision. 4.1 Without Prejudice to the above grounds, the learned AO has demanded interest in the Computation Sheet dated 29.04.2023 at Sr, No. 42 with a total interest of INR 78,74,703 without highlighting the relevant statutory provision under which the said demand is raised.
The representatives of both the sides were heard at length, the case records carefully perused.
Briefly stated, the facts of the case are that the assessee is a corporate tax resident of Singapore. The assessee, during the year under consideration, has received an amount of Rs. 129,54,08,029/- as follows:
Sr no Category INR % of Revenue 1 Software Licenses 41,76,62,637 32.24% 2 Hardware appliance 27,77,713 0.21% 3 Maintenance support and other 80,62,82,637 62.24% services 4 Education and training services 6,86,85,219 5.30% 5 Total 1,29,54,08,029
Page 3 of 10 the Indo-Singapore DTAA. The assessee filed a Nil return for AY 2020-21 on 11.02.2021 and claimed a refund of Rs 12,95,53,020/- on account of TDS. The case was selected for scrutiny under CASS and notice u/s 143(2) was issued. In the course of scrutiny assessment proceedings, the Assessing Officer found that the assessee has not offered the amount of Rs. 129,54,08,029/- to tax in his return of income.
5. The AO, accordingly proposed to treat the receipts of Rs. 1,29,26,30,316/- excluding the receipts from hardware appliances, as FTS under the provisions of section 9(1)(vii) of the Act read with Explanation 2 and under Article 12 of the DTAA between Singapore and India treaty. The DRP however, excluded the receipts on account of sale of Software of Rs 41,76,62,637/- from FTS and directed the AO to consider the receipts from Maintenance support and other services (Rs 80,62,82,637/-); Education and training services ( Rs 6,86,85,219/-) totaling to Rs 87,49,67,679/- only as FTS and taxable in India @ 10% on gross basis as per section 115A of the Act r.w. Article 12 of the India- Singapore DTAA. The aggrieved assessee is before us.
With respect to ground 1, the ld AR submitted that the AO had earlier for AY 2016-17 assessed income from the sale of maintenance
Page 4 of 10 assessed the same as Fees for Technical Services (FTS) which is in violation of the principle of consistency and judicial discipline and relied on the cases of Radhasoami Satsang v Commissioner of Income-tax, [1992] 60 Тахman 248 (SC) and Union of India v. Kamlakshi Finance Corporation Ltd., 1991 (55) E.L.T. 433 (S.C.).
7. We are of the considered view that there is no res-judicata in taxation law and each year is a separate assessment year where the AO can make assessment in accordance with the facts of that year. We therefore dismiss ground 1.
With respect to ground 2, the ld counsel of the assessee, with respect to Maintenance support and other services (Rs 80,62,82,637/-); Education and training services (Rs 6,86,85,219/-) totaling to Rs 87,49,67,679/- as FTS, submitted that these services are provided in connection with the utilization of software which are intricately and inextricably associated. The ld AR further submitted that when the income from the sale of the software is not taxable, income from the sale of related services could not be held as FTS as held by this Hon'ble Tribunal in the case of TSYS Card Tech Ltd v DCIT, Circle- 3(1)(1),
Page 5 of 10 submitted that the said transactions do not satisfy the ‘make available’ clause as per Article 12(4)(b) of the India -Singapore DTAA.
Per contra, the ld. DR did not raise any serious objection. The ld DR relied upon the order of the Assessing Officer/DRP.
We have heard the rival submissions and have perused the relevant material on record. We have carefully considered the orders of the authorities below. We find that the Maintenance support and other services as well as Education and training services are intricately and inextricably associated with the Software sold and are provided in connection with the utilization of software as per Article 5(a) of the Indo-Singapore DTAA. Further, the Revenue itself has accepted that sale of software is not taxable as Royalty. When the income from the sale of the software is not taxable, income from the sale of related and inextricably linked services could not be held as FTS.
We find support from the decision of the coordinate Bench in the case of TSYS Card Tech Ltd v DCIT, Circle- 3(1)(1), International Taxation, New Delhi, ITA 2006/DEL/2022 which held as under:
Page 6 of 10 [A.Y 2020-21] Veritas Storage [Singapore] Pte Ltd Vs. The Dy. C.I.T.
We have considered the rival submissions and perused the material available on record. The Co-ordinate Bench in assessee's own case in for AY 2019-20 has held that similar receipts amounting to Rs.12,01,30,877/- on account of 'Fees for provisions for other related services' was not taxable. The relevant ground and the discussion in the order of the Tribunal is reproduced as under:- " xxxxxxxxxxxxxx 5 . On the facts and in the circumstances of the case and in law, Ld. AO/ DRP has erred in alleging that receipts from provision of other related services amounting to Rs.12,01,30,877 is taxable as FTS as per the Act read with India- UK DTAA. xxxxxxxxx 4. Brief facts of the case is that the assessee M/s TSYS Card Tech Ltd. Ltd is a company. Assessee is engaged in the business of providing information technology related services to financial payments industry. During the subject AY, the assessee had earned revenue from Indian Customer primarily for rendition of software license (referred to as 'PRIME) and provision of software related services including implementation services, enhancement services, annual maintenance services and consultancy services as per the request of the Customers.
During the year the assessee received an amount of Rs.5,21,17,082/- on account of software (Prime) License fee and fee for provision for other related parties of Rs.12,01,30,877/- and receipt in nature of reimbursement o f Rs.7,24,821/- totaling to Rs.17,29,72,780/-. xxxxxxxxxxxxxxxx 9. However, the ld DRP held that the second set of receipts of Rs.12,01,30 ,877 on account of provision of other related services, it is well settled that such services from a distinct set of receipts which need to be examined independently in terms of their taxability or otherwise under specific Article 13 (Royalty/FTS) and cannot be clubbed as business income under Article 7 of the DTAA. The ld DRP held that taxable under Article 13 India-UK DTAA under the head 'FTS'. The ld DRP held that the make available clause under Article 13 are also stand satisfied. The main argument taken before us is that the other related services provided are in connection with utilization of the software (PRIME) which are intricately and extricably associated. The services are in respect of Page 7 of 10 [A.Y 2020-21] Veritas Storage [Singapore] Pte Ltd Vs. The Dy. C.I.T. training programme and updations in connection with utilization of the software PRIME. Hence, we hold that when software itself is not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS. Further, simply latching on to use of words "Make Available" in the agreement, it cannot be said that conditions of Article 13(4)(c) are satisfied. Burden is on the Revenue to demonstrate that make available condition is satisfied. Appeal of the assessee on Ground Nos. 4 and 5 are allowed."
8. On perusal of the draft assessment order and the final assessment order, we note that during the present assessment year i.e. AY 2020-21, the Assessing Officer has accepted the claim of the assessee that the 'sale of software (prime) license fee amount to Rs.1,84,01,550/- was not taxable.The Co-ordinate Bench of the Tribunal in AY 2019-20 in the case of the assessee (supra) held that when software itself was not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS. The Ld. CIT-DR could not bring any distinguishing facts to controvert the findings of the above order of the Tribunal. Further, the Department has not brought any evidence on record to substantiate that 'make available' condition is satisfied in the case of the assessee for this assessment year. Therefore, following the decision of the Co-ordinate Bench of the Tribunal in assessee's own case, we are of the considered view that when software itself is not taxable, the 'Fees for provisions for other related services' amounting of Rs.13,97,78,164/ will also not be taxable. Hence, the addition of Rs.13,97,78,164/- made by the Assessing Officer treating the 'Fees for provisions for other related services' as taxable is not acceptable and the same is deleted. Ground no.4 raised by the assessee is allowed.
Respectfully following the above decision, we hold that the Maintenance support and other services (Rs 80,62,82,637/-); Education and training services (Rs 6,86,85,219/-) totaling to Rs 87,49,67,679/- are not taxable as FTS. We also agree with the submission of the assessee that the said
Page 8 of 10 12(4)(b) of the India-Singapore DTAA. Burden is on the Revenue to demonstrate that make available condition is satisfied whereas neither the AO nor the ld DR could bring any evidence on record to substantiate that 'make available' condition is satisfied in the case of the assessee for this assessment year. We accordingly direct the AO to delete the said addition. Ground 2 and 3 are allowed. allowed.
Order pronounced in open court on 22.08.2025.