TSYS CARD TECH LTD,UNITED KINGDOM vs. DCIT CIRCLE 3(1)(1) INT.TAXATION, NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

“1. On the facts and circumstances of the case and in law, the final assessment order passed by the Ld. AO is bad-in-law and liable to be quashed.

2. On the facts and circumstances of the case and in law, the Ld. AO has grossly erred in passing the final assessment order without considering the material available on record and is bad in law and void ab initio since it has been passed without giving sufficient opportunity to the appellant.

3. On the facts and circumstances of the case and in law, the Ld. AO has grossly erred in passing the final Page | 1 assessment order without giving the cognizance to the directions passed by the Ld. DRP and accordingly, the final assessment order is bad in law.

4. On the facts and in the circumstances of the case and in law, Ld. AO has erred in alleging that receipts in the nature of software license fee amounting to Rs 5,21,17,082 is taxable as Fees for Technical Services (FTS’) as per the Act and also as per the provisions of India-UK Double Taxation Avoidance Agreement ( DTAA ). 4.1 In doing so, the Ld. AO has erred in not following the directions of Ld. DRP, wherein it was directed to exclude the receipts related to software license fee amounting to Rs 5,21,17,082. As per directions of the Ld. DRP, such receipts will constitute business income under Article 7 of the India-UK DTAA and will not be taxable in India because undisputedly, Appellant does not have any PE in India.

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.

6. On the facts and in the circumstances of the case and in law, Ld. AO has erred in proposing to tax the receipts amounting to Rs 7,24,821 as FTS as per the Act read with the India-UK DTAA, as the same is in thejature of reimbursement which does not involve any income element and hence not chargeable to tax in India in the hands of the appellant. 6.1 On the facts and circumstances of the case and in law, the Ld. AO has erred in not following the directions of Ld. DRP, wherein it was directed that the Ld. AO to verify the details regarding the reimbursement and to exclude receipts which are in the nature of reimbursement.

7. On the facts and circumstances of the case and in law, the ld AO erred in initiating penalty proceedings under section 270A of the Act.”

“5. Refrain from modifying PRIME and the Operating Environment on which it resides unless authorised or instructed in writing by the Licensor. 6. Neither transfer PRIME (or portions of it) nor divulge it, its specifications or manuals to any third party unless authorised in writing by the Licensor. 7. Refrain from taking more than two copies of PRIME, such copies being for backup purposes only. One further copy of PRIME may be made for disaster recovery purposes...

9. Refrain from attempting to reverse compile PRIME. 8. Having gone through the agreement since the user has no right to make copies or commercially exploit the right in the copyright of such software the ld DRP following the ratio laid down by Hon'ble Supreme Court in the context of Business Income/Royalty in Engineering Analysis Centre of Excellence Private Ltd. Vs. CIT (Civil Appeal Nos. 8733- 8734 of 2018) directed to exclude receipts relating to sale of software licenses in accordance with and to the extent covered under the applicable categories contained in Hon'ble Supreme Court decision. The ld DRP held that there is no dispute regarding the fact that the assessee does not have a permanent establishment in India. Accordingly, such receipts will constitute business income under Article 7 of the DTAA in line with the above-mentioned decision of Hon’ble Supreme Court and will not be taxable in India in the absence of PE.

Order Pronounced in the Open Court on 24/01/2023.