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Income Tax Appellate Tribunal, ‘I‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the final assessment order dated 18/07/2022 passed u/s. 143(3) r.w.s. 144C(13) passed in pursuance of direction given by the ld. DRP vide order dated 09/09/2021 for the A.Y.2018-19. 2. The only issue raised in various grounds of appeal is taxability of Rs.28,29,01,594/- which has been taxed as „fee for technical services‟ on payments received from provision of 2 M/s. Murex Southeast Asia Pvt. Ltd. income from maintenance and other support and training services under India Singapore DTAA.
3. The facts in brief are that the assessee company was incorporated on 15/06/2000 in the Republic of Singapore, engaged in the business of providing/sub-licensing software to entities, majorly engaged in the financial service sector and rendering related maintenance and other support services and training services in relation to the software sub-licensed to them. The assessee is a resident of Singapore as per the Double Taxation Avoidance Agreement between India and obtained from the Singapore ("DTAA" / "Tax Treaty') and holds a valid Tax Residency Certificate (TRC) Authorities in Singapore. Accordingly, assessee is eligible to claim the Tax Treaty benefits which is undisputed.
During the year under consideration, the assessee has sub- licensed software and provided related maintenance and other support services and training services as well as additional services with respect to the said sub-licensed software and has earned India sourced income from the same. The assessee's position with respect to income from sub-licensing of software and income from additional services has been accepted by the ld. Assessing Officer. However, the Income from maintenance and other support services and training services was alleged by the ld. AO to be in the nature of „Fees for Technical Services‟ (FTS) on account of the services satisfying the criteria of make available under the India Singapore Tax Treaty.
5. The ld. AO after analyzing certain relevant portion of the relevant agreements drew following inferences:- 1.Technical expertise is required on part of the assessee to meet the challenges in maintenance and support to the clients.
Hence, it is beyond doubt that at a every stage the human intervention is also there to provide the required specialised advice in such technical matters. There is no automated machine generated solutions to the technical problems.
3. As per the 'Software Support and Maintenance Agreement' also the assessee will have to provide the services as mentioned above, on telephone, on email, remote login or on-site assistance, software upgrade on constant basis, training for the software to the personnel of the clients at mutually agreed place, followed by review meetings,/ maintenance services etc. The details of the maintenance services have been explained by a flow chart annexed to the Maintenance Agreement, wherein MSEA is required to explain step by step for every problem.
4. This means that there is collaboration with the personnel of assessee with the personnel of clients.
There is this technical plan to resolve the issues delivered to clients by assessee while delivering the services through remote login etc.
6. Hence, there is "make available" of technical expertise as well as delivery of technical plan. In view of all the above factors it has to be considered as ‘Fees for included services’.
Thus, AO held that, not only its fees for technical services under the provision of Section 9(1)(vii) but also falls in the ambit
We have heard both the parties at length and also perused the relevant finding given in the impugned order as well as material referred to before us and the maintenance agreement, which is core issue before us, whether income from rendering maintenance and other support services is taxable in India as FTS under Article 12 (4) of India- Singapore DTAA. The relevant portion of the article reads as under:-
The term fees for technical services us used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (b) make available technical knowledge, experience, skill, know-how or processer, which enables the person acquiring the services to apply the technology contained therein.
Thus, what is required is to be seen whether the said services satisfying “make available” clause. The sum and substance of the assessee‟s explanation before us has been that:- The Indian customer (including its In-House support team) is not able to apply any expertise/technology contained therein or use knowledge on its own, without recourse to the Company.
5 M/s. Murex Southeast Asia Pvt. Ltd. Further, the Indian customer is not at liberty to use the technical knowledge, skill, know-how and process of the Company in their own right; and The Indian customer would not be in a position to perform services (of the nature provided by the Company) In-House. They have to necessarily seek services of the Company time and again.
Further before us, the ld. Counsel for the assessee has given comparison of relevant clauses of simple agreements submitted by the assessee that the software sub-license and services agreement as well as maintenance agreement vis-à-vis nature of maintenance, other support services and training services rendered by the assessee which have been highlighted as under:-
Nature of services rendered Relevant clauses from the sample / facts of the case of the agreements Appellant During the year under Annex 5- Maintenance Procedure consideration, the Appellant Clause 2- General Assistance has rendered maintenance 2.1 Service: MSEA's "General and other support services to Assistance" services comprise the the in-House support team of provision of telephone and/or email the Indian customers by way responses to reasonable questions of telephone / email / remote communicated by an In-House log-in assistance with respect Support Team member to the MSEA to usage of the software Office regarding the use or program. operation of the software program Such assistance consists of in accordance with the agreement.... responding to the Indian 6 M/s. Murex Southeast Asia Pvt. Ltd. customer's reasonable Clause 3: Corrective Maintenance questions communicated by the In-house support team 3.1 Service: MSEA's "Corrective concerning use of Software Maintenance" services consist of program and resolving the using reasonable efforts to Resolve discovery of bug. an Error or Critical Error in the Software Program identified by For example, there could be a SUBLICENSEE during the time gap in input of data and applicable Maintenance Term, i.e., the output generated i.e., to identify and reproduce the Error Indian customer inputs data or Critical Error and, to the extent in the software at 10.54 am practicable using reasonable efforts, but the output is generated at to diagnose the Error or Critical 11.00 am. This time gap is a Error, and upon such identification bug as the reports should be and diagnosis, to the extent generated within seconds / a practicable using reasonable efforts minute and timings cannot in the good faith judgment of MSEA, be haywire. The Appellant to provide a correction of the Error submits that these are the or Critical Error or, if no correction kind of bugs which the is available, a reduction of the Company is resolving and effects of, or a work-around solution providing by way of software with respect to, the Error or Critical maintenance. Further, the Error (e.g. reversion of a change in Company submits that configuration or a change in the during the year under way of using the Software Program consideration there is no on- by the Users to its previous value) site maintenance and support services assistance provided Article 1: Maintenance Services by MSEA to Indian customers during the year under 1.1.1 Telephone' and Email consideration. The Company Assistance to SUBLICENSEE or also submits that it is a non- Sublicensee Affiliates: MSEA will resident with no presence / provide telephone and/or email Permanent Establishment in assistance to the In-House Support terms of India-Singapore Group (as defined in Article 1.3.1 7 M/s. Murex Southeast Asia Pvt. Ltd. DTAA in India and there is no hereof) during MSEA's normal maintenance team of the business hours (09:00 to 18:00 Company in India. Singapore time, Monday through Friday excluding holidays in Singapore)...Such assistance will consist of responding to SUBLICENSEE'S reasonable questions concerning SUBLICENSEE'S or the Sub licensee Affiliates' use of the Software Program, as the case may be... The Role and requirement of Clause 4: In-House Support Team the la-House support team:- The Maintenance Services provided As highlighted in the by MSEA hereunder constitute agreement, the In-House second-level maintenance. support team is required to Accordingly, SUBLICENSEE must understand the concerns / establish and maintain an in-house requirements from the Indian technical support team of Users at customers employees who are each Site whose members possess actually using the software the requisite business and technical and explain the same to the competencies and knowledge in Appellant's technical team to respect of each Site and in respect help them resolve the errors / of each Authorized Business and bugs. have received appropriate training from MSEA and are competent in As you will appreciate the the use of the Software Program Indian customers to whom ("In-House Support Team") ... the Appellant caters to are generally large financial 1.3.1 In-House Support. organizations with many SUBLICENSEE'S in-house support employees in its organization. group in Mumbai ("In-House For example, say SBI, which Support Group") will be generally is one of the customers to responsible for providing Internal 8 M/s. Murex Southeast Asia Pvt. Ltd. whom the Appellant sub- and External Users with technical licenses its software, has assistance and training regarding lakhs of employees, some of the use of the software whom are using the Murex program("In-House Support"). The Software. Similar to any large In-House Support will include organization, SBI has also general technical assistance and established an internal training of SUBLICENSEE'S Information Technology ('IT') Internal and External Users. team i.e. In-House support team. The employees using 1.3.2 Maintenance Services. ... the MSEA software raise their The In –House support software usage related Group will be responsible for all queries / bugs to the In- communications with MSEA in House support team. respect of any questions Thereafter, the In-House encountered in any Site support team co-ordinates concerning SUBLICENSEE'S use with the Appellant for of the Software Program resolving such queries / bugs. If every employee in the organization co-ordinates with the Appellant for their independent queries / bugs, it would become difficult for the Appellant to resolve the queries / bugs. Thus, the In- House support team of the Indian customers is mainly a centralized point of contact for purpose of coordination of queries / bugs and related activities of Indian customers with MSEA. Since the role of In-House support team involves coordinating with MSEA regarding the issues in 9 ITA No.2238/Mum/2022 M/s. Murex Southeast Asia Pvt. Ltd. the MSEA software program, the personnel in such In- House support team / IT team need to be competent to know how to use the software program to be able to effectively explain the query / bug to MSEA which would then enable MSEA to identify the issue and resolve the same. Description of training 1.1.3 Training provided as part of the Upon the request of SUBLICENSEE, Maintenance services: and at times and locations to be The Company submits that it mutually agreed between the provides training to the end parties, MSEA will train users and In-house team SUBLICENSEE and Sub licensee members of the Indian Affiliates on the proper usage of customers only with respect the Software Program. to the proper usage of the program. Considering it is a specific software for financial sector customers, it is necessary for the Appellant to provide training to the Indian customers else the software would be of little value / use to the said customers. In simple terms, such training is akin to training provided to an individual for operating any product such as a software like SAP, Tally, Microsoft Excel or even a refrigerator / water purifier.
10 M/s. Murex Southeast Asia Pvt. Ltd. Further, the training is generally provided at the initial stage when the software is sub-licensed and subsequently provided only on need basis e.g. if there is an additional module which is sub-licensed or there is a change in the Indian customers users / In-House support team etc. Updates to the software sub- 1.2 Updates licensed: 1.2.1 Updates: From time to time, As a pan of the maintenance MSEA will provide SUBLICENSEE services, the Appellant also with an update to the Software provides updates to the Program including, for example, software program. Such correction of errors, improvements updates include e.g., concerning the existing functioning correction of errors, of the program or the screens, and improvements concerning program changes intended to existing functioning of improve the calculations, results program, and changes and formulae of the Software intended to improve Program. Additional calculations / results / functionalities shall not generally formulate of software be delivered in connection with program etc. There is no an update. addition in the functionalities through such update. "Updates": Updates to the The updates are standard, Software Program that MSEA provided to all the customers, distributes to its general not customized and the customer base having a similar installation of such updates scope of use of the Software is at the discretion of the Program as SUBLICENSEE as part Indian customers. of the maintenance services which they are entitled to receive, and 11 M/s. Murex Southeast Asia Pvt. Ltd. provided to SUBLICENSEE as part of the Maintenance Services, or otherwise at no additional sublicense fee or maintenance fee (and "Updated Version" means the version of the Software Program resulting from the installation of an Update). The maintenance services 5.3 Automatic Termination: In the contract is dependent on the event of the expiration or software sublicensing termination of the Sublicense agreement. In case of Agreement. this Maintenance separate agreements for Agreement shall automatically sublicensing and terminate maintenance, there is a termination clause which provides that maintenance services will automatically terminate if software sublicensing contract is expired or terminated The Company submits that Article III Maintenance Fees the fees for maintenance 3.1 Annual Basic Maintenance services are annual and Fee: based on a percentage of licence fee. The said fees are 3.1. 1 SUBLICENSEE shall pay not based on the number of MSEA in advance on an annual queries / bugs raised / basis, an annual basic resolved by the Appellant. maintenance fee for the Software The said fee increases year on Program (for one hundred (100) year according to the agreed named Users as set forth in Annex inflation index which implies 1-D of the Sublicense Agreement) as that there is no diminishing follows: services and the Indian customers year on year 12 ITA No.2238/Mum/2022 M/s. Murex Southeast Asia Pvt. Ltd. continue with such maintenance service contract. Year Year Year Year Year Year 2006 2005 2007 2008 2009 2010 and after USD USD USD USD USD USD 120, 180,0 240,00 300,0 360, 360, 000 00 00 00 000 000
On the other hand, ld. DR had referred to the same agreement and submitted that the ld. AO has rightly concluded that the income earned from maintenance agreement is nothing but fee for technical services and also „make available‟ for technical expertise as well as delivery of technical plan is there.
After considering the relevant clauses of the maintenance agreement, we find that the assessee rendered maintenance and other support services to the in-house support team of Indian customers through telephone / email/ login assistance with respect to usage of the software programme. Such assistance is by responding to reasonable questions communicated by the in- house support team concerning the use of software programme and resolving the discovery of bug in respect of software supplied by the assessee. Before us, certain instances and examples have been cited as to how the assessee has been resolving the issue arising out of bugs provided by the software during the software maintenance. Further there are no onsite maintenance and support services, assistance provided by the assessee to the Indian customers. Apart from that, another very important fact is that there is no permanent establishment or any maintenance 13 M/s. Murex Southeast Asia Pvt. Ltd. team of the company in India. Indian customers have in-house support team which is required to understand the source / requirements from the Indian customers. Employees of the Indian customers who are using the software, if they happen to come across any problem, then the same is referred to the assessee‟s technical team to help them to resolve errors / bugs. These Indian customers are mainly big organizations and the one of the biggest customer was SBI, to whom the assessee has sub- licensed its software and which is used by lakhs of employees. SBI has an internal IT team to cater assistance to their employees in case there are any queries / bugs. That in-house team coordinates with assessee for resolving such queries / bugs. The in-house support team of the Indian customers is mainly a centralized point of contact for purpose of co-ordination and related activities of Indian customers with the assessee. Since, the role of in-house support team involves coordinating with the assessee regarding MSEA software programme supplied by the assessee, the personnel in such In-House support team / IT team need to be competent to know how to use the software program to be able to effectively explain the query / bug to MSEA which would then enable MSEA to identify the issue and resolve the same. This fact is clearly borne out from the relevant clauses of the agreements which has been filed before us and also which has been noted in the foregoing paragraphs.
In so far as the training part is concerned, the assessee company provides training to the end users and in-house team members of the Indian customers only with respect to the proper 14 M/s. Murex Southeast Asia Pvt. Ltd. usage of the program. This training is a akin to training provided for operating any product, software and it is generally provided at the initial stage when the software is sub-licensed and subsequently provided only on need basis. Apart from that, as a part of maintenance services, assessee also provides updates to the software programmes like correction of errors, improvements concerning existing functioning of program, and changes intended to improve calculations / results / formulate of software program etc. There is no addition in the functionalities through such update which are only standard updates and not customization. Thus, the entire maintenance service contract is dependent on the software sublicensing agreement. In case of separate agreements for sublicensing and maintenance, there is a termination clause which provides that maintenance services will automatically terminate if software sublicensing contract is expired or terminated. Here, fees for maintenance services are annual and based on a percentage of licence fee and is not dependent upon the number of queries / bugs raised or resolved by the assessee.
If it is of recurring annual fees, there is no question that assessee was making available any technology or knowhow of the Indian customers on year to year basis as has been interpreted by the ld. AO. Assessee is having the technical expertise in the software sub-licensed by it. If there is any bug or problem faced by the customers while using the software, assessee provides trouble shooting to fix those bugs and helps them for 15 M/s. Murex Southeast Asia Pvt. Ltd. maintaining and support of the software used by the clients. This does not mean that assessee had made available any technology in software.
Another allegation is that services have been provided on on telephone, on email, remote login and providing training for the software and therefore, it is „make available‟. If assessee is resolving the problems on software sub-licensed by it, this does not per se mean that any technology has been transferred or any know how has been make available which can enable the in- house team of the customer to acquire the technology. Thus, such maintenance support services and training services do not fall in the ambit and nature of FTS within Article 12(4) of India- Singapore DTAA, as these services do not make available any technical skill knowledge or expertise etc., which can enable Indian customer to apply the technology content therein. Thus, we hold that these services are not liable to be taxable. In the result, this issue is passed in favour of the assessee. 14. Lastly, in so far as interest u/s.234D is concerned, the same has not been argued and admitted that it is consequential; and initiation of penalty u/s. 270A is admitted to be premature. 15. In the result, appeal of the assessee is allowed. Order pronounced on 8th May, 2023 Sd/- Sd/- (S. RIFAUR RAHMAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 08/05/2023 KARUNA, sr.ps 16 ITA No.2238/Mum/2022 M/s. Murex Southeast Asia Pvt. Ltd. Copy of the Order forwarded to :
1. 1. The Appellant 2. The Respondent.
3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER, (Asstt. Registrar) ITAT, Mumbai
Initial Date 1. Draft dictated on 12/05/2023 Sr.PS 2. Draft placed before 15/05/2023 Sr.PS author
Draft proposed & placed JM/AM before the second member 4. Draft JM/AM discussed/approved by Second Member. 5. Approved Draft comes to Sr.PS/P the Sr.PS/PS S 6. Kept for pronouncement Sr.PS on 7. File sent to the Bench Sr.PS Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed Yes