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Facts
The assessee, a Singaporean tax resident company, filed a nil return for AY 2022-23. The Assessing Officer and DRP treated consideration received for ancillary support services related to software distribution as Fees for Technical Services (FTS) under Article 12 of the India-Singapore DTAA, determining a total income and demand of INR 53.39 crores. The assessee disputed this, claiming the services were ancillary to software sales and thus exempt.
Held
The Tribunal held that the ancillary support services provided by the assessee were indeed ancillary to the sale of software and could not be classified as Fees for Technical Services. It found that these services were covered under the existing EULA agreements for maintenance and support of CA Software, and therefore, the findings of the DRP and AO were not justifiable.
Key Issues
Whether consideration received for ancillary support services in connection with software licenses qualifies as Fees for Technical Services (FTS) under Article 12 of the India-Singapore DTAA, specifically regarding the "make available" condition and if such services are truly "ancillary and subsidiary".
Sections Cited
143(3), 144C(13), 142(2), 195, 133(6), 6(3), 9(1)(vii), 270A, 274, Article 12 (DTAA), Article 12(5) (DTAA)
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE Ms SUCHITRA KAMBLE, JUDICIAL MEMBER And SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER CA(Singapore) PTE Ltd., The Assistant Vs. C/o CA (India) Technologies Commissioner of India Private Limited, Income Tax, S1 Wipro SEZ, International Taxation, Doddathogur Village, Circle2 (1)(1), Begur Hobli, Mumbai. Electronic City, Bangalore-560100. [PAN :AAHCC8349Q] (Appellant) .. (Respondent) Appellant by : Shri Ajit Jain, with Shri, Siddesh Chaugule, ARs Respondent by: Shri Krishna Kumar, Sr. DR Date of Hearing 17.09.2025 Date of Pronouncement 16.12.2025 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER:
This appeal is filed by the Assessee against the appellate order dated 31.03.2024 passed by the Assistant Commissioner of Income Tax(International Taxation) Mumbai, relating to the Assessment Year 2022-23. 2. The assesse has raised the following grounds of appeal:
1. Final assessment order is bad in law and on facts Asst. Year : 2022-23 - 2– 1.1 The Order passed by the Ld. AO u/s 143(3) r.w.s 144C(13) of the Act, is bad in law and on facts, as it is based on surmise and conjectures and is in gross violation of principles of natural justice 2. Erroneous levy of demand 2.1 The Ld. AO has erred in: a) Determining the total income of the Appellant at INR 482,776,315/- b) Determining a tax payable of INR 52,719,174; c) Consequential levy of interest of INR 6,589,897; and d) Raising a demand of INR 53,391,100 upon the Appellant.
3. Erroneous treatment of the consideration received from provision of ancillary support services in connection with the distribution of software licenses as Fee for Technical Services ('FTS') taxable in India 3.1 The Ld. AO and the Hon'ble DRP have erred in holding that consideration received by the Appellant from provision of ancillary support services in connection with the distribution of software licenses would qualify as 'FTS' under Article 12 of the Double Taxation Avoidance Agreement ('DTAA') between India and Singapore, and is therefore subject to tax. 3.2 The Ld. AO and the Hon'ble DRP have erred in holding that the services provided by the Appellant 'make available' technical knowledge, skills, etc. on the basis of incorrect understanding of the facts of Appellant's case. 3.3 The Ld. AO and the Hon'ble DRP grossly erred in concluding that the customers to whom the Appellant had provided the services have a liberty to customise the software licenses. 3.4 The Ld. AO and the Hon'ble DRP grossly erred in holding that provision of ancillary support services does not qualify as "ancillary and subsidiary" as covered in Article 12(5) of the DTAA. Asst. Year : 2022-23 - 3– 3.5 The Ld. AO and Hon'ble DRP erred in not following the decision rendered by the jurisdictional Mumbai Bench of the ITAT in the case of Murex Southeast Asia Pvt. Ltd. v. DCIT (Mum) [TS-266-ITAT-2023(Mum)) and Assistant Commissioner of Income-tax (International Taxation) v. Juniper Networks International B.V. [2023] 154 taxmann.com 563 (Mumbai Trib.), which held that make available condition was not satisfied in case of software maintenance. 3.6 The Ld. AO and Hon'ble' DRP grossly erred in disregarding the Appellant's submissions that the relevant consideration was chargeable to Equalisation Levy provisions.
4. Erroneous levy of surcharge and health & education cess 4.1 The Ld. AO has erred in levying surcharge and health & education cess ('HEC') amounting to INR 2,413,882 and INR 2,027,661, respectively to the tax amount while applying the tax rate as per the DTAA.
5. Erroneous levy of interest 5.1 The Ld. AO has erred in levying interest of INR 6,589,897 without providing any basis thereof.
6. Initiation of penalty proceedings 6.1 The Ld. AO has erred in initiating penalty proceedings u/s 270A read with section 274 of the Act alleging under-reporting of income.
7. Relief 7.1 The Appellant prays that the Ld. AO be directed to grant all such relief arising from the preceding grounds as also all relief consequential thereto. Asst. Year : 2022-23 - 4– 3. The brief facts of the case are that assesse is a company registered in and a tax resident of Singapore. The assesse has filed its return of income on 28.11.2022 declaring total income of Rs.Nil. The case was selected for scrutiny assessment under CASS and notice u/s.142(2) was issued and duly served on the assesse. The case was selected for scrutiny assessment under CASS on the followings reasons: a. Claim of Large value of Refund against TDS u/s.195. b. Receipt of Large value of Foreign Remittance as reported in Form 15CC during the previous year relevant to AY 2022-23 and whether they have been reported correctly.
3.1 Further notices u/s 143(2) dated 31/05/2023 was issued and duly served on the assesse followed by notices u/s 142(1) on various recorded dates through the compliance portal of the Income Tax Separtment. The assessee is engaged in the business of distribution of computer software products related services and specialised services. During the previous year relevant to AY 2022-23, the assessee has received a sum of Rs 132,84,52,313 from its operations which include the above from India. As per the ROI filed by the assessee, it is the wholly owned subsidiary of Computer Associates (Luxembourg) SARL with the ultimate owner being Broadcom INC USA. For the purpose of taxation in India, the assessee is covered by the India-Singapore DTAA and the relevant sections of the Income Tax Act pertaining to residence, scope of total income and sections 90 and 91 as they are applicable. Further, assessee was requested to provide a breakup of the Asst. Year : 2022-23 - 5– aforementioned receipts from India, which was furnished vide reply dated 05/10/2023. The assessee furnished a table giving the heads under which the above amount was received, which is reproduced below:
Sl. No Amounts in INR Particulars 1 Sale of Software Licenses 333,934,865 2. Provision of Ancillary support 482,776,315 services 3. Sale of Software Licenses along with 511,741,133 provision of Ancillary support services Total 1,328,452,313 3.2 It was observed that a note on the nature of receipt from India was called from the assessee with regard to their taxability as per the Indian Income Tax Act read with the relevant articles of the India Singapore DTAA. In its reply dated 05.10.2023, the assesse made a detailed submission.
3.3 Further the interim, notices u/s 133(6) were issued to various entities as per the 26 AS statement of the assessee and copies of Invoices provided in respect of these parties, which included resellers and direct customers. The details called for pertaining to Nature of Asst. Year : 2022-23 - 6– payments, types of product or/and Services availed from the assessee. Replies were received in some cases which are placed on record. In order to focus on the issue of whether the remittance received by the assessee during the previous year were in the nature of Royalty or FTS. Further details were called for vide 142(1) notice dated 27.02.2024 to which the assessee replied through communication dated 07.03.2024. Based on the issued raised and explanations offered by the assesse, a show cause was issued to the assesse on 21.03.2024. The assesse filed a reply dated 25.03.2024.
The core issue in the present proceedings is whether the remittance received by the assessee during the previous year relevant to A.Y. 2022-23 are exempt as has been claimed by the assessee in its return filed for A.Y. 2022-23 or not. The assessee has claimed that the receipts are exempt on the following premises:
(i) That It is a tax residence of Singapore. It does not have any permanent Establishment or place effective management in India during the previous year relevant to AY 2022-23 and it qualifies as a non-resident for the purpose of Section 6(3) of the Income Tax Act, 1961. (ii) That it has raised invoices for sale of software and support services which are ancillary to the sale of software and that the Asst. Year : 2022-23 - 7– consideration for the same was received in its bank accounts maintained outside India
In the case of the assessee, pertaining to provisions of Ancillary Services of Rs. 48,27,76,315/-received during the previous year relevant to A.Y. 2022-23 they have been billed separately and do not show any linkages to they being ancillary of subsidiary to any product sold to the entities who have availed these services. In fact, during the course of the proceedings and while examining the assessee's grievance redressal mechanism with regard to services provided it was noticed that most of the grievances raised pertained to Financial Institutions er Government Institutions and the National Payment Corporation of India (NPCI). This is indicative of the fact that the services provided by the assessee are in the nature of Make available as these organisations and the type of environment they operate in which includes handling sensitive data would be of any other mode than making available the services to these subscribers. These services, therefore, are not ancillary to & subsidiary to the sale of products covered under EULA agreement executed by the assessee with various parties. They are offered to the customer with liberty to customize it based on the environment in which it is operating. The services are made available to the subscribers by continuous access and support and these are highly specialized services Asst. Year : 2022-23 - 8– 5.1 Therefore based on the above discussion and evidence on record, the sum of Rs 48,27,76,315/-being provision for Ancillary Support Services is treated as Fees for Technical Services (FTS) within the meaning of Article 12(4)(b) of the India- Singapore DTAA read with Section 9(1)(vii) of the Indian Income Tax Act 1961 to be taxed at applicable rates. As against the 'Draft Assessment Order the assessee filed objections before the Disputes Resolution Panel-1(WZ), Mumbai on 29/04/2024 vide objection number 115364/2024-25 dated 29.09.2024, Mumbai. The objections filed before the DRP.
5.2 It was noticed that subject to the narration of the facts mentioned above in the draft assessment order and considering the directions of the DRP, the total income of the assesse is computed as under: Sr.No. Particulars Amount INR 1. Income as per ROI NIL 2. Add- 3. Fees for Technical Services 48,27,76,315/- taxable@10% as per DTAA Total Income 48,27,76,315/-
Being aggrieved by the Assessment Order, the assesse filed appeal before the Tribunal. Asst. Year : 2022-23 - 9– 7. At the time of hearing the Ld.AR submitted that grounds nos.1, 1.1, 2, 2.1, are general in nature and same are dismissed as not pressed.
As regards to ground No.5, 5.1, 5, 6.1 and 7, 7.1 are consequential.
The Ld.AR submitted that effectively the assessee is challenging treatment of the consideration received from the provision of ancillary support services in connection with the distribution of software licenses as Fee for Technical Services (FTS) taxable in India. The Ld. AR further submitted that the Assessing Officer was not right in holding that consideration received by the assesse from provision of ancillary support services in connection with the distribution of software licenses would qualify as FTS under article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, and is therefore subject to tax. The Ld. AR further submitted that the Assessing Officer and the DRP erred in holding that the services provided by the assesse “make available” technical knowledge, skill, etc on the basis of incorrect understanding of the facts of the assessee’s case. The Ld. AR further submitted that the Assessing Officer grossly erred in concluding that the customers to whom the assesse had provided the services have a liberty to customer to customize the software licenses. The Ld. AR further submitted that the Assessing Officer erred in holding that provision of ancillary support services does not qualify as “ancillary and subsidiary” as covered in Article 12(5) of the DTAA. The Ld. AR further submitted that the decision Asst. Year : 2022-23 - 10– rendered by the jurisdictional Mumbai Bench of the ITAT in the case of Murex Southeast Asia Pvt. Ltd. v. DCIT (Mum) [TS-266-ITAT- 2023(Mum)) and Assistant Commissioner of Income-tax (International Taxation) v. Juniper Networks International B.V. [2023] 154 taxmann.com 563 (Mumbai Trib.), which held that make available condition was not satisfied in case of software maintenance.
The Ld. DR relied upon the directions of the DRP more specifically para 6.3 at page 20.
We have heard both the parties and perused the materials available on record. The treatment of consideration received from the provision of ancillary support services in connection with distribution of software licences as fee for technical services taxable in India by the assessee was that of not agreed upon by the TPO/A.O. as the TPO/A.O. observed that of note nature of receipt from India was called from the assessee and after perusal of copies of invoices it was related to re- sellers and direct customers. The ancillary services was in respect of sale of software and support services which is ancillary to sale of software and that cannot be termed as fee for technical services as per the assessing officer. The observation of the A.O. to this extent can be seen that in the context that the assessee has provided the technical support and maintenance of projects from the Singapore Pvt. Ltd. a Broadcom company and it can be seen from the reasonable partner agreement in the definition clause 17(17.24) wherein the assessee was Asst. Year : 2022-23 - 11– categorically giving the support to its original software sale. Merely dealing separately cannot prove that there was no linkage between the ancillary of subsidiary to any product sold to the entities who have availed these services. The services provided cannot be stated are in the nature of make available. The TPO/A.O. has not categorically mentioned as to why these services cannot form ancillary to the sale of products covered under EULA agreement executed by the assessee with various parties. The reason given by the TPO/A.O. was that the services provided by the assessee are in the nature of make available as these organisations and the type of environment they operate which includes handling sensitive data would be of any more mode than available the services to these subscribers. But that is not the case after going through the agreement which was produced at page nos. 154 to 165 of the paper book before us. Clause 17.6 categorically defines maintenance which means the provision of new releases or new versions made available while active support available applicable generally available CA Software Licence by partner. So, the assessee was having an obligation to maintain the already available CA Software in respect of new releases or versions and has to make available its active support. The technical support and maintenance is also has to be given by the assessee and therefore these are the ancillary to the sale of product services and are already covered in the said agreement as pointed out by the ld. A.R. at the time of the hearing. Therefore, the findings given by the DRP and the TPO/AO was not justifiable. Thus, Ground No. 3, 3.1 to 3.6 are allowed. Since these grounds are allowed Asst. Year : 2022-23 - 12– the ground no. 4.1 becomes consequential and hence does not need adjudication.
In the result, the appeal of the assessee partly allowed.