KONY INC,UNITED STATES OF AMERICA vs. DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAX-1(2), CHENNAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

This appeal by the assessee is directed against the final assessment

order dated 20.01.2026, passed under section 143(3) read with

section 144C(13) of the Income-tax Act, 1961 (hereinafter referred

to as “the Act”), pertaining to the assessment year 2023-24.

ITA No. 888/Chny/ 2026 & SA 98/Chny/2026 AY 2023-24 KONY INC (Vs.)DCIT, Int. Tax 1(2) :: 2 ::

The Appellant submits that the below grounds are independent and without prejudice to one another.

The Appellant submits that the order passed by the Learned Assistant Commissioner of Income tax, International taxation 1(2), Chennai ('the Learned AO') is bad in law and is contrary to the facts and circumstances of the present case.

The detailed grounds of appeal, including the position in law and facts are set out in the ensuing paragraphs.

2.1 The Learned AO had erred in not considering the favourable ITAT orders passed in Appellant's own case whereby the income from sale of software license and annual maintenance services in the case of the Appellant has been considered as exempt income.

2.2 The Learned AO failed to appreciate the fact that there was no change in the process deployed by the Appellant in relation to sale of software license and services rendered in relation to annual maintenance services during the subject AY and hence, the Hon'ble ITAT order passed by the ITAT for AYs 2014-15, 2015-16, 2017-18, 2021-22 and 2022-23 shall squarely be applicable for the current AY as well.

3.1 The Learned AO have erred on facts and in law in characterising the income from sale of software license as royalty income taxable under the Act and under Article 12(3) of the India - USA Double Taxation Avoidance Agreement ('DTAA').

3.2 The Learned AO have failed to appreciate the fact that sale of software licenses to the Indian customers is sale of 'Copyrighted Article' and not 'Copyright in the article and accordingly, the revenue from sale of software license is not in the nature of Royalty.

3.3 The Learned AO had erred in considering consideration received for non-exclusive and non- transferable software license as usage of scientific equipment and taxing the receipts under Article 12(3) of India - USA DTAA.

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3.4 The Learned AO had erred in law by not following the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited vs. The Commissioner of Income-tax (Civil Appeal Nos. 8733-8734 of 2018).

5.1 The Learned AO have erred on facts and in law in characterising the receipts from annual software maintenance charges as FIS within the meaning of Article 12(4)(a) of the India- USA DTAA.

5.2 The Learned AO failed to appreciate the facts that the receipt of annual maintenance charges is inextricably linked to the sale of software and accordingly the same cannot be characterised as FIS under India - USA DTAA.

5.3 Without prejudice to the above, the Learned AO erred in concluding that the provision of annual maintenance services does makes available technical knowledge and accordingly characterised the same as FIS under Article 12(4)(b) of the India-USA DTAA.

5.1 The Learned AO failed to appreciate the fact that Appellant made bonafide disclosure of all material facts and information relating to the additions or disallowances made during course of assessment proceedings.

5.2 The Learned AO erred in initiation of penalty proceedings under section 270A of the Act.

2.1 Basically the issues in this appeal are as regards to the action of Assessing Officer treating: (a) software license subscription fees of Rs.47,90,683/- taxable as ‘royalty’ and (b) annual maintenance service fees of Rs.1,40,09,245/- taxable as ‘fees for included service’ both under I.T. Act, 1961 and also Article 12 of the India-USA DTAA.

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For this, the assessee has raised various grounds which are argumentative, exhaustive as referred in para 2 above. 3. At the outset the ld.AR for the assessee submitted that the issues in appeal are squarely covered by the orders of the co-ordinate bench of this Tribunal in assessee’s own cases for AY 2021-22 and AY 2022-23 [ITA No.1572/Chny/2023dated 30.05.2024] and [ITA No.185/Chny/2025 dated 08.05.2025] [Sr. No.10, pages 386-401 of paper book]. He further submitted that there is no change in facts of the case. 4. The ld.DR for the revenue relied upon the impugned order and pleaded for the dismissal of the appeal of the assessee. 5. We have heard the rival submissions and perused the record. Facts of the present case are similar to AY 2022-23, hence the same are not being repeated herein. The order of the co-ordinate bench of this Tribunal in assessee’s own cases for AY 2022-23 in ITA No.185/Chny/2025 dated 08.05.2025 is reproduced as under: 2. Brief facts of the case are as follows:- The assessee is a nonresident company incorporated in USA. It is a developer of Kone Mobile Application Platform (KMAP) and provides software license to its customers. For the assessment year 2022-23, the return of income was filed on 04.11.2022 declaring total income of Rs.30,31,692/- and claimed refund of Rs.1,30,87,130/-. The assessment was selected up for complete scrutiny under CASS and notice u/s.143(2) of the Act was issued on 31.05.2023. On perusal of the financials filed by the assessee company, the AO noted that an amount of Rs.13,02,06,818/- was received as income from sale of software license which was claimed as exempt during the relevant assessment year. The said income consists of software license subscription fee of Rs.12,33,63,210/- and annual maintenance fee of Rs.68,43,603/-. The assessee was issued show-cause notice dated 31.01.2024 directing it to explain why the above said sum of Rs.13,02,06,818/- should not be brought to tax as royalty and fee for included services under the Income-tax Act read with provisions of Article 12 of India-USA DTAA. The assessee submitted itsresponse objecting to the said proposal. However, the objections raised by the assessee was rejected and software license subscription fee of Rs.12,33,63,210/- was brought to tax as royalty under Article 12 of India-USA

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DTAA. As regards annual maintenance fee of Rs.68,43,608/-, the same was brought to tax under Article 12 of section 4(b) of India-USA DTAA and taxed the same at 10%. 3. The view taken by the AO in the draft assessment order was confirmed by the DRP in its directions dated 29.11.2024. Pursuant to the DRP’s direction, the impugned final assessment order was passed on 16.12.2024. 4. Aggrieved by the impugned final assessment order, the assessee has filed the present appeal raising seven grounds and various sub-grounds. The Ld.AR argued only two issues, namely the taxability of receipts from suppliers of software license subscription fee as income chargeable to tax as ‘royalty income’ and annual maintenance charge as ‘fee for included services’. The Ld.AR submitted that the issues in question are covered in favour of assessee by the orders of the Tribunal in assessee’s own case forassessment years 2014-15, 2015-16, 2017-18 and 2021-22. The details of tribunal orders are as under: - Assessment year Appeal No. Order dated 2014-15 ITA No.6018/Del/2017 01.06.2022 2015-16 & 2017- ITA No.7462/Del/2018 & ITA 11.01.2023 18 No.616/Del/2021 2021-22 ITA No.1572/CHNY/2023 30.05.2024

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Coordinate Bench in ITA No.6018/Del/2017, dated 01.06.2022 has held as under: “5. We have carefully considered the submissions of both the parties and gone through the record. 6. Ld. counsel of the assessee submitted that the issue is now squarely covered by the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Ltd. vs. The Commission of Income-tax in Civil Appeal Nos.8733-8734 of 2018. In this case, Hon'ble Apex Court expounded that consideration for the resale of the computer software through End User License Agreement (EULA)/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India. Ld. counsel submitted that the facts in the assessee's case are identical. He further submitted that ITAT in assessee's own case earlier also has decided the issue in favour of the assessee. 7. Ld. DR for the Revenue could not dispute the above proposition. 8. Accordingly, respectfully following the precedent from Hon’ble Apex Court and duly taking note that Revenue has not disputed that the facts in this case are not identical, we set aside the order of the Revenue authorities and decide the issue in favour of the assessee.” 8. There is no dispute that factually the issue stands on the same footing as assessment year 2014-15. Therefore, respectfully following the decision of the Coordinate Bench in assessee’s own case, as referred to above, we hold that the receipt in dispute is not in the nature of royalty, hence, not taxable in India. The Assessing Officer is directed to delete the addition. These grounds are allowed. 9. In ground no. 6, the assessee has challenged the addition of Rs.1,23,20,383/- by treating it as Fee for Included Services (FIS) under Article 12(4)(a) of Indian – USA DTAA. As discussed earlier, while completing the assessment, the Assessing Officer held that the amount received by the assessee towards granting licence under EULA is in the nature of royalty, hence, taxable in India. In the context of the said reasoning, the Assessing Officer held the view that the receipts from annual maintenance charges of the software are in the nature of FIS/FTS, both under the tax treaty as well as under section 9(1)(vii) of the Act. Accordingly, he brought to tax the amount of Rs.1,23,20,383/-. Learned DRP, while deciding the objections of the assessee, upheld the decision of the Assessing Officer. 10. We have considered rival submissions and perused the materials on record. It is evident, being of the view that annual maintenance charges are ancillary and subsidiary to the grant of licence for right to use software, which is treated as royalty, the Assessing Officer concluded that receipt from annual maintenance charges is in the nature of FIS under Article 12(4)(a) of India – USA DTAA as well as under section 9(1)(vii) of the Act. However, while deciding the issue of taxability of receipts from granting of licence, we have held that they are not in the nature of royalty under the treaty provisions. That being the case, the receipt from annual maintenance

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charges being not ancillary or subsidiary to any royalty income cannot be brought to tax under Article 12(4)(a) of the tax treaty. Therefore, it has to be seen, whether it can come within the purview of Article 12(4)(b) of the tax treaty. As could be seen, to be considered as FIS under Article 12(4)(b) under the tax treaty, the make available condition has to be satisfied. In the facts of the present appeal, the Departmental Authorities have failed to demonstrate that while rendering the services, the assessee had made available technical knowledge, experience, skills, knowhowetc. to the recipient of such services. That being the case, the amount received cannot be treated as FIS under Article 12(4)(b) of the tax treaty. 11. In any case of the matter, the entire case of the revenue is, the amount received falls under Article 12(4)(a) of the treaty. In view of the aforesaid, we hold that the amount received is not taxable in India as it cannot be treated as FIS under Article 12(4) of the tax treaty. Accordingly, we direct the Assessing Officer to delete the addition. Therefore, the facts and circumstances being the same in the present appeal, by taking the same view, we set aside the order of the revenue authorities and decide the issue in favour of the assessee.” 7. Since facts for the assessment years mentioned supra are identical to the relevant assessment year namely 2022-23 (since the agreement entered by the assessee with Indian entities and end user license agreement for the earlier years and the relevant assessment year being identical), we follow the co-ordinate bench orders of the Tribunal for the assessment year 2021-22 and hold that software license subscription fee of Rs.12,33,63,210/- cannot be brought to tax as royalty under the India-USA DTAA. Similarly, the annual maintenance fee of Rs.68,43,608/- cannot be brought to tax as ‘fee for included services’ following the co-ordinate bench order of the Tribunal. It is ordered accordingly. 8. Since, we have decided the appeal, the stay petition is rendered infructuous and we dismiss the same. 9. In the result, the appeal filed by the assessee is allowed and the stay petition filed by the assessee is dismissed. Order pronounced in the open court on 8th May, 2025 at Chennai.

ITA No. 888/Chny/ 2026 & SA 98/Chny/2026 AY 2023-24 KONY INC (Vs.)DCIT, Int. Tax 1(2) :: 8 :: 7. SA 98/Chny/2026: Since the appeal filed by the assessee has been allowed, the stay application has become infructuous. 8. In the result, appeal filed by the assessee is allowed. Order pronounced on the 29th day of April, 2026, in Chennai.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद�ा/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER चे�नई/Chennai, *दनांक/Dated: 29th April, 2026. SNDP, Sr. PS

आदेश क� ��त,ल-प अ.े-षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF