BLUE YONDER INC., ,BANGALORE vs. DCIT, INTL TAXATION CIRCLE-1(2), BANGALORE

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ITITA 728/BANG/2025Status: DisposedITAT Bangalore11 June 2026AY 2022-235 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal decided all three issues in favour of the assessee. Regarding the taxability of software sale as royalty, the Tribunal referred to its own orders for earlier assessment years, specifically IT(IT)A No. 2696/Bang/2017 dated 12/08/2021, and subsequent orders, which held that the sale of software is not royalty, following the Hon'ble Supreme Court's judgment reported in 432 ITR 471 (SC). For annual maintenance charges, the Tribunal reasoned that if the sale of software itself was not taxable, then miscellaneous incomes like annual maintenance charges would also not be taxable as fees for technical services. Concerning the reimbursement of expenses, the Tribunal relied on its order in IT(IT)A No. 401/Bang/2023 dated 03/01/2024 and other orders for similar assessment years, holding that reimbursement of costs incurred by the assessee cannot be treated as Fees for Technical Services (FTS). The Tribunal noted that the revenue had not furnished any contra decisions from higher forums. Consequently, the additions made by the AO on these three counts were deleted. The interest levied under section 234D was held to be consequential and was also deleted as the additions were deleted. The ratio decidendi is that where the sale of software is held not to be royalty, subsequent charges related to it or reimbursements of related expenses are also not taxable as FTS, especially when supported by consistent ITAT and High Court precedents following Supreme Court rulings.

What were the facts?

The assessee, M/s. Blue Yonder Inc., a US-incorporated company, filed its income tax return for Assessment Year 2022-23 claiming its entire income as not taxable in India. The Assessing Officer (AO) selected the return for scrutiny, issuing notices under sections 143(2) and 142(1). The AO treated the sale of software as royalty, annual maintenance charges as fees for technical/included services, and reimbursement of hardware/software maintenance expenses as fees for included services. The AO also levied interest under section 234D. The assessee's objections were not accepted, leading to a final assessment order dated 25/01/2025. The assessee is in appeal before the Income Tax Appellate Tribunal (ITAT) against this order.

What were the issues?

The Tribunal had to decide the following three issues raised by the assessee: 1. Whether the sale of software is taxable as royalty under the Income Tax Act, 1961. 2. Whether annual maintenance charges are taxable as fees for technical/included services under the Income Tax Act, 1961. 3. Whether reimbursement of expenses towards hardware and software maintenance is taxable as fees for included services under the Income Tax Act, 1961. Assessee's Contentions: The assessee argued that the sale of software is not royalty, citing ITAT orders for various earlier assessment years and a Hon'ble High Court judgment confirming the Tribunal's view, which followed the Hon'ble Supreme Court's decision in Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT. Similarly, the assessee contended that annual maintenance charges and reimbursement of expenses are not taxable as fees for technical/included services, relying on ITAT decisions in its own case for multiple earlier assessment years, including those that considered the Hon'ble Supreme Court's judgment. The assessee also highlighted a Hon'ble High Court judgment for A.Ys. 2017-18 and 2019-20 which held sale of software not to be royalty. Revenue's Contentions: The revenue argued that the issue was not settled as they had filed a review petition before the Hon'ble Supreme Court against the Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT judgment, and made a similar plea for other issues.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 142(1),Section 234D

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE

Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.

For Appellant: Smt. Tanmayee Rajkumar, Advocate
For Respondent: Dr. Divya K.J, CIT-DR

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE

BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER

IT(IT)A No. 728/Bang/2025 Assessment Year : 2022-23

M/s. Blue Yonder Inc., C/o. Blue Yonder India Pvt. Ltd., The Deputy Commissioner Tower A, Mantri of Income Tax, Commercio, International Taxation, Devarabeesanahalli, Circle – 1(2), Outer Ring Road, Bengaluru. Varthur Hobli, Vs. Bangalore – 560 103. PAN: AACCJ3581C APPELLANT RESPONDENT

Assessee by : Smt. Tanmayee Rajkumar, Advocate Revenue by : Dr. Divya K.J, CIT-DR

Date of Hearing : 17-03-2026 Date of Pronouncement : 11-06-2026

ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER

This is an appeal filed by the assessee challenging the final assessment order of the AO dated 25/01/2025 in respect of the A.Y. 2022- 23.

Page 2 of 5 IT(IT)A No. 728/Bang/2025 2. The brief facts of the case are that the assessee is a company incorporated in USA and filed their return of income on 28/11/2022 and claiming the entire income as not taxable. The said return was selected for scrutiny and notice u/s. 143(2) was issued. Thereafter notice u/s. 142(1) was issued for which the assessee filed their reply along with the details sought for by the AO. The AO had treated the sale of software as royalty and treated the annual maintenance charges received as fees for technical / included services. Similarly, the reimbursement of the expenses towards hardware and software maintenance was treated as fees for included services. The AO had also levied interest u/s. 234D of the Act.

3.

Before passing the assessment order, the assessee had submitted elaborate objections for treating the said as not taxable in India but the AO had not accepted the said objections and confirmed the levy on the above said items.

4.

As against the said order, the assessee is in appeal before this Tribunal.

5.

At the time of hearing, the Ld.AR submitted that, treating the sale of software as royalty is not accepted by the Tribunal in respect of the earlier assessment years 2014-15, 2015-16 to 2017-18, 2019-20, 2021-22, 2012- 13 and 2018-19, 2008-09, 2010-11, 2017-18 and 2019-20. The Ld.AR also furnished the copies of the Tribunal orders along with the appeal set and therefore prayed to follow the earlier findings of this Tribunal. Similarly, in respect of the annual maintenance charges treated as fees for technical / included services, the Ld.AR submitted that, this issue is also covered by the decision of the Tribunal in the assessee’s own case for the A.Ys. 2008- 09, 2010-11, 2014-15, 2015-16 to 2017-18, 2019-20 & 2021-22 wherein this Tribunal had held that it is not liable to be taxed under the provisions of the Act. The Ld.AR further submitted that the reimbursement of expenses towards hardware and software maintenance classified as fees for included services by the AO is also not correct in view of the decision of this

Page 3 of 5 IT(IT)A No. 728/Bang/2025 Tribunal in the assessee’s own case for the A.Ys. 2012-13, 2015-16 to 2017- 18, 2018-19, 2019-20 and 2021-22. The Ld.AR also filed the copy of the judgment of the Hon’ble High Court passed in respect of the assessment years 2008-09 and 2010-11 wherein the Hon’ble High Court had held that the view taken by the Tribunal is in accordance with the judgment of the Hon’ble Supreme Court in Civil Appeal Nos. 8733-8734 of 2018 and thereby confirmed the order of this Tribunal and therefore held that treating the sale of software as royalty is not correct. The Ld.AR further submitted that the taxability of annual maintenance charges as fees for technical / included services was also covered by the orders of this Tribunal in the assessee’s own case and also enclosed the copies of the orders of the Tribunal and prayed to delete the said addition also. In respect of the non-taxability of reimbursement of expenses towards hardware and software maintenance, the Ld.AR again relied on the orders of this Tribunal in respect of the earlier years and prayed to allow the said claim also. The Ld.AR also filed a paper book and also furnished the copies of the judgment of the Hon’ble High Court in respect of the A.Y. 2017-18 and 2019-20 wherein the Hon’ble Division Bench had considered the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT reported in 432 ITR 471 and held that the sale of software could not be treated as royalty.

6.

The Ld.DR submitted that the revenue had filed a review petition before the Hon’ble Supreme Court against the Engineering Analysis Centre for Excellence Pvt. Ltd. vs. CIT judgment and therefore submitted that the issue was not settled and prayed to disallow the said claim. Similar plea was made in respect of the other issues.

7.

We have heard the arguments of both sides and perused the materials available on record.

8.

In the present appeal, the following disputes are raised by the assessee.

Page 4 of 5 IT(IT)A No. 728/Bang/2025 1) Non-taxability of sale of software as royalty 2) Non-taxability of annual maintenance charges as fees for technical / included services 3) Non-taxability of reimbursement of expenses towards hardware and software maintenance as fees for included services.

9.

In respect of the first dispute raised by the assessee, we have perused the orders of the Tribunal in IT(IT)A No. 2696/Bang/2017 dated 12/08/2021 and also the subsequent orders of this Tribunal in which this Tribunal had held that the sale of software would not be a royalty by following the judgement of the Hon’ble Supreme Court reported in 432 ITR 471 (SC).

10.

In respect of the second dispute also, the Tribunal had held that the sale of software itself was not taxable, therefore the question of taxing the miscellaneous incomes such as annual maintenance charges as fees for technical services would not arise.

11.

In respect of the third dispute, we have also perused the order of the Tribunal in respect of the A.Y. 2019-20 and other orders and in IT(IT)A No. 401/Bang/2023 dated 03/01/2024 the similar ground raised by the assessee was considered by the Tribunal and held that the reimbursement of cost incurred by the assessee cannot be treated as FTS. We have also perused the other orders of the other assessment years in which similar view was taken by this Tribunal.

12.

The Ld.DR had also not furnished any contra decisions taken by the higher forums by reversing the order of this Tribunal. In such circumstances, we are of the view that the three issues raised by the assessee is covered by the order of the Tribunal in the assessee’s own case and therefore we are also deleting the said additions.

Page 5 of 5 IT(IT)A No. 728/Bang/2025 13. Insofar as the interest levied u/s. 234D of the Act is concerned, we have considered the submissions and we are of the view that the same is consequential in nature and therefore it has to be decided based on the finding given in respect of the three disputes raised by the assessee. It means that no interest could be levied on the assessee since the additions are deleted by us.

14.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 11th June, 2026.

Sd/- Sd/- (WASEEM AHMED) (SOUNDARARAJAN K.) Accountant Member Judicial Member

Bangalore, Dated, the 11th June, 2026. /MS /

Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order

Assistant Registrar, ITAT, Bangalore

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