D.C.I.T., INTERNATIONAL TAXATION, KOLKATA vs. M/S LANDIS + GYR AG, KOLKATA

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ITA 1510/KOL/2019Status: DisposedITAT Kolkata28 October 2026AY 2015-1632 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the issue of royalty and management fees was to be reversed. The Tribunal noted that the Indian company had deducted tax at source and, following the mercantile system of accounting, the amount ought to have been credited as revenue receipt. The Tribunal found no Board's resolution for waiver of the amount and observed that the agreement's waiver clause stated that failure would not amount to waiver. Therefore, it was held that the amount was not waived in the impugned assessment year. Following the system of accountancy, the amount was liable to be included in income, and any waiver could be claimed as a deduction in the year of waiver. Thus, the finding of the CIT(A) was reversed, and the AO's order was upheld, with liberty to the assessee to claim deduction in the year of waiver upon furnishing evidence. This ground of appeal was allowed. Regarding software expenses, the Tribunal held that the software was supplied by Microsoft, not customized, and provided on a cost-to-cost basis, thus not in the nature of royalty. However, since the assessee could not furnish required evidence for part of the transactions, the difference sustained by the CIT(A) was upheld. The Tribunal set aside the CIT(A)'s order on this issue and remanded it to the AO for verification of back-to-back invoices, allowing deduction to the extent expenses are verified. This ground was partly allowed for statistical purposes. The appeals were partly allowed for statistical purposes.

What were the facts?

The Revenue filed appeals before the Income Tax Appellate Tribunal (ITAT) challenging orders of the Commissioner of Income Tax (Appeals) for Assessment Years (AYs) 2015-16 and 2016-17. The assessee, M/s Landis + Gyr Ag, had its assessment order passed by the Assessing Officer (AO) under section 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961. The AO made additions for brand royalty and management fees amounting to Rs. 9,51,68,906/- for AY 2015-16 and Rs. 10,98,16,532/- for AY 2016-17, and for recovery of EDP software expenses. The CIT(A) granted relief by deleting the additions for royalty and management fees, citing beneficial provisions of the India-Switzerland DTAA and the issue of double taxation. Regarding EDP expenses, the CIT(A) deleted part of the addition but sustained the balance. The Revenue is aggrieved by the relief granted by the CIT(A).

What were the issues?

1. Whether royalty and management fees amounting to Rs. 9,51,68,906/- (AY 2015-16) and Rs. 10,98,16,532/- (AY 2016-17) are taxable in India, considering Article 12 of the India-Switzerland DTAA and domestic law, especially when the deductor has credited the account, deposited TDS, and the assessee has utilized TDS as taxes. - Assessee argued that the amount is not taxable in India, relying on Article 12 of the India-Switzerland DTAA and the principle of avoiding double taxation. The assessee also contended that the method of accounting was changed to cash basis from FY 2015-16. - Revenue argued that the amount is taxable in India as the deductor has credited the assessee's account, deposited TDS, and the assessee has utilized the TDS. They also argued that source country taxation reverts to domestic taxation as per Article 12.2 of the DTAA, making payment or payability immaterial under domestic law, and that the CIT(A) erred in disregarding a potential collusive arrangement and treating the amount as application of income. 2. Whether EDP expenses (software expenses) amounting to Rs. 2,93,20,634/- (AY 2015-16) and Rs. 2,17,02,267/- (AY 2016-17) are taxable in India as remuneration rather than reimbursement of expenses. - Assessee argued that EDP expenses are cost-to-cost reimbursement and not taxable as remuneration. They submitted that invoices were furnished before the AO. - Revenue argued that the CIT(A) erred in holding EDP expenses as not taxable and that they represent remuneration. The Revenue requested a remand to the AO for verification of invoices, as no such verification was done by the CIT(A).

Which sections of the Income-tax Act were involved?

Section 250,Section 143(3),Section 144C(3),Section 234A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH AT KOLKATA

Before: SHRI YOGESH KUMAR US & SHRI RAKESH MISHRA

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

These two appeals filed by the Revenue are against the separate orders of the Commissioner of Income Tax (Appeals)-22, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for AYs 2015-16 and 2016- 17 dated 28.03.2019 and 31.10.2019. Since the issues in both the appeals are similar, they were heard together and are being decided vide this common order for the sake of convenience and brevity.

2.

The Revenue is in appeal before the Tribunal raising the following grounds of appeal: I. ITA No. 1510/KOL/2019; AY 2015-16:

“1. The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in giving relief to the assessee in holding that Royalty and Management Fees amounting to Rs. 9,51,68,906/- is not taxable in India.

2.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in not considering that Rs.9,51,68,906/- is taxable in the hands of the assessee since the deductor has credited the account of the assessee, deposited TDS, filed 27Q and assessee has utilised the TDS as taxes in his Return of Income.

3.

The Learned Commissioner of Income Tax (Appeals) has erred in law in holding that the amount is not taxable in terms of Article 12 of the India- Switzerland DTAA without appreciating that the source country taxation as per Article 12.2 reverts back to domestic taxation and whether the amount has been paid or payable in the hands of the non-resident is immaterial in accordance with the domestic law.

4.

Without prejudice, the Learned Commissioner of Income Tax (Appeals) has erred in law and facts in disregarding that the non-resident assessee on its own has declared its method of accounting to be mercantile in its return of income for the assessment year 2015-16 as against its plea that the same is on cash basis.

5.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in holding the amount of Rs.9,51,68,906/- cannot be taxed since it would represent double taxation of the same income without appreciating that there is no incidence of double taxation since there is loss in case of Indian entity in the year and otherwise also both the entities are different.

6.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in disregarding the collusive arrangement between the subsidiary and the parent while giving relief to the assessee on the point of so called double taxation.

7.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in not appreciating the fact that the amount of Rs.9,51,68,906/- represents application of income and is taxable in India.

8.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in not appreciating that in source country taxation is on gross basis, the assessee is not entitled to any deduction since it is taxable at a preferential rate.

9.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in giving relief to the assessee by holding that EDP expenses (software expenses) amounting to Rs.2,93,20,634/- is not taxable in India being in the ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 nature of remuneration and not reimbursement of expenses as per the terms and condition of the agreement.

10.

The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing. II. ITA No. 5/KOL/2020; AY 2016-17:

“1. The learned Commissioner of Income Tax (Appeals) has erred in law and facts in giving relief to the assessee in holding that Management Fees, Procurement Fees and Brand Royalty amounting to Rs 10,98,16,532/- is not taxable in India.

2.

The Learned Commissioner of Income Tax (Appeals) has erred in law and facts in not considering that Rs. 10,98,16,532 /- is taxable in the hands of the assessee since the deductor has credited amount to the account of the assessee, deposited TDS, filed 27Q and assessee has utilised the TDS as taxes in his Return of Income.

3.

The learned Commissioner of Income Tax (Appeals) has erred in law in holding that the amount is not taxable in terms of Article 12 of the India- Switzerland DTAA without appreciating that the source country taxation as per Article 12.2 reverts back to domestic taxation and whether the amount has been paid or payable in the hands of the non-resident is immaterial in accordance with the domestic law.

4.

The learned Commissioner of Income Tax (Appeals) has erred in law and facts in holding the amount of Rs 10,98,16,532/- cannot be taxed since it would represent double taxation of the same income without appreciating that there is no incidence of double taxation since Indian entity has already recognised the expenses in its P & L account.

5.

The learned Commissioner of Income Tax (Appeals) has erred in law and facts in disregarding the collusive arrangement between the subsidiary and the parent while giving relief to the assessee on the point of so called double taxation.

6.

The learned Commissioner of Income Tax (Appeals) has erred in law and facts in not appreciating the fact that the amount of Rs. 10,98,16,532/- represents application of income and is taxable in India.

7.

The learned Commissioner of Income Tax (Appeals) has erred in law and facts in not appreciating that in source country taxation is on gross basis, the assessee is not entitled to any deduction since it is taxable at a preferential rate.

8.

The learned CIT (A) erred in law and facts in giving relief to the assessee by holding that EDP expense amounting to Rs.2,17,02,267/- cannot be ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 considered as income in the hands of the appellant and should not be subjected to tax.

9.

The learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the reimbursement of EDP expenses of Rs.2,17,02,267/- are actually in the nature of remuneration.

10.

The appellant craves the leave to submit/delete/withdraw any other grounds(s) at the time of hearing".

3.

We shall first take up ITA No. 1510/KOL/2019 for AY 2015-16 for adjudication. Brief facts of the case are that the assessee had filed the return of income for AY 2015-16 on 31.03.2017 declaring total income at ₹1,36,81,850/-. The Assessing Officer (hereinafter referred to as the Ld. 'AO') investigated the issue of non-inclusion of certain receipts by the assessee despite claiming the corresponding TDS refunds. The Ld. AO made an addition of ₹9,51,68,906/- towards brand royalty and fees for management services, and an addition of ₹2,93,20,634/- for recovery of EDP software expenses. He determined the total income at ₹13,81,71,390/- and completed the assessment u/s 143(3) r.w.s. 144C(3) of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who held that the assessee was eligible for the beneficial provisions of Article 12 of the India-Swiss Treaty and deleted the addition of brand royalty and management fees. He further noted that taxing the waived amount would lead to double taxation. Regarding EDP expenses, the Ld. CIT(A) deleted the addition of ₹2,18,51,515/- treating it as cost-to-cost reimbursement but sustained the balance of ₹74,69,119/-, and also directed the deletion of interest u/s 234A of the Act. Accordingly, the Ld. CIT(A) modified the action of the Ld. AO and partly allowed the appeal of the assessee.

4.

Aggrieved with the order of the Ld. CIT(A), the Revenue has filed the appeal before the Tribunal.

5.

Rival contentions were heard and the submissions made have been examined. The written submissions have been filed on 28.10.2025/06.11.2025 by the Revenue and the Ld. DR relied upon the written submissions which are as under: “In the matter of DCIT, International Taxation, Circle 1(2), Kolkata (Appellant) vs Landis + Gyr AG (Respondent) AY 2015-16 ITA No. 1510/Kol/2019 In respect of the aforementioned appeal before your honors, we would like to submit the following facts and arguments. The same may kindly be given due consideration before deciding the issues under appeal.

2.

There are two issues under appeal, and in each of which Ld. CIT(A) has granted relief to the assessee, and against which the Department has preferred this appeal. These issues are: A) Taxability of Brand Royalty & Management Services B) Taxability of Reimbursement of expenditure and recovery of EDP expenses

3.

Taxability of Brand Royalty & Management services

3.

1 In the assessment proceedings it was seen that assessee had not included the receipts under the head Brand Royalty and Management fees amounting to Rs. 9,51,68,906/-. Assessee mentioned that the said fee was to be paid by its Indian subsidiary but it was waived by the Assessee owing to adverse financial condition of subsidiary, hence it was never paid to assessee. At the same time, the appellant's Indian subsidiary withheld TDS of Rs 95,61,890/- as the subsidiary follows accrual basis of accounting which was claimed as refund by the assessee which follows cash basis of accounting. The receipts amounting to Rs. 9,51,68,906/- were added to total income of the assessee by AO during assessment proceedings. Appellant- assessee, being aggrieved, filed an appeal before the CIT(A) which allowed relief of the entire addition of Rs. 9,51,68,906/- under the head brand royalty and management services.

3.2.

In this context this may be mentioned that it is an undisputed fact that there was a BRAND LICENCE AGREEMENT (effective date 01-01-2009)

between the assessee and its subsidiary company and the income from the Brand Royalty & Management Services accrued to the assessee based on the above agreement and there is no dispute regarding the nature of the aforesaid receipts which is in the nature of royalty/Fees for included Service (FIS). The agreement does not contain any ‘WAIVER CLAUSE’.

3.

3 Information gathered u/s 133(6) of the IT Act 1961 from the subsidiary company in the course of assessment proceeding revealed that no specific resolution has been adopted by the subsidiary company for waiver of the receipts by the Landis+Gyr AG (the Assessee). A copy of the e-mail dated 14-03-2017 from the CFO of the Indian subsidiary Company addressed to Head of Group Tax, Landis + Gyr AG (the Assessee) as evidence for waiver of the liability for the F.Y. 2014-15 was furnished, which clearly showed that the correspondences were made in this regard on much later date i.e., beyond the relevant F.Y. in which the transaction took place. From the above, it appeared that there was a collusive arrangement between the subsidiary and the principal, and this fact was one of the reasons which led the AO to make the addition which is under appeal.

3.

4 As per the provisions of Article 12.2 of the India Switzerland DTAA, the royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State which clearly indicates that the moment royalties / fees for included services becomes payable, being the expense credited in the books of the payer (here it is the Indian subsidiary Landis+ Gyr Ltd.), the income is triggered in the hands of the Head Office (here it is the Assessee).

3.

5 Here it is brought to the notice of Hon'ble Bench that the Hon'ble Supreme ITR 391(SC), has held that the credit entry to the account of the Assessee being a non-resident, in the books of the Indian Company does amount to its receipt by the Assessee and is accordingly taxable and has further held that it is immaterial as to when the non-resident has actually received the sum in foreign country.

3.

6 Regarding the issue of 'paid' as stressed by referring to the Article 12 (1) of India Switzerland DTAA which is applicable for non-resident company in the other contracting state, in the instant case the taxability of the Assessee is in Switzerland. Thus, the word 'paid' for taxability may be relevant in the case of the Assessee in Switzerland. However, regarding the issue of taxability in India, i.e., taxability in the contracting state, the same is covered by Article 12(2) of the India Switzerland DTAA which has stressed on the word 'Arise according to the law of that state' i.e., it states about the taxability in the contracting state. The relevant clause of the Article is reproduced as under:

2.

However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for included services in a resident of the other Contracting State, the tax so charged shall not exceed: **********************

3.

7 As for the point that the amount does not constitute income, as it has been waived, it may kindly be noted that the treatment given by the Assessee is nothing but application of income. Landis+ Gyr Ltd. has debited the expense under the head Brand Royalty and Management services in the books of accounts for the relevant financial year. Further, the subsidiary company has not brought any evidence on record before the AO or the CIT- Appeals to substantiate that the said expense in its hand has been brought back as income. This stand refers to "double non taxation of the same amount". It is therefore apparent that taxability of the sum in the nature of royalty/FIS is governed by the law of the Source State. As per the domestic law, the accrual of income in the hands of the non-resident Assessee is determined on the basis of status of the payer.

3.

8 Ld. CIT-Appeals has allowed relief for Brand & Royalty Management fees and has mentioned that the judgment of the Hon'ble Apex Court in the case of Standard Triumph Motor Co. -vs.- CIT (201 ITR 391 (SC)) referred to by AO in the assessment order, does not apply to the case as it was rendered in the context of AY 196(7)-68 to AY 1970-71 which was before the DTAA signed by India with the relevant country. CIT-Appeals has cited case of Director of Income-tax (International Taxation) vs. M/s. Siemens Aktiengesellschaft [(ITA No. 124 of 2010) | TS-795-HC-2012 (BOM)] which distinguished the judgment of Hon'ble Apex court in the case of Standard Range-11, Bengaluru before the Ld. Bengaluru Tribunal as reported in [2017] 86 taxmann.com 237. The Ld C-Bench, ITAT Bengaluru, in its ruling observed that once field is occupied by clause 2 of Article 12, the royalty is taxable as per Indian law. This factor is not looked into in depth by the Hon'ble Bombay High Court.

3.

9 Without prejudice, the contention of the assessee that its income is taxable on cash basis is also not correct. The assessee itself vide its return of income filed on 31-03-2017 in ITR 6, Schedule A-01, has indicated its method of accounting as Mercantile. Therefore the Ld. CIT(A) was in error on ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 facts too, in accepting the contention of the appellant that its income is taxable on cash basis.

3.

10 The so-called waiver of the amount could not be substantiated by the assessee with satisfactory documentary evidence during the course of hearing. Even for the sake of argument, if it is accepted that the amount shown as payable by the subsidiary has been written off by the assessee, based on the mercantile system of accounting, it really is an application of income. Therefore, there is no reason as to why the same should not be taxed in the hands of the assessee.

3.

11 Ld CIT-Appeals has also mentioned that the assessee has credited its profit and loss account in respect of royalty/management fee waived by appellant and offered the same to taxation. At the same time, the Indian subsidiary has recognized the amount waived by the assessee in its profit and loss account. The same was enquired upon by the AO during assessment proceeding u/s 133(6) of I.T. Act, 1961 but the above evidence was not disclosed by the assessee during the assessment proceedings. Further, this argument is fallacious, since in any case, if an expenditure is claimed in the profit and loss account by an assessee and the same, after being received back is reported by it in its profit and loss account, it does not amount to double taxation of the same income.

3.

12 In light of above, the action of the AO in making the addition is justified and is based on solid grounds. It is therefore, requested that the additional so made by the AO may kindly be upheld and the decision of the CIT-Appeal may therefore be reversed.

4.

Taxability of Reimbursement of expenditure and recovery of EDP expenses

4.

1 The Form 3CEB filed in the course of hearing also reveals that the Assessee has not included the receipts under the head a) Recovery of expenses and b) Recovery of EDP expenses amounting to Rs. 3,22,03,293/- (73,13,112 + 2,48,90,181) in its total income. During assessment proceedings AO added Rs. 2,93,20,634/- to the total income of the assessee. Assessee being aggrieved filed an appeal before the CIT(A) which allowed relief for EDP expenses to the tune of Rs. 2,18,51,515/- by mentioning that "....Appellant has been able to furnish back to back invoice for recharge of EDP expense to the tune of Rs. 2,18,51,515/- such amount cannot be considered as income in the hands of the appellant and should not be subject to tax in India. However, the balance amount of Rs. 74,69,119/- cannot be considered as cost to cost reimbursement and accordingly, is taxable in India."

4.

2 In the course of assessment proceedings it was seen that out of the total amount reimbursed by the subsidiary company to the Assessee, Rs.28,82,659/- pertains to reimbursement of accommodation and travelling charges of employees of LANDIS + Gyr Ltd. and the balance amount of Rs.2,93,20,634/- has been recovered from LANDIS + Gyr Ltd. on account of cost of recovery for software use. From the clauses in Agreement 2 (effective date 01-01-2010) it is apparent from the provisions under the above agreements that the receipts are basically 'consideration' received from Indian subsidiary LANDIS + Gyr Ltd. (India) for the right to use of the services undertaken by the Assessee.

4.

3 Therefore, the receipts are in the nature of 'remuneration' and not 'mere reimbursement' as claimed by the Assessee. The terms 'reimbursement' and 'remuneration' are easily distinguishable. As per Cambridge Dictionary, the word 'reimbursement' means 'to pay money back to someone' where as ‘remuneration’ has been defined as ‘when someone is paid for the work they have done’. The assessee is and has been receiving remuneration from subsidiary company, whom it has licensed /authorized to use the benefits and the rights arising from the research and development programs undertaken by the assessee. In the case of National Cement Mines Industries vs. CIT 42 ITR 71, the Honorable Supreme Court held that "the name which the parties give to the transaction which is the source of receipt and characterization of the transaction has to be ascertained from the covenants of the contract in the light of the surrounding circumstances".

4.

4 In addition, the Hon'ble Supreme Court in the case of Sedco Forex International Ine Vs. CIT reported in 87 taxmann.com 29 (SC), in the context of mobilization fee advance claimed (as reimbursement, observed as follows: "It is stated at the cost of repetition that, in the instant case, the amount which is paid to the assessees is towards mobilization fee. It does not mention that the same is for reimbursement of expenses".

4.

5 Here the clauses of the articles in the agreement between the Assessee and the subsidiary company clearly brings out what is passed on by Indian subsidiary to the Assessee is not reimbursement of expenses but remuneration and has to be acceptable as such.

4.

6 Apart from the above, admittedly the receipt is on account of EDP Charges, the Assessee has given a preemptive submission to the effect that in the unlikely event that the receipt may be considered as royalty. In this respect, the Assessee has relied on the following case laws: - • DIT Vs. Infrasoft Ltd. Reported in 220 Taxman 273 (Del-HC) • DIT Vs. Ericsson A.B. 343 ITR 470 (Del-HC)

• ADIT Vs. Bartronics India Ltd. Reported in 43 taxmann.com 16 (Hyderabad Tribunal) • Motorola Inc. Vs. DCIT reported in 95 ITD 269 (Delhi Tribunal) [SB]

4.

7 However, the above position is not acceptable in view of the definition of royalty according to the provisions of Section 9(1)(vi) of the I.T. Act 1961 and Article 12 of the India Switzerland DTAA. There exist judgments which are contrary to the case laws relied upon by the Assessee. In the case of Samsung Electronics reported in 345 ITR 494 Karnataka it was held that payment in connection with software whether customized or shrink- wrapped, would always be in the nature of 'royalty'. Therefore, although the assessee has relied on the judgment of the Hon'ble Delhi High Court in the case of DIT Vs. Infrasoft Ltd. Reported in 220 Taxman 273 (Del-HC), the point remains that there is no judicial consensus on the issue & the matter is sub-judice before the Hon'ble Supreme Court.

4.

8 Further, in the case of Synopsis International 212TAXMANN 454, the Karnataka High Court noted that in certain judicial precedents a distinction had been made between a transfer of a right in a copyright and transfer of a copyrighted article. The High Court observed that in view of the language employed in clause (v) of the definition of royalty under the Act, the question was not whether what is transferred is a right in a copyright or a copyrighted article. The High Court opined that, under the Act, payments would be characterized as royalty if there is a transfer of rights "in respect of" a copyright and there is no requirement of transfer of rights in the copyright. The language employed is wide enough to include payments for software even if the said software is a copyrighted article. In relation to the definition under the tax treaty the Karnataka High Court observed that a mere right to use of a copyright is sufficient to tax the payments as royalty.

4.

9 Therefore, in view of the judgments of the Hon'ble High Court of Karnataka and the well-known position of India in this regard, receipt on account of EDP Software on the flip side of case constitutes income chargeable the (to) tax of the non-resident assessee in India.

4.

10 It is also stated that the concept of Copy right and copy righted article (on which the Delhi High judgments are referred to) are not there in either in the I.T. Act 1961 or in the DTAA between India and Switzerland. The terms find their place in the OECD Commentary to the MC. India is not a member OECD country. Even for member countries, some of them have expressed their reservations on various interpretation of the commentary including the article on royalty. Therefore, OECD guidelines are not binding on even the member countries. India has also not accepted the above interpretation in respect of the Computer Software. In view of the above fact, the recovery of EDP expense by the Assessee being software cost constitute as 'Royalty'

payment by the subsidiary company which is taxable in the hands of the Assessee as per the Article 12 of India Switzerland DTAA.

4.

11 Ld CIT-Appeals has also referenced judgment of Hon'ble jurisdictional Kolkata ITAT in the case of ADIT -vs- Timken Company (2017) 88 taxmann.com 21 (Kol-Tri) which held that where assessee is not the receipt of the sums in question and it was only a conduit for payment by Indian subsidiary to a third-party service, such amount cannot be charged to tax in the hands of assessee. The said judgment of Hon’ble Kolkata ITAT although was not accepted on merit and was principally disagreed by Department but was not further appealed in High Court due to it being below the revised monetary limits as per CBDT Circular No. 3/2018 dated. 11/07/2018.”

6.

Subsequently, on 26/11/2025, a factual report received from the Assessing Officer was also filed which is as under: “To The Commissioner of Income Tax, (IT&TP), Kolkata Aayakar Bhawan Poorva, Kolkata. [Through the proper channel / Respected Sir, Subject : Factual report in the case of Landis + Gyr AG (PAN-AABCL0672R) for the AY 2015-16 - matter regarding. Reference : F. No CIT(IT&TP)/Kol/Misc/2025-26/2054 dated 12-11-2025. With reference to the above mentioned stay petition, kindly find the factual report is as under: I. Background of the Case: 1,1 The assessee. M/s. Landis+Gyr AG, incorporated in Switzerland, is a nonresident company engaged in the business of providing metering and energy management solutions. The assessee holds a controlling interest in its Indian subsidiary, M/s. Landis+Gyr Limited, India.

1.

2 During the financial year relevant to Assessment Year 2015-16, the Indian subsidiary had debited in its books of account an amount of Rs. 9,51,68,906/- on account of brand royalty and management service fees payable to the assessee, comprising Rs. 6,82,12,761/- towards management services and Rs. 2,69,56,145/- towards brand royalty. Corresponding tax was deducted at source by the Indian subsidiary amounting to Rs. 95,16,890/-.

1.

3 In its return of income, the assessee claimed refund of the entire TDS amount on the ground that the corresponding income had not been received by it and had been subsequently waived considering the financial hardship of the Indian subsidiary. The assessee contended that it follows the cash system of accounting under section 145 of the Income-tax Act, 1961, and therefore, in absence of actual receipt, no income had accrued or arisen to it during the relevant previous year.

2.

Assessment Proceedings and Findings of the Assessing Officer:

2.

1 During assessment proceedings under section 143(3) read with section 144C(3), the Assessing Officer examined the claim of the assessee with reference to the Brand Licence Agreement dated 01-01-2009 executed between the assessee and its Indian subsidiary. The Assessing Officer noted that the agreement contained no clause authorising waiver of royalty or management fees. He also observed that the communications evidencing waiver were made only in March 2017, almost two years alter the relevant financial year, and therefore lacked contemporaneous justification.

2.

2 In paragraph 4(e) of the assessment order, the Assessing Officer recorded that the plea of the assessee regarding adoption of the cash system of accounting was being raised tor the first time and had not been followed in earlier years. The AO was of the view that such a change in accounting basis, made without consistent application or approval, could not be accepted for computation of income under Indian law.

2.

3 In paragraphs 4(g.1), 4(g.2) and 4(g.3), the Assessing Officer referred to the judgment of the Hon’ble Supreme Court in Standard Triumph Motor Co. v. CIT 1(1993) 20 1 ITR 391 (SC)] and held that when an Indian payer makes a provision for expenses and credits the account of a non-resident payee, such credit constitutes deemed receipt of income by the non-resident. The AO reasoned that since M/s. Landis+Gyr Ltd., India, had credited royalty and management fees in its books and deducted TDS thereon, income had accrued and was taxable in the hands of the assessee in India irrespective of the fact that the amount was not remitted.

2.

4 Further, the AO examined the provisions of Article 12 of the India Switzerland Double Taxation Avoidance Agreement. He interpreted Article 12(2) to mean that royalties and fees for included services arising in India “may also be taxed in the Contracting State in which they arise and according to the laws of that State.” The AO held that the phrase “according to the laws of that State” empowered India to tax such income on accrual basis under sections 5 and 9 of the Income-tax Act, 1961, and that the expression “paid to a resident” appearing in Article 12(1) of the treaty related only to taxation in the residence State, i.e., Switzerland.

2.

5 In paragraph 4(i) of the assessment order, the Assessing Officer relied upon the ruling of the Authority for Advance Rulings in Flakt (India) Ltd., In re [189 CTR 359 (AAR)] to conclude that Article 12(1) of the treaty merely dealt with taxation in the residence country and not the source country. The AO therefore held that royalty and management service fees accrued in India upon credit in the payer’s books and were taxable in India irrespective of actual receipt.

2.

6 The AO also observed that the Indian subsidiary had not reversed the corresponding expenditure in its books, and hence, allowing non-taxation in the hands oi the assessee would lead to double non-taxation of the same sum. The AO consequently held the entire amount of Rs. 9,51,68,906/- taxable in India and added the same to the total income of the assessee. Penalty proceedings under section 27l(1)(c) were also initiated separately for furnishing inaccurate particulars of income.

3.

Appellate Proceedings before the Commissioner of Income Tax (Appeals):

3.

1 The assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-22, Kolkata, challenging the addition made by the Assessing Officer. The appellate order dated 28-03-2019 (Para 7, sub-para 1 to 7, pages 20-22) records detailed findings on this issue.

3.

2 The CIT(A) noted that the assessee had waived the royalty and management fees considering the adverse financial condition of its Indian subsidiary and that such waiver had been duly reflected as income in the books and return of the subsidiary. The CIT(A) accepted that the assessee, being a foreign company not governed by the Indian Companies Act, was entitled to adopt the cash system of accounting for determining its total income under section 145 of the Act.

3.

3 In interpreting Article 12 of the India-Switzerland DTAA, the CIT(A) observed that the expressions “paid to a resident of the other Contracting State” and “payments of any kind received” used in paragraphs (1) and (3) of Article 12 clearly indicate that taxability arises on payment or receipt and not merely on accrual of credit. The CIT(A) distinguished the reliance placed by the AO on the judgment in Standard Triumph Motor Co. by noting that the said judgment related to assessment years prior to the existence of the relevant tax treaties, and hence, was inapplicable after the enactment of the Indo-Swiss DTAA which governs the field.

3.

4 The CIT(A) placed reliance on several judicial precedents, including the decision of the Hon’ble Bombay High Court in DIT (International Taxation) v. Siemens Aktiengesellschaft [ITA No. 124 of 2010; TS-795-HC-2012 (Bom)], wherein it was held that royalty and fees for technical services are taxable on receipt basis under the corresponding Article 12 of the Indo-German DTAA. The CIT(A) further relied on the coordinate bench decisions in Johnson & Johnson v. ADIT (2013) 32 taxmann.com 102 (Mum), CSC Technology Singapore Pte. Ltd. v. ADIT (2012) 19 taxniann.com 123 (Del), and Saira Asia Interiors (P.) Ltd. v. ITO (201 7) 79 taxmann.com 460 (Ahd), all of which affirmed that royalty and fees for technical services under a DTAA are taxable upon payment and not merely upon accrual.

3.

5 After analysing the facts and legal position, the CIT(A) held that the assessee, following the cash method of accounting and having not received the amount during the relevant year, was not liable to tax in India on the waived sums. The CTT(A) also observed that the waiver was a decision which was duly evidenced, and accepted as income by the Indian subsidiary, and therefore, taxation of the same income again in the hands of the assessee would result in double taxation, which is contrary to the settled principles of natural justice and international taxation. Accordingly, the CTT(A) deleted the entire addition of Rs. 9,51,68,906/- made by the Assessing Officer towards brand royalty and management service fees. However, TDS amounting to Rs. 95,16,890/- which has been deposited in the name of appellant would become income of the appellant on receipt basis and should be subject to tax at the rates specified in Article 12 of India- Swiss Treaty.

4.

Summary and Legal Position:

4.

1 From the foregoing discussion, it emerges that the central issue pertains to the basis of taxability of royalty and management service income under the Indo Swiss DTAA vis-a-vis the domestic law provisions. The Assessing Officer applied the accrual principle under sections 5 and 9 of the Income- tax Act, 1961, whereas the QT(A), relying on the language of Article 12(1) and (3) of the DTAA and judicial authorities, held that the income is taxable only on receipt basis.

4.

2 The Assessing Officer’s stand was primarily founded upon domestic law and pie-treaty jurisprudence, while the CIT(A) applied section 90(2) of the Act, which accords primacy to treaty provisions where they are more beneficial to the assessee. The appellate authority thus concluded that no income had accrued or been received by the assessee during the relevant year, and accordingly, the addition made by the Assessing Officer was unsustainable in law.

5.

Conclusion: 3 1 hi view of the facts established and the findings of the appellate authority, it is evident that the issue of taxability and TDS on brand royalty and management service fees in the case of M/s. Landis+Gyr AG, Switzerland, was decided in favour of the assessee. The CIT(A) held that ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 the income from royalty and management fees was not taxable in India for A.Y. 2015-16 as the same had neither been received by the assessee nor had accrued under the provisions of the India Switzerland DTAA. and further, the corresponding amount had already been subjected to tax m the hands of the Indian subsidiary.

5.

2 In the immediately succeeding year, i.e., A.Y. 2016-17, the same accounting method was again followed by the assessee. The issue of taxability of management tee, procurement service fee, and brand royalty was re-examined by the Department in the assessment order dated 31.01.2019 under section 143(3) r.w.s. 144C(3). The Assessing Officer once again disallowed the assessee’s claim on the ground that the method of accounting was changed only from A.Y. 2015-16 onwards and had not been accepted by the Department. However, the CIT(A) in A.Y. 2016-17, after considering identical facts and relying upon the earlier appellate order for A.Y. 2015-16, held that the cash system of accounting has been duly accepted in principle, and that the Department had not brought any material to rebut the factual position.

5.

3 Thus, in subsequent years, the C1T(A) consistently accepted the assessee’s method of accounting and held that the brand royalty and management service income, being neither received nor accrued in India under the DTAA, is not taxable in India until actually received. Accordingly, the issue has been decided in favour of the assessee on identical grounds for A.Y. 2016-17 also.

5.

4 In view of the above, it is evident that while the Assessing Officer had not accepted the change in accounting method during A.Y. 2015-16, the same was upheld by the CIT(A) for that year and reaffirmed in A.Y. 2016-

17.

Consequently, the Department’s objection was not sustained at the appellate stage, and the assessee’s treatment of royalty and management service income on receipt basis under the cash system of accounting stands judicially accepted in appeal for successive years.”

7.

A copy of the factual report of the Ld. AO was provided to the assessee and the assessee’s submissions on the same are as under: “5 January 2026 The Hon'ble Members, Income Tax Appellate Tribunal, "C" Bench, 225 C, A J C Bose Road, Kolkata-700 020 In the matter of D.C.I.T, International Taxation, Circle - 1(2), Kolkata ('Appellant') Vs Landis + Gyr AG ('Respondent') Income Tax Assessment Year: 2015-16 Re: Factual Report submitted by the Ld. Commissioner of Income-tax, DR- ITAT, Kolkata dated 26 November 2025 bearing F. No. CIT-DR/Landis + GYR AG/2025-26/1840 We write with reference to the captioned matter which has been fixed for hearing before the C Bench of the Hon'ble Kolkata Tribunal on 7 January 2026. The respondent wishes to submit before the Hon'ble Bench that during the course of last hearing held on 6 November 2025, with respect to Ground No. 1 to 8, the Learned Counsel appearing on behalf of the respondent had highlighted that the respondent had adopted cash basis of accounting with effect from AY 2015-16 and had been continuously following the same till date. Against the said argument of the respondent, the Hon'ble Members had directed the Ld. Departmental Representative ('Ld. DR') to obtain a report from the Ld. Assessing Officer as to whether the respondent has been following cash basis of accounting on a consistent basis and whether the same has been accepted by the Department. In compliance of such direction given by the Hon'ble Members, the Ld. DR has submitted a factual report dated 26 November 2025, a copy of which was also furnished to the respondent's authorized representatives via e-mail on 27 November 2025. A copy of the report has been enclosed herewith and marked as Annexure - 1 for the ready reference of the Hon'ble Bench. On perusal of the aforesaid report submitted by the Ld. DR, it has been noted that the Ld. Deputy Commissioner of Income-tax (International Taxation), Circle - 1(2), Kolkata ('Ld. AO'), the Ld. Joint Commissioner of Income-tax (International Taxation), Range - 1, Kolkata ('Ld. JCIT') as well as the Ld. Commissioner of Income-tax (IT & TP), Kolkata ('Ld. CIT') have confirmed that the respondent has consistently followed cash basis of accounting in AY 2016-17 also, which has duly been accepted by the Ld. Commissioner of Income-tax (Appeals) ('Ld. CIT(A)') in AY 2016-17. Relevant extract of the report issued by the Ld. AO, Ld. JCIT and Ld. CIT, duly confirming the said fact, is reproduced as under for easy reference: Report of Ld. AO (Please refer Para 5.2 to Para 5.4 at Page 10 of Annexure - 1) "5.2 In the immediately succeeding year: i.e., A.Y. 2016-17, the same accounting method was again followed by the assessee. The issue of taxability of management fee, procurement service fee, and brand royalty was re-examined by the Department in the assessment order dated 31.01.2019 under section 143(3) r.w.s. 144C(3). The Assessing Officer once again disallowed the assessee's claim on the ground that the method of accounting was changed only from A. Y. 2015-16 onwards and had not been accepted by the Department. However, the CIT(A) in A. Y. 2016-17, after considering identical facts and relying upon the earlier appellate order for A.Y. 2015-16, held that the cash system of accounting has been duly accepted in principle, and that the Department had not brought any material to rebut the factual position.

5.

3 Thus, in subsequent years, the CTT(A) consistently accepted the assessee’s method of accounting and held that the brand royalty and management service income, being neither received nor accrued in India under the DTAA, is not taxable in India until actually received. Accordingly, the issue has been decided in favour of the assessee on identical grounds for A. Y. 2016-17 also.

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4 In view of the above, it is evident that white the Assessing Officer had not accepted the change in accounting method during A. Y. 2015-16, the same was upheld by the CIT(A) for that year and reaffirmed in A.Y. 2016-

17.

Consequently, the Department's objection was not sustained at the appellate stage, and the assessee’s treatment of royalty and management service income on receipt basis under the cash system of accounting stands judicially accepted in appeal for successive years. " (Emphasis supplied) Report of Ld. JCIT (Please refer Page 5 of Annexure -1) "Further, in subsequent years the CIT(A) consistently accepted the assessee’s method of accounting and held that the brand royalty and management service income, being neither received nor accrued in India under the DTAA, is not taxable in India until actually received. Accordingly, the issue has been decided in favour of the assessee on identical grounds for A. Y.2016-17 also. " (Emphasis supplied) Report of Ld. CIT (Please refer Page 2 of Annexure - 1) "/n the immediately succeeding year, i.e., 2016-17, the assessee once again adopted the cash system of accounting. The Assessing Officer once again disallowed the assessee's claim on the ground that the method of accounting was changed only from A. Y. 2015-16 onwards and had not been accepted by the Department though the same has been upheld by the CIT(A) for that year and reaffirmed in A. Y. 2016-17." (Emphasis supplied)

In view of above, the Hon'ble Bench would appreciate that the Ld. AO, Ld. JCIT as well as the Ld. CIT has duly confirmed the fact that the respondent is following cash basis of accounting on a consistent basis and the same has also been accepted by the Department. The respondent requests your kindself to take the above on record and oblige. In case the Hon'ble Bench requires any further information / clarification with respect to above, kindly let us know. Thanking you, Yours faithfully, For Landis + GYR AG 14:42:35 +05’30' Authorized Signatory CC: Ld. Departmental Representative, "C" Bench”

8.

The Ld. AR has also filed ground wise written submissions as under: “Ground Nos. 1-8: Taxability of Brand Royalty, Management Service Fee and Procurement Service Fee waived by the respondent (AY 2015-16: INR 8,56,52,016)

Brief facts - During AY 2015-16, certain amount was receivable by the respondent from its Indian subsidiary, Landis + Gyr Limited ('Landis India') towards brand royalty and management service fee aggregating to INR 9,51,68,906. On such amount, Landis India withheld taxes of INR 95,16,890, since it follows accrual basis of accounting. Such amount was subsequently waived by the respondent, in light of the adverse financial condition of its subsidiary. The respondent is following cash basis of accounting and accordingly, the aforesaid amount was not offered to tax since it was not received by the Company. On the other hand, the write back of liability was duly offered to tax by Landis India. Order u/s 143(3) - The Ld. Deputy Commissioner of Income Tax, International Taxation, Circle - 1(2), Kolkata ('Ld. AO') added the amount of brand royalty and management service fees, viz., INR 9,51,68,906, stating that as per domestic law, the accrual of income in the hands of non-resident assessee is determined on the basis of situs of the payer. Order u/s 250 - The Ld. CIT(A) vide its order dated 28-03-2019 allowed the claim of the respondent stating that non-resident is allowed to pay taxes on receipt basis by placing reliance on various judicial precedents. Further, the Ld. CIT(A) also stated that taxing the amount of brand royalty and management service fees in the hands of the respondent would result in double taxation of income since its subsidiary has already recognized the amount waived by the respondent as income (Refer Para 6 - 7 at Page 33 - 34 of the Paper Book) Submission: • At the outset, it may be noted that the Ld. AO has held that Brand Royalty and Management Service Fee waived by the respondent shall be taxable in its hands based on the following arguments: > No evidence produced by Indian subsidiary to substantiate that it had brought back the expense as income, leading to "double non taxation" of the same amount" -> In this regard, it may be noted that during the course of assessment proceedings, the Ld. AO never sought details of write back of income in the books of Indian subsidiary and whether such income was offered to tax. However, it is submitted that the Indian subsidiary of the respondent, viz., Landis + Gyr Limited, has duly offered to tax the amount of royalty / management service fee waived by the respondent in AY 2017- 18 (Refer Page 331 of the Paper Book). Further, it may be noted that the Ld. AO, by stating that non-taxation of waiver of liability in the hands of Landis India will lead to double non taxation of same amount, has himself admitted that if the Indian subsidiary has offered the waiver amount to tax, it would lead to double taxation of the same amount if such amount is again taxed in the hands of respondent, which is against the principles of natural justice. The Ld. CIT(A) has also taken cognizance of the said fact, while allowing the claim of the respondent (Refer Para 7 at Page 34 of the Paper Book). With respect to the contention of the Ld. AO that there is loss in case of Indian entity in the year and both entities are different, it is submitted that losses in the hands of Indian entity does not alter the fact that the waiver income has duly been offered to tax by it, leading to reduction of losses available for set-off in subsequent assessment years. Further, taxing the same income twice, even though in the hands of 2 entities, leads to double taxation and is against the principles of natural justice. Further, the Ld. AO has also mentioned in the assessment order that there is no 'waiver clause' in the Brand License Agreement. In this regard, it is ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 submitted that revenue authorities cannot govern the terms of the contract between the respondent and its Indian Subsidiary. Mere absence of waiver clause in the agreement cannot prohibit two transacting parties to undertake a business / commercial decision (Refer CIT III -vs.- Parle International Ltd (Tax Appeal No 1905 and 1906 of 2008 and 1605 of 2009)). Without prejudice to above, the respondent refers to Clause 16.5 of the Brand License Agreement, which provides that any waiver under the agreement may be effective if a written communication is made by one party to other (Refer Page 91 of the Paper Book). In the instant case, the waiver of brand royalty and management fee was duly communicated in writing. The respondent had waived the amount of brand royalty and management service fees receivable by it from its Indian subsidiary due to adverse financial position of its subsidiary and as requested by the CFO of the subsidiary (Refer Page 302-303 of the Paper Book). In furtherance to above, the Ld. AO has mentioned that no specific resolution has been adopted by Indian Subsidiary and correspondences for waiver were made recently, viz., FY 2016-17. In this regard, it may be noted that the Indian Companies Act does not require passing of resolution for seeking waiver of liability from foreign company. Further, the timing of waiver is of no essence as royalty and fees for technical services shall be taxed on receipt basis (as per respondent's stand). > Taxability in India is governed by Article 12(2) of India-Swiss DTAA, viz., according to the laws of India + In this regard, it is submitted that Article 12(2) of India-Swiss DTAA provides right to India to tax income in the nature of royalty / FTS as per the laws of India, viz., as per the scope of taxable income as per Indian laws. It does not refer to the mechanism of taxing income in India, i.e., on cash or accrual basis. The said mechanism is already provided under Article 12(1) and Article 12(3) of the India-Swiss DTAA, viz., on receipt basis and hence, there was no requirement to mention the manner of taxation in Article 12(2). As per Article 12(1) of India-Swiss Treaty, Royalties and fees for technical services arising in a Contracting State and "paid to a resident of the other Contracting State" may be taxed in that other State. Further, the term "royalties" has been defined under Article 12(3) of India- Swiss Treaty as 'payments of any kind received' as a consideration for, inter-alia, use of any patent trademark. Similarly, Article 12(4) defines "fees for technical services" ('FTS') to mean ‘payments of any kind to any person’ in consideration for rendering of, inter-alia, management services. On a conjoint reading of above, it may be noted that unless an Indian resident makes payment / the non-resident is in receipt of income in the ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 nature of royalty or FTS, Article 12 of India-Swiss Treaty shall not trigger. This view finds support from the judgment of the Hon'ble Bombay High Court in the case of Director of Income-tax (International Taxation) -vs.- M/s. Siemens Aktiengesellschaft (ITA No. 124 of 2010). It may further be noted that the Ld. AO, while disallowing the claim of respondent, has relied on the decision of Hon'ble Supreme Court in Standard Triumph Motor Co. -vs.- CIT (ITR 201 ITR 391 (SC)) and held that credit entry to the account of the respondent, being a non-resident, in the books of Indian company amounts to its receipt by the non-resident and is accordingly taxable. It is submitted that the aforesaid judgment referred to by the Ld. AO has been distinguished by the Hon'ble Bombay High Court in M/s. Siemens Aktiengesellschaft (supra) stating that the judgment of the Apex Court was before the DTAA signed by India with the relevant country. The ruling of Standard Triumph (supra) was for AY 1967-68 to 1970-71, whereas the India-Swiss DTAA' (applicable in the instant case) was signed with effect from 29-12-94, i.e., even after the judgment rendered in the aforesaid case by the Apex Court on 25-02-93. Further, the aforesaid judgement was passed by the Apex Court in a different context, viz., whether plough back of receipts in India may be considered as receipt in UK, wherein the Apex Court held that credit entry in the books of Indian Company tantamounts to receipt by the non-resident and is taxable, whether or not actually received in UK. The said rationale shall not apply in the instant case. Hence, reliance placed by the Ld. AO on the decision of the Apex Court is not correct and considering the specific language of India-Swiss Treaty, providing for taxation of royalty / management fees on receipt basis, the claim of the respondent is allowable. Further, reliance placed in this regard by the Ld. AO on the ruling of Google India (P.) Ltd. vs Additional CIT [2017] 86 taxmann.com 237 (Bengaluru - Trib) is also misplaced since the said ruling was rendered from the perspective of obligation of the Indian payer to withhold taxes and cannot be considered to determine the taxability in the hands of recipient. The Hon'ble Tribunal has not concluded on the taxability in hands of non- resident and has mentioned that the same may be decided during scrutiny proceedings of non-resident. Further, in that case, the non-resident was following mercantile basis of accounting. Therefore, the facts of that case cannot be applied in the respondent's case. Further, this case has been set aside by the Hon'ble Karnataka High Court in [2021] 127 taxmann.com 36 (Karnataka).

The Ld. AO has also placed reliance on the ruling of Flakt (India) Ltd. In Re 189 CTR 359 (AAR) to tax royalty and FTS on accrual basis. In this regard, it may be noted that there are various judgements which provide for taxation of royalty and FTS on receipt basis. Further, as per section 245S of the Act, Advance Ruling is binding only on the applicant who had sought it. It may also be noted that the said ruling was rendered to examine withholding tax implications from the perspective of deductor and not the taxability of such income in the hands of recipient. In addition to above, for taxability of royalty and management fees on receipt basis, reliance is also placed on the following judicial precedents: > Aircon Beibars (FZE) vs. DCIT (IT) [2023] 153 taxmann.com 41 (Delhi - Trib.) > ABB Switzerland Ltd. vs. DCIT, (IT) [2023] 154 taxmann.com 132 (Bangalore -Trib.) > Johnson & Johnson vs. ADIT(IT) - 3(1) [2013] 32 taxmann.com 102 (Mumbai - Trib.) > CSC Technology Singapore Pte Ltd. vs. ADIT (2012) 19 taxmann.com 123 (Delhi) > Pizza Hut International LLC-vs.- DDIT (2012) 22 taxmann.com 111 (Delhi) > Saira Asia Interiors (P.) Ltd. -vs.- Income-tax Officer, TDS-I [2017] (79 taxmann.com 460) (Ahmedabad - Trib) The aforesaid contention of the respondent has also been accepted by the Ld. CIT(A) [Refer Para 4-7 at Page 33-34 of the Paper Book). Without prejudice to above arguments with respect to royalty and FTS being taxable on cash basis as per DTAA, the domestic law of India, viz., section 145 of the Act, also provides option to an assessee to follow cash basis of accounting. The accrual of income may be determined on the basis of situs of the payer, however, if an assessee follows cash basis of accounting, such income cannot be brought to tax unless it is received. Therefore, in the instant case, the respondent follows cash basis of accounting as per section 145 of the Act and royalty and management service fees shall be taxable in its hands only on its receipt. Further, such basis is duly permissible provided it is regularly employed by the Company (Refer Juggilal Kamlapat vs. CIT [1975] (101 ITR 40); CIT vs. Eastern Bengal Jute Trading Co. Ltd. (1978) 112 ITR 575 (Cal); Padamsey Mulji Ginning & Pressing Co. (P) Ltd. - vs.- ITO (1983) 3 ITD 92 (Bombay); Echke Ltd. vs CIT [2008] 173 Taxman 79 (Gujarat)). It is submitted that the respondent has been consistently following cash basis of accounting since AY 2015-16 and such method of accounting was duly accepted by the Ld. AO in case of the respondent in subsequent assessment years, viz., for AY 2018-19, AY 2019-20 and AY 2021-22. Therefore, the respondent is of the humble view that there is no reason why the said method shall not be accepted for AY 2015-16. ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 > Respondent, on its own, has declared its method of accounting to be mercantile in its Return of Income -> At the outset, it is humbly submitted that the said argument was not raised by the Ld. AO in the assessment order and has been raised for the first time while filing this appeal before your kindself. Without prejudice to above, it is submitted that in the Return of Income, against Part A-OI, Other Information, it has been mentioned that the said section is "optional in a case not liable for audit under section 44AB". The respondent is not required to carry out audit under section 44AB of the Act and hence was not mandatory for it to fill the details in Part - A, OI. It is submitted that by default, the method of accounting in Part-A, OI is set to Mercantile, however, the same cannot be deemed to be a method adopted by the respondent, considering that it was not liable to fill the said section. It may further be noted that a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute, viz., just because the respondent has inadvertently selected Mercantile system in its Return of income, it should not be debarred from following cash basis as duly permitted under section 145 of the Act. Reliance in this regard may be placed on the decision of Hon'ble Supreme Court in case of CIT vs Tulsyan NEC Ltd. [2011] 196 TAXMAN 181 (SC) as well as the rulings of Hon'ble Madras High Court and Hon'ble Bombay High Court in case of CIT v. Chemplast Sanmar Ltd. [2009] 314 ITR 231/180 Taxman 335 (Mad.) and CIT v. Apar Industries Ltd. [2010] 323 ITR 411/190 Taxman 353 (Bom.) respectively. ■ Therefore, it may kindly be noted that the arguments of the Ld. AO to tax the waiver of income in the hands of the respondent are distinguishable on facts and law and therefore, the addition made in its case shall be deleted. ■ In furtherance to above, it may also be noted that it is a well-established principle that only real income can be taxed, and there cannot be any levy of tax on hypothetical / notional income. Reliance in this regard may be placed on the decision of Hon'ble Supreme Court in case of CIT vs. Excel Industries Ltd. [2013] 38 taxmann.com 100 (SC), wherein the Apex Court held that income tax cannot be levied on hypothetical income. It was also held that for an income to be considered as not hypothetical, it must also be accompanied by a corresponding liability of the other party to pay the amount. Ground No. 9: Taxability of receipt of reimbursement for EDP expenses (INR 2,93,20,634/- )

Brief facts - During AY 2015-16, the respondent, inter-alia, received INR 2,93,20,634 from its Indian subsidiary towards reimbursement of software cost (based on actual number of users in India). Software is initially acquired by the respondent for the entire Landis Group worldwide and subsequently the cost of the software is recovered from each of the group entities on actual usage basis without any mark up. Further, the software is used by all group companies of the respondent worldwide, however, the copyright in the software is not transferred to them. Order u/s 143(3) - The Ld. AO added the amount of recovery of EDP expenses, viz., INR 2,93,20,634, stating that EDP expenses are in the nature of remuneration and not reimbursement and has to be offered to tax as such. The Ld. AO also held that mere right to use a copyright is sufficient to tax the payments as royalty. Order u/s 250 - The Ld. CIT(A) vide its order dated 28-03-2019 considered EDP expenses, to the extent of INR 2,18,51,515, as cost-to-cost reimbursement. The Ld. CIT(A) held that the recovery of EDP expense, being on cost-to-cost basis, cannot be considered as income in the hands of the respondent and shall not be subjected to tax in India (Refer Para 4 at Page 47 of the Paper Book) Submission: In case of CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) also, the Hon'ble Supreme Court held that if income does not result at all, there cannot be a tax on "hypothetical income". Similar principle was upheld by the Hon'ble Jurisdictional Calcutta High Court in Sri Kewal Chand Bagri vs CIT [1990] 53 Taxman 536 (Calcutta) and Hon'ble Madras High Court in case of CIT vs. Motor Credit Co. (P.) Ltd [1981] 6 Taxman 63 (Madras). ■ In view of the above, the respondent humbly submits that the arguments of the Ld. AO are misplaced and requests the Hon'ble Bench to uphold the order passed by the Ld. CIT(A). ■ It is submitted that during AY 2015-16, the respondent received reimbursement of software cost amounting to INR 2,93,20,634 from its Indian subsidiary, Landis+Gyr Limited without any mark-up, allocated on the basis of actual number of users in India. * As per section 4 and section 5 of the Act, the charge of Income-tax is on the total income of a person. The term 'income' has been defined under section 2(24) of the Act to include inter alia, profits and gains, dividend, etc. In the instant case, the respondent is merely in receipt of reimbursement of a sum paid on behalf of its subsidiary, which does not give rise to any income in ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 the hands of the respondent so as to bring it within the ambit of Income-tax in India. « The term reimbursement has not been defined in the Act. Hence, its meaning has to be understood in common parlance. As per Black's law dictionary, "reimburse" means to pay back, to make restoration, to repay that is expended, to indemnify or make whole. The said definition indicates that pure reimbursement does not constitute reward or compensation paid in connection with business or profession. Hence, it will not give rise to any income in the hands of the respondent so as to trigger the provisions of the Act. ■ The respondent wishes to refer to the judgement of the Hon'ble Jurisdictional Calcutta High Court in CIT -vs.- Dunlop Rubber Co. Ltd (1983) 142 ITR 493 (Cal), wherein the Hon'ble High Court examined a similar fact patter as that of the respondent. In the said case, the foreign company incurred cost for acquisition, discovery and development of information, process and inventions for the entire group and charged proportionately from each group company. The Hon'ble high Court held that such cost represented sharing of expenses and could not be treated as income assessable to tax. Similar principle has also been upheld by the Hon'ble Jurisdictional Kolkata Tribunal in case of ADIT -vs.- Timken Company (2017) 88taxmann.com 21 (Kol-Tri). ■ Reference may also be made to the following decisions of Hon'ble Jurisdictional Kolkata Tribunal, wherein it has been held that deduction of TDS under section 195 of the Act is not required on reimbursement of actual cost, since there is no income in the hands of non-resident: > DCIT vs A. T. & S India (P.) Ltd. [2015] 58 taxmann.com 73 (Kolkata - Trib.) > DCIT vs Ernst & Young (P.) Ltd. [2014] 49 taxmann.com 386 (Kolkata - Trib.) । Further, with respect to non-taxability of reimbursement, reliance can also be placed on the following judicial precedents: > Cairn Energy India Pty Ltd -vs.- ACIT (2009) 126 TTJ 226 (Chennai) > CIT -vs.- Industrial Engineering Projects (P) Ltd. (1993) 202 ITR 1014 (Del) > CSC Technology Singapore Pte. Ltd, -vs.- ADIT, IT [2012] 19 taxmann.com 123 (Delhi) > DCIT -vs.- Dishman Pharmaceuticals Chemicals Ltd. [2019] 111 taxmann.com 219 (Ahmedabad - Trib.)

/- BYK Asia Pacific Pte. Ltd. -vs.- ACIT [2021] 127 taxmann.com 801 (Pune - Trib.) ■ In view of above, it is submitted that the sum received by the respondent on account of reimbursement of software cost is nothing but mere reimbursement of actual cost incurred by it on behalf of its Indian subsidiary. Hence, in the absence of any mark up or profit element on said reimbursements, it is not required to be taxed under the provisions of the Act. ■ With respect to the contention of the Ld. AO that the respondent is in in receipt of remuneration and not reimbursement, it is submitted that the agreement referred to by the Ld. AO in this context, viz., Intercompany Services Agreement is incorrect. The assessee has not entered into any agreement with its Indian subsidiary for recovery of EDP expenses. ■ To substantiate that the respondent had only received cost-to-cost reimbursement from Landis + Gyr Limited and not payment for any service, the respondent wishes to rely on invoices raised by it on its subsidiary to recover the cost of licenses purchased by it on behalf of the Indian subsidiary and the copy of the back to back invoice / allocation sheet (Refer Page 225-293 of the Paper Book). Therefore, the respondent cannot be said to have received remuneration from Landis + Gyr Limited in the instant case. ■ Further, with respect to the contention of the Ld. AO that the payment of EDP expenses is arising out of benefits and rights arising from research and development programs undertaken by the respondent, it is submitted that on perusal of the copy of invoices raised by the respondent and back to back invoice raised by the vendor on the respondent, it is evident that the company has procured certain licenses from third party for the entire group and recovered the actual cost from its Indian subsidiary based on the actual number of licenses. Therefore, no research and development programs were undertaken by the respondent. ■ Without prejudice to the aforesaid contention of the respondent that recovery of EDP expenses is in the nature of reimbursement and not chargeable to tax, the respondent humbly submits that the transaction in the instant case cannot be characterized as 'royalty' in terms of India-Swiss Treaty. As per Article 12 of India-Swiss DTAA, the consideration received for sale of software would only be classified as "royalty" if the company has allowed the use or right to use the 'copyright' in the software supplied to the Indian customers. It is submitted that there is a distinction between 'copyrighted article' and 'copyright'. ■ For definition of the term 'copyright', reference may be made to section 14 of the Copyright Act, 1957. The said section provides certain conditions, the ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 fulfillment of any one of which shall bring the grant of 'use' or 'right to use' any work, within the ambit of 'copyright' (such as reproduction/making of copies / translation, etc.). It is submitted that the software acquired by the respondent on behalf of its Indian subsidiary does not provide any of the rights as mentioned in the Copyright Act, 1957 and accordingly, cannot be said to constitute 'royalty' as per Article 12 of India-Swiss DTAA. In the instant case, the Indian subsidiary of the respondent only has limited right to use the software and not 'copyright' in the software. ■ The aforesaid contention of the respondent has been rejected by the Ld. AO by, inter-alia, placing reliance on the ruling of Hon’ble Karnataka High Court in case of Samsung Electronics reported in 345 ITR 494. In this regard, the respondent humbly submits that the said ruling has been overruled by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT [2021] 125 taxmann.com 42 (SC). Therefore, the contention of the Ld. AO to reject the argument of the respondent has no legs to stand.”

9.

The Ld. DR submitted that the issue relates to the management fee and brand royalty which was to be received but according to the assessee, it was not paid although TDS was made. The Ld. AO made the addition by holding that there was no waiver clause in the agreement. No Board's resolution was passed for the waiver and the assessee had continued to use the brand and the services. The only evidence filed was the email of the CFO which was sent after two years of the transaction. Our attention was drawn to page 32 of the order of the Ld. CIT(A). It was submitted that M/s Landis + Gyr Ag is a foreign company and the Indian entity had to deduct tax which was deducted as it was following mercantile system of accounting and subsequently the amount was waived and the transaction has been reversed in subsequent period, i.e. FY 2016-17 by the Indian entity. The foreign entity in subsequent year has treated this amount as royalty and fee for technical services and has accounted the same on receipt basis. Our attention was drawn to para 7 at page 22 of the order of the Ld. CIT(A) that the amount of TDS has been held to be taxable on receipt basis.

10.

The Ld. AR submitted that the amount related to royalty for brand licenses and management fees and our attention was drawn to page 91 of the paper book which relates to the waiver. The email is at page 302 of the paper book from the CFO. It was submitted that in FY 2013-14, the amount had been paid but no waiver was claimed. On page 135 of the paper book is the response to the email and it was submitted that the agreement was made on 01.01.2009. The waiver relates to transactions from April 2012 to March 2017. He submitted that the Ld. CIT(A) had allowed part relief and the assessee had not agitated against the additions sustained.

11.

The Ld. DR further submitted that the Ld. CIT(A) has never mentioned the issue in the form of waiver but has discussed only on legal basis and whatever has been submitted is post-facto collusive agreement between the foreign entity and the Indian subsidiary. When enquired by the Bench as to whether any Board's resolution was passed, the Ld. AR submitted that the Board's resolution was not required as from FY 2015-16 the method of accounting had been changed to cash basis. Our attention was drawn to para 4(c) of the assessment order which is extracted as under: “4c. The copy of agreement dated 01-01-2009 has also been perused. It is apparent that the said agreement contains Article 1 to 17. It however, does not contain any 'WAIVER CLAUSE', although the article 2.3 of the said agreement has a terminating clause only. Further, from the above agreement it is seen that there is regular utilization of Brand and flow of services on a year to year basis.”

12.

The second issue relates to EDP license where a foreign company had acquired the software from Microsoft and proportionate two licenses were charged to the Indian company on cost-to-cost reimbursement basis. The Ld. AO had held the same to be taxable and ITA No(s). 1510/KOL/2019 & 5/KOL/2020 Assessment Year(s) 2015-16 & 2016-17 the Ld. CIT(A) relying upon the decision of Hon'ble Calcutta High Court granted partial relief. Our attention was drawn to para 10.4 of the order of the Ld. CIT(A) relating to back-to-back invoices and in the absence of the invoices, the Ld. CIT(A) confirmed part of the addition. It was submitted that the invoices were furnished before the Ld. AO.

13.

The Ld. DR requested that the issue may be remanded to the Ld. AO for verification of the invoices as no opportunity was provided by the Ld. CIT(A).

14.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The Indian company of the assessee had duly deducted tax at source and since the assessee was following mercantile system of accounting, the same ought to have been credited as revenue receipt. Barring the email produced, there were no resolution passed for waiver of the amount and even the waiver clause in the agreement mentions that failure on the part of the party will not amount to waiver. Therefore, it cannot be said that the amount was waived in the impugned assessment year. Following the system of accountancy, the amount was liable to be included in the income and in the year of waiver, the same could have been claimed as an expense on account of bad debt or non- receipt of the amount. Therefore, we reverse the finding of the Ld. CIT(A) and uphold the order of the Ld. AO with the liberty to the assessee to claim the same as a deduction in the year in which the amount has been waived i.e. after filing necessary evidence in support of the claim that the Indian company had waived this amount. Therefore, this ground of appeal is allowed.

15.

The second ground relating to the software expenses does not require any reconsideration in view of the finding of the Ld. CIT(A). Since the assessee could not produce the evidence for two of the invoices, therefore, part of the addition was sustained. The software was supplied by Microsoft and was not a customised software and was supplied by the foreign entity to the assessee on cost-to-cost basis. Therefore, the same cannot be said to be in the nature of royalty. Since the assessee could not furnish the required evidence for part of the transactions, therefore, the difference was upheld by the Ld. CIT(A). However, the Ld. DR requested that since only sample invoices were filed before the Ld. CIT(A), the matter may be remanded before the Ld. AO and the assessee may be asked to furnish the invoices for verification as no such verification was got carried out by the Ld. CIT(A) from the Ld. AO. Hence, we set aside the order of the Ld. CIT(A) on this issue and remand the issue before the Ld. AO. The assessee may produce the back-to-back invoices before the Ld. AO who, after verification, shall allow the claim of deduction to the extent the expenses are verified. Accordingly, this ground of appeal is partly allowed for statistical purposes.

16.

In the result, the appeal filed by the Revenue in ITA No. 1510/KOL/2019 for AY 2015-16 is partly allowed for statistical purposes.

17.

As regards the ITA No. 5/KOL/2020 for AY 2016-17, since the facts in this appeal are identical, our findings in ITA No. 1510/KOL/2019 for AY 2015-16 shall mutatis mutandis also apply in the appeal in ITA No. 5/KOL/2020 for AY 2016-17. The grounds taken by the Revenue in this appeal are also partly allowed for statistical purposes.

18.

In the result, both these appeals filed by the Revenue are partly allowed for statistical purposes. Order pronounced in the open Court on 28th October, 2026. [Yogesh Kumar US] [Rakesh Mishra] Judicial Member Accountant Member Dated: 28.10.2026 Bidhan (Sr. P.S.)

Copy of the order forwarded to:

1.

D.C.I.T., International Taxation, Circle-1(2), Kolkata, Aayakar Bhawan Poorva, 110, Shantipally, 2nd Floor, Kolkata, West Bengal, 700107. 2. A.C.I.T., International Taxation, Circle-1(2), Kolkata, Aayakar Bhawan Poorva, 110, Shanti Pally, Kolkata, West Bengal, 700107. 3. M/s Landis + Gyr Ag, JK Centre, 3rd Floor, 46D, Jawaharlal Nehru Road, Kolkata, West Bengal, 700071. 4. M/s Landis + Gyr Ag, 46D, J.L. Nehru Road, 7th Floor, J.K.Millenium Centre, Kolkata, West Bengal, 700071. 5. CIT(A)-22, Kolkata.

6.

CIT-

7.

CIT(DR), Kolkata Benches, Kolkata.

8.

Guard File. //// MANISH By order KUMAR BHOI KUMAR BHOI Date: 2026.10.29 16:56:28 +05'30' Deputy/

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