M/S. JDA SOFTWARE INC.,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME (INTERNATIONAL TAXATION), CIRCLE-1(2), BENGALURU

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ITA 2696/BANG/2017Status: DisposedITAT Bangalore12 August 2021AY 2014-153 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that sale of software does not constitute royalty and miscellaneous receipts related to software sales cannot be taxed as fees for technical services, following a Supreme Court judgment.

What were the facts?

The assessee received income from Indian customers for software sales and related services. The Assessing Officer treated software sales as royalty and other services as fees for technical services, which was upheld by the DRP.

What were the issues?

Whether sale of software constitutes royalty and whether annual maintenance, implementation, and consultancy services are fees for technical services under the IT Act and DTAA.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi),Section 9(1)(vii)

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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE

Hearing: 12.08.2021Pronounced: 12.08.2021

O R D E R

Per George George K, JM

1.

This appeal at the instance of the assessee is directed against final assessment order dated 12.10.2017, passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2014-2015.

2.

The issue argued by the learned AR are two folds, namely – (i) whether the receipt from Indian customer towards sale of software would constitute royalty within the meaning of section 9(1)(vi) of the Income-tax Act and Article 12 of the DTAA between India and USA.

(ii) whether the receipts from Indian customers towards annual maintenance service, implementation and consultancy services can be brought to tax as fees for technical services.

2 IT(TP)A No.2696/Bang/2017. M/s.Blue Yonder Inc.

3.

Brief facts of the case are as follow: The draft assessment order was passed on 31.12.2016, wherein it was concluded that the amount received by the assessee-company for sale of software would constitute royalty within the meaning of Article 12(3) of the DTAA and as per the provisions of section 9(1)(vi) of the I.T.Act. The A.O. also brought to tax the receipts from Indian customers on account of annual maintenance service, implementation and consulstancy as fees for technical services u/s 9(1)(vii) of the I.T.Act and fees for included services under Article 12(4)(a) of India-US DTAA. The assessee filed objections before the Dispute Resolution Panel (DRP). The DRP issued directions dated 08.09.2017. The DRP rejected the objections raised by the assessee. Accordingly, final assessment order was passed on 12.10.2017 u/s 143(3) r.w.s. 144C(13) of the I.T.Act.

4.

Aggrieved by the final assessment order, the assessee has preferred this appeal before the Tribunal. The learned AR, at the very outset, submitted that the issue in question is squarely covered in favour of the assessee by the judgment of the Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence P.Ltd. v. CIT reported in [2021] 432 ITR 471 (SC), wherein it was categorically held that sale of software would not constitute royalty within the provisions of section 9(1)(vi) of the I.T.Act and Article 12(4)(a) of the DTAA between India and USA.

4.1 As regards the amounts received towards annual maintenance services, implementation and consultancy

3 IT(TP)A No.2696/Bang/2017. M/s.Blue Yonder Inc. services, it was stated that when the receipts on account of sale of software itself not included as royalty. Miscellaneous income on the same such as annual maintenance also cannot be brought to tax as fees for technical services.

4.2 The learned Departmental Representative was not able to controvert the submissions made by the assessee. In view of the judgment of the Hon’ble Apex Court, which is identical to the facts of the instant case, we hold that the payment received by the assessee-company towards sale of software would not constitute royalty and cannot be brought to tax. Further the miscellaneous receipts on account of sale of software also cannot be brought to tax as fees for technical services. It is ordered accordingly.

5.

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

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