M/S. ANSYS INC,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, (IT),CIRCLE -1, PUNE

This appeal preferred by the assessee emanates from the findings of the Ld. Disputes Resolution Panel-3, Mumbai-1, dated 28-06-2019 for A.Y. 2010- 11 u/s 144C(5) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) as per the grounds of appeal on record.

Having heard the parties and acknowledging the fact that this one day‟s delay was not caused by any deliberate action of the assessee, rather it was circumstantial unintentional and bonafide mistake for which the said delay occurred. In the interest of justice therefore, we condone this delay and hear the appeal on merits.

The only issue for adjudication is whether the sale of software/licence by the assessee related to development of software are to be taxed as fees for technical services/royalty or not. It is the contention of the assessee that sale of software amounts to sale of goods and thus the treatment of sale of goods as income from royalty is erroneous on the facts of the case. It is further contended by the assessee that the receipt from such sale of software are business profits covered under Article 7 of the DTAA between India and USA whereas the revenue has set up a case that it is in the nature of royalty under Article 12. The assessee is an American company and hence governed by the DTAA. Article 12 of the DTAA defines the term “Royalties‟ in para 3 as under:

It is discernible from the impugned order that the AO invoked Explanation 4 to section 9(1)(vi) of the Act to hold the receipt as royalty under the Act. In this regard, the Hon‟ble Supreme Court in the aforenoted case further held that Explanation 4 to section 9(1)(vi) inserted vide the Finance Act 2012 is not clarificatory as it expands the scope and hence prospective. The assessment year under consideration is 2009-10. 6. Adverting to the facts of the extant case, it is seen that the disputed receipt of Rs.2.42 crore from M/s. Honeywell Technology Solutions Lab Pvt. Ltd. is on account of sale of Software/license and not for parting with the copyright of the software. Since facts of the present case are similar to those considered and decided by the Hon‟ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra), respectfully following the precedent, we hold that the amount cannot be brought within the ambit of „Royalties‟ under Article 12 of the DTAA. 7. Au contraire, the case of the assessee before the authorities below has been that the receipt is not in the nature of „Royalty‟, but „Business Profits‟. In order to bring `Business profits‟ of a resident of the other country to tax in India within the ambit of Article 7, it is sine qua non that the foreign enterprise must have a Permanent Establishment (PE) in India in terms of Article 5 of the DTAA. In the absence of a PE, the taxability under Article 7 does not trigger. The assessee categorically submitted before the DRP that it did not have any PE in India. The Dispute Resolution Panel (DRP) in para 6.6. of its Direction has unequivocally noted that: “We find that there seems no dispute on the fact that the Appellant does not have a PE in India.” As the assessee did not have a PE in India during the relevant year, the mandate of Article 7 cannot activate. A fortiori, the receipt cannot be charged to tax in India as „Business profits‟ either. In view of the foregoing discussion, we are satisfied that the amount of Rs.2.42 crore received by the assessee from sale of software/license to M/s. Honeywell Technology Solutions Lab Pvt. Ltd. ceases to chargeable to tax in India. This issue is, therefore, decided in assessee‟s favour. Respectfully following the aforesaid pronouncement in assessee‟s own 6. case on the same parity of reasoning, we allow the grounds of appeal raised by the assessee.

In the result, appeal of the assessee is allowed.