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Income Tax Appellate Tribunal, ‘C’ BENCH, PUNE
IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, PUNE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA No. 1646/PUN/2019 : A.Y. 2010-11
M/s. Ansys Inc. C/o. Fluent India Pvt. Ltd. Plot No. 34/1 Rajiv Gandhi Infotech Park MIDC, Hinjewadi, Pune-411 057. PAN ; AAJCA 1637 K Appellant Vs. The Dy. C.I.T. (International Taxation) Circle 1, Pune. Respondent Appellant by : Shri V. Narendra Sharma (through virtual) Respondent by : Shri Subhakanta Sahu
Date of Hearing : 09-06-2022 Date of Pronouncement : 09-06-2022
ORDER PER PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER 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.
At the very outset, the ld. Counsel for the assessee submitted that there is one day‟s delay in filing of this appeal before the Tribunal. He further submitted that this delay has been caused due to the bonafide belief that on the concerned day of filing of the appeal, the Tribunal was not functioning but later on they came to know that it was a working day. Therefore, it was prayed by the ld. Counsel that this one day‟s delay may be condoned since it is neither deliberate nor intentional and has been caused because of mistake of information and knowledge. The ld. D.R did not raise objection.
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
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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:
The term „royalties' as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payment of any kind received as consideration for the use of, or the right to use, the industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 or Article 8. 5. The ld. Counsel for the assessee submitted that on an identical facts and circumstances and on similar issue in assessee‟s own case, Pune Tribunal in ITA No. 175 and 1755/PUN/2018 for A.Y. 2009-10 and 2014-15, order dated 15-06-2021 has given relief to the assessee considering the decision of Hon‟ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT (2021) 432 ITR 472 (SC). The relevant paras of Tribunal‟s order are as follows
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The above paragraph clearly indicates that the Royalty means consideration for use or right to use any copyright of a literary, artistic or scientific work etc. The question whether the sale of computer software would partake of the character of Royalties or Business Profits, recently came up for consideration before the Hon‟ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT (2021) 432 ITR 472 (SC). After analyzing the identical issue in the backdrop of similar expression as used in Article 12(3), it came to hold that ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the “licensed” computer software product over which the licensee has no exclusive rights, no copyright is parted with. 5. 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.
Order pronounced in the open Court on this 09th day of June 2022
sd/- Sd/- (INTURI RAMA RAO) (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, the 09th day of June 2022 Ankam
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Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The DRP Panel 3, Bombay 4. D.R. ITAT „C‟ Bench 5. Guard File BY ORDER,
/// TRUE COPY //// Sr. Private Secretary ITAT, Pune.
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1 Draft dictated on 09-06-2022 Sr.PS/PS 2 Draft placed before author 09-06-2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS/PS PS/PS 6 Kept for pronouncement on 09-06-2022 Sr.PS/PS 7 Date of uploading of order 09-06-2022 Sr.PS/PS 8 File sent to Bench Clerk 09-06-2022 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order