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per Article 12(14) of India-US Tax Treaty. Further, the receipt is also not taxable under the provisions of Income-tax Act as the assessee is eligible for beneficial provision of India-US Tax Treaty in term of section 90(2) of Income-tax Act. Moreover, after the amendment introduced in Explanation (4) in definition of Royalty under section 9(1)(6) by Finance Act, 2012, there is no corresponding change made in definition in term of Royalty under India-US Tax Treaty. Therefore, in view of the aforesaid discussion, the ground no.3 of the appeal is allowed in favour of assessee.
Ground No. 4 relates to taxability of support and maintenance services as FIS. The learned AR of the assessee submits that during the year under consideration the assessee received Rs. 2,29,63,770/- from TCS and TCL in relation to support and maintenance services rendered in connection with the software supplied by the assessee. Under the contract with TCS, the assessee was to render the support and maintenance services in the form of version updates, bucks fixing, call support etc, in connection with the software supplied to TCS. The support and maintenance services were rendered remotely from outside India. The main feature of the contract 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. consists of viz, (i) to addresses standard software code product defect, bug, issue or technical query,(ii) the problem include but is not limited to new standard software problem, related problem, re- occurrence of all problems, duplicate problems or problems that we are similarities to issue which have been previously raised, and any technical quarries on standard core software, (iii) the problem was to be reported either by way of telephone or by email. The agreement specifically mentioned that assessee shall not be under no obligation to provide support and maintenance service in respect viz,(a) problem resulting from any modification of customisation if the software is not made by the assessee list of any software other than software supplied by assessee, (b) any software other than the software supplied by the assessee, (c) incorrect or unauthorised use of the software supplied by the assessee or operation is not in accordance with the documentation, (d) any fault in the equipment on which software is installed, (e) any programme used in conjunction with software supplied, (f) use of element of the software supplied in any combination other than those specified in the documentation, (g) use of software supplied with computed hardware, operating stem or other supporting software other than those specified in the documentation. Accordingly the support and maintenance services rendered by assessee work only in connection with the software supplied and ancillary and subsidiary as well as inextricably and essentially linked to software supplied. 30 ITA No. 1701/M/14, 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc.
In the return of income the assessee claimed that said receipt were not taxable in India under India US tax treaty. The assessing officer in the draft assessment held that support and maintenance fees were ancillary and subsidiary to enjoyment of ‘right to use’ of the software for which royalties being paid and hence proposed to tax the amount as FIS in term of Article 12(4)(a) of India US tax treaty. The learned DRP rejected the objection of assessee and confirm the view taken by assessing officer. 33. The learned AR of the assessee submits that assessee, being tax resident of USA is eligible for beneficial provisions of India USA tax treaty which contains more restrictive definition of FTS as compared to the Act.
Accordingly, the subject receipt cannot be taxable as FTS unless it is covered by the definition of FTS in the India US tax treaty, even if discovered by the definition of FTS under the Act. The learned AR of the assessee again reiterated the provision of Article 12 of India USA taxability wherein definition of royalty and ‘fees for included’ services is defined.
The learned AR further submit that it is an undisputed fact that the support and maintenance services are ancillary and subsidiary, as well as inextricably and essentially linked, to the software supplied, therefore, the services would be dependent on the taxability of software supplied. The services can be considered as FTS under clause- (a) of paragraph 4 of Article 12, only if the software is taxable as Royalty under paragraph 3 of Article 12 of the tax treaty. It was argued that in case ground No. 2 is allowed in favour 31 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. of assessee, support and maintenance services cannot be taxable under Article 12(4) of Tax Treaty.
The learned AR in alternative submission submit that the receipt on account of support and maintenance service are not taxable under article 12(4)(b) of tax treaty as the service do not make a available technical knowledge, experience, skill for no or process. The learned AR also relied upon the MOU to the India US tax treaty. In support of his submission the learned AR of the assessee also relied upon the decision of Karnataka High Court in case of CIT v/s De Beers India minerals Ltd 2012 346 ITR 467(Karnataka), decision of Pune Tribunal in Sandvik Australia Pty Ltd Vs DDIT (ITA No. 93/Pune/2011), Bharti AXA General Insurance Co. Ltd (2010) 326 ITR 477 (AAR). The assessee has also placed on record the copy of software licence agreement dated 15.11.2007 with TCS (page no. 126 to 137 of PB).
On the other hand the learned AR for the revenue supported the order of assessing officer and the direction of the DRP. The ld. DR for the revenue further submits that this ground of appeal
is linked to the Ground No.3.
37. We have considered the submission of both the parties produce the orders of authorities below. We have also deliberated on various case laws relied by lower authorities and the learned AR of the assessee. We have noted that the assessee provided support and maintenance services linked with the software supplied. Accordingly, the taxability of such services is dependent on the 32 ITA No. 1701/M/14, 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. taxability of software supplied. As we have held that the receipt earned on sale of software is not taxable under Article 12 of India-US Tax Treaty, therefore, the services the receipt from support and maintenance services are also not taxable under 12(4)(b) of India US Tax Treaty. In the result, this ground of appeal is allowed.
38. Ground No. 5 relates to taxability of service fee as FTS. During the year under consideration, the assessee rendered certain services to TCS. The services comprised of in Geneva health check for retail instances (Geneva billing system performance tuning) and other professional and consultancy services. These services were claimed to have been subcontracted by assessee to Indian entity CIM on a principal to principal basis. In the return of income the assessee claimed that the said receipt art not taxable in India under the India US tax treaty. However the assessing officer in the assessment order held that services are ancillary and subsidiary to the enjoyment to use the software for which royalties being paid and hence proposed to tax the amount as FIS. On objection before DRP the action of assessing officer was upheld. The learned AR of the assessee submits that the services rendered by assessee are neither ancillary and subsidiary to the application or enjoyment of the right, property or information for which a royalty payment is described in Article 12(3) of Tax Treaty is received nor do they make available technical knowledge, experience, skill, know-how or process or consist of the development of transfer of technical plan or 33 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. technical design. The learned AR further submits that unless, the services satisfy a make available test, the same could not be taxed as FIS income.
The learned AR retreated the contents of MOU to the India US tax treaty.
On the other hand learned AR for the revenue supported the order of lower authorities.
We have considered the rival submission of the parties and perused the order of lower authorities. During the relevant period for A.Y. under consideration, the assessee rendered certain services to TCS. Those services were sub-contracted by assessee to Indian Entity CIM on Principle to Principle Basis in the return of income, the assessee claimed said receipt are not taxable in India. The Assessing Officer treated the said receipt as subsidiary and ancillary to the right to use of software which is Royalty and proposed to tax as FIS under Article 12(4)(a). The objection of assessee was rejected by DRP. The DRP concluded that payment have been received for providing specialized technical input services rendered by assessee and will be covered by the definition of FIS/FTS.
The Fees for included services is defined in Article 12(4) of India-US Tax Treaty, wherein ‘Fees for included services’ means payment of any kind to any person in consideration for rendering of any technical or consultancy services (including through the provision of services of technical or other personnel’ if services are ancillary and subsidiary to the application or enjoyment or right, property or information for which payment is received 34 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. or make available technical knowledge, experience, skill no-how or process or consist of development and transfer of a technical plan or technical design. We have noted that the assessee has claimed that services rendered are ancillary and subsidiary and inextricably essentially linked with the software supplied. In our view, unless the services satisfy the make available test, the same cannot be taxed as FIS. Further, mere fact that provision of service may require technical input by the person providing services does not per se mean the technical knowledge. In our view, the receipt on account of support and maintenance services are not taxable under Article 12 as the services do not make available technical knowledge, experience, skill, know-how or process or consist of any development and transfer of any design. In the result, ground no.5 of the appeal is allowed.
Ground No. 6 relates to levy of interest under section 234B of the Act. The learned AR of the assessee submits that in the assessment order, the assessing officer levied interest under section 234B of the act amounting to ₹ 37,58,522/-on account of shortfall in payment of advance tax and self assessment tax. The learned AR submitted that the assessee being tax resident of India and is foreign company under the income tax laws, accordingly, as per section 195 of the act taxes deductible at the source on all its received. Therefore there can be no liability to pay advance tax under section 208 of the act in absence of any liability to pay advance tax. The 35 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. provision of section 234B of the act cannot be involved. In support of his submission the learned AR of the assessee relied upon the decision of honourable Bombay High Court in case of DIT versus NGC Network Asia LLC (313 ITR 187 )
On the other hand the learned AR for the revenue submits that suitable direction may be given to the assessing officer to recompute the interest as
per law.
We have considered the rival submission of the parties and find that assessee is a foreign company and tax resident of USA and as per section 195 of the act taxes deductible at source on all its received and accordingly the assessee was not liable to pay advance tax. Therefore we direct the assessing officer to recompute the tax by following the decision of the jurisdictional High Court in case of NGC network Asia LLC (supra).
ITA No. 1439/Mum/2015 For AY 2010-11.
The assessee has raised the following ground of appeal:
(i) General Ground (ii) Taxability of IPLC/Link Charges as FTS/FIS and Royalty under the Act and India-USA DTAA. (iii) Taxability of sale of software as Royalty under the Act and in India-USA DTAA. (iv) Taxability of support and maintenance fees as FIS under Article 12(4)(a) of India-USA DTAA. (v) Levy of interest under section 234B and 234C.
We have noted that in appeal for A-Y 2010-11, the grounds of appeal No. 2 to 5 are identical as has raised by assessee in appeal for AY 2009 - 10, 36 1439/M/15 & 1995/M/16 NetCracker Technology Solutions Inc. which we have allowed in favour of assessee. Therefore, following the principle of consistency all the grounds of appeal raised by assessee are allowed with similar direction.
ITA No. 1995/Mum/2015 fort AY 2011-12
The assessee has raised the following grounds of appeal:
(i) General Ground (ii) Taxability of IPLC/Link Charges as FTS/FIS and Royalty under the Act and India-USA DTAA. (iii) Taxability of support and maintenance fees as FIS under Article 12(4)(a) of India-USA DTAA. (iv) Levy of interest under 234B and 234C. 48. Ground No.1 is general in nature, hence needs no adjudication.
We have noted that the ground No. 2 of the appeal for A-Y 2011-12 is identical to the ground No. 2 of the appeal for A-Y 2009-10, which we have allowed, further ground No. 3 of the present appeal is identical to the ground No. 4 of appeal for AY 2009-10 and ground no.4 of the appeal is identical to the ground no.5 of appeal for A.Y. 2009-10, which we have allowed. Therefore, following the principle of consistency both the grounds of appeal are allowed with similar directions.
In the result appeals of all the assessment years are allowed.
Order pronounced in the open court on 30/08/2019.