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Facts
Veritas Storage (Singapore) Ptd. Ltd., for AY 2022-23, challenged the Assessing Officer's re-characterization of income from software license sales as "process royalty" and maintenance/training services as "Fees for Technical Services" (FTS). The assessee also alleged violations of natural justice and judicial discipline by the DRP and AO in re-characterizing these incomes despite past decisions in its own case and Supreme Court precedents holding such income not taxable.
Held
The Tribunal dismissed the grounds concerning natural justice and consistency, stating that each assessment year is separate. However, on the core issue, it held that income from software license sales is not taxable as royalty, and related maintenance/support/training services, being intricately linked to the non-taxable software, do not qualify as FTS. This was due to the Revenue's failure to demonstrate that the 'make available' condition under Article 12(4)(b) of the India-Singapore DTAA was satisfied, consistent with earlier decisions.
Key Issues
1. Whether the DRP violated natural justice and judicial discipline by re-characterizing income from software license sales as 'process royalty' and related services as 'FTS'. 2. Whether income from the sale of software licenses is taxable as 'royalty' under the India-Singapore DTAA. 3. Whether income from maintenance support and training services is taxable as 'Fees for Technical Services' (FTS) under the India-Singapore DTAA, particularly concerning the 'make available' clause.
Sections Cited
144C(11)
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Income Tax Appellate Tribunal, DELHI BENCH, ‘D’: NEW DELHI
Before: SHRI VIKAS AWASTHY & SHRI KRINWANT SAHAY
Year: 2022-23] Veritas Storage (Singapore) Ptd. Vs. Deputy Commissioner of Income Ltd. 9 Tamasek Boulevard, Tax, Circle-3(1)(1), Intl. Taxation, 39-01 Suntec Tower Two, Civic Centre, Minto Road, Singapore-038989 New Delhi-110002 PAN :AAFCV2394A (Assessee) (Revenue) Assessee by Shri Tarun Gulati, Sr. Adv. & Shri Nikhil Gupta, Adv. and Shri Prince Nagpal, Adv. Revenue by Srhi M.S. Nethrapal, CIT-DR Date of Hearing 30.09.2025 Date of Pronouncement .12.2025 ORDER PER KRINWANT SAHAY, AM:
Appeal in this case has been filed by the assessee against the order of the Assessing Officer dated 27.01.2025 for Assessment Year 2022-23 on following grounds of appeal Ground 1 - Violation of Principles of Natural Justice by the Ld. DRP 1.1 The Ld. Dispute Resolution Panel (DRP) has violated the principles of natural justice by failing to provide the Appellant with a pre-decisional hearing before raising a new issue. In the draft assessment order, the consideration from the sale of software was treated as Fees for Technical Services (FTS). However, the Ld. DRP, without providing any prior notice or hearing to the Appellant, re-characterized the said consideration as "process royalty" in the directions dated 27.12.2024. 1.2 As per Section 144C(11) of the Income Tax Act, the Ld. DRP is mandated to provide an opportunity of being heard before issuing directions under sub-section (5). Since this fundamental requirement has not been met. the directions are liable to be set aside. Reliance is placed on the judgments of the Hon'ble Supreme Court in Sahara India (Firm) v. Commissioner of Income Tax, Central-I (2008) 226 E.L.T.
22. (S.C.), and the Hon’ble Madras High Court in M/s Delphi-TVS Diesel Systems Limited v. ITO & Others, WP No. 26313 of 2017. Ground 2- The Ld. A0 and Ld. DRP violates the Principle of Consistency and Judicial Discipline. 2.1 The Ld. AO and Ld. DRP grossly erred in once again re-characterizing the transaction concerning income from the sale of software as royalty, and income from maintenance support and training services as FTS. 2.2 This Hon'ble Tribunal, in the Appellant's own case in ITA 9428/DEL/2019, ITA/2020/DEL/2022, and ITA/2021/DEL /2022, has consistently held that income from the sale of software licenses is neither "royalty" nor "FTS," inter alia, in light of the decision of the Hon'ble Supreme Court in Engineering Analysis Center of Excellence Pvt Ltd. /2021] 432 ITR 471, and is thus not taxable in India. 2.3 It is respectfully submitted that the facts of this matter are identical to those in the case of Symantec Asia Pacific Pre Lid, Singapore V DCIT (International Taxation). New Delhi (TA/1000/DEL/2017), in which this Hon'ble Tribunal categorically held that the software licenses sold by the appellant did not qualify as process royalty. This view has been uphek! by the Hon'ble Delhi High Court in ITA/147/2022. and the Special Leave Petition (SLP) fled by the Department was dismissed by the Hon'ble Supreme Court in SLP(C) No. 17569 of 2023. Itis pertinent to note that pursuant to part of restructuring of Symantec Asia Pacific Pte Ltd., Singapore business, in 2015, part of its business was transferred to the Appellant, a newly incorporated entity then, including software licensing and maintenance support services and therefore. the view expressed by this Tribunal as well as Deihi High Court in Symantec (supra) squarely applies to the present case. 2.4 Furthermore, for AY 2018-19, AY 2019-20, and AY 2020-21, the Ld. DRP itself dropped the allegation of FTS on the sale of software licenses against the Appellant in its directions dated 11.05.2022 and 15.02.2023, respectively. Although the Ld. AO did not follow the DRP's directions in AY 2018-19 and AY 2019-20, in AY 2020- 21, the Ld. AO has also dropped the demand on this issue vide order dated 29.04.2023. 2.5 The Ld. AO and Ld. DRP also erred in re- characterizing income from maintenance support and training services as FTS. Under the same facts and circumstances, for A Y 2016-17, the Department had allegedly assessed the same as royalty. However, this Hon'ble Tribunal, in ITA 9428/DEL/2019, eventually decided the issue in favor of the Appellant. 2.6 It is further pertinent to note that income from maintenance support and training services does not qualify as FTS, as has already been settled in favor of the Appellant in ITA/2020/DEL/2022 and ITA/2021/DEL/2022. The Department has not preferred any appeal against these orders to date. 2.7 It is an established principle of law that the Department cannot take differing stands for different periods when the facts and circumstances involved are the same and must follow the past rulings. Further, it is also established that, the binding precedents from the higher forums has to be adhered to. In this regard, reliance is placed on the judgments of the Hon'ble Supreme Court in Radhasoami Satsung v. Commissioner of Income-tax /1992)
60. Taxman 248 (SC) and Union of India v. Kamlakshi Finance Corporation Ltd. 1991 (55) E.L. T. 433 (S.C.). Ground 3 - The Ld. DRP and Ld. AO erred in treating the income from sale of software licenses as royalty. 3.1 The Ld. DRP and Ld. AO erred in treating the software licenses as process royalty, alleging that the Appellant provided a "secret formula" to its customers, without adducing any supporting evidence. 3.2 It is respectfully submitted that no such "secret formula" has been provided by the Appellant to any of its customers. The software sold by the Appellant consists of standard, non-customizable solutions related to data protection, data management, and data recovery. There is no transfer of any copyrights, technical knowledge, blueprints, or proprietary Grounds of appeal no.1 and 2 are against the violation of principle of natural justice and violation of rule of consistency and judicial discipline. In fact, the assessee in its written submission has filed various case laws on this issue but it is found that the assessee was provided adequate opportunity which the assessee has availed also. Therefore, these two issues of natural justice and rule of consistency are just general and academic in nature.
3. We are of the considered view that there is no res-judicata in taxation law and each year is a separate assessment year where the AO can make assessment in accordance with the facts of that year. We therefore dismiss ground Nos. 1 and 2.
The core issue involved in this case is the issue of sale of software and royalty. The Assessing Officer in his assessment order has given his finding on this issue, which is reproduced as under:
“The assessee is a company incorporated under the laws of Singapore and is engaged in selling of standard/ non- customizable solutions in relation to Data protection/ Data management/ Data Recovery and related support and maintenance services. The assessee has received consideration from sale of software licenses and hardware to its end user customers in India through authorized distributors, reseller or service provider in India. During the year under consideration, assessee has stated that it has received an amount of Rs.891,310,599/- from sale and maintenance services of software license. The assessee has claimed that as per provisions of India- Singapore DTAA assessee's income from sale of software license is not taxable in India because it does not fall within the meaning of Royalty. Findings: True Nature of Assessee’s Receipts from India The assessee has provided breakup of the receipts on account of hardware appliances, software licenses and maintenance support and education and training services. Sale of software licenses: Broadly VSSPL sells the licenses in the following categories: * Perpetual licenses: A perpetual license will allow the customer to use the license in definitely. Veritas offers perpetual licenses either on a per-copy basis or through our site license model. * Time-based licenses (subscription): A time-based license is a license for use during a specified period of time. The term generally varies between 12 and 36months and is sold on a per-copy basis. * Consumption-based license-ExSP: ExSP is a time- based license sold to managed service providers only. Related fees are generally based solely on usage, however, some agreements do have quarterly/annual minimums. ExSP contracts stipulate quarterly reporting to Veritas. Sale of hardware appliances: Appliances are enterprise backup servers with expandable storage and intelligent end-to-end deduplication for physical and virtual environments. Veritas appliances are available for Net backup, Velocity, and eDiscovery product lines. Appliances are typically bundled with appliance support and installation services. Maintenance and support services: a) Software maintenance and support: These include technical support services and unspecified updates, upgrades, and enhancements. They are provided in two tiers- Basic and Essential maintenance. The updates, upgrades, and enhancements generally do not significantly modify the software and generally either increase the efficiency of the existing core functionality or provide additional non-core features and functionalities or provide patches and bug fixes. b) Appliance maintenance support: These include maintenance services for customers for appliances purchased. Appliance support consists of third party provided technical support (e.g., telephonic support) and an enhanced warranty service whereby the customer receives support to perform any necessary services. c) Business critical services: This is a premium technical support service offering with three tiers of services (Assist, Remote Product Specialist, and Premier). These services generally include 24/7 technical support, adedicated support expert, and access to other senior technical experts. d) Training and education services: Education services are trainings that educate a customer how to get the most value from their products. Customers can take these classes via Online training, in-class or virtual instructor- led training or certification for validated expertise.
5. The ld. Dispute Resolution Panel has given its finding on this as under:-
5.5. Thus, it is clear that Software License services provided by the assessee having component of maintenance support and training, are medium to long term services. Hence, the Panel is of the view that software related services rendered by the assessee can be categorised as a process rather than sale of a product like literary work, piece of art, musical score etc. because of the inherent and intrinsic nature of these services, being a bouquet of services such as maintenance, infrastructure support, automatic upgradation, security concerns etc. on a continuous and ever evolving basis. As per Article 12(3) of the India-Singapore DTAA, to qualify as royalty for use of process, there should be 'use' or 'right to use' any process belonging to the payee and actual transfer of a process is not necessary. There is no requirement that there should be a transfer of processes embedded in the software such as Source Code or the Algorithm. Therefore, software license income of Rs. 14,28,71,004/- is liable to be treated as a process royalty under the treaty. 5.6. The maintenance support services to the tune of Rs. 71,98,12,654/- and education and training services to the tune of Rs. 2,24,24,106/- are subsidiary and ancillary to the process royalty as these arise only as a consequence of the software license service provided by the assessee to its customers. Hence, these two streams of income are liable to be taxed as FTS/FIS under Article 12(4)(a) of the India- Singapore DTAA.
With respect to ground 3, the Id counsel of the assessee, with respect to Maintenance support and other services Education and training services as FTS, submitted that these services are provided in connection with the utilization of software which are intricately and inextricably associated. The Id AR further submitted that when the income from the sale of the software is not taxable, income from the sale of related services could not be held as FTS as held by this Hon'ble Tribunal in the case of TSYS Card Tech Ltd v DOT, Circle- 3(1)(1), International Taxation, New Delhi, ITA 2006/DEL/2022. It is also submitted that the said transactions do not satisfy the 'make available clause as per Article 12(4)(b) of the India -Singapore DTAA.
7. Per contra, the Id. DR did not raise any serious objection. The Id DR relied upon the order of the Assessing Officer/DRP.
We have heard the rival submissions and have perused the relevant material on record. We have carefully considered the orders of the authorities below. We find that the Maintenance support and other services as well as Education and training services are intricately and inextricably associated with the Software sold and are provided in connection with the utilization of software as per Article 5(a) of the Indo-Singapore DTAA. Further, the Revenue itself has accepted that sale of software is not taxable as Royalty. When the income from the sale of the software is not taxable, income from the
We find support from the decision of the coordinate Bench in the case of TSYS Card Tech Ltd v DCIT, Circle- 3(1)(1), International Taxation, New Delhi, ITA 2006/DEL/2022 which held as under:
We have considered the rival submissions and perused the material available on record. The Co-ordinate Bench in assessee s own case in for AY 2019-20 has held that similar receipts amounting to Rs.12,01,30,877/- on account of 'Fees for provisions for other related services' was not taxable. The relevant ground and the discussion in the order of the Tribunal is reproduced as under:-" xxxxxxxxxxxxxx 5 . On the facts and in the circumstances of the case and in law, Ld. AO/ DRP has erred in alleging that receipts from provision of other related services amounting to Rs.12,01,30,877 is taxable as FTS as per the Act read with India- UK DTAA. Xxxxxxxxx 4. Brief facts of the case is that the assessee M/s TSYS Card Tech Ltd. Ltd is a company. Assessee is engaged in the business of providing information technology related services to financial payments industry. During the subject AY, the assessee had earned revenue from Indian Customer primarily for rendition of software \icense [referred to as 'PRIME) and provision of software related services including implementation services, enhancement services, annual maintenance services and consultancy services as per the request of the Customers.
During the year the assessee received an amount of Rs.5,21,17,082/- on account of software (Prime) License fee and fee for provision for other related parties of Rs.12,01,30,877/- and receipt in nature of reimbursement of Rs.7,24,821/- totaling to Rs.17,29,72,780/-. xxxxxxxxxxxxxxxx
9. However, the Id DRP held that the second set of receipts of Rs.12,01,30 ,877 on account of provision of other related services, it is well settled that such services from a distinct set of receipts which need to be examined independently in terms of their taxability or otherwise under specific Article 13 (Royalty/FTS) and cannot be clubbed as business income under Article 7 of the DTAA. The Id DRP held that taxable under Article 13 India-UK DTAA under the head 'FTS'. The Id DRP held that the make available dause under Article 13 are also stand satisfied. The main argument taken before us is that the other related services provided are in connection with utilization of the software (PRIME) which are intricately and extricably associated. The services are in respect of training programme and updations in connection with utilization of the software PRIME. Hence, we hold that when software itself is not taxable the training and the related activities concerned with utilization anc installation cannot be held to be FTS. Further, simply latching on to use of words "Make Available" in the agreement, it cannot be said that conditions of Article 13(4)(c) are satisfied. Burden is on the Revenue to demonstrate that make available condition is satisfied. Appeal of the assessee on Ground Nos. 4 and 5 are allowed." 8. On perusal of the draft assessment order and the final assessment order, we note that during the present assessment year i.e. AY 2020-21, the Assessing Officer has accepted the claim of the assessee that the 'sale of software (prime) license fee amount to Rs.1,84,01,550/- was not taxable. The Co-ordinate Bench of the Tribunal in AY 2019-20 in the case of the assessee (supra) held that when software itself was not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS. The Ld. CIT-DR could not bring any distinguishing facts to controvert the findings of the above order of the Tribunal. Further, the Department has not brought any evidence on record to substantiate that available' condition is satisfied in the case of the assessee for this assessment year. Therefore, following the decision of the Co-ordinate Bendh of the Tribunal in assessee's own case, we are of the considered view that when software itself is not taxable, the 'Fees for provisions for other related services' amounting of Rs.13,97,78,164/ will also not be taxable. Hence, the addition of Rs.13,97,78,164/- made by the Assessing Officer treating the 'Fees for provisions for other related services' as taxable is not acceptable and the same is deleted. Ground no.4 raised by the assessee is allowed.
Respectfully following the above decision and also following the findings on the same issue in Assessee’s own case in (Assessment Year 2020-21), order dated 22nd August 2025, given by the Coordinate Bench of ITAT, Delhi, we hold that the Maintenance support and other services (Rs 71,98,12,654/-); Education and training services (Rs 2,24,24,106/-) totalling to Rs 74,22,36,760/- are not taxable as FTS. We also agree with the submission of the assessee that the said transactions do not satisfy the 'make available' clause as per Article 12(4)(b) of the India- Singapore DTAA. Burden is on the Revenue to demonstrate that make available condition is satisfied whereas neither the AO nor the Id DR could bring any evidence on record to substantiate that 'make available' condition is satisfied in the case of the assessee for this assessment year. We accordingly direct the AO to delete the said addition. Therefore, ground No. 3 stands allowed.
Order pronounced in the open court on 30.12.2025.