TUNGSTEN AUTOMATION ENGLAND LTD,UNITED KINGDOM vs. DCIT,INTL TAXATION CIRCLE-3(1)(1), DELHI

Per Contra, Shri M. S. Nethrapal, CIT-DR representing the Department, strongly defended the impugned assessment order. The ld. CIT-DR stated that the issue raised in the present appeal was considered by the Tribunal in assessee’s own case in the preceding Assessment Years i.e. AY 2016-17 and 2017-18 and the same was decided in favour of the Department.

Both sides heard, orders of the authorities below examined. The assessee is a foreign company and is a tax resident of UK. This fact is not disputed by the Department.

The assessee in the instant appeal has made submissions only on three grounds i.e. grounds no. 6, 7 and 10, the same are reproduced as under:-

The assessee in above grounds has assailed findings of the Assessing Officer/Dispute Resolution Panel in characterising receipts of the assessee as FTS within the meaning of section 9(1)(vii) of the Act, as well as, Article 13(4)(c) of India UK DTAA. From perusal of the impugned assessment order, we find that the assessment order for AY 2018-19 is verbatim of draft assessment order for AY 2017-18. So much so that in para 2 of the impugned assessment order, the ld. AR has not even bother to change the assessment year and has mentioned AY 2017-18 instead of 2018-19. Except for the receipt amounts, there is no change in the findings of the Assessing Officer in the impugned assessment year. Thus, this makes it clear that the factual and legal matrix in the impugned assessment year is identical to AY 2017-18. The Revenue has also not disputed this fact.

In Assessment Year 2017-18, the assessee carried the issue before the Tribunal but remained unsuccessful. The assessee carried the issue in further appeal before the Hon’ble Delhi High Court in and 93/Del/2025 (Supra). The substantial question of law which was considered by the Hon’ble High Court for examination was:

Neither GIPL nor GIL acquires any right in the source code of the software operated by the Assessee. The licence granted to GIL/GIPL to use the Assessee’s platform or its services, is limited to the term of the license. Neither GIPL nor GIL are granted any right to technology or source code of the software which would enable them to absorb the technology and independently exploit the same. Thus, whilst the Assessee renders services and grants access to its e-platform as part of its services, it does not make available any technical experience, skill, knowhow or process to GIPL or its client GSK. Thus, the services rendered by the Assessee do not satisfy the Clause (c) of Paragraph 4 of Article 13 of the India-USA DTAA.

Mr Aggarwal, learned counsel for the Revenue referred to Paragraph 2.3, Articles 5A and 5B of the MPA in support of the stand that the services rendered by the Assessee makes available the technical skill and knowhow to GIPL. He contended that Paragraph 2.3 of the MPA expressly grants right to the ‘Partner (GIPL)’ and, therefore, there is a transfer of rights.

We find no merit in the said contention. A plain reading of Paragraph 2.3 of the MPA indicates that the license granted by the Assessee is to use “OB-10 services”. The Paragraph 2.3 does not indicate any transfer of intellectual property right or technology, but only a license to use the services rendered by the Assessee.

Mr Aggarwal’s contention that in terms of Articles 5B and 5A, the Assessee provides training to the employees of GIPL and the same would amount to making available technical skill and knowhow to GIPL, is also unmerited.

In terms Paragraph 5.6 of the MPA, OB10 is obligated to “provide training to full time employee of the Partner to enable them to promote and use the OB10 Services”. The training contemplated is only for the purpose of using the platform and software in terms of the license granted by the Assessee. The training is not for imparting technical knowhow or knowledge which is involved in rendering the services. As noted above, the Assessee provides the access of its e-portal and uses the software for generating the einvoices. The training as contemplated in Paragraph 5.6 is for using the software and e- platform, and not for the transfer of any technology, knowhow or source code of the software, which would enable the service recipient (GIPL) or its employees, who had received training to use the software, to continue rendering the services of generating of e-invoices after its license is terminated. There is neither the transfer of knowhow nor any training that makes available the technical knowledge, skill, knowhow or process used or involved in rendering the technical services.

Mr Aggarwal, also relied upon the decision of this Court in Centrica India Offshore P. Limited v. CIT11 and on the strength of the said decision, contended that since the Assessee is obliged to provide the training to the employees of GIPL, the same would satisfy the ‘make available’ criterion.

In our view, the reliance placed on the decision in Centrica India Offshore P. Limited v. CIT (supra) is misplaced. In the said case, the service provider had seconded employees to the service recipient. The said employees were involved in rendering of the services to the service recipient. In the facts of that case, the Court found: “32. ……. The activity of the secondees is thus to transfer their technical ability to ensure quality control vis-a-vis the Indian vendors, or in other words, “make available” their know-how of the field to CIOP for future consumption. The secondment, if viewed from this angle, actually leads to a benefit that transmits the knowledge possessed by the secondees to the regular employees. Indeed, any other reading would unduly restrict article 12 of the DTAA, which contemplates not only a formal transfer of intellectual property but also other techniques and skills (“soft” intellectual property, if it can be called as such) required for the operation of a business. The skills and knowledge required to ensure that the task entrusted to CIOP – quality control – is carried on diligently certainly falls within the broad ambit of article 12.”

In SFDC Ireland Limited v. Commissioner of Income Tax & Another12 , this Court had considered a similar contention with regard to the training imparted to the Indian entity in connection with the sale of certain products referred to in the relevant agreement and the said decision as ‘SFDC products’. This Court had rejected that the training imparted in the context of the said products would render the remittance made by the Indian entity chargeable to tax as FTS. In the given facts, the Court had observed: “41. The technical assistance and training imparted to SFDC India staff appears to be aimed at enabling them to understand the various attributes and capabilities of SFDC Products so as to be informed when interacting with prospective customers in the territory. The technical assistance and training which is spoken of in Section 4.3 of the Reseller Agreement does not appear to bear the characteristics of a conferral of specialised or exclusive technical service. In any case, the training and assistance proffered by SFDC was a concomitant to the sale of its principal products in the territory and fundamentally aimed at readying SFDC India to undertake the marketing of those products. The technical assistance and training did not constitute either the core or the foundational basis of the consideration which was received by SFDC Ireland.

Insofar as the products for SFDC India’s internal use were concerned, they stood restricted to those which would enable SFDC India to demonstrate the functionality of SFDC products in trade shows and exhibitions, to train its customers and employees on the use of those products and products to administer and manage customer accounts. None of these aspects would appear to be imbued with a technical hue. Imparting training or educating a person with respect to the functionality and attributes of a software or application would clearly not amount to the rendering of technical service under the DTAA. More importantly, the technical assistance and training which the petitioner proposed to provide was confined to marketing, distribution, support and sale of SFDC products. The assistance and training which Section 4.3 of the Reseller Agreement speaks of was concerned with fields wholly unrelated to providing technical service.”

It is equally relevant to refer to the decision of this Court in Commissioner of Income Tax International Tax-1 New Delhi v. Expeditors International of Washington Inc.13 , wherein the Court has observed: “9. Similarly, under the head of “Training and Personnel Management”, the assessee has spoken of Expeditors Ltd attempting to develop a “global culture” of ongoing development of key personnel. Neither of the above would in our considered opinion qualify the “make available” condition which permeates FTS and as would become clearer from the discussion which ensues.”

Merely because the training is imparted by the service provider does not necessarily satisfy the ‘make available’ condition. It is important to bear in mind the purpose for which the training is imparted to the employees and the resource so developed. Undisputedly, if the training imparted results in the service recipient absorbing technology that enables the trainees to use the technical knowhow and the skill, which is central to the technical services that are rendered, on their own; the ‘make available’ condition would stand satisfied. This is because such training would result in the transfer of the technical skill, knowhow and the technical knowledge. However, if the training does not entail transfer of the technology or the technical skill or knowhow involved in rendering the services, the same would not qualify the ‘make available’ condition, which as noted above, is essential for the consideration to be construed as FTS under Clause (c) of Paragraph 4 of Article 13of the India-UK DTAA.

In the facts of the present case, the training imparted to GIPL’s employees for using the software or e-platform, does not transmit the technical knowhow or the process for rendering the services of generating electronic invoicing. The said service is performed by the Assessee by the use of its proprietary software and the e-platform operated by it. The training to use the said platform does not transfer the knowledge or transfer the technology, which would enable GIPL to absorb the technology to generate e-invoices and render the subject services on its own. GIPL does not acquire any rights in the Assessee’s proprietary software.

In view of the above, the question whether the payments received by the Assessee for rendering the services constitute FTS within the meaning of Paragraph 4 of Article 13 of the India-UK DTAA, is answered in the negative. Thus, the said receipts are not chargeable to tax under the Act. In this view, it is not necessary to examine whether such receipts constitute FTS within the meaning of Explanation 2 to Section 9(1)(vii) of the Act.

The appeals are, accordingly, allowed. The impugned order dated 18.12.2024 as well as the assessment orders dated 12.03.2024 in respect of AY 2016-17 and AY 2017-18, are set aside. The pending application(s), if any, also stands disposed of.” [Emphasized by us]

No material to controvert finding of the Hon’ble Delhi High Court on the issue have been brought on record by the Revenue, Thus, in light of the facts of the case and the decision of Hon’ble Jurisdictional High Court, we see no reason to take a contrary view in the impugned assessment year. Accordingly, assessee succeeds on ground no.6, 7 and 10 of the appeal.

In ground no.3 to 5 of appeal, the assessee has raised jurisdictional issue, the same are dismissed as no submission were made on the said grounds.

The grounds of appeal no.11 to 21 have become infructuous as the assessee succeeds on primary issue.

In ground no.24 to 26 of the appeal, the assessee has assailed the charging of interest u/s 234A, 234B and 234F of the Act. Charging of interest u/s 234A and 234B is mandatory and consequential, hence, the said grounds of appeal are dismissed.

In the result, appeal of the assessee is partly allowed.