M/S ENEA SOFTWARE INC.,INDIA vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE INT. TAX 2(2)(2), NEW DELHI, NEW DELHI

ITA No.- 986/Del/2025 M/s ENEA Software Inc. under Article 12 read with sec 90(2) of the India-USA Double Tax Avoidance Agreement ('DTAA') and therefore shall qualify as business income of the assessee, which was not chargeable to tax in the absence of any permanent establishment of assessee in India.

2.1. The AO further noted that the assessee had entered into a software licensing and service agreement with Reliance Jio Infocomm Limited ('RJIL') and received software licensing and service income and the details of services provided in pursuant to these agreements was that the assessee had granted a non-exclusive, nontransferable license to RJIL, to use and operate the software relating to Transmission Control Protocol and Video Optimisation Solution in the territory of India. The AO further noted that this software license was subject to the terms and conditions and the restrictions specified in the Agreement.

2.2. The AO analyzed the nature of software provided by the assessee to Reliance Jio Infocomm Limited and noted that the software provided by the assessee was not a product but an end to end solution using a proprietary process and it was not in the nature of simplicitor sale of goods but in the nature of imparting right to use a proprietary process to for client's business purposes. The AO further noted that as the assessee had provided software which had configurable components and had plans to integrate the same with the clients and core partners network in future, and thus adapting to the same, the right imparted 3

ITA No.- 986/Del/2025 M/s ENEA Software Inc. by the assessee to Reliance came under the purview of providing copyright and thus chargeable as copy-right royalty.

2.3. It was further noted by the AO that the support and maintenance services were inextricably linked to the license granted by the assessee to its licensors and no separate contract was entered by the assessee for the same. The AO noting the submission of the assessee. "It is submitted that provision of such services is incidental to the supply of software and acquires the nature of software itself” held that the services provided were offered in close coordination with the employees of R.JIL and included a training component as well and consequently, the services fell under FTS clause as per India-USA DTAA and the make available clause was also satisfied.

2.4. In view of the above facts of case, the AO noted that the assessee company had been provided benefit of provisions of DTAA and thus, the total income of the assessee was proposed to be assessed at Rs. 4,96,87,808/- under the head FTS taxable @ 10% as per Article-12 of India USA DTAA in the draft assessment order u/s 144C (1) of the Act served on the assessee on 08.03.2024.

2.5. Aggrieved with the said draft assessment order, the assessee filed its objections before ld. DRP.

ITA No.- 986/Del/2025 M/s ENEA Software Inc. DRP’s finding and direction 2.6. The DRP noted that the software license services provided by the assessee to the Indian entity i.e. JIO were long term services with license/sub-license given in perpetuity and that the agreement required the service provider to provide an upgraded version to JIO in a timely manner. The DRP further noted that it was pertinent to mention that software provided by assessee was a highly specialized software that specifically only caters to telecom operators and any process modification, bug fixation, trouble-shooting, warranty services etc. were also to be provided by the assessee to JIO. In view of the facts, the Panel held that the 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 assessee's software product, being a bouquet of services such as maintenance, infrastructure support, automatic upgradation, security concerns etc. on a continuous and ever evolving basis.

2.7. The Panel agreed with the finding of the AO that software provided by the assessee enabled the client to use the proprietary process in the software to find a solution for network rollout and therefore, the services rendered by the assessee entity to its customers in India are liable to be treated as process royalty. Further, the ld. DRP also held that the receipts of Rs. 4,96,87,808/-, was also in the ITA No.- 986/Del/2025 M/s ENEA Software Inc. alternative, liable to be taxed as copyright Royalty under Article 12(3) of the India- USA DTAA.

2.8. After receiving the above directions of the ld. DRP, the AO passed the order u/s 143(3) r.w.s. 144C(13) of the Act by making an addition of Rs.4,96,87,808/- as income from FTS/FIS.

“2. That both the Ld. AO and Hon'ble Dispute Resolution Panel-2 (DRP) have erred in law, in mis-interpreting the software licensing fee as a payment made in consideration for a 'process, entirely disregarding the fact the said fee was clearly received in consideration for a copyrighted article 3. That both the Ld. AO and Hon'ble DRP have erred in law and on fact, in creating a new characterization of income, being that of a 'solution', and treating it differently from its real nature of software license fee. They have also erred in fact as well as in law, by misappropriating the level of operational support to support such mis-characterization 4. That both the Ld. AO and Hon'ble DRP have erred in law, in disregarding various judicial precedents (including the judgement of Hon'ble Apex Court) wherein it has been settled that consideration for supply of copyrighted article does not tantamount to Royalty under the provisions of the Double Taxation Avoidance Agreement (DTAA') 5. That both the Ld. AO and Hon'ble DRP have erred on facts and in law, in concluding the software licensing fee as 'Process Royalty' though he could not factually demonstrate that the licensee namely M/s Reliance Jio Infocomm Limited ('R.JIL') had any rights to make copies of the software or to commercially exploit the rights in such software as envisaged in the Copyright Act, 1957.

6. That both the Ld. AO and Hon'ble DRP have erred in law and on facts, in not appreciating that the support and maintenance services being ancillary and subsidiary as well as inextricably and essentially linked to software license does ITA No.- 986/Del/2025 M/s ENEA Software Inc. not amount to Fees for included Services as per Article 12(5)(a) of the India - USA DTAA 7. That the Ld AO has erred on facts and in law, in making an addition of INR 4,96,87,808 by treating the transactions of both supply of software as well as support and maintenance services as Fees for Technical Services / Fee for included Services under Article 12 of the India - USA of the DTAA without establishing satisfaction of make available test present in the said Article 8 That both the Ld. AO and Hon'ble DRP have erred on facts and in law, in treating the amount received by the Appellant towards support and maintenance services (being, INR 27,83,500), as Fees for Technical Services / Fee for Included Services without providing for any basis for satisfaction of make available test provided under Article 12 of the DTAA 9. That both the Ld. AO and Hon'ble DRP have erred on facts and in law, in not following the principle of stare decisis or rule of consistency, and deviating from the position previously accepted by the Hon'ble DRP and the Hon'ble Tribunal in Appellant's own case for the Assessment Year 2019-20, that the consideration received by the Appellant is not liable to tax in India under the provisions of the DTAA, in light of the uncontroverted fact that there has been no change in any relevant facts and/or operations carried on by the Appellant.

“3. Briefly stated the assessee is a company incorporated under the laws of the United States of America ("USA") and is a tax resident of USA. The assessee is engaged in providing services relating to Transmission Control Protocol and Video Optimization, Solution to Telecom Operators across the Globe. It has no business connection or Permanent Establishment ("PE") in India. Being a tax-resident of USA and a non-resident for the purposes of Act in India it is entitled to the beneficial provisions of the Double Taxation Avoidance Agreement between India and USA ("India-USA DTAA"). On 20.02.2017 the assessee entered into a Software Licensing Agreement with Reliance Jio Infocomm Ltd. ("RJIL/Reliance/Jio") and a Service Level Agreement by way of an Annexure (Annexure F) to the Software License Agreement for providing annual maintenance and support services pursuant to which the assessee received software licensing income and Annual Maintenance Contract ("AMC") service income during the relevant AY under consideration. The assessee filed its return of income for AY 2019-20 on 11.11.2019 declaring total income at Rs.4,94,29,858/- on account of rendering services pertaining to supply of software licence amounting to Rs. 4,35,39,550/- and support and maintenance services amounting to Rs. 58,90,308/- to RJIL. The assessee claimed these receipts as non- taxable in India and claimed credit of TDS/refund of Rs. 52,62,769/- on account of tax deducted at source by its customers in India. The case of the assessee was selected under CASS for scrutiny on the reason "High Ratio of Refund to TDS u/s 195". Statutory notices were issued and served upon the assessee electronically through the ITBA Portal which was duly complied with. In its reply, the assessee stated that the impugned receipts are not taxable in India as the underlying services do not fall within the purview of Royalty / Fees for technical services/Fees for Included Services 8

ITA No.- 986/Del/2025 M/s ENEA Software Inc. ("FTS/ FIS") under Article 12 of India-USA DTAA and therefore shall qualify as business income of the assessee which is not chargeable to tax in the absence of PE of the assessee in India. 3.1 During the assessment proceedings, the Ld. Assessing Officer ("AO") after analysing the Software License Agreement and disregarding the submissions/reply filed by the assessee arrived at a conclusion that the impugned receipts pertaining to supply of software (including AMC services) are taxable as FTS. Accordingly, he proposed an addition of Rs. 4,94,29,858/- as FTS income of the assessee…………” xxxxxxxxxxxx 3.3. After considering the submissions of the assessee along with the material on record, the Ld. DRP vide its directions dated 17.05.2022 observed that the Software License Agreement dated 20.02.2017 captures two distinct transactions namely, a) supply and license of certain software and b) provision of AMC services to the licensee and hence rejected the assessee's contention that both the transactions are inextricably related and integrated with each other under Article 12 of the India- USA DTAA. 3.4 The Ld. DRP by placing reliance on the decision of the Hon'ble Supreme Court in the case of Centre of Excellence Pvt. Ltd. vs. CIT (2022) 3 SCC 321 and considering the terms of the Software Licence Agreement concluded in para 2.5 of its directions/ order that software licence fee will not constitute royalty income but business income under Article 7 of India-USA DTAA which is not taxable in India in the absence of PE of the assessee. 3.5 As regards the AMC charges, the Ld. DRP held the same to constitute FTS/FIS within the meaning and scope of Article 12(4)(b) of India-USA DTAA)…… . ----xxxx---- 4. Pursuant to the above directions of the DRP, the La. AO completed the assessment under section 143(3) r.w. section 144C(13) on 26.05.2022 stating that the Ld. DRP has rejected the objections raised by the assessee and thereby making the addition of Rs. 4,94,29,858/- treating the entire receipts as FTS/FIS @ 10% as per Article 12 of the India-USA DTAA. xxxxxxxxxxxxx 7. We have heard the Ld. Representative of the parties and perused the material on records. It is an undisputed fact that during the relevant AY, the assessee is a tax resident of USA and has opted to be governed by the provisions of India-USA DTAA. Also, the assessee does not have a PE in India. The assessee had entered into a Software Licensing Agreement for supply and license certain Software and Service Level Agreement (forming part of Software Licence Agreement) to provide AMC services to Reliance/Jio/ RJIL. During the relevant AY, the assessee received software licensing fee of Rs. 4,35,39,550/- and AMC charges of Rs. 58,90,308/-aggregating to Rs. 4,94,29,858/-. So far as the issue relating to the taxability of Software Licensing Fee of Rs. 4,35,39,550/- is concerned, we observe that the Ld. DRP has examined this issue in detail and recorded its observation finding in para 2.5 of its order reproduced below:- 9

ITA No.- 986/Del/2025 M/s ENEA Software Inc. "2.5 As regards the first set of transactions namely supply and license of software, the licensor grants the licenses to use and operate the software in india as follows - Non-exclusive, non- transferable and sub licensable to licensee's affiliates; unlimited; perpetual; unlimited use and irrevocable etc. As per clause 3 (License Restrictions) of the Agreement, though licensee will not (a) sell, rent, lease, distribute or sub-license the software or documentation; (b) host the software for third party services; (c) modify, alter, reverse engineer, decompile, translate or disassemble any source code of the software; (d) disclose, make available or allow any third party to use the software without licensor's prior written consent; or (e) develop any programs using licensor's source code. As per the said clause, the source code and underlying algorithm of the software are the assessee's proprietary trade secrets. On such terms and conditions of sale of the said software licenses, there is no finding in the draft assessment order that the user has a right to make copies or commercially exploit the right in the copyright of such software as laid down by Hon'ble Supreme Court in the context of Business Income/Royalty in Engineering Analysis Centre of Excellence Private Ltd. Vs. CIT (Civil Appeal Nos. 8733-8734 of 2018). In view of the same, the AO shall exclude receipts relating to sale of software licenses in accordance with and to the extent covered under the applicable categories contained in Hon'ble Supreme Court decision above. There is no dispute regarding the fact that the assessee does not have a permanent establishment in India. Accordingly, such receipts will constitute business income under Article 7 of the DTAA in line with the above- mentioned decision of Hon'ble Supreme Court and will not be taxable in India in the absence of PE." xxxxxxxxxxxx 9. In this view of the matter, we are inclined to agree with the findings of the Ld. DRP. What the assessee has supplied in the form of a Software to Reliance/ Jio is a copyrighted article not a copyright in the Software. Fact on record demonstrates that the Software is supplied by the assessee on a non-transferable, non-exclusive basis to various customers all over India. The assessee has only granted a right to use its Software to Jio in connection with its telecommunication business. The consideration received towards licensing of software is for use of a copyrighted article and therefore not taxable as royalty income under the provisions of Article 12 of the India-USA DAA. In our considered view, the case of the assessee is squarely covered by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence P. Ltd. (supra) which has already been upheld by the Ld. DRP and the Honble Delhi High Court in light of the factual matrix of the present case. We, therefore have no reason to interfere with the findings of the Ld. DRP on the impugned issue. Consequently, consideration of Rs. 4,35,39,550/- received by the assessee from supply of software licence is not taxable in India in terms of Article 7 of the India-USA DTAA. 10

ITA No.- 986/Del/2025 M/s ENEA Software Inc. Accordingly, ground no.1 to 4 is allowed with a direction to the ld. AO to give effect to the ld. DRP’s findings in its directions/order dated 17.05.2022. Xxxxxxxxxxxxx 10. Now coming to the remaining receipts of Rs. 58,90,308/- on account of support and maintenance services rendered by the assessee, the Ld. AO as well as the Ld. DRP has treated the impugned receipts taxable as FTS/FIS in India ----xxxxxx----- 10.1 It is evident from the above that the Service Level Agreement which envisages rendition of support and maintenance services (AMC) forms part of the Software License Agreement by way of Annexure F to the said agreement (Page 85 to 87 of the Paper Book refers). Services provided by the assessee to Reliance are thus ancillary and subsidiary to the licensing of software and would therefore be characterised in the same manner as that of the predominant/ original transaction which is the supply of Software in the present case. The Ld. AO has himself acknowledged the fact that support and maintenance services are inextricably linked to the licence granted by the assessee to its licensees and no separate contract is entered by the assessee for the same. 10.2 We have perused the decision of the Delhi Tribunal in the case of Aspect Software Inc. vs. ADIT [2015] 61 taxmann.com 36 (Del) wherein it has been held as under: "In the present case, the undisputed fact is that the implementation service is inextricably and essentially linked to the supply of software. In view of our decision in Ground No 2 that the supply of software is not taxable as "royalty" under the Tax Treaty, the provision contained in clause (a) to Article 12(4) would not apply to both Implementation and maintenance services. Further there is nothing to show that these services provided by the assessee actually made available to the End User/ Channel Partners any technical knowledge, experience, skill, know-how or processes so as to enable them to apply the said technology. Under these circumstances, we uphold the arguments of the learned Counsel of the assessee and allow the ground." 10.3 Also, the Delhi Tribunal in the case of Infrasoft Ltd. vs. ADIT [2009] 28 SOT 179 (Del), affirmed by the Hon’ble Delhi High Court in [2013] 39 taxmann.com 88 (Delhi HC) held as under: “...we hold that the amount received by the assessee under the license agreement for allowing use of the software was not 'royalty' either under the Income-tax Act or under DTAA. We also hold that the other receipts on account of maintenance charges and training fees being incidental to the software receipts assume the same character as that of software receipts and the same are liable to be taxed accordingly.” 10.4 Having said so, we will now also consider the alternative plea taken by the assessee. In our view, even the test of ‘make available’ under Article 12(4)(b) of the India-USA DTAA is not satisfied given the facts of the present case. 11 ITA No.- 986/Del/2025 M/s ENEA Software Inc. Maintenance services comprise of troubleshooting, software updates, patches etc. and technical support by e-mail, fax etc. and the training services are for acquainting with the operation / use of software. These activities, in our view, do not qualify as ‘make available’ within the meaning of the expression contained in Article 12(4)(b) of the India-USA DTAA. The meaning of the expression ‘make available’ has been derived from umpteen numbers of judicial precedents as well as Protocol to the India-USA DTAA. If we consider the terms of the AMC under the Software Licence Agreement (read with Service Level Agreement) set out above, we find that none of the conditions to qualify the test of ‘make available’ has been satisfied in the present case as - (i) the service recipient is not able to apply any expertise/ technology contained therein or use knowledge on its own without recourse to the service provider; (ii) the service recipient is not at the liberty to use the technical knowledge, skill, know-how and process of the assessee in its own right; and (iii) the service recipient is unable to perform the services on its own and have to necessarily seek services of the assessee time and again. Support may be drawn from the decision of the Hon’ble Karnataka High Court in CIT vs. De Beers India Minerals (Private) Ltd. (2012) 21 taxmann.com 214 (Kar.) wherein it has been held that- “…to fit into the terminology ‘making available’ the technical knowledge, skill, etc. must remain with the person receiving the services even after the particular contract comes to an end. It not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it.” 10.5 Clause 6.6 of the Service Level Agreement provides that “Reliance shall ensure that its Operations team have attended and passed the required training for the Openwave Software Product”. It is the contention of the Revenue that imparting of training amounts to provision of technical services by the assessee and therefore impugned receipts are subject to tax as FTS. Nothing has been brought on record by the Revenue to establish that any technical knowledge has been provided to the employees of Reliance / JIO and / or human intervention is required in provision of AMC services. The observations and findings of the Ld. AO/ DRP on these aspects are based on surmises and conjectures. Further, imparting training or educating a person with respect to functionality and attributes of a software or application would clearly not amount to the rendering of technical service under the DTAA which view has been upheld by the Hon’ble Delhi High Court’s decision in the case SFDC Ireland vs. CIT [TS-175-HC- 2024(DEL)].

ITA No.- 986/Del/2025 M/s ENEA Software Inc. 6.1 The facts in the case of the assessee are similar to the facts of the case for AY 2019-20. The payment of Rs.4,96,87,808/- ( Rs 4,69,04,308/- on account of rendering services pertaining to supply of software license + Rs 27,83,500/- on account of support and maintenance services for the said software license) received by the assessee during the year has been received by the assessee by virtue of the same agreement dated 20.02.2017 as submitted by the assessee on page no 1-110 of the Paper Book filed by the assessee, which was effective in AY 2019-20 and the nature of payment also remains the same as noted by the Tribunal and duly highlighted by us earlier in our order. The Ld. CIT(DR) has not brought on record any contrary facts or any decision contrary to the order of the Tribunal relied upon by the assessee. Therefore, following the aforesaid order of the Tribunal, we delete the addition of Rs.4,96,87,808/- added by the AO as income from FTS/FIS. Grounds no.2 to 10 of the appeal are allowed.

Order pronounced in the open court on 31st October, 2025.