MUNICH RE AUTOMATION SOLUTIONS LIMITED,IRELAND vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX, 2(2)(1), NEW DELHI, NEW DELHI

आयकर अपीलीय अिधकरण
िदʟी पीठ “डी”, िदʟी
ŵी िवकास अव̾थी, Ɋाियक सद˟ एवं
ŵी अवधेश कुमार िमŵा, लेखाकार सद˟ के समƗ

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “D”, DELHI
BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER &
SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER
आअसं.3766/िदʟी/2023(िन.व. 2021-22)
Munich RE Automation Solutions Ltd.,
2nd Floor, Mountain View, Central Park,
Leopardstown Office Park, Dublin, Ireland
PAN : AAICM-2594-E

...... अपीलाथᱮ/Appellant

बनाम Vs.

Assistant Commissioner of Income Tax,
Circle International Tax-2(2)(1), New Delhi

..... ᮧितवादी/Respondent

अपीलाथŎ Ȫारा/ Appellant by : Shri Vishal Kalra, Ms. Reema Grewal, and Ms. Snigdha Gautam, Advocates
ŮितवादीȪारा/Respondent by : Ms. Ekta Jain, CIT-DR &
Ms. Neeju Gupta, Sr. DR

सुनवाई कᳱ ितिथ/ Date of hearing

:
06/06/2025

घोषणा कᳱ ितिथ/ Date of pronouncement :
:
04/09/2025

आदेश/ORDER

PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the assessment order dated
25.10.2023
passed u/s.
143(3) r.w.s.
144C(13) of the Income
Tax
Act,1961(hereinafter referred to as ‘the Act’), for AY 2021-22. 2. Shri Vishal Kalra, Advocate appearing on behalf of the assessee at the outset submitted that he is not pressing ground no. 2 of appeal challenging validity of assessment order on the ground of limitation.

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2.1. The ld. Counsel for the assessee submits that in ground no. 3 and 4 of appeal, the assessee has assailed the assessment order holding the receipts aggregating to Rs.3,56,51,494/- received by the assessee/appellant on sale of software and incidental services (software support and maintenance services) to the end customers in India taxable as royalty under the Act and Article 12 of India-
Ireland Double Tax Avoidance Agreement (DTAA).
3. Narrating facts of the case, the ld. Counsel submits that the assessee is headquartered in Ireland and is a tax resident of Ireland. Its business activities are entirely carried out from outside India. The assessee develops a software solution. During the period relevant to assessment year under appeal, the assessee has provided software and related services to its Indian customer-PNB
MetLife India Insurance Company Ltd. (in short ‘PNB MetLife’) for a total consideration of Rs.3,56,51,494/-. The Indian customer deducted Tax at Source
(TDS) Rs.92,93,382/- on the payments made to the assessee. As per the assessee aforesaid amount received by the assessee is not taxable in India. The assessee filed its return of income for the AY 2021-22 declaring NIL income and claiming refund of the TDS amount appearing in Form No. 26AS.
3.1. In scrutiny assessment proceedings, the Assessing Officer (AO) held the receipts of the assessee from Indian customer as ‘royalty’ within the meaning of section 9(1)(vi) of the Act and as well as under Article 12(3)(a) of India-Ireland
DTAA. The ld. Counsel for the assessee submitted that the assessee has sold/licensed a software to its Indian customer i.e. PNB MetLife. The assessee is charging fee in consideration of providing access to the licensed software to its Indian customer and the incidental services rendered. The assessee has not 3
transferred any right in the software developed. Hence, the consideration received by granting license for use of software cannot be taxed as a ‘royalty’.
4. The ld. Counsel submits that the company has entered a Master
Procurement Agreement (MPA) dated 28.01.2020 with PNB MetLife. The said agreement is at page no. 17 to 68 of the paper book. Referring to the agreement, he submitted that the scope of work has been bifurcated into two Statements of Work annexed to the agreement as Statement of Work no. 01 (SOW-1) and Statement of Work no. 02 (SOW-2). SOW-1 is in respect of License, Support and Maintenance and SOW-2 is qua Implementation Services. The ld. Counsel referred to the definition clause of MPA. He pointed that as per the definition, Licensed
Software means, the standard software, patches, maintenance lease of standard software or any new version licensed by supplier to PNB MetLife. Thus, the assessee had licensed a Standard Software and not an individualist tailor-made software for its customer in India. The AO has misconstrued the facts of the case and has erred in arriving at a conclusion that the assessee provides access to customers in India to certain software applications in its website and also provide services to implement the software applications into customer website. The fact is that the Standard Software Solution is licensed to the customer through an electronic file transfer from the server owned, operated and managed by the assessee. The customer downloads the standard software and is able to use it, after it is licensed by the assessee.
5. In the instant case what has been transferred/licensed is bundled product/services in the form of software and implementation services for making the sale of software compatible to the requirements of the customer. The case of 4
assessee is squarely covered by the decision rendered by Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT 432, ITR 471. 6
The ld. Counsel further submitted that the AO has selectively and incorrectly read the agreement to conclude that the assessee has transferred access rights to its customers and charges fees in return for access rights. He reiterated that assessee has licensed standard software which is not specifically made for the Indian customer. He pointed that Clause 6 of MPA clearly states that intellectual property rights contained in the software shall continue to be suppliers (the assessee’s) property. The assessee only grants a revocable, non exclusive and non transferable license to use software as mentioned in SOW. The consideration received for grant of right to use the copy righted software does not fall within the definition of royalty as per India-Ireland DTAA.
7. In respect of ground no. 5 of appeal, the ld. Counsel submits that without prejudice to the submissions on ground no. 3 and 4, the assessee has assailed final assessment order as the AO has erred in not following the directions of the DRP to allow credit of equalization levy paid at 2% against the Income Tax payable on the amount assessed as royalty. The assessee has already disclharged equalization levy @2% of total consideration Rs.3,56,51,494/-.
8. The ld. Counsel submits that in ground no. 6 of appeal, the assessee has assailed findings of the AO in wrongly assuming that Rs.3,25,976/- has been refunded to the assessee. Whereas, the assessee has not received the said amount as refund.
9. On the other hand, Ms. Ekta Jain representing the department vehemently defended the impugned assessment order and directions of the DRP and prayed

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for dismissing appeal of the assessee. The ld. DR referring to para 7 of the final assessment order submits that the AO has distinguished and demonstrated that the case of assessee does not fall within any of the four categories specified in the decision rendered in the case of Engineering Analysis Centre of Excellence (P.) Ltd.
v. CIT (supra). She submitted that the assessee provides access to customers in India to certain software applications in its website and also provides services to implement the software applications into customer website. Therefore, the service rendered by the assessee is much beyond mere licensing for use of software. The assessee is charging fee for providing access rights to the customers and servicers. Therefore, payments received for transferring access rights to the customers in the nature of royalty.
10. Rebutting, the arguments advanced by ld. DR, the ld. Counsel for the assessee submitted that the AO has erred in understanding the business model of the assessee and the manner of providing standard computer software to PNB
MetLife. The standard software is downloadable from the site of the assessee company. The assessee does not provide access to customers to software applications in its website and also does not provides services to implement the software applications into customers website. The assessee does not provide customized software, the assessee sells/license’s standard software developed for insurance sector.
11. We have heard the submissions made by rival sides and have examined the orders of authorities below. The primary issue in appeal is, whether payment of Rs.3,56,51,494/- received by the assessee from sale/licensing of software and incidental services to the end customers in the nature of royalty?

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12. At the outset, the ld. Counsel for the assessee has made a statement at Bar that he has not pressing ground no.2 of appeal challenging validity of assessment order on the ground of limitation. In light of statement made by ld. Counsel for the assessee, ground no. 2 of appeal is dismissed as not pressed.
13. The assessee is an Irish company holding TRC of Ireland, the assessee develops software solutions for insurance sector. During the period relevant to assessment year under appeal, the assessee provided standard software and related services to PNB MetLife for an aggregate consideration of Rs.
3,56,51,494/-. The stand of the assessee is that the aforesaid amount received by the assessee is not exigible to tax in India as the assessee has merely sold standard software to the Indian company. Hence, the case of assessee is squarely covered the decision rendered in the case of Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (supra). Whereas, the Revenue has held that the aforesaid payment received by the assessee is in the nature of royalty as it is not simplicitor sale of software to an Indian company, the assessee is providing access to customer in India to certain software applications in its website and also provides services to implement the software applications into customer’s website.
14. To decide the issue in hand it would be apposite to refer to MPA entered into between assessee and PNB MetLife. The definition clause in MPA defines
Licensed Software as:-
“Licensed Software means the Standard Software, patches, maintenance releases of Standard Software or any New Version licensed by Supplier to PNB MetLife pursuant to a Statement of Work.”
Services are defined as :-

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“Services means the services, including any licensing, purchased by PNB MetLife from Supplier, if any, as set out in the relevant Statement of Work.”
15. An examination of MPA alongwith SOW-01 which is integral part of MPA, shows that the assessee shall provide Standard Software & Services and shall charge fee for same as per Schedule 1 to SOW-01. The Standard Software as per
SOW-01 provided by the assessee to PNB MetLife are:

(a) one production instance of Allfinanz Interview Server,

(b) two production instances of Allfinanz Rules Designer,

(c) one production instance of Allfinanz Publisher,

(d) one production instance of Allfinanz Offline;

(e) one production instance of Allfinanz API;

(f) one production instance of Allfinanz Evidence Analyser, and;

(g) one production instance of Allfinanz Underwriter Workbench,

(in each case the Suite 4 version available at the date of signature).

No deliverables were provided by the assessee. The assessee is not providing any tailor-made software to the Indian customer. It is only the Standard Software developed by the assessee for insurance sector and support services that has been provided to the Indian customer-PNB MetLife.
16. The Hon’ble Supreme Court of India in the case of Engineering Analysis
Centre of Excellence (P.) Ltd. v. CIT (supra) in para 4 of judgment has categorized the transaction of sale of software in four groups. Para 4 of the judgment reads as under:-

“4. The appeals before us may be grouped into four categories:

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(i)
The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non- resident supplier or manufacturer.
(ii)
The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.
(iii)
The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.
(iv)
The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users.”
16.1. After examining the MPA, we are of considered view that the assessee falls under category (i) i.e. the computer software purchased directly by the end user resident in India from a foreign non-resident supplier or manufacture. The Hon’ble Apex Court after detailed analysis of the definition of royalty as per section 9(1)(vi) of the Act and as per DTAA, referring to OECD commentary and after examining catena of decisions concluded as under:-
“169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment.”

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17. From the reading of agreement along with SOW-01 and SOW-02, we hold that: (i) it is not a case of licensing of tailor-made software; (ii) the assessee has licensed standard software; & (iii) the assessee has allowed its customers to use copy righted Article and has not transferred copy right in the software to it’s customer.
18. In clause 6 of the MPA it has been categorically mentioned that materials owned by the assessee/supplier prior to the date of this agreement including proprietary software, updates and upgrades, user documentation and manuals, functional, technical & parameters specifications, training materials, configuration and customization, specifications or developed by the supplier outside the scope of this agreement including assessee’s Intellectual Property Rights, etc. are the property of the supplier i.e. the assessee unless made specifically for PNB MetLife.
18.1. In clause 6.2 of MPA it is further mentioned that to the extent deliverables are expressly commissioned by made for PNB MetLife and are copy right able subject matter made or delivered they shall constitute ‘works made for higher’ for PNB MetLife. PNB MetLife shall be deemed to be the author and owner of such works made for higher and the assessee expressly disclaims all interest in any of them. However, there were no deliverables, as is evident from SOW-01. The entire payments were made for licensing of standard software and services.
Neither, the payments made for licensing of software nor the payments for services, fall within the definition of royalty as per Article 12 (3) of India-Ireland
DTAA. Hence, after examining covenants expressed in MPA, Article 12(3) of India-
Ireland DTAA and other facts of the case, we are of considered view that the payments received by the assessee from its Indian customer i.e. PNB MetLife are not in the nature of royalty. Hence, the addition made by the AO holding payment

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received by assessee for licenses of standardized software & connected services as royalty is unsustainable. Hence, directed to be deleted.
19. In ground no. 5 of appeal, the assessee without prejudice to the primary ground no. 3 and 4 of appeal has raised an alternate plea of allowing credit of equalization levy. Since, the assessee succeeds on primary ground of appeal, therefore, ground of appeal no. 5 has become academic, hence, not deliberate upon.
20. In ground no. 6 of appeal, the assessee has pointed that the AO has erred in holding that a refund of Rs.3,25,976/-has been allowed to the assessee, whereas, no such refund has been received by the assessee. The AO is directed to examine this issue. If no refund of Rs.3,25,976/- has been granted to the assessee, the AO shall accordingly recomputed tax liability. The ground of appeal no. 6 is allowed for statistical purpose.
21. In ground no. 7 of appeal, the assessee has assailed initiation of penalty proceedings u/s. 270A of the Act. Challenge to penalty proceedings at this stage is premature. Hence, ground no. 7 of appeal is dismissed.
22. In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on Thur ay the 04th day of September, 2025. (AVDHESH KUMAR MISHRA)
(VIKAS AWASTHY)
लेखाकार सद᭭य/ACCOUNTANT MEMBER
᭠याियक सद᭭य/JUDICIAL MEMBER
िदʟी/Delhi, ᳰदनांक/Dated 04/09/2025

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NV/-

ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to :
1. अपीलाथᱮ/The Appellant ,
2. ᮧितवादी/ The Respondent.
3. The PCIT
4. िवभागीय ᮧितिनिध, आय.अपी.अिध., िदʟी /DR, ITAT, िदʟी
5. गाडᭅ फाइल/Guard file.

BY ORDER,
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(Asstt.