Delhi High Court - Orders
Tricentis Gmbh vs The Commissioner Of Income Tax ... on 6 February, 2024
Author: Yashwant Varma
Bench: Yashwant Varma, Purushaindra Kumar Kaurav
$~27
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 4578/2023
TRICENTIS GMBH ..... Petitioner
Through: Mr. Percy J. Pardiwalla, Sr.
Adv. with Mr. Vishal Kalra,
Adv.
versus
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAX 3 NEW DELHI & ANR.
..... Respondents
Through: Mr. Sunil Agarwal, Sr.
Standing Counsel along with
Mr. Shivansh B. Pandya, Jr.
Standing Counsel and Mr.
Utkarsh Tiwari, Adv.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR
KAURAV
ORDER
% 06.02.2024
1. This writ petition has been preferred seeking the following reliefs:-
"(a) issue a writ of and/or order and or directions in the nature of certiorari, prohibition or any other appropriate writ, order or direction for quashing of the impugned order passed under section 264 of the Act dated 02.11.2022 (Annexure P/1) by the Respondent No. 1 for the assessment year 2019-20;
(b) issue a writ of and/or order and/ or directions in the nature of Mandamus for revise the original intimation/order passed under section 143(1) of the Act dated 29.07.2020 (Annexure P/7) and issuing due refund along with applicable interest under section 244A of the Act due to the Petitioner for AY 2019-20 or any other appropriate writ, order or direction; and This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/02/2024 at 21:57:22
(c) such other order or orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case."
2. The challenge principally is to an order dated 02 November 2022 passed by the first respondent under Section 264 of the Income Tax Act,1961 [„Act‟] who has while holding firstly that the revision petition was not maintainable, proceeded further to hold against the writ petitioner even on merits. For the purposes of disposal of the instant writ petition, we deem it apposite to notice the following salient facts.
3. The writ petitioner is stated to be a tax resident of Austria and holds a valid Tax Residency Certificate [„TRC‟] issued by the competent authorities in that country in terms of the provisions contained in the India-Austria Double Taxation Avoidance Agreement [„DTAA‟] and thus enabling it to claim benefits thereunder.
4. According to the writ petitioner, it is engaged in providing software testing and software quality assurance solutions by providing licenses of its testing software to various entities and customers. It was in connection with the aforesaid business that it had received income from third party customers in the country.
5. Insofar as taxability of that income is concerned, the petitioner had taken the following stand in its return:
"2. Taxability of income in India i. Income received from Software License Tricentis GmbH offers testing software license to its customers directly in India, primarily through purchase/subscriptions. The said software license related income can be classified as 'Royalty' under the Income Tax Act, 1961 ('the Act') and accordingly, the income of INR 15,47,12,381 has been offered to tax by Tricentis GmbH in this year's Tax computation.
The subscription fees has been classified as 'Royalty' under the Act as also under the provisions of the Double Taxation Avoidance Agreement (DTAA) in view of the contrary rulings of the Hon'ble This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/02/2024 at 21:57:22 Karnataka High Court in the case of Samsung Electronics Co. Ltd (345 ITR 494) and Hon'ble Delhi High Court in the case of Infrasoft Limited (264 CTR 329) and other similar judgements on this issue; and accordingly, the same has been offered to tax in the return of income filed by the Company for the year under consideration.
In order to avoid litigation, the Company is offering the same to tax in its return of income, although it believes that such income ought not to be made liable to tax in India as per the provisions of India- Austria DTAA. As the issue of taxation of software royalty is currently sub-judice and is pending before the Supreme Court of India, the Company reserves its right to claim refund by lodging an appropriate claim basis the outcome of the matter.
ii. Income received from Software License During the captioned financial year, the Company has provided support services and consulting services related to aforesaid testing softwares to third party customers in India pursuant to which it has received fees of Rs. 1,49,61,410.
In the instant case, based on the nature of technical services provided by the Company to customers in India, the same falls within the ambit of 'fees for technical services' as defined in Explanation 2 to Section 9(1)(vii) of the Act and hence taxable in India under the provisions of the Act. The Act prescribes rate of tax withholding of 10% (plus applicable surcharge and cess) of the gross amount of FTS, which is applicable for the financial year 2018-19.
Further, the aforesaid services fall under the nature of 'Fees for Technical Services' ('FTS') under Para 4 of Article 12 of the DTAA and hence taxable in India under the provisions of the DTAA as well. As per Para 2 of Article 12 of the DTAA, the income from FTS is charged to tax at the rate of 10% on the gross amount of FTS. Section 90(2) of the Act provides the assessee with an option to be governed by the provisions of the Act or the applicable tax treaty, whichever are more beneficial.
In view of the above and since the provisions of the DTAA are more beneficial to the Company, the consideration for said services is taxed at the rate of 10% as per Article 12 of the DTAA."
6. However, the revisional authority has taken the view that since the writ petitioner had offered the income generated for the year in question to tax of its own volition, the revision petition was not This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/02/2024 at 21:57:23 maintainable. The revisional authority, as noted above, further proceeded to rule against the writ petitioner on the merits of the issues which arose.
7. We find ourselves unable to sustain the findings so returned by the revisional authority bearing in mind the undisputed fact that once it had come to conclude that the revision was not maintainable, there was no occasion for it to have proceeded to rule on the merits of the issues which arose for consideration. The findings and conclusion on merits are thus rendered unsustainable on this short ground alone.
8. Insofar as the issue of maintainability of the revision itself is concerned, we are of the considered opinion that the same have been rendered without reference to the qualifications which stood embodied in Note 2 to the Notes to the Return of Income for the Financial Year 2018-19, which had accompanied the return in question.
9. As is manifest from Note 2, there was no unqualified acceptance by the petitioner on the issue of taxability. As we read Note 2, it is evident that it had merely offered the income to tax at that stage and subject to the outcome of the litigation which was at that time pending before the Supreme Court. Undisputedly, the issue has thereafter been decided finally by the Supreme Court and as contended by Mr. Pardiwalla, learned senior counsel, in favour of the assessee. Our attention was drawn to that judgement of the Supreme Court in Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and Anr. [(2022) 3 SCC 321]. In view of the aforesaid, we find ourselves unable to sustain the order impugned.
10. The writ petition is accordingly allowed. The order dated 02 November 2022 is hereby quashed and set aside. The revision shall This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/02/2024 at 21:57:23 consequently stand restored to the board of the revisional authority who shall proceed to decide the same on merits.
11. All rights and contentions of respective parties are kept open.
YASHWANT VARMA, J.
PURUSHAINDRA KUMAR KAURAV, J.
FEBRUARY 06, 2024/RW This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 09/02/2024 at 21:57:23