Income Tax Appellate Tribunal - Pune
Tibco Software B.V.,, Pune vs Deputy Commissioner Of Income-Tax,, ... on 24 June, 2019
आयकर अपीऱीय अधिकरण पण
ु े न्यायपीठ " " पण
ु े में
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "C", PUNE
सुश्री सुषमा चावऱा, न्याययक सदस्य एवं, श्री डी. करुणाकरा राव, ऱेखा सदस्य के समक्ष
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM
आयकर अपीऱ सं. / ITA No.778/PUN/2016
यििाारण वषा / Assessment Year : 2012-13
TIBCO Software B.V.
C/o TIBCO Software India Pvt. Ltd.,
3 Floor, Binarius, Deepak Complex,
National Games Road,
Shastri Nagar, Yerwada,
Pune - 411006 .... अऩीऱाथी/Appellant
PAN: AAECT3252G
Vs.
The Dy. Commissioner of Income Tax
(International Taxation), Circle 2, Pune .... प्रत्यथी / Respondent
Assessee by : Shri Ashwani Taneja
Revenue by : Shri A.K. Modi, CIT
सन
ु वाई की तारीख / घोषणा की तारीख /
Date of Hearing : 09.05.2019 Date of Pronouncement: 24.06.2019
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
The appeal filed by assessee is against the order of DCIT (International Taxation), Circle 2, Pune, dated 18.02.2016 relating to assessment year 2012- 13 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short 'the Act').
2. The assessee has raised the following ground of appeal:- ITA No.778/PUN/2016 2
TIBCO Software B.V. Ground No.1:
On the facts and circumstances of the case, and in law, the Hon‟ble DRP erred in upholding the action of the Ld. AO to tax receipt of Rs.74,468,476 as „Royalty‟ within the meaning of Article 12 of the India-Netherlands Double Taxation Avoidance Agreement („DTAA‟ or „the treaty‟).
It is prayed that the addition proposed by the Ld. AO and confirmed by the Hon‟ble DRP be deleted.
3. The only issue raised in the present appeal is with regard to taxability of receipt of ₹ 7.44 crores and whether the same is in the realm of 'Royalty' within meaning of Article 12 of India-Netherlands Double Taxation Avoidance Agreement (DTAA).
4. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal is squarely covered by order of Tribunal in the case of John Deere India Pvt. Ltd. Vs DDIT (International Taxation) (2019) 70 ITR (Trib) 73 (Pune).
5. Briefly, in the facts of the case, the assessee foreign non-resident had furnished return of income declaring nil income. The case of assessee was picked up for scrutiny. The assessee was engaged in sale of software licenses and provision of software maintenance / consulting, training services to third party customers in India. The assessee was tax resident of Netherlands and was governed under DTAA between India and Netherlands. During the year under consideration, the assessee had received ₹ 21,89,25,934/- towards sale of software licenses and provision of services and the breakup of the same is under para 3 of order of Assessing Officer. The assessee had claimed that the said receipts do not fall within ambit of royalty/fees for technical services under Article 12 of DTAA treaty, hence, the same were not offered to tax. On the other hand, the Assessing Officer was of the view that why the aforesaid ITA No.778/PUN/2016 3 TIBCO Software B.V. payments received during the year should not be treated as royalty / fees for technical services and taxed accordingly. After investigation, the Assessing Officer relying on several decisions including decision of the Hon'ble High Court of Karnataka in CIT Vs. M/s. Samsung Electronics Co. Ltd. in ITA No.2808 of 2005, judgment dated 15.10.2011 and CIT Vs. Synopsis International Old Ltd. in ITA Nos.11 to 15/2008 & 17/2008, judgment dated 03.08.2010, was of the view that the aforesaid payments were taxable in the hands of assessee as income from software license fees treated as 'royalty' as per provisions of DTAA between India and Netherlands. The Assessing Officer issued draft assessment order and consequent to the objections being dismissed by Dispute Resolution Panel (DRP), final assessment order was issued in the case of assessee. The DRP in turn, had relied on the ratio laid down by Pune Bench of Tribunal in the case of Cummins Inc (2013) 38 taxmann.com 286 (Pune).
6. The assessee is in appeal against order of Assessing Officer / DRP and has proposed that the said receipts are not taxable in its hands as the software in consideration was standard software and not customized software.
7. The learned Departmental Representative for the Revenue has placed heavy reliance on the orders of authorities below.
8. We have heard the rival contentions and perused the record. The assessee had entered into limited, non transferrable, non exclusive, non sub- licensable agreement with different entities for the use of software during the licensed term. The claim of assessee was that the said software was standard software and not customized software, wherein the title to the same, ownership and all rights and patents, copyrights, etc. were not transferred to the customer ITA No.778/PUN/2016 4 TIBCO Software B.V. and vested with TIBCO group. The issue which arises is whether such receipts are taxable in the hands of assessee on the ground that they fall within definition of 'royalty' as per provisions of India-Netherlands Tax Treaty.
9. We have considered this issue of payment for purchase of software which was not customized software in the case of John Deere India Pvt. Ltd. Vs DDIT (International Taxation) (supra) and the Tribunal while deciding the issue of deduction of tax at source out of payments made for purchase of software had in turn, referred to the orders passed in Miscellaneous Applications in the case of Cummins Inc in MA Nos.28 & 29/PUN/2017, order dated 06.12.2017 and DIT Vs. Reliance Infocom Ltd. / Lucent Technologies Hindustan Ltd., against which the Revenue filed Writ Petition before the Hon'ble Bombay High Court, which was also dismissed by the Hon'ble High Court vide order dated 08.08.2017 and approved the decision of Tribunal in recalling its earlier order in proceeding under section 254(2) of the Act and hence, reliance placed upon by the CIT(A) do not stand. The issue was considered at length and it was held that where the software is purchased across the counter as shrink proof software, then it is not akin to royalty both under the Income Tax Act or the DTAA. The Tribunal held that since the definition of 'royalty' has not been amended under DTAA, then the said definition would be paramount and would have to be applied for deciding the issue. It also held that amendment to section 9(1)(vi) of the Act by insertion of Explanations 4 to 6 would not change the scenario and make the assessee liable for deduction of tax at source in the relevant year. The relevant findings of Tribunal are in para 90, which read as under:-
"90. In conclusion, we hold that purchase of software by the assessee being copyrighted article is not covered by the term „royalty‟ under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) of the Act. We further hold ITA No.778/PUN/2016 5 TIBCO Software B.V. that amended definition of „royalty‟ under the domestic law cannot be extended to the definition of „royalty‟ under DTAA, where the term „royalty‟ originally defined has not been amended. As per definition of „royalty‟ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of „royalty‟. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of „royalty‟ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled."
10. The assessee before us is recipient of aforesaid payment made on account of use of software licenses. Following the same parity of reasoning as in the case of John Deere India Pvt. Ltd. Vs DDIT (International Taxation) (supra), we hold that the said receipts are not taxable in the hands of assessee on the premise that the same do not fall within the realm of definition of 'royalty' under India-Netherlands Tax Treaty. It may be pointed out that definition of 'royalty' under India-Netherlands Tax Treaty is similar to the definition of 'royalty' under India-USA Tax Treaty. Accordingly, we hold so. The Assessing Officer is directed to delete the addition made in the hands of assessee. The ground of appeal No.1 raised by assessee is thus, allowed.
11. In the result, the appeal of assessee is allowed.
Order pronounced on this 24th day of June, 2019.
Sd/- Sd/-
(D.KARUNAKARA RAO) (SUSHMA CHOWLA)
ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER
ऩुणे / Pune; ददनाांक Dated : 24th June, 2019.
GCVSR
ITA No.778/PUN/2016
6
TIBCO Software B.V.
आदे श की प्रयिलऱपप अग्रेपषि/Copy of the Order is forwarded to :
1. The Appellant;
2. The Respondent;
3. The DRP-3, Mumbai;
4. The CIT(TP/IT), Pune;
5. The DR 'C', ITAT, Pune;
6. Guard file.
ु ार/ BY ORDER, आदे शािस सत्यापऩत प्रतत //True Copy// वररष्ठ तनजी सचिव / Sr. Private Secretary आयकर अऩीऱीय अचधकरण ,ऩुणे / ITAT, Pune