Income Tax Appellate Tribunal - Mumbai
Trimble Solutions Corporation, Mumbai vs Dcit(It)-4(1)(2), Mumbai on 16 December, 2019
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ITA No.6481 & 6482/Mum/2017
A.Ys 2010-11 & 2011-12
M/s. Trimble Solutions
(earlier known as 'Tekla Corporation)
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" Bench, Mumbai
Before Shri Pramod Kumar, Vice President
and Shri Ravish Sood, Judicial Member
ITA No. 6481/Mum/2017
(Assessment Year: 2010-11)
ITA No. 6482/Mum/2017
(Assessment Year: 2011-12)
Trimble Solutions Corporation Deputy Commissioner of Income Tax, Cir
C/0 SRBC & Associates LLP, 14th Floor., (IT)(4)(1)(2), Mumbai, Room No. 1609, 16th
The Ruby 29 Senapati Bapat Marg, Dadar Vs. Floor, Air India Building, Nariman Point,
(W), Mumbai-400 028. Mumbai-400 021.
PAN - AADCT2639Q
(Appellant) (Respondent)
Appellant by: Sh. Divesh Chawla
Respondent by: Sh. Anbu Selvam
Date of Hearing: 19-09-2019
Date of Pronouncement: 16-12-2019
ORDER
PER RAVISH SOOD, JM
The captioned appeals filed by the assessee company are directed against the respective orders passed by the A.O under Sec. 144C(13) r.w.s 143(3) of the Income Tax Act, 1961 (for short „Act‟) for Assessment Years 2010-11 and 2011-12, both dated 31.08.2017. As the issues involved in the captioned appeals are inextricably interlinked and interwoven, therefore, the same are being taken up and disposed off by way of a common order. We shall first advert to the appeal of the assessee for A.Y 20101-11. The assessee has assailed the impugned order on the following grounds of appeal before us :
P a g e |2 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) "Based on the facts and circumstances of the case, Trimble Solutions Corporation (hereinafter referred to as the' Appellant' or 'Trimble Corporation') respectfully craves to prefer an appeal against the order passed under Section 144C(13) read with Section 143(3) of the Income-tax Act, 1961 ('the Act') by the Deputy Commissioner of Income-tax (International Taxation) - 4(1)(2), Mumbai (hereinafter referred to as the 'AO') dated 31 August 2017 (received on 8 September 2017) in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - 2, Mumbai (hereinafter referred to as the 'DRP') on the following grounds:
General Ground
1. On the facts and circumstances of the case, the learned Aa has erred in determining the total taxable income of the Appellant for the subject AY at Rs 10,04,18,820 as against 'Nil' income reported in the return of income filed by the Appellant for the subject AY;
Invalid service of notice under Section 143(2) of the Act
2. On the facts and circumstances of the case, the learned AO has erred in not validly serving the notice under Section 143(2) of the Act within the time-Iimit prescribed under Section 143(2) of the Act;
Time-barring assessment proceedings
3. On the facts and circumstances of the case, the learned AO has erred in passing order under Section 143(3) of the Act beyond the time limit for completion of such proceedings as per the provisions of clause (viii) of Explanation 1 of Section 153 of the Act;
Taxability of receipt from sale of 'off-the shelf' software amounting to Rs 7,81,72,583 as 'Royalty'
4. On the facts and circumstances of the case, the learned At) has erred in holding that payments of Rs 7,81,72,583 received by the Appellant towards sale of 'off-the shelf software are in the nature of 'Royalty' as per the provisions of Section 9(1)(vi) of the Act;
5. On the facts and circumstances of the case, the learned Aa has erred in holding that payments of Rs 7,81,72,583 received by the Appellant towards sale of 'off-the shelf software are in the nature of 'Royalty' under Article 13 of the India-Finland Tax Treaty;
Taxability of receipt from maintenance and support services (including upgrades) amounting to Rs 2,22,46,237 as 'Royalty'
6. On the facts and circumstances of the case, the learned AO has erred in holding that payments of Rs 2,22,46,237 received by the Appellant towards maintenance and support services (including upgrades) are in the nature of 'Royalty' as per the provisions of Section 9(l)(vi) of the Act;
7. On the facts and circumstances of the case, the learned AO has erred in holding that payments of Rs 2,22,46,237 received by the Appellant towards maintenance and support services (including upgrades) are in the nature of 'Royalty' under Article 13 of the India-Finland Tax Treaty;
Interest under Section 234A of the Act
8. On the facts and circumstances of the case, the learned AO has erred in computing interest under Section 234A of the Act for 18 months instead of 16 months;
Interest under Section 234B of the Act P a g e |3 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation)
9. On the facts and circumstances of the case, the learned AO has erred in upholding the levy of interest under Section 234B of the Act; and Penalty proceedings under Section 271(1)(c) of the Act
10. On the facts and circumstances of the case, the learned AO has erred in initiating penalty proceedings under Section 27I(l)(c) of the Act.
The Appellant respectfully submits that the above grounds of appeal are independent and without prejudice to each other.
The Appellant further prays that any other relief as the Hon'ble ITAT may deem fit be granted.
The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal, to enable the Hon'ble ITAT to decide the appeal according to law."
2. Briefly stated, the assessee which is a foreign company incorporated in Finland is engaged in the business of developing and marketing specialized off-the-shelf software products which are used in industries like building and construction, energy distribution and infrastructure management. In India, the assessee markets and distributes the specialized software products to the end user customers through a distribution channel consisting of its subsidiary and a third party distributor. Return of income for A.Y 2010-11 was filed by the assessee company on 31.03.2012, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
3. During the course of the assessment proceedings it was observed by the A.O that the assessee in order to facilitate distribution of its software products in India had appointed its wholly owned subsidiary company viz. M/s Trimble Solutions India Private Limited (earlier known as Tekla India Pvt. Ltd.), vide an „agreement‟ dated 28.01.2008 AND M/s DowCoMax Services India Limited, vide an „agreement‟ dated 23.06.2008, as its non-exclusive resellers/distributors for the Indian territory. On a perusal of the records, it was observed by the A.O that the assessee had during the year received the following payments from its distributors :
Sr. No. Particulars Amount
1. Payment received for sale of off-the shelf software Rs. 7,81,72,583/-
2. Payment received for maintenance and support services (including Rs. 2,22,46,237/-
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ITA No.6481 & 6482/Mum/2017
A.Ys 2010-11 & 2011-12
M/s. Trimble Solutions
(earlier known as 'Tekla Corporation)
upgrades)
3. Payment received for management fees Rs. 31,86,724/-
Total Rs. 10,36,05,544/-
In the course of the draft assessment proceedings, the assessee had in the last week of July, 2016 orally informed the A.O that it had filed an application dated 19/10/2012 under Sec. 245Q(1) of the Act before the Authority of Advance Ruling (for short „AAR‟) for seeking an advance ruling on taxability of software payments received by it from India, which application was however subsequently withdrawn by it. As the order of AAR allowing the withdrawal of the application by the assessee was not received by either the office of the A.O or that of the jurisdictional CIT(IT)-4, Mumbai, from the office of AAR, therefore, on the basis of the information provided by the assessee a letter dated 02/08/2016 was written by the A.O to the AAR for an official copy of its order. On 12/08/2016, the CIT(IT)-4, Mumbai also wrote to the Secretary, AAR New Delhi and sought a copy of the order of the AAR. Order of the AAR allowing the withdrawal of application by the assessee was received by the CIT(IT)-4, Mumbai on 29/08/2016. Observing, that since the order of the AAR was received by the CIT(IT)-4, Mumbai office on 29/08/2016, therefore, the A.O was of the view that as per clause (viii) of Explanation 1 to Sec.153 of the Act, the assessment could be validly framed upto 31/10/2016. On the contrary, it was the claim of the assessee that as the order of AAR was received by the A.O (as orally confirmed by him) on 24/02/2015, therefore, the draft assessment order could have been passed latest by 30/08/2015, which not having been passed within the said stipulated time period was thus barred by limitation. In support of its aforesaid claim the assessee had filed with the A.O a copy of the „despatch register‟ obtained from the office of the AAR. Rebutting the aforesaid claim of the assessee, it was observed by the A.O that as the withdrawal order dated 17/02/2015 of the AAR was received by the jurisdictional CIT(IT)-4, Mumbai for the first time on 29/08/2016, therefore, as per the provisions of Clause (viii) of Explanation 1 to Sec. 153 of the Act, the assessment could be validly framed upto 31/10/2016. Also, it was observed by the A.O that merely providing a copy of the „despatch register‟ that was obtained by the assessee from the office of the AAR could not be taken as a proof of P a g e |5 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) service of the AAR‟s order. On the basis of his aforesaid deliberations, the A.O rejected the claim of the assessee that the draft assessment order was barred by limitation.
4. On merits, the assessee drawing support from the terms and conditions of its respective „agreements‟ with its non-exclusive resellers/distributors for the Indian territory, viz. (i). M/s Trimble Solutions India Private Limited (earlier known as Tekla India Pvt. Ltd.); and (ii). M/s DowCoMax Services India Limited, had submitted before the A.O that it exclusively owned all the Intellectual Property Rights (IPR) in relation to the software and had merely granted the distributors the right to distribute a copyrighted article and not the copyright in the article. Accordingly, it was the claim of the assessee that the distributors did not use or had any right to use the copyright in the software programme. Referring to Article 12 of the India-Finland tax treaty, it was submitted by the assessee that the definition of the term „royalty‟ therein envisaged receipt of payments of any kind as a consideration for the use of or the right to use certain specific works which could include intellectual properties (such as copyright, patents etc.) by the owner of such intellectual properties from any other person. Also, it was submitted by the assessee that the India-Finland tax treaty did not contain a definition of such intellectual properties that were included within the scope of „royalty‟. As such, it was the claim of the assessee that the software products provided to its distributors was for the purpose of resale/distribution to the end user customers for use as a „copyrighted article‟ (i.e software products) and there was no right to use the copyright embedded in the software. On the basis of the aforesaid facts, it was submitted by the assessee that the amounts received from its distributors were not in the nature of „royalty‟ but in the nature of sales revenue that was collected from them. It was submitted by the assessee, that for the purpose of categorizing an income from a transaction as amounting to „royalty‟ what is to be seen is as to whether the transferee has the right of commercial exploitation of the Intellectual property contained therein. It was claimed that as the assessee had only granted the right to distribute the software products and not any right to reproduce or make copies of the software product, therefore, the amounts received from its distributors could not be held a „royalty‟ in its hands. Also drawing support from the Copyright Act, it was submitted by the assessee that a transfer of the material object (i.e the software product) which is the subject of copyright did not necessarily involved a P a g e |6 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) transfer of the copyright. Accordingly, it was the claim of the assessee that the right acquired by the transferee from the sale of the software was to use the „copyrighted article‟ (i.e software product) and not the „right to use‟ the copyright embedded in the software. In order to support its aforesaid claim, the assessee also relied on Para 14.4 of the OECD Commentary. As such, it was the claim of the assessee that the payments received by the assessee from its distributors for sale of a copyrighted article did not tantamount to „royalty‟ under the provisions of India-Finland tax treaty. As regards the exigibility to tax of the amounts received by the assessee from its distributors, it was submitted by the assessee that as the term „royalty‟ has been defined under Article 12 of the India-Finland tax treaty, therefore, the insertion of „Explanation 4‟ to Sec. 9(1)(vi) of the Act, vide the Finance Act, 2012 w.r.e.f 01.06.1976 cannot be read into the India-Finland tax treaty by resorting to Article 3 of the India-Finland tax treaty. As such, it was submitted by the assessee that the beneficial provisions of the tax treaty would be applicable as per the provisions of Sec. 90(2) of the Act. In sum and substance, it was the claim of the assessee that as per the beneficial provisions of the India-Finland tax treaty, the payments received from its distributors for sale of off-the shelf software license cannot be held to be in the nature of „royalty‟ payment. However, the A.O was not persuaded to subscribe to the aforesaid claim of the assessee. On the basis of reliance placed on certain judicial pronouncements the A.O rejected the claim of the assessee that the payments for off-the-shelf software were towards sale of a "copyrighted article". It was observed by the A.O that the payments received by the assessee from its distributors were in nature of „royalty‟ for certain reasons, viz. (i). that, Sec. 14 of the Copyright Act stated that transfer or use of a copyright in a computer program manifests itself in - (a). allowing the computer program to be stored on a medium by electronic means; or (b). selling or providing the computer program on commercial rental. Accordingly, the A.O was of the view that a mere grant of any right in a copyright as mentioned in Sec. 14 of the Copyright Act would suffice to fulfil the condition of clause (v) of Explanation 2 to Sec. 9(1)(vi) of the Act. It was observed by the A.O, that the acts of the assessee and the distribution under the „agreements‟ to the end user customers through its distributors indicated the transfer or use of some of the copyrights as mentioned in Sec. 14 of the Copyright Act by the assessee to the distributors. Also, relying upon the Explanation 4 and 5 to Sec. 9(1)(vi), as had been made available on the statute vide the Finance Act, 2012 w.r.e.f P a g e |7 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) 01.06.1976, the A.O was of the view that after the amendment it could safely be concluded that transfer of all or any rights to use a computer software (including the grant of a license) fell within the ambit of the term „royalty‟ under Sec. 9(1)(vi) of the Act. Further, the A.O was of the view that the definition of „royalty‟ under Article 12 of the India-Finland tax treaty was similar to the definition of „royalty‟ under the provisions of the Act, and the insertion of Explanations 3, 4, 5 and 6 to the definition of „royalty‟ under the Act had not expanded the scope of „royalty‟ under the India-Finland tax treaty. Further, the A.O observed that the doctrine of updating construction was required to be applied to the tax treaty and to the terms appearing in the tax treaty which not having been expressly defined in the treaty were to be understood with the changing environment.
5. Further, it was observed by the A.O that the assessee had also provided software upgrades, maintenance and support services with regard to its software, viz. "Trimble software"
to the distributors, who in turn provided the same to the end user customer, as and where such end user customer had entered into a maintenance agreement with the distributors. It was observed by the A.O that the assessee during the year was in receipt of a payment of Rs. 2,22,46,237/- towards maintenance and support services (including upgrades). It was the claim of the assessee that as the payments received for software upgrades, maintenance and support services with regard to its software were not for transfer of any right in the copyright of the article, therefore, the same could not be held as „royalty‟ under the India-Finland tax treaty as well as under the Act. However, the A.O rejected the aforesaid claim of the assessee. Observing, that the payments received by the assessee for maintenance and support services (including upgrades) were a part of and inextricably linked to the supply and use of the software, the A.O was of the view that the same were also in the nature of „royalty‟ as per the Explanation 2 to Sec. 9(1)(vi) of the Act.
6. On the basis of his aforesaid observations, the A.O, vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 26.10.2016 being of the view that the payments received by the assessee for sale of specialized software and maintenance and support services (including upgrades) were in the nature of royalty, proposed to tax the same at 10% as per clause 2 of Article 12 of the India-Finland tax treaty.
P a g e |8 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation)
7. The assessee objected to the additions proposed by the A.O, vide his draft assessment order passed under Sec.144C(1) r.w.s 143(3), dated 26.10.2016, before the Dispute Resolution Panel-2, Mumbai (for short „DRP‟). As regards the claim of the assessee that the assessment framed by the A.O was barred by limitation, the DRP after necessary deliberations and perusing the records did not find favour with the same. It was observed by the DRP, that contrary to the observation of the A.O that the withdrawal letter dated 17/02/2015 was issued by the AAR to CIT(IT)-II, no such letter written by the AAR to CIT(IT)-II was found available on record. Rather, it was observed by the DRP that a letter dated 29/08/2016 communicating the order of the AAR to the CIT(IT)-4, Mumbai, which was received on 30.08.2016 was found available on record. In the backdrop of the aforesaid facts, the DRP was of the view that it could safely be concluded that the withdrawal order of the AAR, dated 17.02.2015 was received by the jurisdictional CIT i.e CIT(IT)-4, Mumbai, on 30/08/2016. On the basis of its aforesaid deliberations, the DRP was of the view that the A.O had rightly concluded that the last date of completing the assessment would be 31/10/2016. Accordingly, the DRP rejected the aforesaid objection of the assessee. As regards the view taken by the A.O that the payments received by the assessee from its distributors for sale of specialized software and maintenance and support services (including upgrades) were in the nature of royalty which thus were to be taxed at 10% as per Clause 2 of Article 12 of the India-Finland tax treaty, the DRP did not find any infirmity in the same and rejected the objection of the assessee.
8. After receiving the order of the DRP under Sec. 144C(5), dated 31.07.2017, the A.O vide his final assessment order under Sec. 144C(13) r.w.s 143(3), dated 31/08/2017, therein treating the amounts received by the assessee from its distributors for sale of specialized software of Rs. 7,81,72,583/- and maintenance and support services (including upgrades) of Rs. 2,22,46,237/- as being in the nature of „royalty‟, therein included the same in the total income of the assessee and determined its income at Rs. 10,04,18,820/-.
9. The assessee being aggrieved with the order of the A.O under Sec. 144C(13) r.w.s 143(3), dated 31/08/2017, has carried the matter in appeal before us. The ld Authorised Representative (for short „A.R‟) for the assessee after arguing at some length submitted that he P a g e |9 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) was not pressing Ground of appeal No. 2. As per the concession of the Ld. A.R, the Ground of appeal No. 2 is dismissed as not pressed. As regards the validity of the assessment order, it was submitted by the ld. A.R that the same having been passed beyond the extended time limit prescribed in clause (viii) of Explanation 1 of Sec. 153 was thus barred by limitation. In order to support his aforesaid claim the ld. A.R took us through the chronology of events at Page 31 of the assesses „Paper book‟ (for short „APB‟). It was the claim of the ld. A.R that the withdrawal order of the AAR was despatched to the CIT(IT)-II, Mumbai on 20/02/2015. In order to drive home his aforesaid contention the ld. A.R had drawn our attention to the copy of the „despatch register‟ of AAR office at Page 33 of the „APB‟. It was submitted by the ld. A.R that the AAR order was received by the assessee on 25/02/2015. Further, it was claimed by the ld. A.R that as orally confirmed by the A.O the AAR order was received by the tax authorities on 24/02/2015. On being called upon to substantiate its claim that the order of the AAR was received by the tax authorities on 24/02/2015, the ld. A.R having failed to do so, thus did not stress upon his said claim any further. Relying on the orders of the Hon'ble High Court of Delhi in the case of CIT-7 Vs. Odeon Buildes Pvt. Ltd. (2017) 393 ITR 0027 (Delhi) (FB) and GE Energy Parts Inc. Vs. The Deputy Commissioner of Income Tax & Anr. [W.P(C) 5577/2018; dated 20.08.2019], it was submitted by the ld. A.R that once an order was served upon the revenue, the period of time limitation would commence therefrom and the revenue cannot be permitted to raise a plea that the order was not served upon the jurisdictional CIT. Also, drawing support from the observations of the Hon‟ble High Court in the aforesaid judicial pronouncements, it was averred by the ld. A.R that as the counsel of the department was present at the time of the pronouncement of the AAR order, therefore, it could safely be concluded that the department/revenue was aware of the order and for the purpose of working out the period of limitation it was irrelevant as to when the concerned CIT or Pr. CIT was made aware of the said order. On the basis of his aforesaid contentions, it was submitted by the ld. A.R that as the order of withdrawal of the AAR was passed on 17/02/2015 and thereafter was despatched to CIT(IT)-II, Mumbai on 20/02/2015, therefore, the draft assessment order passed by the A.O was beyond the period contemplated in clause (viii) of Explanation 1 to Sec. 153 of the Act. Also, support was drawn by the ld. A.R on the order of the ITAT Mumbai Bench "B" in Color Craft vs. ITO-16(2)(4), Mumbai [2016] 68 taxmann.com 409 (Mum).
P a g e | 10 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation)
10. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the claim of the ld. A.R that the draft assessment order having been passed by the A.O under Sec. 144C(1) r.w.s 143(3), dated 26/10/2016 was beyond the prescribed time limit envisaged in clause (viii) of Explanation 1 to Sec. 153 of the Act. As observed by us hereinabove, it was though initially canvassed by the ld. A.R before us that as orally confirmed by the A.O the order of withdrawal of AAR was received by the revenue on 20/02/2015. However, as the ld. A.R on being called upon to substantiate his said claim had failed to do so, therefore, he had thereafter not stressed upon the same any further. Apart therefrom, as the aforesaid claim of the ld. A.R is absolutely unsubstantiated and no attempt has been made to support the same by way of an „affidavit‟ as required by Rule 10 of the Appellate Tribunal Rules, 1962, therefore, the same even otherwise does not merit to be taken cognizance by us. We shall now advert to the claim of the ld. A.R that as per the „despatch register‟ the withdrawal order of the AAR was despatched to the CIT(IT)-II, Mumbai on 20/02/2015. It was the claim of the ld. A.R that as the order of withdrawal of the AAR was received by the CIT(IT)-II, Mumbai, the period of limitation would not cease to run only because the concerned CIT(IT)-4, Mumbai had not received the said order. In sum and substance, we find that it is the claim of the ld. A.R that now when the revenue was put to notice and had knowledge about the order of withdrawal of AAR, the period of limitation would commence and it was immaterial that the concerned CIT(IT)-4, Mumbai had not received the said order. As observed by us hereinabove, the ld. A.R. In order to drive home his aforesaid contention had relied on the order of the Hon'ble High Court of Delhi in the case of CIT-7 Vs. Odeon Buildes Pvt. Ltd. (2017) 393 ITR 0027 (Delhi) (FB). We have given a thoughtful consideration to the facts of the case before us and are unable to find ourselves to be in agreement with the aforesaid claim of the assessee. Although, the ld. A.R had claimed that the order of withdrawal of AAR was despatched to CIT(IT)-II, Mumbai, on 20/02/2015, however, we find that as observed by the DRP, a perusal of the case records of the A.O did not reveal that any such order dated 17/02/2015 stated to have been despatched by the AAR to the CIT(IT)-II, Mumbai, was available on record. In our considered view, though it is the claim of the ld. A.R that the AAR order of withdrawal, dated 17/02/2015 was despatched to CIT(IT)-II, Mumbai on P a g e | 11 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) 20/02/2015, however, there is no material available on record which would evidence that the aforesaid order of AAR was received by the CIT(IT)-II, Mumbai. Also, the ld. A.R had failed to lead any evidence to prove its claim that the order of the AAR, dated 17.02.2015 was ever served upon the CIT(IT)-II, Mumbai. As is discernible from the order of the DRP, a letter dated 29/08/2016 communicating the order of AAR to the CIT(IT)-4, Mumbai, that was received on 30/08/2016 was found available on record. In the backdrop of the aforesaid facts which had not been dislodged by the ld. A.R before us, we are of the considered view that as the order of withdrawal of the AAR was received by the revenue only as on 30/08/2016, therefore, the draft assessment order passed by the A.O under Sec. 144C(1) r.w.s 143(3), dated 26/10/2016, was passed well within the stipulated time limit envisaged in clause (viii) of the Explanation 1 to Sec. 153 of the Act. We shall now advert to the alternative claim of the ld. A.R, that as the counsel for the revenue was present at the time of pronouncement of the order by the AAR on 17/02/2015, therefore, it could be safely be concluded that the revenue was aware of the said order of withdrawal of the AAR. We find that the ld. A.R in support of his aforesaid contention had relied on the order of the Hon'ble High Court of Delhi in the case of CIT-7 Vs. Odeon Buildes Pvt. Ltd. (2017) 393 ITR 0027 (Delhi) (FB). In our considered view, the ld. A.R had on the basis of incomplete facts raised the aforesaid claim. On a perusal of the order of the Hon‟ble High Court which was delivered in context of filing of an appeal u/s 260A, it was observed, that though the date of pronouncement of the order can safely be taken as the date on which the revenue was aware of the order, but then for the purpose of commencement of limitation the time taken by the counsel for the revenue to obtain a copy of the order will have to be excluded. In the case before us, the ld. A.R had failed to lead necessary material as regards the date on which the counsel for the revenue/D.R had obtained the copy of the order of the AAR. As such, the aforesaid claim of the ld. A.R also has to fail in the absence of complete facts. On the basis of our aforesaid deliberations, we are of the considered view that the claim of the ld. A.R that the draft assessment order passed by the A.O under Sec. 144C(1) r.w.s 143(3), dated 26/10/2016 was beyond the stipulated prescribed time limit envisaged in clause
(vi) of Explanation 1 to Sec. 153 of the Act, does not merit acceptance and is liable to be rejected. Ground of appeal No. 3 is dismissed.
P a g e | 12 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation)
11. We shall now advert to the contentions advanced by the ld. A.R as regards the merits of the case. As observed by us hereinabove, the assessee which is a foreign company incorporated in Finland is engaged in the business of developing and marketing specialized off- the-shelf software products which are used in industries like building and construction, energy distribution and infrastructure management. The assessee during the year had received the following payments from its non-exclusive resellers/distributors for the Indian territory viz. (i). M/s Trimble Solutions India Private Limited (earlier known as Tekla India Pvt. Ltd.); and (ii). M/s DowCoMax Services India Limited :
Sr. No. Particulars Amount
1. Payment received for sale of off-the shelf software Rs. 7,81,72,583/-
2. Payment received for maintenance and support services (including Rs. 2,22,46,237/-
upgrades)
3. Payment received for management fees Rs. 31,86,724/-
Total Rs. 10,36,05,544/-
Observing, that the payments received by the assessee from its distributors for sale of specialized software and maintenance and support services (including upgrades) were in the nature of „royalty‟ as per Article 12 of the India-Finland tax treaty, and also as per the Explanation 2 to Sec. 9(1)(vi) of the Act, the A.O/DRP had included the same in the total income of the assessee for the year under consideration.
12. On a perusal of Article 12 of the India-Finland tax treaty, we find, that the definition of the term „royalty‟ therein envisage payments received as a consideration for the use of, or the right to use certain specific works which could include intellectual properties (such as copyright, patents etc.) by the owner of such intellectual properties from any other person. For the sake of clarity, Article 12 of the India- Finland tax treaty is reproduced as under :
"ARTICLE 12 Royalties and Fees for Technical Services
1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
P a g e | 13 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation)
2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services.
3. (a) The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, and films or tapes for television or radio broadcasting, any patent, trade- mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience,
(b) The term "fees for technical services" as used in this article means payments of any kind, other than those mentioned in articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7 or article 14, as the case may be, shall apply.
5. Royalties or fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the right or property for which the royalties are paid is used within a Contracting State or the fees for technical services relate to services performed, within a Contracting State, then such royalties or fees for technical services shall be deemed to arise in the State in which the right or property is used or the services are performed. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement."
13. As is discernible from the records, we find, that the assessee company as per the terms and conditions of its respective „agreements‟ with its non-exclusive resellers/distributors for the Indian territory, viz. (i). M/s Trimble Solutions India Private Limited, WOS of the assessee company; and (ii). M/s DowCoMax Services India Limited, had merely granted to the said distributors the right to distribute the copyrighted article (i.e software products) and not the P a g e | 14 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) copyright in the said article. In fact, we find that the assessee exclusively owned all the Intellectual Property Rights (IPR‟s) in relation to the software, viz. "Trimble software". As per the respective "agreements" entered into by the assessee with its resellers/distributors, we find, that the distributors did not use or had any right to use the copyright in the software programme. In our considered view as the software provided by the assessee to its resellers/distributors was only for the purpose of resale/distribution to the end user customer for use as a „copyrighted article‟ (i.e software product) with no right to use the copyright embedded in the software, therefore, it can safely or rather inescapably be concluded that the payments received by the assessee from its distributors were in the nature of sales revenue and not „royalty‟. On a perusal of the respective „agreements‟ entered into by the assessee with its resellers/distributors the rights which were vested with them can briefly be culled out as under :
the distributors were granted a non-exclusive license to market and distribute the software products developed by the assessee company;
the distributors did not have a right to the source code of such software products; the distributors were not permitted to modify, translate or recompile, add to or in any way alter the software products including its documentation; the distributors were not permitted to create the source code of the software products supplied under the agreements;
the distributors were not expressly permitted to reproduce or make copies of the software products under the agreements (except a backup copy as required by the customer);
the distributors were not vested with any right of any nature in the Intellectual Property developed and owned by the assessee company in the software products; that all the trademarks and trade names which the distributors used in connection with the products supplied, remained the exclusive property of the assessee company which at all times had the title to all rights to Intellectual Property, software and proprietary information including all components, additions, modifications and updates; and P a g e | 15 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) the distributors did not have any authority to negotiate or to conclude contracts on behalf of the assessee company, act as its agent or in any way represent the assessee so as to bind it under any transaction.
As is borne from the records, the software provided by the assessee to its distributors was for the purpose of resale/distribution to the end user customers and there was no right to use the copyright embedded in the said copyrighted article (i.e software products). In our considered view, as the assessee had only granted the right to distribute the software products and not any right to reproduce or make copies of the software product, therefore, in the absence of vesting of any right of commercial exploitation of the Intellectual property contained in the copyrighted article (i.e software products) with the transferee, the amounts received by the assessee from its distributors was clearly in the nature of sales revenue and could not be held as „royalty‟ in its hands. In sum and substance, we find that as the right acquired by the transferee from the sale of the software was to use the „copyrighted article‟ (i.e software products) and not the right to use the copyright embedded in the software, therefore, the payments received by the assesee from its distributors could not be stamped as „royalty‟ in the hands of the assessee. We also find substance in the claim of the ld. A.R that as per the Copyright Act, a transfer of the copyrighted article (i.e the software product) which is the subject of copyright would not necessarily involve a transfer of the copyright. As can be gathered from a perusal of the „agreements‟ between the assessee and its distributors, the rights acquired by the transferee on the sale of the copyrighted article (i.e software products) is to use the copyrighted article and not the right to use the copyright embedded in the software. On the basis of our aforesaid observations, we are of the considered view that as the sale of the copyrighted article (i.e software products) by the assessee company cannot be regarded as a sale of copyright in the software, therefore, the payments received by the assessee on such sale of software would be its „business income‟ and cannot be regarded as „royalty‟ income under the provisions of India- Finland tax treaty. Our aforesaid view is fortified by the judgments of the Hon'ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329 (Del). In the said judgment the Hon‟ble High Court had observed that the consideration received by the assessee on grant of licences for use of software is not taxable as „royalty‟ within the meaning of Article 12(3) of P a g e | 16 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) the DTAA between India and the USA. Also, the ITAT, Mumbai "L" Bench in DDIT Vs. Reliance Communications Ltd. (2018) 52 CCH 292 (Mum) had in its recent order held, that as the payment made by the assessee was for copyrighted article i.e software and there was no transfer of copyright of the software in any manner, thus the same did not amount to „royalty‟ within the definition of Article 12/13(3) of the respective tax treaties and resultantly the assessee remained under no obligation to deduct tax at source while making the remittances.
14. We shall now advert to the observations of the A.O/DRP, wherein they had through Article 3(2) of the India-Finland tax treaty tried to read the „Explanation 4‟, „Explanation 5‟ and „Explanation 6‟ to Sec. 9(1)(vi) as had been made available in the Income-tax Act, 1961 by the legislature vide the Finance Act, 2012 w.r.e.f 01/04/1976, into the definition of „royalty‟ contemplated in Article 12 of the India-Finland tax treaty. We are unable to persuade ourselves to subscribe to the aforesaid view of the lower authorities. Article 3(2) of the India-Finland tax treaty provides that as regards the application of the Agreement at any time by a Contracting State any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Agreement applies. As such, if a particular term has been specifically defined in the tax treaty, then the amendment to the definition of such term under the Act would have no bearing on the definition of such term in the context of the convention, unless the tax treaty is also correspondingly amended. In our considered view, a country which is a party to the tax treaty cannot unilaterally alter its provisions. In fact, an amendment to the provision of the treaty can be made bilaterally after entertaining deliberations from both the countries who signed it. Accordingly, if there is no amendment to the provisions of the tax treaty but there is some amendment adverse to the assessee in the Act, which provision has been specifically defined in the tax treaty or there is no reference in the tax treaty to the adoption of such provision from the Act, then such amendment will have no effect on the tax treaty. On a perusal of the India- Finland tax treaty, we find, that the term „royalty‟ has been defined in Article 12(3)(a). Such definition of the term „royalty‟ as per the said article is exhaustive. We find that pursuant to the insertion of Explanation 4, Explanation 5 and Explanation 6 by the Finance Act, 2012 w.r.e.f 01/04/1976, no corresponding amendment has been made in the India-Finland tax treaty to P a g e | 17 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) bring the definition of „royalty‟ therein envisaged at par with that provided under Sec. 9(1)(vi) of the Act. Accordingly, we are of the considered view that the retrospective insertion of Explanation 4, Explanation 5 and Explanation 6 to Sec. 9(1)(vi) of the Act as had been made available on the statute by the Finance Act, 2012 w.r.e.f 01/06/1976 cannot be read into the India-Finland tax treaty. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Delhi in DIT vs. New Skies Satellite BV (2016) 382 ITR 114 (Del). In the said case it was observed by the Hon‟ble High Court that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend its operation to the terms of an international treaty. Further, it was observed that clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. Also, similar view had been taken by a coordinate bench of the ITAT Mumbai "I" Bench, Mumbai in the ACIT (IT)- 4(1)(1), Mumbai vs. Reliance Jio Infocomm Ltd. [ITA No. 6331 to 6334/Mum/2018, dated 15/11/2019] and the ITAT Delhi Bench „B‟ in Datamine International Ltd. Vs. Addl. DIT, Range 1, International Taxation, New Delhi [2016] 158 ITD 84 (Delhi). In the backdrop of our aforesaid deliberations, we are unable to persuade ourselves to subscribe to the view taken by the lower authorities that „Explanation 4‟, „Explanation 5‟ and „Explanation 6‟ to Sec. 9(1)(vi) as had been made available in the Income-tax Act, 1961 by the legislature vide the Finance Act, 2012 w.r.e.f 01/06/1976, are to be read into the definition of „royalty‟ as envisaged in Article 12 of the India- Finland tax treaty.
15. As observed by us hereinabove, the assessee in addition to distribution of software products in India had also provided software upgrades, maintenance and support services with regard to its software to the distributors, who in turn provided the same to the end user customers who had entered into a maintenance agreement with the distributors. The assessee during the year had received an amount of Rs. 2,22,46,237/- from its distributors towards maintenance and support services (including upgrades). On a perusal of the records, we find, that the assessee would grant to its distributors a right of new official sub-release i.e a modification to a licensed software product which would incorporate the correctness and P a g e | 18 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) provide a functional or performance improvement. Also, the assessee would grant to its distributors a right of new official main release i.e an update to the existing software product with enhanced features, which the customers would prefer instead of buying new licensed software. Accordingly, the end user customers by entering into a maintenance agreement could access and download the updates offered by the assessee. As the payments received by the assessee towards distribution of sub-releases and main releases were also for a right to provide a copyrighted article i.e software updates, which was akin to the amounts received for distribution of the specialized off-the-shelf software products, and not for any right to use the copyright embedded in the said copyrighted article (i.e software products), therefore, the same too in our considered view cannot be construed as „royalty‟ income, and would be the „business income‟ of the assessee. On a similar footing, we find, that as per the distributors agreements, it was the responsibility of the distributors to resolve the end user customers queries. In case, the distributors would require assistance on issues as regards functionalities, trouble shooting and verifying error situations, the assessee would provide the same. The aforesaid queries would be resolved via e-mails or telephone calls by the employees of the assessee based in Finland. In our considered view, as the payments received by the assessee from rendering of the maintenance and support services does not fall within the scope and gamut of the definition of „royalty‟ in Article 12 of the India-Finland tax treaty, therefore, the payments received by the assessee for providing such support services cannot be held as „royalty‟ in the hands of the assessee.
16. In terms of our aforesaid observations, we are of the considered view that the amount received by the assessee from its distributors for sale of specialized software and maintenance and support services (including upgrades) cannot be held as being in the nature of „royalty‟ as per Article 12 of the India-Finland tax treaty. Grounds of appeal Nos. 4 to 7 are allowed in terms of our aforesaid observations.
17. Ground of appeal No. 1 being general is dismissed as not pressed.
18. The assessee has assailed the period of levy of interest u/s 234A. Also, the levy of interest u/s 234B has been challenged. As the calculation of the interest liabilities would be consequential to the determining of the tax liability of the assessee, if any, therefore, the same P a g e | 19 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) is being restored to the file of the A.O. Grounds of appeal Nos. 8 & 9 are disposed off in terms of our aforesaid observations.
19. The assessee has assailed the initiation of the penalty proceedings u/s 271(1)(c), vide ground of appeal No. 10. As the said grievance of the assessee is premature, therefore the same is dismissed. Ground of appeal No. 10 is dismissed.
20. The appeal of the assessee is partly allowed in terms of our aforesaid observations.
ITA No. 6482/Mum/2012A.Y 2011-12
21. We shall now advert to the appeal of the assessee for A.Y 2011-12. The assesee has assailed the impugned order on the following grounds of appeal before us :
"Based on the facts and circumstances of the case, Trimble Solutions Corporation (hereinafter referred to as the' Appellant' or 'Trimble Corporation') respectfully craves to prefer an appeal against the order passed under Section 144C(13) read with Section 143(3) of the Income-tax Act, 1961 ('the Act') by the Deputy Commissioner of Income-tax (International Taxation) - 4(1)(2), Mumbai (hereinafter referred to as the 'AO') dated 31 August 2017 (received on 8 September 2017) in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel - 2, Mumbai (hereinafter referred to as the 'DRP') on the following grounds:
General Ground
1. On the facts and circumstances of the case, the learned Aa has erred in determining the total taxable income of the Appellant for the subject AY at Rs 15,95,09,620/- as against 'Nil' income reported in the return of income filed by the Appellant for the subject AY;
Time-barring assessment proceedings
2. On the facts and circumstances of the case, the learned AO has erred in passing order under Section 143(3) of the Act beyond the time limit for completion of such proceedings as per the provisions of clause (viii) of Explanation 1 of Section 153 of the Act;
Taxability of receipt from sale of 'off-the shelf' software amounting to Rs 9,31,88,908/- as 'Royalty'
3. On the facts and circumstances of the case, the learned At) has erred in holding that payments of Rs 9,31,88,908/- received by the Appellant towards sale of 'off-the shelf software are in the nature of 'Royalty' as per the provisions of Section 9(1)(vi) of the Act;
4. On the facts and circumstances of the case, the learned Aa has erred in holding that payments of Rs 9,31,88,908/- received by the Appellant towards sale of 'off-the shelf software are in the nature of 'Royalty' under Article 13 of the India-Finland Tax Treaty;
P a g e | 20 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) Taxability of receipt from maintenance and support services (including upgrades) amounting to Rs 6,63,20,712/- as 'Royalty'
5. On the facts and circumstances of the case, the learned AO has erred in holding that payments of Rs 6,63,20,712/- received by the Appellant towards maintenance and support services (including upgrades) are in the nature of 'Royalty' as per the provisions of Section 9(l)(vi) of the Act;
6. On the facts and circumstances of the case, the learned AO has erred in holding that payments of Rs 6,63,20,712/- received by the Appellant towards maintenance and support services (including upgrades) are in the nature of 'Royalty' under Article 13 of the India-Finland Tax Treaty;
Interest under Section 234A of the Act
7. On the facts and circumstances of the case, the learned AO has erred in upholding the levy of interest under Section 234A of the Act.
Interest under Section 234B of the Act
8. On the facts and circumstances of the case, the learned AO has erred in upholding the levy of nterest under Section 234B of the Act; and Penalty proceedings under Section 271(1)(c) of the Act
9. On the facts and circumstances of the case, the learned AO has erred in initiating penalty proceedings under Section 27I(l)(c) of the Act.
The Appellant respectfully submits that the above grounds of appeal are independent and without prejudice to each other.
The Appellant further prays that any other relief as the Hon'ble ITAT may deem fit be granted.
The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal, to enable the Hon'ble ITAT to decide the appeal according to law."
22. Briefly stated, the assessee company had filed its return of income for A.Y 2011-12 on 28.03.2013, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
23. During the course of the assessment proceedings it was observed by the A.O that the assessee in order to facilitate distribution of its software in India had appointed its wholly owned subsidiary company viz. M/s Trimble Solutions India Private Limited (earlier known as Tekla India Pvt. Ltd.), vide an „agreement‟ dated 28.01.2008 AND M/s DowCoMax Services India Limited, vide „agreement‟ dated 23.06.2008, as its non-exclusive resellers/distributors for the Indian territory. On a perusal of the records, it was observed by the A.O that the assessee had during the year received the following payments from its distributors :
P a g e | 21 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) Sr. No. Particulars Amount
1. Payment received for sale of off-the shelf software Rs. 9,31,88,908/-
2. Payment received for maintenance and support services (including Rs. 6,63,20,712/-
upgrades)
3. Payment received for management fees Rs. 69,62,683/--
Total Rs. 16,64,72,303/-
24. As is discernible from the orders of the lower authorities, the assessee had filed an application dated 19/10/2012 under Sec. 245Q(1) of the Act before the Authority of Advance Ruling (for short „AAR‟) for seeking an advance ruling on taxability of software payments received by it from India, which application was however subsequently withdrawn by it. It was informed by the assessee that the order of withdrawal of AAR was passed on 17/02/2015. Also, it was the claim of the assessee that as the order of withdrawal of AAR was received by the CIT(IT)-II, Mumbai on 24/02/2015, therefore, the draft assessment order u/s 144C(1) r.w.s 143(3) as per clause (viii) of Explanation 1 to Sec. 153 could have been passed latest by 30/08/2016. However, as the order of the AAR allowing the withdrawal of application by the assessee was received by the CIT(IT)-4, Mumbai on 29/08/2016, therefore the A.O observing that the assessment could be validly framed upto 31.10.2016, therein passed the draft assessment order under Sec. 144C(1) r.w.s 143(3) on 26.10.2016. On the contrary, it was the claim of the assessee that as the order of AAR was received by the A.O (as orally confirmed by him) on 24/02/2015, therefore, the draft assessment order could have been passed latest by 30/08/2015, which not having been passed within the said stipulated time period was thus barred by limitation. In support of its aforesaid claim the assessee had filed with the A.O a copy of the „despatch register‟ obtained from the office of the AAR. Also, it was observed by the A.O that merely providing a copy of the „despatch register‟ obtained from the office of the AAR would not provide proof of service of the AAR‟s order. On the basis of his aforesaid deliberations, the A.O rejected the claim of the assessee that the draft assessment order was barred by limitation.
25. On merits, the A.O, vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 26.10.2016, being of the view that the payments received by the assessee for sale of specialized software of Rs. 9,31,88,908/- and towards maintenance and support P a g e | 22 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation) services (including upgrades) of Rs. 6,63,20,712/- were in the nature of royalty, proposed to include the same in the scope of the total income of the assessee, vide his draft assessment order passed under Sec. 144C(1) r.w.s 143(3), dated 26/10/2016.
26. Objections filed by the assessee before the DRP viz. (i). that, the draft assessment order having been passed by the A.O beyond the extended time period envisaged in clause
(viii) of Explanation 1 to Sec. 153 was thus bared by limitation ; (ii). that, the payments received by the assessee for sale of specialized software of Rs. 9,31,88,908/- had wrongly been assessed as „royalty‟ by the A.O; and (iii). that, the payments received by the assessee towards maintenance and support services (including upgrades) of software of Rs. 6,63,20,712/- were wrongly held by the A.O as being in the nature of royalty, were however rejected by the DRP.
27. After receiving the order of the DRP under Sec. 144C(5), dated 31.07.2017, the A.O passed the final assessment order under Sec. 144C(13) r.w.s 143(3), dated 31/08/2017. The A.O included the amounts received by the assessee on sale of specialized software (Rs.
9,31,88,908/-) and towards maintenance and support services (including upgrades) of Rs. 6,63,20,712/- in the total income of the assessee and assessed its total income at Rs. 15,95,09,620/-.
28. The assessee being aggrieved with the assessment framed by the A.O under Sec. 144C(13) r.w.s 143(3), dated 31/08/2017 has carried the matter in appeal before us. It was submitted by the authorised representatives for both the parties that the facts and the issues involved in the present appeal remained the same as were there before us in the appeal of the assessee for the immediately preceding year i.e A.Y 2010-11 in ITA No. 6481/mum/2017. As the facts and the issues involved in the present appeal of the assessee viz. ITA No. 6482/Mum/2017 for A.Y 2011-12 remains the same as were there before us in its appeal for A.Y 2010-11 in ITA No. 6481/Mum/2017, therefore, the order therein passed in context of the issues under consideration shall apply mutatis mutandis for the purpose of disposal of the present appeal before us. Accordingly, in terms of our observations recorded while disposing off the appeal of the assessee for A.Y 2010-11 in ITA No. 6481/Mum/2017, the present appeal of the assessee for A.Y 2011-12 in ITA No. 6482/Mum/2017 is partly allowed.
P a g e | 23 ITA No.6481 & 6482/Mum/2017 A.Ys 2010-11 & 2011-12 M/s. Trimble Solutions (earlier known as 'Tekla Corporation)
29. The appeal of the assessee is partly allowed in terms of our aforesaid observations.
30. Resultantly both the appeals of the assessee viz. A.Y 2010-11 in ITA No. 6481/Mum/2017 and A.Y 2011-12 in ITA No. 6482/Mum/2017 are partly allowed in terms of our aforesaid observations.
Order pronounced in the open court on 16.12.2019
Sd/- Sd/-
(Pramod Kumar) (Ravish Sood)
VICE PRESIDENT JUDICIAL MEMBER
भुंफई Mumbai; ददन ुंक 16.12.2019
PS. Rohit
आदे श की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to :
1. अऩीर थी / The Appellant
2. प्रत्मथी / The Respondent.
3. आमकय आमक्त(अऩीर) / The CIT(A)-
4. आमकय आमक्त / CIT
5. विब गीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भुंफई /
DR, ITAT, Mumbai
6. ग र्ड प ईर / Guard file.
सत्म वऩत प्रतत //True Copy//
आदे शानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt. Registrar)
आयकर अिीऱीय अधिकरण, भुंफई / ITAT, Mumbai