Income Tax Appellate Tribunal - Delhi
Tsys Card Tech Ltd, United Kingdom vs Dcit Circle 3(1)(1) Int.Taxation, New ... on 24 January, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member
Sh. Saktijit Dey, Judicial Member
ITA No. 2006/Del/2022: Asstt. Year: 2019-20
TSYS Card Tech Ltd, Vs DCIT,
Fulford Moor House, Fulford Road Circle-3(1)(1),
York YO10 4EY, United Kingdom, International Taxation,
UK, New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AADCT5168J
Assessee by : Sh. Kamal Sawhney, Adv
Shri Arun Bhadauria, Adv
Shri Prashnat Meharchandani, Adv
Revenue by : Sh. Gangadhar Panda, CIT-DR
Date of Hearing: 07.11.2022 Date of Pronouncement: 24.01.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present app eal has been filed by the assessee against the order of the ld. AO dated 28.06.2022.
2. The assessee has raised the following grounds of appeal:-
"1 . On t he facts and circumstances of t he cas e and in law, the final ass essment or der pass ed by t he L d. AO is bad-i n-la w and liable to be quas hed.
2. On t he facts and circumstances of t he cas e and in law, the Ld. A O has grossly er red i n passi ng the final assessment order wit hout considering t he m aterial availabl e on recor d and is bad in law and void ab initio since it has been pass ed without givi ng sufficient opportunit y to the appellant.
3. On t he facts and circumstances of t he cas e and in law, the Ld. A O has grossly er red i n passi ng the final Page | 1 assessment order without givi ng the cognizanc e to the directions passed by the Ld. DRP and accordi ngl y, the final ass es sment order is ba d i n law.
4. On the facts and in the circ umst anc es of t he c ase and in law, Ld. AO has erred i n alleging that receipts in t he nature of software licens e fee amounti ng t o Rs 5,21,17,082 is taxable as Fees f or Tec hnical Services (FTS ') as per the Act and als o as per the provisions of India-UK Doubl e Taxati on Avoidanc e Agreement ( DTAA ).
4.1 In doi ng so, t he Ld. A O has erred in not followi ng t he directions of L d. DR P, wher ei n it was direc ted to exclude the rec eipt s related to soft ware licens e f ee amounti ng to Rs 5,21,17,082. As per direc tions of the Ld. DR P, such rec eipts will constit ute business income under Article 7 of the India-UK DTAA and will not be taxabl e in India becaus e undisput edly, Appellant does not have any PE in I ndia.
5. On the facts and in the circ umst anc es of t he c ase and in law, Ld. AO/ DRP has erred in allegi ng that rec eipts from pr ovisi on of other related s ervices amounti ng t o Rs 12,01,30,877 is taxable as FTS as per the Act read with I ndia- UK DTAA.
6. On the facts and in the circ umst anc es of t he c ase and i n law, Ld. A O has erred in proposi ng to ta x the rec eipts a mounti ng to Rs 7,24,821 as FTS as per the Act read with the India-UK D TAA, as the same is in thejat ure of reimbursem ent whic h does not involve any i ncome el em ent a nd henc e not chargeabl e to tax in I ndia in the hands of the appellant. 6.1 On t he facts and c ircumst anc es of the c as e a nd in law, the Ld. A O has erred i n not followi ng the direc tions of Ld. DR P, wherei n it was direc ted that the Ld. AO t o verify t he details rega rdi ng the reimburs ement and to excl ude rec eipts whic h are in the nature of reimbursement.
7. On t he facts and circumstances of t he cas e and in law, the ld AO erred i n initiati ng penalty pr oceedings under s ection 270A of the Act."
3. Ground No. 1, 2 and 3 are general in nature and therefore, same are dismissed.
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4. Brief facts of the case is that the assessee M/s TSYS Card Tech Ltd . Ltd is a company. Assessee is engaged in the business of providing information technology related services to financial payments industry . During the subject AY, the assessee had earned revenue from Indian Customer primarily for rendition of software license (referred to as 'PRIME) and provision of software related services including imp lementation services, enhancement services, annual maintenance services and consultancy services as per the request of the Customers.
5. During the year the assessee received an amount of Rs. 5,21,17,082/- on account of software (Prime) License fee and fee for provision for other related parties of Rs. 12,01,30,877/- and receipt in nature of reimbursement of Rs. 7,24,821/- totaling to Rs. 17,29,72,780/-.
6. As regards the first set of receipts on account of Software (Prime) License Fee of Rs. 5,21,17,082, the assessee filed a copy of "Prime and Online Software Licensing Agreement dated 09.11.2005 with UTI Bank (Axis Bank) and Software License Agreement with ICICI Bank Ltd dated 03.03.2004 before the ld DRP.
7. It is provided that, inter alia, the Licensee shall:
"5. Refrain from modifying PRIME and the Operating Environment on which it resides unless authorised or instructed in writing by the Licensor.
6. Neither transfer PRIME (or portions of it) nor divulge it, its specifications or manuals to any third party unless authorised in writing by the Licensor.
7. Refrain from taking more than two copies of PRIME, such copies being for backup purposes only . One further copy of PRIME may be made for disaster recovery purposes...
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8. Refrain from taking copies of the PRIME Manuals unless authorised in writing by the Licensor.
9. Refrain from attempting to reverse compile PRIME.
8. Having gone through the agreement since the user has no right to make copies or commercially exploit the right in the copyrig ht of such software the ld DRP following the ratio laid down by Hon'ble Supreme Court in the context of Business Income/Royalty in Engineering Analysis Centre of Excellence Private Ltd . Vs. C IT (Civil Appeal Nos. 8733- 8734 of 2018) directed to exclude receip ts relating to sale of software licenses in accordance with and to the extent covered under the applicable categories contained in Hon'ble Supreme Court decision. The ld DRP held that there is no dispute reg arding the fact that the assessee does not have a permanent estab lishment in India. Accordingly, such receipts will constitute business income under Article 7 of the DTAA in line with the above-mentioned decision of Hon'ble Supreme Court and will not be taxable in Ind ia in the absence of PE.
9. However, the ld DRP held that the second set of receipts of Rs. 12,01,30,877 on account of provision of other related services, it is well settled that such services from a distinct set of receip ts which need to be examined independently in terms of their taxability or otherwise under specific Article 13 (Royalty/FTS) and cannot be clubbed as business income under Article 7 of the DTAA. The ld DRP held that taxable under Article 13 Ind ia-UK DTAA under the head 'FTS'. The ld DRP held that the make availab le clause under Article 13 are also stand satisfied. The main arg ument taken before us is that the other related services provided are in connection with utilization Page | 4 of the software (PRIME) which are intricately and extricably associated. The services are in respect of training programme and updations in connection with utilization of the software PRIME. Hence, we hold that when software itself is not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS. Further, simply latching on to use of words "Make Available" in the agreement, it cannot be said that cond itions of Article 13(4)(c) are satisfied. Burden is on the Revenue to demonstrate that make availab le condition is satisfied. Appeal of the assessee on Ground Nos. 4 and 5 are allowed.
10. With regard to the ground No. 6 pertaining to reimb ursement of Rs. 7,24,821/- we find that the ld DRP has remanded the matter to the AO to examine travelling and lodging expenses reimbursed. However, the AO has wrongly taxed the same under FTS. Hence, the action of the AO cannot be supported . The addition made is hereby directed to be deleted .
11. In the result, the appeal is allowed.
Order Pr onounc ed in the Open C ourt on 24/01/2023.
Sd/- Sd/-
(Saktijit Dey) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 24/01/2023
*Ajay Kumar Keot, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
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