Receipts from Sale of Software Licenses and Connected Ancillary Support Services can’t be assessed as FTS: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT)has recently held that the receipts from the sale of software licenses and the connected ancillary support services cannot be assessed as Fee for Technical Services (FTS) for the purpose of the Income Tax Act, 1961.

The assessee, US Company engaged in the business of developing, manufacturing and distribution of software products from outside India and also providing ancillary support services from outside India. The assessee has entered into agreements with distributors/resellers/customers in India for supplying software products and providing ancillary support services. For the year under consideration, the assessee filed return of income declaring nil income.

The Assessing Officer noticed that the assessee has received a sum of Rs.42,15,77,354/- towards sale of software licenses and providing ancillary support services. He was of the view that the above receipts are liable to taxed as royalty/Fee for Technical Services in the hands of the assessee.

The bench comprising ITAT Vice President N V Vasudevan and Accountant Member B R Bhaskar relied on the decision rendered by the Supreme Court in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. where it was held that the amounts paid by resident Indian endusers/distributors to nonresident computer software manufacture/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.

Citing the above decision, it was held that receipts by way of sale of software licenses and provision of ancillary support services connected with the sale of software products cannot be assessed as royalty/FTS income in the hands of the assessee.

To Read the full text of the Order CLICK HERE

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M/s. Informatica LLC vs Deputy Commissioner of Income tax , 2021 TAXSCAN (ITAT) 282 , Shri T. Suryanarayana , Ms. Neera Malhotra