Software-related Services cannot be treated as FTS in the absence of Cogent Material: ITAT [Read Order]

The Delhi Bench, of the Income Tax Appellate Tribunal (ITAT), comprises sh. Pradip Kumar Kedia, AM and sh. Anubhav Sharma, JM has held that treating software-related services as FTS in the absence of cogent material is not sustainable.

The assessee Microstrategy, Inc. claimed as it was eligible to claim the benefit under the India-Singapore Tax Treaty as the MSTR Singapore company incorporated in and was a tax resident of Singapore. MSTR Singapore was a wholly-owned subsidiary and was responsible for the distribution and maintenance of software to customers in the Asian markets and they sold its products in India through third-party partners/distributors. The company did not offer the receipts of Rs. 2,23,78,025/- to tax in India with the belief that the Income/Fee do not constitute Royalty/Fees for Technical Services (FTS) as per article 12 of the DTAA between India and Singapore. 

The AO held that the consideration for software supplied by the assessee and consideration in lieu of providing information technology-related support services was royalty income taxable in India. Ld which was also confirmed by the CIT(A).

The revenue pointed that there was an addition on account of receipt in lieu of providing information technology-related support services as FTS and as such the sale of software products being taxable as royalty has not been considered for addition by the Tax Authorities.

It was observed that the assessee had sold certain software products to customers in India and has also provided software-related maintenance services. In case, it does not come within the ambit of royalty as defined under the Treaty, there is no need to go into the provisions of the Act. The Assessing Officer relied on judicial precedents and assumed that the assessee has sold the copyright. The AO failed to find out the sample agreement or any other material available on record demonstrates that the assessee has transferred/sold the use or right to use copyright and not copyrighted article.

 It was demonstrated clearly that the assessee has sold a copyrighted article and not the copyright and held that the amount received by the assessee from the sale of software and provision of software-related services cannot be treated as royalty under Article 12(3) of the India - Singapore DTAA.

The Tribunal held that findings of Tax Authorities below holding receipts towards provisions of software-related services as FTS was not sustainable and the appeals filed by the assessee were allowed.  The assessee was represented by Shri Rajan Vora and the revenue was represented by Shri Sanjay Kumar.

To Read the full text of the Order CLICK HERE

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