Ancillary Software Support Not a Fee for Technical Services: ITAT Drops ₹48.27 Cr Income Tax Addition Under India-Singapore DTAA [Read Order]

The Mumbai Bench Income Tax Appellate Tribunal (ITAT), has ruled that receipts from ancillary software support services linked to the distribution of software licences cannot be characterised as Fee for Technical Services (FTS) under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. Accordingly, the Tribunal deleted the addition of ₹48.27 crore made in the assessment by treating such receipts as taxable technical fees.

The appeal was filed by CA (Singapore) PTE Ltd, a tax resident of Singapore, engaged in the distribution of computer software products and related specialised services. The dispute arose during scrutiny proceedings under Section 143(3) read with Section 144C of the Income Tax Act, 1961 for Assessment Year 2022-23.

When tax authorities treated receipts from ancillary support services billed separately from software licences as taxable Fee for Technical Services. The Assessing Officer computed taxable income by treating the consideration for such services as technical fees and levied tax with surcharge and cess, following the Dispute Resolution Panel directions.

Counsels Ajit Jain and Siddesh Chaugule on behalf of the appellant, submitted that the receipts pertained to support and maintenance services that were ancillary and subsidiary to the sale of software, and therefore outside the scope of FTS under the India-Singapore DTAA. They contended that the 'make available’ condition embedded in Article 12 of the DTAA was not satisfied.

Counsel Krishna Kumar appeared for the revenue authorities and submitted that the ancillary support services were billed separately and capable of customer customisation, thereby making available technical knowledge within the meaning of Article 12 of the DTAA.

The Bench comprising Judicial Member, Suchitra Kamble and Accountant Member, Girish Agrawal ruled that the support receipts were intrinsically linked to the software licences and amounted to ancillary services covered under the agreements placed on record.

The Tribunal noted that the authorities did not demonstrate how the services ‘made available’ technical knowledge enabling customers to apply the technology independently, nor did they rebut the contractual evidence showing obligation to provide maintenance and active support as part of the software distribution relationship.

The Tribunal held that the make-available requirement under Article 12 was not met, and therefore the receipts could not be characterised as Fee for Technical Services taxable in India.

Allowing the grounds on this issue, the Tribunal deleted the FTS addition of ₹48.27 crore and held that other grounds relating to surcharge, cess and interest were consequential. The appeal was partly allowed.

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