International Taxation

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April 2016

CA. Hinesh Doshi & CA. Ronak Soni

DDIT vs. MSV International INC [TS-78-ITAT-2016 (DEL)] dated 12th February, 2016


The assessee is a foreign company incorporated in USA and is engaged in the business of providing consultancy services in the areas of highways, transportation, water supply, waste management etc. The assessee has set up several projects offices in India to carry on its activities in India.

The assessee filed its return of income and shown in the P&L Account, income from Consultancy and Engineering Services and claimed related expenses.

AO taxed consultancy charges and engineering services accrued from NH-45 Projects of the assessee as fees for technical services @ 20% u/s 44D r.w.s. 115A of the Act and proportionate expenses in relation to that receipt were disallowed, as the income is required to be taxed on gross basis and no expenditure to be allowed u/s. 44D of the Act.

The assessee being aggrieved with the order of AO preferred an appeal before CIT(A). CIT(A) after considering the provision of Section 9(1) (vii), Section 44D, Section 44DA and various decisions has held that the gross receipts of the assessee is covered by the exclusion provided in the definition of fees for technical services as per Explanation 2 of Section 9(1) (vii) of the Income-tax Act and therefore same cannot be taxed as fees for technical services. Thus it held the same is taxable as normal business profit of the assessee.

Aggrieved by the decision of the order of CIT(A), Revenue filed an appeal with Delhi Tribunal.


Whether the amount received by the assessee from NH-45 project is chargeable to tax u/s. 44D of the Act or under the normal provision of taxation?

Whether the same is fees for technical services as per Section 9(1)(vii) of the Act?

Whether benefit of Indo-US DTAA is available to the assessee?


Considering the contention of revenue, assessee & CIT(A) order, Tribunal rejected Revenue\'s contention that income derived by the assessee from construction project should be taxed as fees for technical services (\'FTS\') in terms of Explanation 2 of Section 9(i) (vii).

Undenyingly the services rendered by the assessee are technical in nature but merely because the services are technical in nature they do not become fees for technical services in accordance with the provision of Expl. 2 to Section 9 (1) (vii) of the Act. Thus the services fall outside the exceptions carved as construction activity.

There is no imparting of technical skill which is absorbed by the receiver thereby enabling it to deploy similar technology in future without depending on assessee and thus averment of AO that the services rendered are "made available" is not correct. Thus these payments do not qualify as FTS under Article 12(4) of Indo-US DTAA as "make available" test is not satisfied.

ITAT held that as per the provision of Section 44D r.w.s 9(1) (vii) of the Act assessee\'s receipt from NH-45 is not taxable as FTS but under normal provision of Income-tax Act as business income. Hence, Revenue\'s appeal is dismissed.

Datamine International Ltd. vs. ADIT TS-130-ITAT-2016(DEL) dated 14th March, 2016

Facts of the Case:

The assessee, Datamine International Ltd. is a branch office of Datamine International Ltd., (UK), which is a subsidiary of Datamine International Ltd., (UK) (corporation). Assessee provides specialised mining software solutions, developed by its Group, to mining industry in India.

Assessee in its books declared its income as \'Software sales\'.

But the AO was of view that the assessee sold copyright itself and not copyrighted articles as software licensed for use were specialised software having special purpose usage in mining activity covering full scope of mining from the exploration, drill hole extending up to shipping.

AO thus held that consideration received by assessee was \'Royalty\' as per Section 9 and also under Article 13(3)(a) of Indo-UK DTAA.

The DRP also rejected the assessee\'s claim.

Aggrieved, assessee preferred an appeal before Delhi ITAT.


Whether the income earned by the assessee was income from sale of software skills or royalty under Section 9 of the Income-tax Act and under Article 13(3)(a) of the Indo-UK DTAA?


There were two types of Agreements, "Distributor agreement" (whereby assessee-branch purchased software from UK parent) and the "End user agreement" (whereby assessee-branch sold software to end-users).

Distributors Agreement mentioned that it is a not Royalty Agreement as it confers no rights upon the Distributor to use or incorporate in any way any of the ideas or technology contained within the Products. In case of end user agreement ITAT observed that end user was permitted to install the software on any number of computers, but with the qualification that he cannot operate/execute simultaneous copies of the software product more than the purchased sets.

ITAT noted end-users merely have right to use the product under license, also observes that customers were not assigned any of the rights mentioned u/s. 14 of the Copyright Act so as to constitute an assignment of a copyright by UK parent and \'royalty\' definition under India-UK DTAA does not include consideration use of software, referring to various other DTAAs.

Thus Delhi ITAT ruled that revenue from \'software sale\' by assessee to Indian customers not royalty under Article 13 of India-UK DTAA and upholds assessee\'s act of treating it as \'business receipts\'. Further since assessee constitutes UK company\'s PE in India, holds that amount shall be taxable under Article 7 as \'Business profits\' and not under Article 13.

Hence the ITAT ruled in favour of assessee.