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March 2023

Article 13 of India – UK DTAA – Where payment for use of the software is not taxable, services intricately and inextricably associated with use of software are also not taxable.

By Geeta Jani | Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
Reading Time 2 mins
16 TSYS Card Tech Ltd vs. DCIT [TS-36-ITAT-2023(Del)] [ITA No: 2006/Del/2022] A.Y.: 2019-20 Date of order: 24th January, 2023 Article 13 of India – UK DTAA - Where payment for use of the software is not taxable, services intricately and inextricably associated with use of software are also not taxable. FACTS
The assessee, a tax resident of the UK, earned income from the sale of software licenses, provision of implementation services, enhancement services, annual maintenance services and consultancy services. The assessee relying upon provisions of the DTAA claimed income was not taxable in India. AO taxed income as royalty and FTS under provisions of Act as also the DTAA. DRP, following decision of Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT [2021] 281 Taxman 19, ruled that payment for software license is not taxable in India. However, the implementation services, enhancement services, annual maintenance services and consultancy services, as per request of Indian customers, were held to be separate from software license, and were taxable under the Act and Article 13 of DTAA. It appears from the observations of the ITAT that AO and DRP merely relied upon the words “Make Available” found in the agreement with Indian cus
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