Income from maintenance and training services, being inextricably connected to the utilization of software, cannot be taxed as Fees for Technical Services (FTS) under the DTAA when the primary software income itself is not taxable and the 'make available' condition is not satisfied.

ORDER

PER KRINWANT SAHAY, AM:

Appeal in this case has been filed by the assessee against the order of the Assessing Officer dated 27.01.2025 for Assessment Year 2022-23 on following grounds of appeal

Ground 1 - Violation of Principles of Natural Justice by the Ld. DRP

1.1 The Ld. Dispute Resolution Panel (DRP) has violated the principles of natural justice by failing to provide the Appellant with a pre-decisional hearing before raising a new issue. In the draft assessment order, the consideration from the sale of software was treated as Fees for Technical Services (FTS). However, the Ld. DRP, without providing any prior notice or hearing to the Appellant, re-characterized the said consideration as "process royalty" in the directions dated 27.12.2024.

1.2 As per Section 144C (11) of the Income Tax Act, the Ld. DRP is mandated to provide an opportunity of being heard before issuing directions under sub-section (5). Since this fundamental requirement has not been met. the directions are liable to be set aside. Reliance is placed on the judgments of the Hon’ble Supreme Court in Sahara India (Firm) v. Commissioner of Income Tax, Central-I (2008) 226 E.L.T. 22 (S.C.), and the Hon’ble Madras High Court in M/s Delphi-TVS Diesel Systems Limited v. ITO & Others, WP No. 26313 of 2017.

Ground 2- The Ld. A0 and Ld. DRP violates the Principle of Consistency and Judicial Discipline.

2.1 The Ld. AO and Ld. DRP grossly erred in once again re-characterizing the transaction concerning income from the sale of software as royalty, and income from maintenance support and training services as FTS.

2.2 This Hon’ble Tribunal, in the Appellant’s own case in ITA 9428/DEL/2019, ITA/2020/DEL/2022, and ITA/2021/DEL /2022, has consistently held that income from the sale of software licenses is neither "royalty" nor "FTS," inter alia, in light of the decision of the Hon’ble Supreme Court in Engineering Analysis Center of Excellence Pvt Ltd. [2021] 432 ITR 471, and is thus not taxable in India.

2.3 It is respectfully submitted that the facts of this matter are identical to those in the case of Symantec Asia Pacific Pte Ltd., Singapore V DCIT (International Taxation), New Delhi (ITA/1000/DEL/2017), in which this Hon’ble Tribunal categorically held that the software licenses sold by the appellant did not qualify as process royalty. This view has been upheld by the Hon’ble Delhi High Court in ITA/147/2022, and the Special Leave Petition (SLP) filed by the Department was dismissed by the Hon’ble Supreme Court in SLP(C) No. 17569 of 2023. It is pertinent to note that pursuant to part of restructuring of Symantec Asia Pacific Pte Ltd., Singapore business, in 2015, part of its business was transferred to the Appellant, a newly incorporated entity then, including software licensing and maintenance support services and therefore, the view expressed by this Tribunal as well as Delhi High Court in Symantec (supra) squarely applies to the present case.

2.4 Furthermore, for AY 2018-19, AY 2019-20, and AY 2020-21, the Ld. DRP itself dropped the allegation of FTS on the sale of software licenses against the Appellant in its directions dated 11.05.2022 and 15.02.2023, respectively. Although the Ld. AO did not follow the DRP’s directions in AY 2018-19 and AY 2019-20, in AY 2020- 21, the Ld. AO has also dropped the demand on this issue vide order dated 29.04.2023.

2.5 The Ld. AO and Ld. DRP also erred in re- characterizing income from maintenance support and training services as FTS. Under the same facts and circumstances, for AY 2016-17, the Department had allegedly assessed the same as royalty. However, this Hon’ble Tribunal, in ITA 9428/DEL/2019, eventually decided the issue in favor of the Appellant.