The Income Tax Appellate Tribunal (ITAT), Delhi bench has partly allowed an appeal of the Microsoft Regional Sales Pte. Ltd relating to a TDS Credit Claim worth Rs. 392 Crores.
The assessee is a Company incorporated in USA and is wholly owned subsidiary of Microsoft Corporation, USA. The assessee is engaged in the business of distribution of Microsoft regional products in the Asia Pacific region, including India. The assessee filed their income tax return claiming TDS of Rs. 381,22,30,714/- and a revised return claiming the same income of Rs. 204,90,61,907/-, claiming the TDS of Rs. 392,67,91,700/- was filed on 31/03/2105. The case was selected for scrutiny and the notices were issued. In response, the Representative of the assessee attended the proceedings. A final assessment order came to be passed on 31/01/2017 u/s 143(13) read with Section 144C (1) of the Act against the assessee by considering the direction of the DRP, the total income of the assessee was assessed protectively at Rs. 4064,82,52,315/-. An amount of Rs. 3859,91,90,408/- is assessed protectively as royalty an amount of Rs. 204,90,61,907/- as interest on Income Tax refund disclosed in the return of income. The royalty income has been taxed @ 10%. Surcharge and Education cess charged as applicable limit u/s 234A, 234B, 234C & 234D as applicable order to be charged after giving credit to pre-paid taxes.
Analyzing various issues in the light of the facts and its earlier decisions on the similar issues, a bench of Dr. B. R. R. Kumar, Accountant Member and Sh. Yogesh Kumar U.S., Judicial Member has held that the sale of software product does not give rise to the royalty income.
With regard to the claim relating to TDS Credit, the bench directed the A.O to allow the TDS Credit in accordance with law.
Addressing the other issue on subscription to cloud services, the Tribunal observed that “The very same issue regarding the cloud service in the case of MOL Corporation for the AY 2012-13 came up for consideration before the Co-ordinate Bench of the Tribunal. The Co-ordinate Bench, by following the ratio laid down in the case of M/s. Salesforce.com Singapore Pte. Vs. Dy. D.I.T. Circled-2(2) ITA No. 4915/Del/2016 [A.Y 2010-11] and also the decision of Mumbai Tribunal in the case of DDIT Vs. Savvis Communication Corporation [2016] 69 Taxman.com 106 (Mumbai- Trib.) and the Chennai Tribunal decision in the case of ACIT Vs/. Vishwak Solutions Pvt. Ltd. ITA No. 1935 & 1936/MDS/2010 dated 30/01/2015, held that the authorities fallen in error in considering the subscription received towards cloud serviced to be royalty income.”
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