The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that the Income received for sale of specialized software and maintenance and support services is not “Royalty” as per India-Finland Tax Treaty.
The assessee, Trimble Solutions Corporation C/o SRBC & Associates LLP filed its return of income for the assessment year declaring total income as Nil. The assessee is a tax resident of Finland. It is engaged in the business of development and marketing of specialized software products which are used in industries like building and construction, energy distribution and infrastructure management.
In India, the assessee markets and distributes the specialized software products to the end-user Customers through a distribution channel consisting of subsidiary and a third party distributor. In order to distribute its software in India, the assessee appointed Trimble Solutions India Private Limited, its wholly owned subsidiary, vide agreement dated 28 January 2008 and DowCoMax Services India Limited (DCMIPL) agreement as its non-exclusive resellers or distributors for the Indian territory.
The AO held that the payments received for sale of specialized software and maintenance and support services are in the nature of royalty and the payment received for management fees is in the nature of fees for technical services vide India Finland tax treaty.
Accordingly, the AO taxed the same at 10% of gross receipts, as per Clause 2 of Article 12, of the new India-Finland tax treaty.
The two-member bench of Saktijit Dey and N.K. Pradhan clarified that the amount received by the assessee from its distributors for sale of specialized software and maintenance and support services cannot be held as being in the nature of “royalty” as per Article 12 of the India-Finland tax treaty.
Therefore, the tribunal held that the payments received by the assessee for providing such support services cannot be held as “royalty” in the hands of the assessee.
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