ITAT: India-Finland Tax Treaty does not consider Royalty as part of Income received for Sale of specialized Software and Maintenance and Support Services

According to the India-Finland Tax Treaty, the Income received from the sale of specialized software and maintenance and support services is not considered as “Royalty” as per the judgement made by the Income Tax Appellate Tribunal (ITAT), Mumbai Bench.

Trimble Solutions Corporation C/o SRBC & Associates LLP is the assessee in this case who has filed its return of income for the assessment year declaring total income as Nil. The assessee is a tax resident of Finland. The company 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 a subsidiary and a third-party distributor. For the distribution of 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 to its non-exclusive resellers or distributors for the Indian territory.

It was held by the Assessing Officer that the payments received from the 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 as per the India Finland tax treaty. Therefore, the Assessing Officer taxed the same at 10% of gross receipts, as per Clause 2 of Article 12, of the new India-Finland tax treaty.

Saktijit Dey and N.K. Pradhan’s two-member bench clarified that the amount received by the assessee from its distributors from the 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.

Accordingly, it was held by the tribunal that the payments received by the assessee for providing such support services can’t be held as “royalty” in the hands of the assessee.

With Warm Regards,

CL Bureau.