The case revolves around the classification of revenue from the sale of software by SoftwareONE Pte. Ltd., a Singapore-based company, and its taxability in India as fees for technical services (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA).
SoftwareONE, engaged in the distribution of software and related support services, faced scrutiny from the Indian tax authorities over the nature of its software sales. The main contention was whether these sales should be treated as FTS, making them taxable under the India-Singapore DTAA.
During the assessment years 2018-19 and 2019-20, SoftwareONE argued that the receipts from software sales were not royalties but rather business profits, exempt from taxation in India due to the absence of a permanent establishment. The Assessing Officer, however, recharacterized a portion of these receipts as FTS, prompting an objection from SoftwareONE and subsequent review by the Dispute Resolution Panel (DRP).
The tribunal examined the historical context, including a similar assessment for the previous year where receipts had been classified differently. Despite the DRP’s directive that software sale receipts should not be taxed in India, the Assessing Officer treated them as FTS in the final order. The tribunal, after careful consideration, sided with SoftwareONE, ruling that the receipts did not meet the criteria for taxation as FTS under the DTAA, particularly because the ‘make available’ clause was not satisfied.
This ruling highlights the complexities of international tax agreements and the interpretation of FTS provisions. It underscores the need for clear guidelines and consistent enforcement to ensure fair taxation practices across borders.
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