MILLENNIUM IT SOFTWARE LTD Vs. DIRECTOR OF INCOME TAX

JUDGEMENT

(1.) THE applicant has entered into a Software License and Maintenance Agreement (SLMA) with Indian Commodity and Exchange Limited (ICEL) on 27.3.2009. Under the agreement the applicant has allowed ICEL to use the software product called 'Licensed Programme' owned by it. The Licensed Programme shall be developed and installed into the computer machines designated by ICEL as envisaged in the Implementation Plan. As use of the Licensed Programme would require training, the applicant is to deploy its personnel to the designated site to train the employees of ICEL. After the installation is over and the software is given a line cutover, the applicant is required to provide at its own cost, maintenance and support services, via a help desk which will operate 24x7 through telephone, e -mail and facsimile number to fix or bypass programme errors. For installation and implementation of the Licensed Programme, applicant shall be paid Rs. 4 crore. The software became live on 20.8.2009. The license to use the Licensed Programme is for 4 years and thereafter its renewal is left to the discretion of ICEL.

(2.) THE applicant submits that after the installation and implementation of the Licensed Programme, the Agreement provides for payment of 'License Maintenance Fee' from 1.1.2010 till 31.12.2014. The mode of the payment is such that a fixed amount of Rs. 50 lacs per quarter is payable plus an additional fee based on the utilization of the Licensed Programme by ICEL, so much so that the total amount payable would not exceed Rs. 150 lacs per quarter. There is further provision in SLMA for fee escalation upto 12% to accommodate inflation and operational cost.

(3.) THE applicant submits that the 'Implementation fee' and 'Licence and Maintenance fee' are not chargeable to tax as per Income -tax Act, 1961(Act) or under DTAA with Sri Lanka. The providing of maintenance service to ICEL would not create a Permanent Establishment (PE) in India. As the payments are not liable to tax in India, ICEL is not required to withhold any tax under Section 195 of the Act and would not be obliged to file a tax return in India. To support the above proposition, the applicant has placed reliance on the following judgements - Tata Consultancy Services : [2004] 141 Taxman 132 (SC), Dassault Systems K. K, AAR/821/2009, Infrasoft Ltd., [2009] 28 SOT 179, Sonata Information Technology, 103 ITD 324.