The assessee entered into a services agreement to provide SAP software and licence to its Indian subsidiary on a cost-to-cost basis without any markup. The assessee has purchased a licence on behalf of the Indian subsidiary and then charged the assessee for these amounts. The Assessing Officer held that once a right had been provided for a cost, the fact that there was no markup or any profit would not take the receipt out of income nature. In such a scenario, the amount cannot be treated as reimbursement and treated the payments as Royalty.

The Tribunal noted the agreement, and the financial director’s certificate held there no challenge to the factual element of the receipt being a cost to cost reimbursement received by the assessee. The routing of the payments has no bearing on the taxability of the income in the hands of the assessee. The receipt of software licence fees by the assessee from its Indian subsidiary was reimbursement of software licence fees to paid to a third party, and it would not constitute income taxable in the hands of the assessee. (ITA No. 7315 of 2018, dt 08.01.2021) (AY. 2015-16)