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2006 (12) TMI 507 - ITAT BANGALORETDS u/s 195 - consideration received on sale of computer software programme - Commercial income under Article 7 Or Royalty under Article 12 of the Treaty - No Permanent establishment in India - DTAA between India and US - HELD THAT:- According to learned counsel for assessee, Reference was drawn to the commentary on Article 12 (royalties) of model treaties issued by OECD with regard to payments for computer programmes. By reading that, It can therefore be noted that under the OECD model commentary also, payments for acquiring a copy of a computer programme will not be treated as payments for rights to use the copyright in the computer programmes. Accordingly, such payments are to be considered as commercial income under Article 7 and not as royalty under Article 12 of the Treaty. Further, it is to be noted that computer programme may be copy-rightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the programme is tangible, movable and available in the market place. The fact that some programmes may be tailored for specific purposes need not alter their status as 'goods' because the code definition included 'specially manufactured goods'. In yet another decision in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004 (11) TMI 11 - SUPREME COURT] held that the purchaser of a computer programme does not receive mere knowledge but receives an arrangement of matter which makes his computer perform a desired function. This arrangement of matter recorded on a tangible medium constitutes a corporeal body. A software recorded in physical form becomes inextricably inter-wined with or part and parcel of the corporeal object upon which it is recorded, be that a disc, tape or hard drive or other device. Apex Court has also noted its earlier decision in the case of Associated Cement Co. Ltd. [2001 (1) TMI 248 - SUPREME COURT] and held that once a computer programme embodied in a medium, it takes the character of goods even under the narrow definition of the said term under the Customs Act. The Apex Court further held that a software programme, which is put in a medium like a disc or floppy, takes the character of goods. The medium and the programme become inseparable and cannot be split up. The Apex Court had relied on the definition of the term 'goods' as used in Article 366(2) of the Constitution of India and held that the term is very wide and covers all types of movable properties. The Apex Court further held that acquisition of a copy of such computer programme, which is a copyrighted article, amounts to sale of such article. Therefore, considering all the judicial pronouncements and relevant provisions of law we find much force in the stand taken by the assessee. Therefore, the payments are not in the nature of royalty but are subject-matter of Article 7 of the India-USA Tax Treaty. Further it is an admitted fact that Hewlett Packard Co., USA does not have any permanent establishment in India. Therefore, the assessee had no obligation to deduct tax at source on such payments made to Hewlett Packard Co., USA. Therefore, the claim of the assessee has to be accepted and it is ordered accordingly. In the result, the appeals filed by the assessee are allowed.
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