TMI Blog2014 (4) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work - In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work - Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article" - The decision in Director of Income Tax Versus Infrasoft Ltd. [ 2013 (11) TMI 1382 - DELHI HIGH COURT] followed - the assessee has acquired a readymade off - the shelf computer programme to be used in their business and no right was granted to the assessee to utilize the copy right of the programme – the consideration cannot be treated as royalty - As held by the CIT(A), the payments made by the assessee company cannot be held as 'royalties' coming into the ambit of Article 12 of DTAA or 'fee for technical services' u/s 9(1)(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act – thus, the order of the CIT(A) upheld – Decided against Revenue. - ITA No. 918/Hyd/2010 - - - Dated:- 27-1-2014 - CHANDRA P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he details, finally concluded that the above amounts payable/paid by the assessee company is liable for TDS u/s 195 of the IT Act and accordingly worked out the liability u/s 201(1) and interest u/s 201(1A). The details of amounts paid to the foreign companies and TDS liability u/s 201(1) and interest u/s 201(1A) determined by the ADIT were as under: Name of the foreign company Payment grossed up (Rs.) TDS Liability u/s 201(1) Interest u/s 201(1A) Intra Asia Trading Pte Ltd., Singapore 107542623 10754262 322628 Gamma Machinery Equipments Pte Ltd., Singapore 1082408246 108240825 6494449 Total 118995087 6817077 Aggrieved, the assessee carried the matter in appeal before the CIT(A). 3. Before the CIT(A), it was submitted that the business of the assessee is covered by articles 7 and 5 of DTAAs and under article 7 of the DTAAs, income earned by a non-resident in India under the head 'business' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 4. The CIT(A) after considering the submissions of the assessee as well as the submissions of the ADIT during appellate proceedings, discussed the issue elaborately with various case laws from paras 6 to 7 spread over pages 21 to 55 and held that the amounts paid to Intra Asia Trading Pvt. Ltd., Singapure and Gamma Machinery and Equipments Pte Ltd., Singapore, towards purchase of software do not attract TDS. The concluding paras of CIT(A) are as under: 8. On the factual findings of the ADIT in the facts and circumstances of the case, the AR strongly objected to the same and contended that the appellant is not liable to deduct taxes u/s 195(1) of the Act. On a careful perusal of the order u/s 201(1) of the ADIT and the supplementary agreements entered into by the parties I am of the considered opinion that the ADIT is not entirely correct in his approach. In the case of TATA Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 (SC), the Hon'ble Supreme Court observed that the 'intellectual property' incorporated on media for the purpose of transfer should be considered as sale of good under the APGST Act. In the normal circumstances, cases d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable for deduction of tax at source u/s 195(1) of the IT Act and since the payments involved were identified as 'buiness income' of the foreign companies the question of giving a finding regarding rate of tax applicable for these transactions does not arise. 8.3 Considering the facts and circumstances of the case, the transaction under the consideration effected by the appellant should be considered as business transaction as envisaged under Article 7 of Ind-Singapore DTAA. Since the appellant has brought a readymade off the shelf computer programme which does not grant any right to utilize the copy right of the computer programme, I am of the view that the payments made by the appellant company cannot be held as 'royalties' coming into the ambit of Article 12 of DTAA or 'fee for technical services' u/s 9(1)(vii) of IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act. 9. In view of the above, I hold that the amounts paid to Infra Asia Trading Pvt. Ltd., Singapore and Gamma Machinery and Equipments Pte Ltd., Singapore towards purchase of software does not attract TDS or withholding tax on the following amounts: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the demand in dispute by invoking the provisions of Sections 195 of the Income Tax Act, 1961. In this connection, it is submitted that the very provisions of Section 195 are not applicable to the assessee herein for the impugned payments are made to non-resident foreign companies which are not covered by the provisions of Section 195 of the I.T. Act, 1961. Ground was taken by the assessee herein before the 1st appellate authority on this issue and the assessee herein relied on the order of the CIT (Appeals) in Para Nos. 7.2 to 9 at page Nos. 37 to 57 of his order. (b) The payments under consideration are Business Incomes of the Non-Resident Companies. The AR submitted that the provisions of Section 195 of the Act are not applicable to the assessee herein, since the payments under consideration constituted Business Income of the non-resident companies. This fact is very much accepted by the AO vide clause (5) of Para No.5 at Page Nos. 21 and 22 of his order. The relevant extract from the assessment order is as under: (5) the Company's argument that the payment under consideration constitute business income of the non-resident is valid, considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bus non-derogant' is mis-quoted in the assessee's case. Even if the second view taken by the AO were to be considered for argument sake, the AR submitted that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is well accepted rule of construction recognised by the Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 . In this regard, the assessee herein, relied on the observation of the CIT (Appeal) in para Nos. 6.0, 6.1, 6.2, 6.3, 6.4, 6.5 and 6.6 at page numbers 21 to 26 of his order. (c) There is no need to AO to traverse beyond Article No 7 of the DTAA between India and Singapore and examine the impugned transactions in the light of Article No 12 of the DTAA. The AR submitted that the assessee here in has acquired from the non-resident companies a readymade off the shelf computer programme to be used in its business and that 'no right' has been granted to the assessee here in to utilize the copy right of the programme. Since in the impugned transactions, a computer programme called Software has been purchased, the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no bifurcation shown in the invoices and there is no reference to the bifurcation in the statements of the key managerial/technical personnel, the bifurcation in the nature of payments cannot be denied especially in view of the Agreements and Supplementary agreements existing in support of the bifurcation. Also, merely because the assessee herein failed to make available to the Department any communication (e-mail, etc) on the price negotiated, it cannot be inferred that there is no bifurcation in the payments. The AR submitted the agreement copies and supplementary agreement copies were furnished before the AO during the course of assessment proceedings. The observation of the AO in Para No. 4.10 at page 13 of his order that the fact that the Supplementary Agreement was signed and agreed by the contracting parties makes no difference, given the fact that the delivery of the Unique Source Code set(s) and consideration thereof were settled between the parties and as such there was no purpose for the parties to revise their agreement to avoid tax as the said transaction was being scrutinized by the department has no basis. With regard to the observations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no taxable income accrued to the non-resident parties. The AR submitted that on account of the impugned transactions of the respondent here in with Infra Asia Trading PTE Ltd., Singapore and GAMMA Machinery and equipments PTE Ltd Singapore, no taxable income accrued to them and consequently there is no need to deduct tax at source u/s 195 of the I.T.Act, 1961. In this regard, the AR relied on the observations of the ClT(Appeals) in Para No. 5.0 at page Nos. 10 to 21 of his order. In the light of the above submissions, the AR prayed that the order of the CIT(A) may be upheld. 8. We have heard the arguments of both the parties, perused the record and have gone through the orders of the revenue authorities. The Assessing Officer held that the assessee company defaulted under the provisions of section 195(1) while making payment to foreign companies, namely (i) Intra Asia Trading Pte Ltd. and Gamma Machinery and Equipments Pte Ltd., Singapore, for acquiring intellectual property rights and the smart card operating system software and, therefore, failure in violating the provisions of section 5(2)(b) read with section 9(1)(vi) or 9(1)(vii) of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find from the order of the ADIT u/s 201(1), that the ADIT agreed with the view of the assessee company that the payment under consideration constituted 'business income' of the non-resident was valid considering the fact that the foreign companies were in the business of trading in the 'unique source code' item held as 'stock in trade' and in the absence of permanent establishment, there will not be taxable income accruing in India as per Articles 7 5 of Indo-Singapore DTAA. However, the ADIT observed that as the same consideration can be considered as 'royalties' or fees for technical services' as the case may be, the taxability of those items of income should be governed by the Article 12 of the DTAA. We are of the view that the transaction effected by the assessee would come into the ambit of Article 7 of the DTAA between India and Singapore, therefore, there is no need for the Assessing Officer to traverse beyond that article and examine the transaction in the light of Article 12. The article 7(1) 7(5) of the DTAA with Singapore are as under: 7(1). The income or profit of an enterprise of a Contracting State shall be taxable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in this Article means payments of any kind received as a consideration for the use of, or the right to use: a. any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; b. any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described it! paragraph 4(b) or 4(c) of Article 8. 4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: a. are ancillary and subsidiary to the application or enjoyment of the right, property. or information for which a payment described in paragraph 3 is received; or b. make available t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority, a statutory body or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act and under the DTAA and it would be taxable in the hands of the Assessee on that basis. If the payment is really for a copyrighted article, then it only represents the purchase price of the article and, therefore, cannot be considered as royalty either under the Act or under the DTAA. This issue really is the key to the entire controversy and we may now proceed to address this issue. 156. We must look into the meaning of the word copyright as given in the Copyright Act, 1957. Section 14 of this Act defines Copyright as the exclusive right subject to the provisions of this Act, to do or authorize the doing of any of the following acts in respect of a work or any substantial part thereof, namely: ---------------- It is clear from the above definition that a computer programme mentioned in Clause (b) of the section has all the rights mentioned in Clause (a) and in addition also the right to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme. This additional right was substituted w.e.f. 15.1.2000. The difference between the earlier provision and the present one is not of any rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... user of the software by the cellular operators in the public domain is totally prohibited, which is evident from the use of the words in Article 20.1 of the agreement, restricted and not otherwise . Thus JTM has a very limited right so far as the use of software is concerned. It needs no repetition to clarify that JTM has not been given any of the seven rights mentioned in Clause (a) of Section 14or the additional right mentioned in Sub-clause (ii) of Clause (b) of the section which relates to a computer programme and, therefore, what JTM or any other cellular operator has acquired under the agreement is not a copyright but is only a copyrighted article. 159. Clause 20.4 of the supply contract with JTM is as under: 20.4 In pursuance of the foregoing JT MOBILES shall: (a) not provide or make the Software or Documentation or any portions or aspects thereof (including any methods or concepts utilized or expressed therein) available to any person except to its employees on a need to know basis; (b) not make any copies of Software or Documentation or parts thereof, except for archival backup purposes; (c) when making permitted copies as afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that what the cellular operator acquired is not a copyright. 161. Clause 20.4(d) says that the cellular operator cannot use the software for any other purpose than what is permitted and shall not also license or sell or in any manner alienate or part with its possession. This has to be read with Clause 20.5 which says that the license can be transferred, but only when the GSM system itself is sold by the cellular operator to a third party. This in a way shows that the software is actually part of the hardware and it has no use or value independent of it. This restriction placed on the cellular operator (not to license or sell the software) runs counter to Section 14(b)(ii) of the Copyright Act which permits a copyright holder to sell or let out on commercial rental the computer programme. For this reason also it cannot be said that JTM or any cellular operator acquired a copyright in the software. 162. A conjoint reading of the terms of the supply contract and the provisions of the Copyright Act, 1957 clearly shows that the cellular operator cannot exploit the computer software commercially which is the very essence of a copyright. In other words a holder of a cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not necessary, therefore, to consider the alternative argument of Mr. Dastur, namely, that even assuming that the Department is right in saying that if you have the copyrighted article, you also have the copyright right therein, still it would mean that the copyright rights are transferred (acquired by JTM) and it would not be a case of merely giving the right to use and consequently Article 13 of the DTAA would not apply. Mr. Dastur, however, was fair enough to concede that if the Department is right in saying that if you have the copyrighted article, you also have the copyrighted rights, then Clause (v) of Explanation 2 below Section 9(1) of the Income-tax Act will apply because this clause ropes in transfer of all or any rights and is not restricted to use or right to use , the copyright. However, he added that since the basic proposition of the Department has been demonstrated to be wrong, Clause (v) of Explanation 2 below Section 9(1) is not an impediment to accepting the assessee's contention. 165. We may also usefully refer to the Commentary on the OECD Model Convention (dated 28.1.2003) which is of persuasive value and which throws considerable light on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been given. In paragraph 1 of the Note titled Background , it has been stated that the proposed regulations require that a transaction involving a computer programme may be treated as being one of the four possible categories. Two such categories are the transfer of copyright rights and the transfer of a copyrighted article. The U.S. regulations distinguished between transfer of copyright rights and transfer of copyrighted articles based on the type of rights transferred to the transferee. Briefly stated, if the transferee acquires a copy of a computer programme but does not acquire any of the rights identified in certain sections (of the U.S. Regulations), the regulation classified the transaction as the Transfer of a copyrighted article. Paragraph 3 of the Explanatory Note says that if a transfer of a computer programme results in the transferee acquiring any one or more of the listed rights, it is a transfer of a copyright right. 167. Paragraph 4 says that if a person acquires a copy of a computer programme but does not acquire any of the four listed copyright rights, he gets only a copyrighted article but no copyright. 168. The actual regulations bring out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not for any copyright in the software but is only for the software as such as a copyrighted article. It follows that the payment cannot be considered as royalty within the meaning of Explanation 2 below Section 9(1) of the Income-tax Act or Article Article of the DTAA with Sweden. ------------- 184. In view of the foregoing discussion, we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the Assessee in respect of the software cannot be considered as royalty either under the Income-tax Act or the DTAA.' 17. Referring to the Commentary on the OECD Model Convention (dated 28.1.2003), which was considered to be of persuasive value, the Tribunal noticed that the rights acquired in relation to the copyright are limited to those necessary to enable the user to operate the program, for example, where the transferee is granted limited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c medium of a floppy disc or in the main memory or hard drive of a computer or in any other medium. 20. The Tribunal has held rightly so that the question whether there was a transfer of a copyright right or only of a copyrighted article must be determined taking into account all the facts and circumstances of the case and the benefits and burden of ownership which have been transferred. 21. The appeal filed by the Revenue against the Judgment of the Special Bench of the ITAT was dismissed by the High Court of Delhi in the case of DIT v. Nokia Networks Oy (2012) 253 CTR (DEL) 417 The Bench approved the findings of the Special Bench of the Tribunal in the Motorola Inc. case (supra) that Copyright is distinct from the material object, copyrighted. It is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. He has an individual right of exclusive enjoyment. The transfer of the manuscript does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of a physical thing in which copyright exists gives to the purchaser the right to do with it (the physical thing) whatever he ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce in the submission of Mr. Dastur that even assuming the payment made by the cellular operator is regarded as a payment by way of royalty as defined in Explanation 2 below Section 9 (1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13, para 3 of the DTAA. This is so because the definition in the DTAA is narrower than the definition in the Act. Article 13(3) brings within the ambit of the definition of royalty a payment made for the use of or the right to use a copyright of a literary work. Therefore, what is contemplated is a payment that is dependent upon user of the copyright and not a lump sum payment as is the position in the present case. We thus hold that payment received by the assessee was towards the title and GSM system of which software was an inseparable parts incapable of independent use and it was a contract for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty. 23. The Delhi High Court in Ericsson A.B. (supra) further held that once it is held that payment in question is not royalty which would come within the mischief of clause (vi), the Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-exclusive that too confined to the user purely for in-house or internal purpose. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. That is what, in our view, follows from the language employed in the definition of royalty read with the provisions of the Copyright Act, viz., section 14 and other complementary provisions. We may refer to one more aspect here. In the definition of royalty under the Act, the phrase including the granting of a licence is found. That does not mean that even a non-exclusive licence permitting user for in house purpose would be covered by that expression. Any and every licence is not what is contemplated. It should take colour from the preceding expression transfer of rights in respect of copyright . Apparently, grant of licence has been referred to in the definition to dispel the possible controversy a licence whatever be its nature, can be characterized as transfer.' 25. The Authority on Advance Ruling in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52(aa) of the Copyright Act (extracted supra) which makes it clear that the making of copies or adaptation of a computer programme by the lawful possessor of a copy of such programme, from such copy (i) in order to utilize the computer program, for the purpose for which it was supplied or (ii) to make back up copies purely as a temporary protection against loss, destruction, or damage in order to utilize the computer programme for the purpose of which it was supplied will not constitute infringement of copyright. Consequently, customization or adaptation, irrespective of the degree, will not constitute infringement as long as it is to ensure the utilization of the computer programme for the purpose for which it was supplied. Once there is no infringement, it is not possible to hold that there is transfer or licensing of copyright as defined in the Copyright Act and as understood in common law. This is because, as pointed out earlier, copyright is a negative right in the sense that it is a right prohibiting someone else to do an act, without authorization of the same, by the owner. It seems to us that reproduction and adaptation envisaged by section 14(a)(i) and (vi) can con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware by a non-resident manufacturer along with a computer based equipment under a scheme approved as per the 1986 Policy on computer software export, software development and training, is excluded from the purview of 'royalty' clause. It does not, however, mean that wherever computer software is transferred on outright sale basis or is leased or licensed, it would become royalty income. Whether or not the income is in the nature of royalty has to be judged with reference to the exhaustive definition in Explanation 2. In this context, sub-clause (v) of Explanation 2 which has been referred to by both sides become relevant. It is in the light of the language of that clause one has to see whether the income in question ought to be treated as 'royalty'. The transfer of rights envisaged by sub-clause (v) should be in respect of the 'copyright' among others. Mere transfer of computer software dehors any copyright associated with it does not fall within the ambit of the said clause (v). That is what has been held in the two rulings referred to earlier. 28. The Supreme Court of India in Tata Consultancy Services case (supra) was considering the question whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that what is created and sold is information and the magnetic tapes or the discs are only the means of transmitting these intellectual creations from the originator to the user. It has been held that the same information could have been transmitted from the originator to the user by way of telephone lines or fed directly into the user's computer by the originator of the programme and that as there would be no tax in those cases merely because the method of transmission is by means of a tape or a disc, it does not constitute purchase of tangible personal property and the same remains intangible personal property. It has been held that what the customer paid for is the intangible knowledge which cannot be subjected to the personal property tax. In these cases, difference is sought to be made between purchase of a book, music cassette/video or film and purchase of software on the following lines: When one buys a video cassette recording, a book, sheet music or a musical recording, one acquires a limited right to use and enjoy the material's content. One does not acquire, however, all that the owner has to sell. These additional incidents of ownership include the right to prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inextricably intertwined with, or part and parcel of the corporeal object upon which it is recorded, be that a disk, tape, hard drive, or other device. It has been held that the fact that the information can be transferred and then physically recorded on another medium does not make computer software any different from any other type of recorded information that can be transferred to another medium such as film, video tape, audio tape or books. It has been held that by sale of the software programme the incorporeal right to the software is not transferred. It is held that the incorporeal right to software is the copyright which remains with the originator. What is sold is a copy of the software. It is held that the original copyright version is not the one which operates the computer of the customer but the physical copy of that software which has been transferred to the buyer. It has been held that when one buys a copy of a copyrighted novel in a bookstore or recording of a copyrighted song in a record store, one only acquires ownership of that particular copy of the novel or song but not the intellectual property in the novel or song. -------------- 19. Thus this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly, as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. This clearly goes to show that when technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof. 44. It is a misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with the Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other. For example, paintings are also to be taxed. Valuable paintings are worth millio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------- 27. In our view, the term goods as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become goods . We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained, and as Bell readily admits, the programs cannot be utilized by Bell until they have been recorded into the memory of the electronic telephone switch. 93-1072, at p. 6, 631 So.2d at 1342. The essence of the transaction was not merely to obtain the intangible knowledge or information , but rather, was to obtain recorded knowledge stored in some sort of physical form that Bell's computers could use. Recorded as such, the software is not merely an incorporeal idea to be comprehended, and would be of no use if it were. Rather, the software is given physical existence to make certain desired physical things happen. One cannot escape the fact that software, recorded in physical form, becomes inextricably intertwined with, or part and parcel of the corporeal object upon which it is recorded , be that a disc, tape, hard drive, or other device. Crockett, supra, at 871072; Cowdrey, Supre, at 188-90. That the information can be transferred and then physically recorded on another medium is of no moment, and does not make computer software any different than any other type of recorded information that can be transferred to another medium such as film, video tape, audio tape, or boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable in the marketplace. 33. The Supreme Court has further held that a software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become goods . There is no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. The software itself, i.e. the ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hysical recordation, e.g., tape, to another type, e.g., disk or hard drive, does not alter the nature of the software, it still has corporeal qualities and is inextricably intertwined with a corporeal object. The software must be stored in physical form on some tangible object somewhere. In sum, once the information or knowledge is transformed into physical existence and recorded in physical form, it is corporeal property. The physical recordation of this software is not an incorporeal right to be comprehended. 35. To further elucidate the nature of the transaction in the case of the Assessee it is necessary to examine some of the clauses of the Licensing software agreement entered into by the Assessee with its customers: 36. Clause No. 2 of the Agreement for sale and Assignment of Intellectual Property Technology Transfer is mentioned below: The Seller irrevocably sells and transfers to Buyer all rights, title and interest (including but not limited to, all registration rights, all rights to prepare derivative works, all goodwill and all other rights), in and to the intellectual Property and assigns to the Buyer exclusively throughout the world all right, title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment or order inconsistent with the terms of this Agreement. 2. The Seller is not restrained from Selling and/assigning the intellectual property rights by any statutory authority in the country of its incorporation. As per Clause 4 of the supplementary agreement Further assurances, Moral rights, Competition, Marketing: Seller agrees to assist the Buyer in every legal way to evidence, record and perfect the section 1 assignment and to apply for and obtain recordation of and from time to time enforce, maintain, and defend the assigned rights. If the Buyer is unable for any reason whatsoever to secure the Seller's signature to any document it is entitled to under this section 3, Seller hereby irrevocably designates and appoints the Buyer and its duly authorized officers and agents, as his agents and attorneys-in-fact with full power of substitution to act for and on his behalf and instead of Seller, to execute and file any such document or documents and to do all other lawfully permitted acts to further the purposes of the foregoing with the same legal force and effect as if executed by Seller. To the extent allowed by Law, Section 1 inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the Software without Intra Asia Trading (P) Ltd.'s written consent. The Software contains a mechanism which Intra Asia Trading (P) Ltd. may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Intra Asia Trading (P) Ltd.. 38. The Agreements show that the license is non-exclusive, nontransferable and the software has to be used in accordance with the agreement. It is also stipulated that the copy so made shall include Intra Asia Trading (P) Ltd's copyright and other proprietary notices. All copies of the Software are the exclusive property of Intra Asia Trading (P) Ltd.. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensees own b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses in his favour. 42. The license granted to the licensee permitting him to use t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g information and licence authorization device to Intra Asia Trading (P) Ltd.. 46. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 47. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. The amount received by the A ..... 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