TMI Blog2019 (7) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : Shri Nishant Thakkar, Advocate Ms. Jasmin Amalsadwala, Advocate For the Respondent : Shri Surender Pal, Sr. DR ORDER PER R.K. PANDA, AM: This appeal filed by the assessee is directed against the order dated 21.09.2017 of the CIT(A)-23, New Delhi relating to A. Y. 2013-14. 2. Grounds raised by the assessee are under :- On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) 23, Delhi :- Ground No. 1 - Revenue received by the Appellant under the BREW agreements is to wards sale of a copyrighted article and not for right to use copyright Erred in upholding the application of provisions of section 9(l)(vi)(b) of the Incometax Act, 1961 (the 'Act') and Article 12 of India-US tax treaty ('tax treaty') for taxing the income of the Appellant earned towards sale of copyrighted article i.e. BREW operators in India. 2. Erred in principle in holding that the sale of a copyrighted article shall be governed by the Sale of Goods Act, 1930 and the Indian Custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems Pvt. Ltd. (Sohamsaa), Sistema Shyam Tele Services Ltd. (Sistema), Tata Tele Services Ltd (TTSL), Virgin Mobile India Ltd. (Virgin Mobile) and Alcatel Lucent India Ltd. (Alcatel). 3.1 The assessee filed its return of income on 30.09.2013 declaring nil income. However, the assessee company offered an income of ₹ 44,46,767/- as royalty taxable at special rate of 10% as per IT Act 1961. The assessee company has revised its return of income on 31.03.2015 at the same income but the claim of TDS was raised from ₹ 17,36,237/- to ₹ 19,41,897/-. 3.2 During the course of assessment proceedings the assessee vide letter dated 12.2.2016 explained as under :- Effective as of October 1, 2012 QUALCOMM incorporated completed an internal corporate reorganization, and in connection with the internal corporate reorganization Qualcomm transferred the assets relating to certain of its businesses to its whollyowned subsidiary Qualcomm Technologies, Inc. The Qualcomm Internet Services'(QiS) division is now part of QTI. As a part of this transfer, QIS sent notice of assignment letters to its BREW customers, including Sistema Shya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03 Sistema Shyafrt Teleservices Ltd. Test Tools 12,43,575 04 Sistema Shyam Teleservices Ltd License of BREW software 74,47,372 05 Tata Teleservices Limited License of BREW software 46,31,570 06 Virgin Mobile India Pvt. Ltd BREW License of BREW software 4,62,404 *The assessee has only offered the income mentioned in SI. No 1 to tax in India as royalty. 6.1 However, the assessee submitted that the payments at SI. No 2 to 6 are not taxable in India. The assessee submitted that the -payments made by Tata, Sistema Shyam and Virgin Mobiles are not taxable in India. Further, it was explained that the amount received from Alcatel and Sistema Shyam on account of tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but also under Article 12 of the Indo-USA DTAA. So far as the payment received in connection with Test Tools Agreement is concerned, he also upheld the action of the Assessing Officer in holding that the Test Tools Agreement formed part of the BREW Agreement and the nature of transaction under Test Tools Agreement is akin to the main transaction regarding supply of BREW system. 8. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 9. The Ld. Counsel for the assessee at the outset did not press ground of appeal No.2 for which the Ld. DR has no objection. Accordingly the ground No.2 is dismissed as not pressed. 10. Ground No.3 of appeal being premature at this juncture is not being adjudicated and is dismissed. 11. So far as ground of appeal No.1 is concerned, we find the Tribunal in assessee s own case for A. Y. 2014-15 while adjudicating identical issue has held that royalty from Brew Operators agreement is not chargeable to tax in the hands of the assessee u/s. 9 (i) (vi) b of the IT Act as well as article 12 of Indo- US-DTAA. The relevant observations of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 2,52,70.569 to Tata Teleservices Limited under BREW (Binary Runtime Environment forWireless) agreement. It was noted that it is an application development platform, developed by Qualcomm, for mobile phones that enables users to download and run applications for playing games, sending messages and sharing photos etc. It was also noted that this platform runs between the application and wireless device's chip operating system so that programmers can develop applications for wireless device without the code for system interface or understanding operating systems. It was also noted that end users of BREW customers are the carriers who pay an enablement fees based on device sales or a revenue share for application software that are downloaded. On these facts, the Assessing Officer proceeded to bring the same to tax by observing as follows: I have perused the submissions made by the assessee. However, this hypothesis is not correct as Software is licensed and not sold. Furthermore as per the terms of the BOA as reproduced above, the assessee has given TATA Teleservices the license to reproduce and install the copyrighted software. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any success. The assessee is not satisfied and is in appeal before us. 105.We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 106. We find that the payment in question is admittedly the payment is for a software which is for a copyrighted article and not the copyright itself. There is nothing on record to suggest that the payment is for the copyright itself. In this view of the matter, the issue is clearly covered, in favour of the assessee, by Hon'ble Delhi High Court's judgment in the case of DIT v.Infrasoft Ltd. [2014] 220 Taxman 273/[2013] 39 taxmann.com 88wherein Their Lordships have, inter alia, observed as follows: '85. The Licensing Agreement shows that the license is nonexclusive, non-transferable and the software has to be uses in accordance with the Agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Infrasoft. 87. In order to qualify as royalty payment, it is necessary to establish that 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 . Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty. 95. 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 f or the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97.What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Andhra Pradesh High Court in the case of Samsung Electronics Co. Ltd.(supra) that right to make a copy of the software and storing the same in the hard disk of the designated c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the assessee u/s 9(1)(vi) of the IT Act as well as Article 12 of the Indo- USA DTAA. Following similar reasonings, we also hold that the CIT(A) is not justified in upholding the action of the Assessing Officer in bringing to tax the royalty from Test Tools Agreement. The grounds raised by the assessee are accordingly allowed. 11. In the result, the appeal filed by the assessee are partly allowed. 12. Respectfully following the order of the Tribunal in assessee s own case for A. Y 2014-15 and in absence of any distinguishable feature brought to our notice by the ld. DR against the order of the Tribunal, we hold that the royalty from BREW Operator Agreement is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) of the IT Act as well as Article 12 of the Indo-US-DTAA. Following similar reasonings, we also hold that the CIT(A) is not justified in upholding the action of the Assessing Officer in bringing to tax the royalty from Test Tools Agreement. The grounds raised by the assessee are accordingly allowed. 13. In the result, the appeal filed by the assessee is partly allowed for statistical p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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