TMI Blog2019 (12) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... n transferable license in computer software with no right to sub-lease or transfer shall fall within Royalty both under DTAA as well u/s 9(1)(vi) of the 1961 Act read with explanations and shall be chargeable to incometax under the provisions of the 1961 Act. Hon ble jurisdictional High Court has affirmed the ratio of decision of Hon ble Karnataka High Court in the case of Synopsis International Old Limited, in a recent judgment in the case of Zylog Systems Limited [ 2019 (5) TMI 1209 - MADRAS HIGH COURT] . We are bound by aforesaid decision of Hon ble Jurisdictional High Court decision and Respectfully following the decision of Hon ble Madras High Court in the case of Zylog, we allow appeal of Revenue - ITA No.1210/Chny/2019 - - - Dated:- 23-12-2019 - Shri N.R.S. Ganesan, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Mr.Pranith Golecha, CA / Mr.N.Ananthakrishnan, CA For the Department : Mr. J.Pavithran Kumar, JCIT ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal filed by Revenue is directed against appellate order dated 30.01.2019 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Section 92CA(3) of the 1961 Act , is reproduced hereunder: 3. Disallowance u/s.40(a)(i): 3.1 During the course of scrutiny proceedings the assessee was requested to furnish details of amount debited under the head software support charges of ₹ 18,63,35,391/- and the assessee was also requested to furnish the details of TDS done along with copy of agreement, invoices etc. The assessee furnished elaborate submissions in this regard along with copy of agreement for making such payments. Prima facie, it is seen that these payments were made by the company to M/s.Saipem, SPA, Italy, for acquiring software licenses which were used by the assessee for providing services to customers for various support functions in accounting, reporting etc. In this connection, it appears that the company had also directly purchased similar software / licenses from overseas third party vendors where it has deducted tax at source on such payments. However, when it comes to the question of making payments to its group concern, M/s.Saipem, SPA, Italy, the assessee has not deducted tax at source. On questioned as to why the amount classified a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim. 3.3 In reply the assessee submitted vide letter 7.11.2017 that At the outset, we wish to submit that the assessee appealed against the above order and the Hon'bfe ITAT, Chennai in its order dated 23.10.2017 had set aside the above order holding that the payments would not constitute royalty as per the DTAA between India and Italy. It is pertinent to note that the above order of the ITAT covers several AYs starting from AY 2009-10 to AY 2015-16 which also includes the subject AY 2014-15. From the above order, your goodself would be able to understand that the software support charges are not in the nature of royalty payments. 3.4. The assessee's submission is duly considered: Since the department has not accepted the order and further appeal is pending, the submission made by the assessee is not acceptable. It is further submitted that Saipem India periodically submits the number of license required, to Saipem, Italy which in turn acquire these licenses and allots to the assessee. As stated earlier, the nature of software is Structure Calculation software, PDMS- 3D modeling software, P ID Development 3D model r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow appeal of the assessee by following decision of Chennai-tribunal in assessee s own case for impugned assessment year 2014-15 itself , vide common order dated 23.10.2017 passed by Chennai-tribunal in ITA no s. 1862-1868/Mds/2017 for ay:2009-10 to 2015-16 respectively , wherein the tribunal held that no income-tax was required to be deducted at source before making aforesaid payments u/s 195 of the 1961 Act keeping in view definition of Royalty under Article 13(3) of India-Italy DTAA , and provisions of Article 13(3) of India-Italy DTAA being more beneficial vis- -vis provisions of Section 9(1)(vi) of the 1961 Act, shall apply, by holding as under: 4.3. CIT (A) s remarks and decision : I have carefully gone through the observation of the AO in the assessment order as mentioned above under para 4.1 and the appellant's submission before the CIT(A) under para 4.2. 4.3.1 In the relevant P.Y., the appellant made a payment for purchase of software to M/s. Saipem Spa Italy, being the parent company and the software licence was used by the appellant. The AO treated the aforesaid payment as royalty and disallowed the said paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vide appellate order dated 30.01.2019 passed by learned CIT(A). 5 Aggrieved by an appellate order dated 30.01.2019 passed by learned CIT(A) , the Revenue has filed this appeal with tribunal and Ld.Counsel for the assessee at the outset brought to the notice of the Bench, decision of Chennai-tribunal in assessee s own case for impugned assessment years, vide common order dated 23.10.2017 in ITA Nos.1862 to 1868/Mds/2017 for ay: 2009-10 to 2015-16 in assessee s own case wherein tribunal has granted relief to the assessee in context of provisions of Section 201(1)/(1A) of the 1961 Act by holding that these payments are not royalty payments and no income-tax was required to be deducted at source u/s 195 of the 1961 Act before making aforesaid payment to Saipem SPA, Italy . Thus, it is contended that learned CIT(A) has rightly decided the issue in favour of the assessee by following the decision of tribunal in assessee s own case for impugned ay: 2014-15 albeit the said decision was rendered in context of Section 201(1)/(1A) of the 1961 Act. The learned counsel for the assessee submitted that the assessee purchased copyrighted article and not copyrigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the business of engineering and procurement assistance services, design and execution of large scale oil gas onshore and offshore projects, cryogenic tanks, etc. The assessee had purchased certain software licenses from M/s.Saipem SPA, Italy, which were used by assessee for providing services to customers for various support functions in accounting, reporting, etc. . The AO made disallowance of aforesaid expenses claimed by assessee by invoking provisions of Section 40(a)(i) of the 1961 Act as the assessee had not deducted income-tax at source as required u/s 195 of the 1961 Act while making payment to M/s Saipem SPA, Italy, by holding that the aforesaid payments are Royalty payment u/s 9(1)(vi) of the 1961 Act and Article 13(3) of India-Italy DTAA which were subject to income-tax deduction at source u/s 195 of the 1961 Act, vide assessment order dated 17.11.2017 passed by AO u/s 143(3) read with Section 92CA(3) of the 1961 Act. The learned CIT(A) in first appeal filed by assessee has held in favour of assessee by following decision of Chennai tribunal in assessee s own case for impugned assessment year 2014-15 vide common order dated 23.10.2017 passed by tribunal in assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was seized of an issue, wherein customized software used for designing highways, railways, airports, ports etc was licenced to an Indian customer who used such software in its business. Their lordships held that such software, by virtue of the relevant agreements, could be used only for assessee s own business and could not be loaned, rented, sold, sub-licenced or transferred to a third party. Their lordships therefore held that mere transfer of right to use a copyrighted material did not give rise to any royalty income in terms of article 12(3) of India US DTAA. Thus, there seems to be an apparent contradiction in the view regarding right to use copyrighted software between Hon ble Karnataka High Court and Hon ble Delhi High Court. Assessee in such a situation, in our opinion can always fall back on the judgment in their favour, so long as there is no jurisdictional High Court judgment on the issue. However, we have to see whether assessee s case falls within the same parameter of facts as they were there before Hon ble Delhi High Court. Annex 1 of the agreement entered by the assessee with its Italian principal has been reproduced by the ld. Commissioner of Income Tax (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se granted hereunder shall terminate and Saipem and the Affiliates shall destroy all copies of the Licensed Software and Third Party Software provided under this Agreement, with the exception that Saipem and the Affiliates shall retain the number of perpetual licenses, in their latest version, of the Licensed Software listed on Annex 3 at the time of termination of the Agreement pursuant to the terms and conditions of the existing license agreement for such Licensed Software and Third Party Software . Reading of the rights given through the above agreement clearly show that, though assessee and its principal could make unlimited copies of the licenced software/third party software, it could be used only for assessee s internal business use. Assessee could not sub-licence, assign or transfer such software. It was a non-exclusive and non-transferable licence. Right to make copies was only for assessee s own use and not for sale or transfer. Obviously, assessee only had a right to use copyrighted software. Assessee did not get any right in the copyright in the software. Copyright in the software continued to vest with Intergraph, Italy. Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts were acquired by the assessee from a party abroad for distribution in India. Co-ordinate Bench held at para 6 of its order dated 30.11.2016 as under:- 6. We have considered the rival contentions and perused the orders of the authorities below. It is not disputed by the Revenue that payments received by the assessee from DSSPL were based on same regional support agreements between assessee and DSSPL which was considered by the Co-ordinate Bench of this Tribunal in ITA Nos.1698 to 1702/Mds/2010, in its order dated 16.09.2011. So the payments received by the assessee during the relevant assessment year from DSSPL was of the same nature as what were received by it from the said concern in the previous year relevant to assessment years 2002-03 to 2006-2007. In its order dated 16.09.2011, this Tribunal had followed the decision of Special Bench in the case of Motorala Inc. vs. DCIT 95 ITD 269 and had held as under:- 15. We have heard the rival submissions and perused the orders of the lower authorities and the material available on record. In the instant case, we find that no specific error in the order of the ld. CIT(A) could be pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to perform a particular task or achieve a particular result , but the moot question is as to what is that a customer pays for when he buys, or to put it in technical terms 'obtains licence to use the software for the process of executing the instructions in the software, or for the results achieved on account of use of the software. To draw an analogy, it is akin to a situation in which a person hires a vehicle, and the question could be as to what does he pay for - for the use of the technical knowhow on the basis of which vehicle operates, or for the use of a product which carries passengers or goods from one place to another. The answer is obvious. When you pay for use of vehicle, you actually pay for a product which carries the passengers or goods from one place to another and not the technical knowhow on the basis of which such a product operates. Same is the case with the software, when someone pays for the software, he actually pays for a product which gives certain results, and not the process of execution of instructions embedded therein. As a matter of fact, under standard terms and conditions for sale of software, the buyer of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretation are also based on commonsense approach. Suppose a man tells his wife to go out and buy bread, milk or anything else-she needs, he will not normally be understood to include in the terms anything else she needs a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader version of the maxim ejusdem generis. A man may be known by the company he keeps and a word may be interpreted with reference to the accompanying words. Words derive colour from the surrounding words. 16. In the instant case, we find that the assessee sold copy righted software and not copyright in the software. Therefore, we do not find any good reason to interfere with the order of the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of the assessee liable for taxation in India. Addition made stands deleted. Thus, assessee could fall back on the definition of Royalty as given in DTAA if it was more advantageous to it. 15. The Hon ble Delhi High Court in the case of Infrasoft Ltd (supra) had considered an issue whether mere transfer of right to use copyrighted material like software programme, gave rise to any royalty income in terms of article 12(4) of the India USA DTAA. Their Lordship held that mere transfer of right to use a copyrighted material did not give rise to any Royalty income under the said Article. Article 12(4) of the DTAA between India and USA is reproduced hereunder:- Royalties and fees for technical services 1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the royalties or fees for technical s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing industrial, commercial or scientific experience . Term Royalty has been defined in the same language in both DTAAs. Therefore in our opinion, the judgment of Hon ble Delhi High Court in the case of Infrasoft Ltd (supra) will squarely apply on facts here also. There is no case for the Revenue that assessee s principal had any permanent establishment in India. What was held by their lordships in paras 85 to 96 is reproduced hereunder:- 85. The Licensing Agreement shows that the license is non-exclusive, nontransferable 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 shall include Infrasoft's copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensee's own business as de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icense 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 para 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 IT Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 . Provisions of DTAA being more beneficial to the assessee. Assessee was in our opinion justified in relying on DTAA and taking a view that payments effects by it did not warrant deduction of tax at source under section 195 of the Act. In our opinion assessee was justified in harbouring a view that payments made by it did not fall within the meaning of the term Royalty as used in the DTAA. This being so, assessee could not be saddled with a liability for failure to deduct tax at source. Orders of the lower authorities for all the years are set aside. Thus, as could be seen from aforesaid order dated 23.10.2017 passed by Chennai tribunal in assessee s own case that assessee has made payments to Saipem SPA, Italy towards software licenses/purchase of software , a personal , non exclusive , non transferable license with a right to make unlimited copies but however the said software can only be used for internal purposes and there could not be sub-license, assignm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amed, as quoted above, are http://www.judis.nic.in Judgt. dt. 23.4.19 in T.C.2184/2006 M/s.Zylog Systems Limited v. ITO answered against the Assessee and in favour of the Revenue. No order as to costs. It is pertinent to mention that definition of Royalty under Article 13(3) of India-Italy DTAA is parametria with definition of Royalty in Article 12(3) of India-Ireland DTAA except exclusion of applicability to aircraft in India- Ireland DTAA, which is reproduced hereunder: India-Italy DTAA Article 13(3) reads as under: 13(3) The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of 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 the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. India-Ireland DTAA-Article 12(3) read as under: 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said company holds all right, title and interest, as a licensee to the intellectual property including the copyrights. The assessee is a subsidiary of the aforesaid company. Synopsys Corporation has granted a non exclusive license in the territory which is geographical, as described in the said agreement to use and commercially exploit the intellectual property, manufacture, market, distribute, sub-license and maintain the products and provide ail services to customers during the term of 'TLA' under an agreement dated 31/10/1999, for a period of one year to be continued thereafter, after mutual agreement, as per the discretion of the Synopsys Inc. In pursuance of the rights acquired under the said agreement, the assessee has entered into 'EULA with various Indian customers. One such agreement is dated 30/5/2002 entered into with M/s. Athena Semi-conductors Private Limited, Bangalore. 11. In pursuance of the aforesaid agreement, the assessee has granted the Indian customers a non-exclusive, non-transferable license, without right of sub-license, to use the licensed software and design techniques only in the quantity authorised by the licensee, in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied was a copyrighted article and not a copyright and the payment received by the assessee in respect of the software cannot be considered as 'Royalty' either under the Act or DTAA. 12. Similar question arose for consideration before the Authority for Advance Rulings in case of Dassault Systems K.K., (supra) in Para.8 of the said order, the question for consideration is formulated in the following manner:- The first and foremost question is whether the payments received by the applicant from the VARs represent consideration for the use of, or the right to use, any copyright of literary/scientific work. Going by the language of the Act, the question is whether there is transfer of all or any rights in respect of the copyright of literary or scientific work. 13. After referring to the facts of that particular case and the law on the point, it is observed as under at para 17 and 17.1:- 17. Can it be said that the one time payment based on standard price minus discount paid by VAR to the applicant is in the nature of royalty? It depends on the question whether any rights that the applicant grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onferment of the right of using the copyright. However, where, for example, the owner of copyright over a literary work grants an exclusive license to make out copies and distribute them within a specified territory, the grantee will practically step into the shoes of the owner/grantor and he enjoys the copyright to the extent of its grant to the exclusion of others. As the right attached to copyright is conveyed to such licencee, he has the authority to commercially deal with it. In case of infringement of copyright, he can maintain a suit to prevent it. Different considerations will arise if the grant is non-exclusive that too confined to the user purely for in-house or internal purpose. 14. Ultimately, it was ruled that payment was received by the VARs ( third party resellers ) on account of supplies of software products to the end-customers (from whom the licence fee is collected and appropriated by VAR) does not result in income in the nature of royalty to the applicants. 15. It was contended relying on these two judgments that under the 'EULA' no right in the copyright as such is transferred. As such, the consideration paid in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a source of information on various commercial and financial matters of Companies and similar entries. What the appellant does is to collect and collate the said information/data which is available in public domain and put them all in one place in a proper format so that the customer (licensee) can have easy and quick access to this publicly available information. The applicant has to bestow its effort, experience and expertise to present the information/data in a focused manner so as facilitate easy and convenient reference to the user. For this purpose, the applicant is called upon to do collation, analysis, indexing and noting wherever necessary. These value additions are the product of the applicant's efforts and skills and they are outside the public domain. In that sense, the database is the intellectual property of the applicant and copyright attaches to it; but, the question is whether in making this centralized data available to the customer-licensee for a consideration, can it be said that any rights which the applicant has as a holder of copyright in database are being parted in favour of the customer? The answer, in our view, must be in the negative. No proprietary r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer. Such access is provided to any person who subscribes, subject to limitations. The copyright of the applicant has not been assigned or otherwise transferred so as to enable the subscriber to have certain exclusive rights over the applicant's work In SBI v. Collector of Customs, Bombay , the Supreme Court held that Countrywide use of the software and reproduction of software are two different things and licence fee for countrywide use cannot be considered as the charges for the right to reproduce the imported goods. That was also a case in which the property in the software remained with the supplier-a foreign company and the licence fee was payable by SBI for using the software in a limited way at its own centers for a limited period. 19. From the aforesaid judgments it is clear, a distinction has been made between a transfer of a right in a copyright and transfer of a right in a copyrighted article. In view of the language employed in sub-clause (v) to Explanation 2, the question is not whether what is transferred is a right in a copyright or a copyrighted article. The real question is whether the consideration paid to the owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation storage device and includes any such programme or any customized electronic data] .................................. [Explanation - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India: or (ii) the non-resident has rendered services in India. 20. Income by way of 'Royalty' is liable to tax. The second proviso to Clause (vi) makes it clear that any lump sum payment made by a resident for the transfer of all or any lights including granting of a licence in respect of computer software supplied by a non-resident manufacturer along with a computer of computer based equipment under any scheme approved under the Policy on Computer Software Export, Software Developments and Training, 1986 of the Govt., of India, would not constitute 'Roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e copyright, which would constitute 'Royalty' and any consideration paid for the transfer of a copyrighted article do not involve any transfer or right and therefore, it is outside the scope of 'Royalty' as appeared in Explanation 2. The said argument is based on the aforesaid two decisions referred to supra. In the entire discussions in the aforesaid two cases, the words used in Clause 5 namely, in respect or, is not noticed and not discussed. It is well settled law that the legislature is deemed not to waste its words or to say anything in vain. A construction which attributes redundancy to the legislature is not acceptable except for compelling reasons. The Courts always presume that the legislature inserted every word thereof for a purpose and the legislative intention in that every word of the statute should have effect. The intention of the legislature is primarily to be gathered from the words used. The words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their grammatical meaning, unless that leads to some absurdity or unless is some thing in the context, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the import of this generality of language should be cut down for any reason. It is well settled that a limited interpretation has to be made on words used by the legislature in spite of the generality of the languages used where the literal interpretation in the general sense would be so unreasonable or absurd that the legislature should be presumed not to have intended the same. Is there any such reason for cutting down the result of the generality of the language used present here? The answer in our opinion must be in the negative. It is true that in many cases stations, sidings, wharves, depots warehouses, cranes and other similar things will be used and it is arguable that in using the words in respect of the legislature had such user in mind. It is well to notice however that the legislature must have been equally aware that whereas in some cases accommodation provided by stations will he used, in, some cases sidings will be used, in other wharves, in others warehouses and in other cases cranes, and in certain cases several of these may be used, in most cases there will be no use of all of these. From the practical point of view it is impossible to regulate terminate char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or work done in such employment. The expression in respect of means attributable to [see Asher v. Seoford Court Estates Ltd. [1950 A.C. 508, 5261 or, if it is given a wider meaning, relating to or with reference to [see Tolaram Relumal v. State of Bombay [1955] 1 SCR 158 at P. 165: (AIR 1954 466 at p.499). The payment must, therefore, be attributable to employment, that is, engagement in work, or to work done. During the period of lay-off, the employer is not in a position to provide work and the employee cannot insist on work being provided or wages being paid to him. The employee is also not wider any duty to work for his master or even to present himself for work. He has to present himself for work if he desires to claim compensation (see S. 25E of the Industrial Disputes Act). But he has an option in the matter. If he remains absent, he will not be entitled to compensation, but he will not lose the right, which he possesses under the standing orders, of reinstatement when the normal working is resumed. The employer cannot insist, on his attendance and there is also no obligation upon 1dm to provide work or to pay wages even if the worker presents himself for work. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be confiscated to the Central Government. The currency confiscated this case was Indian currency. The question is whether the Indian currency constituting the sale proceeds of foreign exchange seized from the respondent was currency in respect of which the contravention had taken place. The words in respect of admit of a wide connotation; Lord Greene M.R. in Cunard's Trustees v. Inland Revenue Commissioners [1946] 174 LT 133 calls them colourless words. This Court in S.S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. [1960] 2 SCR 926 AIR 1960 SC 695 construing these words in section 3(14) of the Indian Railways Act, 1890 has held that they are very wide. It seems to us that in the context of section 23(1B) in respect of has been used in the sense of being 'connected with' and we have no difficulty in holding that the currency in respect of which there has been contravention covers the sale proceeds of foreign currency, sale of which is prohibited under section 4(1). The intention of the legislature is clear from the explanation to sub-section (1B) of section 23 which provides that for the purposes of the sub-section properly in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section being only to levy a charge on persons and activities brought within its clear terms. Therefore, the specific words used in a taxing statute, charging tax cannot be ignored. It is not the consideration for transfer of all or any of the rights in the copyright. Without transferring a right in the copyright it is possible to receive consideration for the use of the intellectual property for which the owner possess a copyright. Ultimately, the consideration paid is for the usefulness of the material object in respect of which there exists a copyright. Therefore, the intention was not to exclude the consideration paid for the use of such material object which is popularly called as copyrighted article. Even in respect of a copyrighted article the same is transferred, no doubt the right in the copyright is not transferred, but a right in respect of a copyright contained in the copyrighted article is transferred. Therefore, the Parliament thought it fit to use the phrase 'in respect of' as contra distinct from the word 'in' copyright. The meaning is clear, intention is clear, there is no ambiguity. Therefore, there is no scope for interpretation of this expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial part thereof namely: (a) in the case of literary, dramatic or musical work, not being a computer programme - (i) to reproduce the work in any material form including the storing of it in any medium by electronics means, (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public. (iv) to make any cinematograph film or sound recording in respect of work; (v) to make any translation of the work;' (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clause (i) to (vi). 30. The object of a definition is to avoid the necessity of frequent repetitions in describing all the subject-matter to which the word or expression so defined is intended to apply. The Legislature has power to define a word even artificially. So the definition of a word in the definition section may either be restrictive of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on those who contend that the definition given in the interpretation clause does not apply to a particular section to show that the context in fact so requires. 32. In this background it is pertinent to note the opening words of section 14. It expressly state that for the purposes of this Act . The intention of the parliament in expressing the meaning of the word in that manner and not defining the said term in the definition section cannot be lost sight of. Further, the legislature has chosen to employ the word 'means' in defining the meaning of the word 'copyright' which again makes the intention very clear that the said meaning to the word copyright is restrictive and exhaustive. Then the further words, 'exclusive right subject to the provisions of this Act' further imposes a rider on the meaning of the word 'copyright'. Though the word used is exclusive right , in section 30 of the Act, the Parliament has provided what are the rights which the owners of a copyright may part with. It expressly states the owner of the copyright in any existing work may grant any interest in the right by licence in writing signed by him or by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but for which the owner of the copyright could be put to an enormous loss. The said definition does not deal with the ordinary meaning of the word 'copyright' which includes the right to use the work. It is a negative right. If is not a right to do something but rather a right to restrict others from doing certain acts. It is in this context the word 'exclusive' has to be understood. When in the Act itself after using the word exclusive right in section 14, when it comes to the question of licence of a copyright, if need not necessarily be an exclusive right, but any interest in the right, the word exclusive has to be restricted firstly to the Act itself and secondly to situations which fall outside the scope of section 30 of the Act. Therefore, the expression 'copyright' used in the Act cannot be the same as used in the Income-tax Act. In the Income-tax Act, when the legislature advisedly used the word 'in respect of a copyright' it cannot be construed as a right in the copyright and assign the meaning assigned in the Copyright Act to the second explanation, line language in Explanation (2) explicitly makes it clear for the purpose of clause (vi) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata. Though this definition holds good for the purposes of second proviso to s. 9(l)(vi), the ordinary meaning and understanding of computer software is no different. Computer programme as such is not defined under the I.T. Act. However, Computer programme is defined in the Copyright Act as follows: Computer programme means a set of instructions expressed in words, codes, schemes or in any other form including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result. 34. It is also worth mentioning that some routines may be written in assembly code, essentially a set of memories for object code which another program translates directly into that code. This is normally done when the programmer needs to drive the hardware directly, or where speed is required, as it gives very precise control over the program's operation. Once all sections are complete, they are fitted together to produce a complete version in source code, i.e., in human-readable form that gives the user as little information as possible about the details of the program (thus reducing the danger o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not make backup copies of the program for security purposes, although some licenses specifically conferred a limited right to make backup copies. 36. Ultimately, what the end-user, who pays the consideration requires is, the benefit of the user of the intellectual property, whether for his personal use or for commercial use. Merely because the end-user is not permitted to make commercial use of a copyrighted article by means of re-production of copyrighted article, it would not take the case out of the provision. The user may be for personal use or for commercial use. The essence of the copyright is the usefulness of intellectual property embedded in such copyright. One of the ways of exploiting a copyright is by re-production for commercial use. But that is not the only use to which a copyright could be made use of. It could be used for their personal use and that is the reason why consideration is stipulated even for such personal use. Though the rights that are transferred in such a transaction may be limited as compared to transfer of a copyright for commercial use. In particular, a software or a computer programme is such a sophisticated g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red under Article 11 and Article 12 deals with royalties and fees for technical services. The relevant portion reads as under: (1) Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2) However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. (3) (a) The term royalties as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft, or for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting State, due regard being had to the other provisions of this Convention. 38. It was contended that once India is a party to this agreement, the definition of the royalties contained in Article 12 would have the effect of superceding the definition of royalty in the Income-tax Act. If the case of the assessee do not fall within the term royalty as per the definition under Article 12 of the agreement. As the agreement is superceding the definition of term royalty under the Act, the consideration paid to him is not liable to be taxed in India. It is submitted that as the Article which is licenced in this case and the consideration paid to the same does not fall within the definition of royalty, under Article 12 the assessee is not liable to pay tax. 39. It is no doubt true the provisions of the DTAA overrides the provisions of the Incometax Act. In the DTAA the term 'royalty' means payments of any kind received as a consideration for the use or the right to use any copyright of literary, artistic or scientific work whereas in the Income-tax Act, royalty means consideration for the transfer of all or any rights including the grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re or other work is disconnected and distinct from the general property in the material book, picture or other object. Hence, the sale or other transfer of the material object does not, of itself, constitute a transfer of the copyright therein. An assignment carries with it the whole interest in the thing assigned, including the right of reassign, while a licence is personal and not assignable without the grantor's consent. An exclusive licence is a leave to do a thing, and a contract not to give leave to anybody else to do the same thing, ft confers no interest, or property in the thing but only makes an action lawful, which, without it, would have been unlawful. 43. A licence is a permission to do something that would otherwise be unlawful. The question arises, therefore, as to what legal permission is granted by a software licence. The answer is, briefly, that in some cases the licence will be a permission to use confidential information, and in virtually in all cases it will be a permission to copy a copyright work. If the software has been kept secret by the producer, or only supplied on conditions of confidentiality and has not been published too widely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct SolvNet; (iii) Designs; (iv) either party's product plans, costs, prices and names; non-published financial information; marketing plans; business opportunities; personnel; research; development or know-how; (v) any information designated by the disclosing party as confidential in writing, or, if disclosed orally, designated as confidential at the time of disclosure and deduced to writing and designated as confidential in writing within thirty (30 days; and (vi) the terms and conditions of this Agreement; provided, however the Confidential Information will not include information that; (a) is or becomes generally known or available by publication, commercial use or otherwise through no fault to the receiving party; (b) is known and has been reduced to tangible form by the receiving party at the time of disclosure and is not subject to restriction; (c) is independently developed by the receiving party without use of the disclosing party's Confidential Information; (d) is lawfully obtained from a third party who has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 Minor Enhancement Release means an embodiment of the Licensed Product that delivers minor improvement, incremental features or enhancements of existing features, and/or functionality to the Licensed Product. 1.19 Software Upgrade means an embodiment of the Licensed Product that delivers substantial performance improvements, architectural changes or new features and/or functionality to the Licensed Product for which Synopsys may charge a separate license fee. 1.20 Use Area means the Key Server(s), Client(s) and End-User(s) all located within the same five (5) mile radius. Grant of rights 2.1 Software License Synopsys hereby giants Licensee a non-exclusive, non-transferable license, without right of sub-license, of use the Licensed Software and Design Techniques only: (i) in the quantity authorized by a License Key; (ii) in accordance with the Documentation; and (iii) in the Use area. Licensee may make a reasonable number of copies of the licensed Software for backup and/or archival purposes only. 2.1.1 Term of License The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) the tern of the Evaluation License will be as specified in the applicable License key; and (iii) Section 9 is amended such that the Licensed Products is provided AS IS 2.7 Proprietary Notices. Licensee must reproduce and include the copyright notice and any other notices that appear on the original copy of the Licensed Product and Documentation on any copies may thereof by Licensee in any media. 2.8 License Restrictions. Licensee acknowledges that the scope of the licenses granted hereunder do not permit Licensee {and Licensee shall not allow any third party to: (i) save as expressly permitted by and in accordance with the provisions of Regulation 6(2), 6(3) and 7 of the EC (Legal Protection of Computer Programs) Regulations 1993, copy, adapt, decompile, disassemble, reverse engineer or attempt to reconstruct, identify or discover any source code, underlying ideas, underlying user interface techniques or algorithms of the Licensed product by any means whatever, or disclose any of the foregoing; (ii) distribute, lease, lend, use for timesharing, service bureau, and/or applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machine ID number) of the Key server(s) and the location of such Key Server(s). All purchase orders are subject to acceptance by Synopsys, in its sole discretion. Licensee's receipt and use of all Licensed Product and Documentation shall be governed by: (i) the terms and conditions of this Agreements; and (ii) any Agreement Supplement(s) which are executed by both parties. Nothing contained in any purchase order, purchase order acknowledgment, or invoice shall in any way modify such terms or add any additional terms or conditions; provided, however, that such standard variable terms as price, quantity, delivery data, shipping instructions and the like, as well as tax exempt status, if applicable shall be specified on each purchase order or acknowledgment Licensee's purchase order will include, the licensee fee and payment terms as set forth in the applicable Synopsys quotation. Licensee agrees to pay Synopsys the license fees, plus applicable taxes as set forth below, in accordance with the payment terms specified in the applicable Synopsys quotation and/or invoice. 5.3 Delivery. Upon the acceptance of an order by Syn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Agreement in accordance with its terms, and termination of this Agreement will be without prejudice to any other right or remedy of either party. The provisions of sections 3, 7, 8.2, 8.3, 11, 12 and 13 shall survive any termination or expiration of this Agreement. 10. Patent and Copyright Infringement 10.1 Indemnity. Synopsys agrees, at its own expense, to defend or, at its option, to settle, any claim or action brought against Licensee to the extent it is based on a claim that the Licensed Software as sued within the scope of this Agreement infringes or violates any United States or European patent, copyright, trademark, trade secret or other proprietary light of a third party, and Synopsys will indemnify and hold Licensee harmless from and against any damages, costs and fees reasonably incurred (including reasonable attorneys' fees) that are attributable to such claim or action and which are assessed against Licensee in a final judgment. Licensee agrees that Synopsys shall be release from the foregoing obligation unless licensee provides Synopsys with: (i) prompt written notification of the claim or action; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights which the owner of copyright possess in the said computer software/programme in respect of the copyright owned. In terms of the DTAA the consideration paid for the use or right to use the said confidential information in the form of computer programme software itself constitutes royalty and attracts tax. It is not necessary that there should be a transfer of exclusive right in the copyright as contended by the assessee. The consideration paid is for rights in respect of the copyright and for the user of the confidential information embedded in the software/computer programme. Therefore, it falls within the mischief of Explanation (2) of clause (vi) of sub-section (1) of section 9 of the Act and there is a liability to pay the tax. 46. If there was any doubt regarding the taxability of this income the parliament by Finance Act, 2010 has substituted the explanation to section 9 which gives a clear intention of the legislature insofar as the liability of tax under this provision is concerned. A perusal of the said explanation makes it clear that as there was a doubt earlier, they want to remove the doubts by introducing this explanation. By the explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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