2010 (10) TMI 583 - ITAT, DELHI

DTAA between US & India - Royalty or sale of copyrighted articles - assessing officer assessed the entire payments in the hands of MRSC as royalty income on the ground that payments have been received towards licensing of Microsoft software products which amounts to grant of right in Intellectual property Rights (IPRs) - whether the sale of “off the shelf software product” by US based non-resident companies to independent Indian distributors is taxable in the hands of such non-resident companies as royalties within the meaning of Explanation 2 to section 9(1)(vi) of the Act as well as under Article 12 of Double Taxation Avoidance Agreement between India and US - During the course of assessment proceedings the assessing officer noted that on 1/01/1999 Microsoft Corporation granted M/s. Gracemac Corporation, the assessee, a hundred per cent subsidiary of Microsoft Corporation, licence to manufacture and distribute all MS retail software products - It clearly provides that product is protected by copyright and the other intellectual property laws and treaties, and that Microsoft (or its suppliers of software code, if any) own the title, copyright and other intellectual property rights in the product - user is paying for getting a copy of the software and not certain limited rights in software, which rests with the copyright owner of the software programme - There is nothing either in the Income tax Act or Indo-US DTAA that once a case falls in one of the clauses of Explanation 2 of section 9(1)(vi) it cannot be considered in any other clause - Held that: Microsoft computer programmes are inventions and the payment made for the use or the right to use the same would amount to royalty - In the result, the appeals filed by Microsoft Corporation and Gracemac are dismissed and the appeals filed by MRSC are allowed