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2015 (8) TMI 135 - AAR - Income Tax‘Fees for technical services’ under Article 12(3)(b) of the Agreement between the Government of the Republic of India and the Government of Ireland - whether payments received by the Applicant would be characterized as ‘royalty’ under Article 12(3)(a) of the India-Ireland Treaty? - Permanent Establishment (“PE’) - whether the payments received by the Applicant for the SkillSoft Products would be subject to withholding tax in accordance with the provisions of section 195 ? - Held that:- A SkillSoft Product consist of two components. The first is course content and the second is the software through which the course is delivered to the end customer. The applicant enters into a Reseller Agreement with the SkillSoft India for sale of SkillSoft Products. SkillSoft India buys the SkillSoft Product from the applicant and sells the same to the Indian end-users under the master license agreement, which is primarily in the nature of a software/content license agreement whereby the Indian endusers are permitted to access the e-learning platforms and the educational content. SkillSoft India provides to the end-users the access code/web-link by which they could access the SkillSoft Products. We have also gone through a demo of the website of the applicant and could see that they were marketing several copyrighted software containing simulation exercises and such software simulations were especially designed by them. Such especially designed software are not available in public domain. It is clearly mentioned by them that these products are ‘licensed by the Applicant to SkillSoft India under the Agreement and further sub-licensed/distributed to end customers in India under the Customer Agreement.’ It is not correct to say that the applicant’s case is completely different from the facts of a case surrounding software. The fact is that software and computer databases created by the applicant are included within the ambit of ‘literary work’ and therefore covered under Article 12(3)(a). The payments received by the applicant from the distributor for sale of the software product are in the nature of royalty both within the meaning of section 9(1)(vi) of the IT Act and within the meaning of Article 12 of the DTAA As regards definition of royalty under DTAA, it was held in the case of Synopsis [2013 (2) TMI 448 - KARNATAKA HIGH COURT ] that under the DTAA to constitute royalty there need not be any transfer or any rights in respect of any copy rights and it is sufficient if consideration is received for use of or the use to any copyright. Therefore if the definition of royalty in the DTAA is taken into consideration it is not necessary that there should be a transfer of any exclusive right. In terms of the DTAA the consideration paid for the use or right to use the said confidential information in form of computer programme software itself constitutes royalty. We respectfully agree with the findings of Hon’ble Karnataka High Court in the case of Synopsis. No permanent establishment is created for the applicant in India under the provision of Article 5 of the DTAA. The payment received by the applicant would be subject to withholding tax in accordance with the provisions of the section 195 of the IT Act. - Decided in favor of revenue.
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