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2018 (5) TMI 1807 - AT - Income TaxCharacterizing of receipts relating to sale of software - “Royalty” as been brought to tax @ 10% in view of the India-Ireland DTAA as well as under the provision of Section 9(1)(vii) - payment ‘for the use of or right to use any copyright of various nature, which connotes an exclusive right to use any ‘copyright’ in an article which is in the nature of the terms defined therein - taxation in view of India-Ireland DTAA - Held that:- In the present case it is quite ostensible that no use or right to use of a copyright in the software has been ever divested either to the distributors or to the end users. Even for the sake of argument, it is accepted that copyright has been transferred, then requirement of law is that, assignments of the copyrights has to be complied with as provided in sections 18 & 19 of the Copyright Act. Thus, the mode of assignments should be by writing and subsection (2) of section 19 requires that the assignment of copyright in any work must; identify such work; specify right assign; the duration of the assignment and the territorial extent of the assignment. In none of the agreements, it can be seen that there is any kind of assignment of copyright. In view of the OECD commentary also such a consideration received on the sale of copyrighted software product without any kind of transfer or assigning of fully or partially copyright therein to the end user does not amount to royalty. Such guideline of OECD can well be taken note of, since the treaty which is subject matter of consideration is India-Ireland treaty, which is based on OECD Model Convention, therefore, the interpretation of the term ‘royalty’ as given in the OECD Model Convention have some pervasive value. In any case, we have already held that in terms of Section 14 of the Copyright Act, none of the rights enshrined therein have been parted with the assessee in favour of the assessee or the end customer inasmuch as they can enjoy the right in the same manner in which the assessee can; and no such specific right concerning the use of copyright have been conferred by the assessee to these persons or end user. Assessee has not been given any of the authority to do any of the act as contemplated in various sub clauses of Section 14. Thus, under the Indian copyright Act also, there is no passing of any kind of right to use by the assessee to the Indian distributor. The Hon'ble Delhi High Court in the case of DIT vs. Infrasoft [2013 (11) TMI 1382 - DELHI HIGH COURT] have threadbare discussed this issue in the context of India-US, DTAA, which has by and large the same definition, to come to a conclusion that mere transfer of right to use copy righted material, i.e., software program cannot be taxed as ‘royalty’ in terms of Article 12(3). The Hon'ble High Court has also held that amendment in the domestic law even from retrospective effect cannot be rad into the treaty - payment taxed in India - Thus we hold that the nature of payment as received by the assessee from sale of Adobe Software products cannot be characterized as ‘royalty’, and therefore, the same is outside the purview of taxation in view of India-Ireland DTAA. Since, admittedly, assessee does not have a PE in India, therefore, such an income cannot be taxed as business income under Article 7 and further it is also not the case of the Revenue that such a payment is to be taxed as business income. - Decided in favour of assessee.
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