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2022 (8) TMI 1497 - AT - Income TaxIncome deemed to accrue or arise in India - revenue earned by the appellant from supply of software as “royalty” - scope of Double Taxation Avoidance Agreement (“DTAA”) between India and United Kingdom - distinction between the acquisition of a “copyright right” and a “copyrighted article” - AO held that the payments received by the assessee for supply of software is taxable as “royalty” on account of being a payment for grant of a copyright as well as payment received for allowing the use of the process inherent in the software - CIT(A) confirmed addition stating that Payment under software license agreement represents consideration for transfer of all or any right (including granting of license) in respect of copyright and other intellectual property rights and Copy of software supplied by the Appellant did not amount to sale but it is license to use the software. HELD THAT:- The issue of royalty or not on software has been examined by the Hon’ble High Court in case of Nokia Networks OY [2012 (9) TMI 409 - DELHI HIGH COURT] where in it was held that supply of software is not ‘royalty’ despite the amendments made by Finance Act 2012 to section 9(1)(vi) of the Act. It has been observed that though Explanation 4 was added to section 9(1)(vi) by the Finance Act 2012 with retrospective effect to provide that all consideration for user of software shall be assessable as “royalty”, the definition in the DTAA has been left unchanged. Following the decision in case of Siemens AG [2008 (11) TMI 74 - BOMBAY HIGH COURT] it was held that amendments cannot be read into the treaty. Once assessee has opted to be assessed by the DTAA, the consideration cannot be assessed as “royalty” despite the retrospective amendments to the Act. The right to reproduce and the right to use computer software are distinct and separate rights, the former amounting to parting with copyright and the latter, in the context of non-exclusive EULAs, not being so. At this juncture, we have examined the written submission of the ld. DR and find that it would not make any material difference to the fact that the buyer of the software in the instant case also has the user right only. The buyer has no right to re-sale the product and it still remained a copyrighted article which the buyer cannot alter modified, reproduced i.e. own will unless authorized. And such authorization has been given to re-supply to BSNL for their use, at the same time, keeping the all other rights with the assessee. Holding thus, the Hon’ble Supreme Court [2021 (3) TMI 138 - SUPREME COURT] decided the issue in favour of the taxpayer and laid down that the payments made by resident Indian end-users/distributors to non-resident computer software manufacture/suppliers as consideration for use/resale of shrink-wrapped software does not amount to payment for royalty for the use of copyright in the computer software considering the definition of royalty under the DTAAs. Hence, keeping in view the judgment of Hon’ble Apex Court, we hereby allow the appeal of the assessee on merits.
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