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2021 (9) TMI 21 - AT - Income TaxIncome deemed to accrue or arise in India - Royalty u/s.9(1)(vi) - Payments made to non-residents - TDS u/s 195 - right to use software - overriding effect of DTAA - Payments for software subscription, access to portals, access to online databases etc. - Payments for software subscription, access to portals, access to online databases etc. - HELD THAT:- A copyright is an intangible right, in the nature of a privilege, entirely independent of any material substance. Owning copyright in a work is different from owning the physical material in which the copyrighted work may be embodied. Computer programs are categorized as literary work under the Copyright Act. Section 14 of the Copyright Act states that a copyright is an exclusive right to do or authorise the doing of certain acts in respect of a work, including literary work. Since the revenue authorities primarily relied on the decision of Samsung Electronics Co.Ltd. [2011 (10) TMI 195 - KARNATAKA HIGH COURT] in holding that the payment in question was in the nature of royalty and since in the light of the subsequent pronouncement in the case of Engineering Analysis [2021 (3) TMI 138 - SUPREME COURT] overruling the decision of Samsung Electronics Co.Ltd. (supra) and since the analysis of the EULA is necessary to come to a conclusion regarding the nature of the right that is given to the user of the software and since this exercise has not been carried out by the authorities below, we deem it fit and appropriate to remit the issue to the AO for consideration afresh. Payments towards webhosting charges - As in the case of EPRSS Prepaid Recharge Services India Pvt.Ltd. [2018 (10) TMI 1434 - ITAT PUNE] held that payments made for use of cloud space does not amount to payment of royalty. Cloud computing/cloud hosting charges - The concept of Cloud computing is the delivery of different services through the Internet, including data storage, servers, databases, networking, and software. Cloud-based storage makes it possible to save files to a remote database and retrieve them on demand. Traditionally we store our data in our computer and can access the data only if the computer is available. In cloud computing the data is store in a server and can be accessed through any system - conclusions with regard to payment for right to use software will equally apply to these payments also and the AO will examine the issue afresh as directed while remanding the issue with regard to payments for right to use software in the light of the agreement between the parties. Payments towards Data Connectivity Charges (also known as Network Connectivity charges, Lan Connectivity charges, Bandwidth Charges, Link Connectivity charges, Link Charges etc. - Revenue authorities concluded that payment is for use of equipment as well as several processes which are secreted and patented and hence in the nature of “royalty” under the DTAA and therefore liable to TDS u/s.195 - Hon’ble Delhi High Court in the case of New Skies Satellite BV [2016 (2) TMI 415 - DELHI HIGH COURT] has held that income from providing data transmission services by lease of transponders would not be regarded as “royalty” under the DTAA.The Hon’ble Karnataka High Court in the case of CIT Vs. Infosys Technologies Ltd. [2015 (3) TMI 850 - KARNATAKA HIGH COURT] has also taken similar view on taxability of Data connectivity charges (Down linking charges). The conclusions with regard to payment for right to use software will equally apply to these payments also and the AO will examine the issue afresh as directed while remanding the issue with regard to payments for right to use software in the light of the agreement between the parties. Payments towards transponder capacity, bandwidth - There is a wellknown distinction between “lease of equipment” and “use of equipment”. The Court held that there was no use of a “process” by the TV channels when no such purported use has taken place in India as the assessee and its customers are situated outside India. The agreements were executed abroad. The transponder was in orbit and merely because its footprint was on India did not mean that the process had taken place in India. The Court held that since the end consumers i.e. persons watching TV in India are paying the cable operators who in turn are paying the TV channels, the flow of fund is traced to India and therefore the sum is taxable in India was held to be a far-fetched argument and ignores the fact that the income which is generated in India has been subjected to tax in India in the hands of the telecast operators. The payment by the telecast operators outside India to the assessee cannot be taxed on the basis that the end consumers are in India; The conclusions with regard to payment for right to use software and the overriding effect of DTAA over the Act, will equally apply to these payments also and the AO will examine the issue afresh as directed while remanding the issue with regard to payments for right to use software in the light of the agreement between the parties. Payments towards consulting fees, legal fees, professional fees, training fees, certification fees and sub-contracting charges - Once the payment for use of software, access to online etc., is regarded as not in the nature of royalty, these payments should also be regarded not in the nature of royalty and hence not liable to TDS - another conclusion of the revenue authorities was that the payments were in the nature of Fees for Technical Services (FTS) cannot be sustained because the applicable DTAA regarding taxation of FTS have not been considered - issue needs re-examination by the income tax authorities in the light of the applicable DTAA provisions. Assessee appeal allowed for statistical purpose.
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