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2017 (2) TMI 916 - AT - Income TaxTDS on the payment to ZES treating it in the nature of royalty - liability for the payment to ZES for the use of copy right or for copyrighted article - Permanent Establishment (PE) in India - taxability in India - payments made to ZES are its business income or Royalty - Held that:- Assessee throughout his submission urged that, ZES provided the assessee a license to use its software on perpetual, non- exclusive, known as assignable, terminable and known sub licensable basis. ZES software is a ‘Shrink wrapped’ or ‘off the shelf’ copyrighted packaged software readily available and which has not been customized to meet specific requirement of the assessee. The assessee will have no right to use, copy, and display or print the software or documentation in whole or in part. Similarly the assessee is prohibited from using the software on a service bureau basis or otherwise providing data catching and /or management functionality to third party except or otherwise permitted in the agreement. The AO has not brought any quantity material on record to prove it otherwise. As decided in M/s Capgemini Business Services India Ltd. vs. ACIT [2016 (3) TMI 280 - ITAT MUMBAI] the assessee can not be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD- ROM which can be said to be sale of ‘good’ by the owner. The consideration paid by the assessee thus as per the clauses of DTAA can not be said to be royalty and the same will be outside the scope of the definition of ‘royalty’ as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a license provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957. - Decided in favour of assessee
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