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TMI Blog2012 (8) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... DSP Limited, Israel towards purchase of software are in the nature of royalty. 4. That the appellant denies its liability to deduct tax at source and pay the same to the Government in respect of payment made to CEVA DSP Limited, Israel towards purchase of software. 5. That the Learned CIT(A) erred in not directing the respondents to grant refund of the tax deposited by the appellant. 6. That the appellant craves leave to add to and/or alter, amend, rescind or modify the Grounds herein above before or at the time of hearing the Appeal." 3. The main grievance of the assessee in this appeal relates to the action of the ld. CIT (Appeals) in confirming the view expressed by the Assessing Officer in holding that the payment of USD 21,270 payable to CEVA DSP Limited, Israel, for purchase of software was in the nature of royalty and the assessee was required to deduct tax at source and pay the same to the Government. 4. The facts of the case in brief are that the assessee deducted tax at source and deposited the same to the Government treasury, however, the assessee u/s. 248 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant's own case where in it was held that shrink-wrapped software is liable for deduction of tax, the appellant gets no relief. However, since the matter is now referred back to the Hon'ble Karnataka High Court and if the Hon'ble court reverses its judgement, the position would be different. For the time being, going by the Hon'ble Karnataka High court judgement in the appellant's own case, it is held that the payments made software purchases from non-residents are liable for deduction under section 195." Now the assessee is in appeal. 5. The ld. counsel for the assessee was fair enough to admit that the issue has been decided against the assessee in assessee's own case by the Hon'ble jurisdictional High Court vide order dated 15.10.2011. However, against the said order, the assessee preferred a SLP before the Hon'ble Supreme Court. It was further stated that a similar issue has been decided in favour of the assessee and against the revenue by the Hon'ble Delhi High Court in the case of DIT v. Ericsson A.B. [2012] 204 Taxman 192/[2011] 16 taxmann.com 371, copy of the said order was furnished. 6. In his rival submissions, the ld. CIT(DR) strongly supported the impugned order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as expressly set forth in the said agreement, distributor may not rent, lease, loan, sell or otherwise distribute the Software the Documentation or any derivative works based upon the Software or Documentation in whole or in part. Distributor shall not reverse engineer, decompile, or otherwise attempt to derive or modify the source code for the Software. Distributor shall have no rights to the Software other than the rights expressly set forth in the agreement. Distributor shall not modify or copy any part of the Software or Documentation. Distributor may not use sub-distributors for further distribution of the Software and Documentation without the prior consent of Actuate. What is charged is the licence fee to be paid by the Distributor of the Software as enumerated in Exhibit A to the agreement. Further, Clause 6.01 of the agreement dealing with title states that the Distributor acknowledges that Actuate and its suppliers retain all right, title and interest in and to the original, and any copies (by whomever produced), of the Software or Documentation and ownership of all patent copyright, trademark, trade secret and other intellectual property rights pertaining thereto, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court was considering the question as to whether the canned software sold by the appellants can be termed to be "goods" and as such assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. Having regard to the broad definition of 'goods' under Section 2(h) of the said Act and also the provisions of Article 366(12) of the Constitution of India, the Hon'ble Supreme Court was pleased to answer the said question for determination by holding that once the 'information' or 'knowledge' is transformed into physical existence and recorded in physical form, it is corporeal property. The physical recording of the software is not an incorporeal right to be comprehended and accordingly, held that the software marketed by the appellants therein indisputably was canned software and thus, sale of the same would attract the provisions of the Andhra Pradesh General Sales Tax Act, 1957. 22. The question as to whether the payment made for import of software or supply of software by the non-resident Companies was royalty or not was not at all in issue in TCS's case and the question was whether canned software sold by the appellants therein amounted to sale of goods under the And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence. Section 14 of the said Act dealing with meaning of 'Copyright' reads as follows:- "14. Meaning of Copyright. - For the purposes of this Act, "copyright" means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely: - (a) in the case of a literary, dramatic or musical work, not being a computer programme,- (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work: (vi) to make any adaptation of the work, (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngement of copyright states that the following acts shall not constitute an infringement of copyright, namely- "** ** ** (aa) the making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme, from such copy. (i) in order to utilise the computer programme for the purpose for which it was supplied; or (ii) to make back-up copies purely as a temporary protection against loss, destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied." 24. It is clear from the above said provisions of the Copyright Act that the right to copyright work would also constitute exclusive right of the copyright holder and any violation of the said right would amount to infringement under Section 51 of the Act. However, if such copying of computer program is done by a lawful possessor of a copy of such computer programme, the same would not constitute infringement of copyright and wherefore, but for the licence granted in these cases to the respondent to make copy of the software contained in shrink-wrapped/off-the-shelf software into the hard disk of the designated com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents that there is no transfer of any part of copyright or copyright and transaction only involves sale of copy of the copyright software cannot be accepted. It is also to be noted that what is supplied is the copy of the software of which the respondent-supplier continues to be the owner of the copyright and what is granted under the licence is only right to copy the software as per the terms of the agreement, which, but for the licence would amount to infringement of copyright and in view of the licence granted, the same would not amount to infringement under Section 52 of the Copyright Act as referred to above. Therefore, the amount paid to the non-resident supplier towards supply of shrink-wrapped software, or off-the-shelf software is not the price of the C.D. alone nor software alone nor the price of licence granted. This is a combination of all and in substance, unless licence is granted permitting the end user to copy and download the software, the dumb C.D. containing the software would not in any way be helpful to the end user as software would become operative only if it is downloaded to the hardware of the designated computer as per the terms and conditions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the respondents to deduct tax at source under Section 195 of the Act and consequences would follow as held by the Hon'ble Supreme Court while remanding these appeals to this Court. Accordingly, we answer the substantial question of law in favour of the revenue and against the assessee by holding that on facts and circumstances of the case, the ITAT was not justified in holding that the amount(s) paid by the respondent(s) to the foreign software Suppliers was not 'royalty' and that the same did not give rise to any 'income' taxable in India and wherefore, the respondent(s) were not liable to deduct any tax at source and pass the following Order:- All the appeals are allowed. The order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A' impugned in these appeals is set aside and the order passed by the Commissioner of Income Tax (Appeals) confirming the order passed by the Assessing Officer (TDS)-I is restored." [Emphasis supplied]. 8. From the aforesaid referred to judgment dated 15.10.2011 in ITA No.2808/2005 & Others, it is crystal clear that the issue under consideration has been settled by the Hon'ble jurisdictional High Court in assessee's own case and it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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