TMI Blog2013 (4) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2011 for the Assessment Year 2007-08. 2. The facts of the case, in brief, are as under:- 2.1 The assessee is an Indian company, in the business of providing business printing solutions. The assessee sells boxes containing a CD, dongle and user manual to various customers in India engaged in newspapers, publications, magazines, etc. The CD sold by the assessee contains software used by the printing industry for providing printing solutions. The dongle is an electronic device that must be attached to a computer in order to use the software. The user manual contains the instructions to use the software and dongle. The boxes containing the CD, dongle and the user manual are imported by the assessee from various concerns outside India from whom it has taken distributorship to sell them in India. On their import into India, the assessee pays custom duty. The assessee also sells the hardware i.e. the interface card and data cables and other connected accessories required for the printing industry. The hardware is imported along with the CD boxes and customs duty is paid thereon. The assessee has taken distributorships from non-resident entities situated in various countries such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on put forth by the assessee and held that payment made by the assessee amounted to 'royalty' under section 9(i)(vi) of the Act. Pages 3 to 28 of the assessment order contain the reasons of the Assessing Officer for treating the payment as royalty. The Assessing Officer held that payment for import of software amounts to payment towards copyright as also for patent, invention, scientific work, secret formula or process thereby attracting the provisions of section 9(1)(vi) of the Act. The Assessing Officer also concluded that software cannot be considered as 'goods' as understood generally and now specifically in terms of the definition given in the Income Tax Act, 1961 and that even if software is considered as 'goods', the definition of 'royalty' does not exclude goods from its ambit. Accordingly, the Assessing Officer held that the impugned payments constituted 'royalty' and hence liable for deduction under section 195 of the Act since the payment to non-residents were made without deduction of tax at source, the Assessing Officer disallowed the entire sum of Rs. 1,55,78,117 under section 40(a)(i) of the Act. 2.4 Aggrieved with order of the Assessing Officer, the assessee went ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India." It was submitted that the boxes containing the CD are imported along with the dongles and other hardware items, which are computer based equipments and therefore even if the impugned payments constitute 'royalty' within the meaning of the definition of the said term, as per Explanation 2 to section 9(1)(vi), the said payments would be outside the scope of section 9(1)(vi) of the Act by virtue of the second proviso to section 9(1)(vi). To support the fact/claim that the import of software was along with hardware, the learned Authorised Representative drew our attention to a sample of invoices at pages 22, 24 and 26 of the paper book. He submitted that to fall within the second proviso to section 9(1)(vi), what is required to be shown is that the software is imported along with hardware. The learned Authorised Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence) in respect of any copyright etc. In the present case, the assessee is a reseller of the software and does not secure any right or licence in the software. The non-resident does not transfer any right or grant licence in respect of the software to the assessee. The assessee imports boxes containing the CD and sells the same without even opening the boxes. There is no transfer of any rights or grant of licence in favour of the assessee. The transfer of rights or granting of licence in the software is in favour of the end user who installs the CD in his computer in the process of which, he has to agree to the terms and conditions of the 'End User Licence Agreement.' It was submitted that there was a transfer of right or grant of licence directly by the non-resident in favour of the end user and there is no transfer of any right or grant of any licence in favour of the assessee. Therefore, it was submitted that payments towards import of software cannot be regarded as 'royalty' under section 9(1)(vi) of the Act. d) The learned Authorised Representative submitted that assuming without admitting that the impugned payments constituted 'royalty' under the Act, the said payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Other group cases were not identical. The imported software was used in testing the software developed by the respondent to ensure that the software developed conformed to the requirements of its parent company (page 127 of the decision). In ITA No.609/2006 and connected maters, the respondent was a distributor of software wherein after taking orders from customers, the respondent imports the software and supplies the same to customers (page 132 of the decision). In ITA No.1056/2006 and connected matters, the respondent was a distributor placing back to back orders on the non-resident for supply of the software and in consideration thereof received commission of 2% (page 137 of the decision). b) Revenue's arguments before the Hon'ble Karnataka High Court were in respect of licence to use the software by an Indian entity by copying the software on the hard disc of the computer (page 124 of the decision). Apart from this, Revenue also argued on the non-applicability of the decision of the Hon'ble Apex Court in the case of Tata Consultancy Services (page 126 of the decision) and the applicability of section 9(1)(vi) even in the absence of a Permanent Establishment (page 138 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless licence is granted permitting the end user to copy and download the software, the dumb CD 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 the agreement and that makes the difference between the computer software and copyright in respect of books or prerecorded music software as book and prerecorded music CD can be used once they are purchased, but so far as software stored in dumb CD is concerned, the transfer of dumb CD by itself would not confer any right upon the end user and the purpose of the CD is only to enable the end user to take a copy of the software and to store it in the hard disc of the designated computer if licnece is granted in that behalf and in the absence of licence, the same would amount to infringement of copyright, which is exclusively owned by non-resident suppliers, who would continue to be the proprietor of copyright." 3.5 The learned Authorised Representative emphasizing the conclusion of the Hon'ble High Court at pages 184 (supra) of the decision submitted that in the present case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.' He further submitted that there is no specific provision in the Civil Procedure Code for consolidation of suits. It is under the inherent powers, that suits are consolidated by the Court. The whole object behind consolidation is to avoid multiplicity of proceedings, unnecessary delay and expenses. Where it appears that there is sufficient unity or similarity in the matter in issue in the suits or that the determination of the suits rests mainly on a common question, it is open to the court to try them as analogous cases. When consolidated for the purpose of trial, the primary consideration is convenience and for avoiding conflicting decisions involving identical questions. He further submitted that before the Hon'ble High Court the issue involved for determination was common but the factual background was different. In such cases, it is important to decide the matters one by one or atleast group by group. As discussed earlier, the various appeals involved conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case and material on record, it is evident that the Assessing Officer has considered payments made for import of hardware amounting to Rs.58,91,407 and payment for services amounting to Rs.46,514 also as 'royalty.' This is apart from considering payments made for import of software as 'royalty'. As rightly submitted by the learned Authorised Representative, payment made for import of hardware and payment for services cannot be regarded as 'royalty' under section 9(1)(vi) of the Act because none of the limbs of the definition of the term 'royalty' would be applicable as they cannot be regarded as payments made towards use of patent, design, copy right, etc. Thus, payment made for import of hardware and payment for services are outside the purview of section 9(1)(vi) of the Act. 5.2 We find that the Assessing Officer and the CIT(A) have not examined whether payments to non-residents in the instant case consisted only for import of software or whether payments were also made for import of hardware. Even though the figures of import of hardware and payment for services are on record, we are of the opinion that the Assessing Officer is required to examine the details ..... X X X X Extracts X X X X X X X X Extracts X X X X
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