TMI Blog2015 (3) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... sequence of Article 20 of the Supply contract. Distinction has to be made between the acquisition of a 'copyright right" and a "copyrighted article". The Assessing Officer has clearly stated that the copyright of software vests only with the CGI Group and therefore, even from that standpoint, there can be no divergence from the assessee’s point that what has been transacted in the license agreement is only the grant of user right in the copyrighted software and not the use of copyright itself. Thus respectfully following the decision of the Coordinate Bench of the Tribunal in assessee’s own case for assessment year 2005-06 [2012 (5) TMI 179 - ITAT PUNE] which is the basis for reopening the assessment for the impugned assessment year, we hold that the license charges earned by the assessee is not liable to be treated as Royalty. - Decided in favour of assessee - ITA Nos.87 & 337/PN/2013 - - - Dated:- 20-2-2015 - Shri G.S. Pannu And Ms. Sushma Chowla JJ. For the Appellant : Rajan Vora For the Respondent : A.K. Modi ORDER Per Sushma Chowla, JM: Both the appeals filed by the assessee are against the respective orders of Dy. Director of Income Tax (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only user right to BA Life and BA General in terms of the license agreement, the same is not disputed by the Assessing Officer. The following discussion by the Assessing Officer would show that there is no dispute to the assessee s assertion that it is only right to use of a copyrighted article which has been granted and not for the use of a copyright:- Thus the rights were received by Allianz AG to use the software. These rights were transferred by Allianz to BA Life and BA General to use the software in Indian Territories. Thus, the licensee in first case (between Certis and Allianz) becomes sub-licensor (between Allianz and BA Life/BA general.) As submitted by the assessee the copyright of OPUS vests with the CGI Group. Now CGI Group has assigned the right to use the software to Allianz AG in the Authorized Territories (Basically all world except Canada) for which Allianz AG will pay some amount to CGI Group. Further, Allianz AG assigns the right to use the software to BA Life and BA General being its affiliates in India. As per the copyright Law, whenever the assignee of a copyright becomes entitled to any rights comprised in the copyright, he shall be treated as the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the article and would not constitute royalty under the Act or under the relevant clauses of the DTAA. The Special Bench after considering the meaning of the expression royalty under the Act and that of a copyright under the Copyright Act, 1957 held that what was sold by the non-resident was the copyrighted article and the payment was not for a copyright. The aforesaid proposition has since been examined and affirmed by the Hon ble Delhi High Court in its order dated 23.12.2011 (supra), the relevant portion reads as under: WHETHER THE INCOME FROM THE SUPPLY CONTRACT CAN BE TREATED AS 'ROYALTY' UNDER SECTION 9(1)(vi) OF THE ACT: 50. Section 9(1)(i) of the Act which deals with the taxability of royalty income reads as under: Section 9 INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (1) The following incomes shall be deemed to accrue or arise in India :- (i) All income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situatein India 51. The submission of Mr. Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self. His submission was that Section 52(1) (aa) of the Copyright Act only deems that certain acts will not to amount to infringement in the light of various concerns, where otherwise such acts would amount to infringement under Section 51 of the Copyright Act. The provision cannot by itself be used to hold that no right exists in the first place since the scope of the right has to be understood only from the provisions of Section 14 of the Copyright Act, 1957. He also argued that the ITAT has misinterpreted the provisions of the DTAA, specifically Article 13, para 3 of the DTAA (Article 12, para 3 of the Model Convention) which defines royalties to mean payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work . The ITAT, submitted, has not appreciated that the royalty is for the use or right to use any copyright. According to him, since title of the software continued to vest with the assessee as provided in clause 20.2 of the Supply Agreement and the assessee was free to grant non-exclusive licenses to other parties, it follow that there was no full time transfer of copyright but I was only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become goods . We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of goods within the meaning of the term as defined in the said Act. The term al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be read in isolation of the other. The services rendered by the experts and the payments made towards the same was part and parcel of the sale consideration and the same cannot be severed and treated as a business income of the non-resident company for the services rendered by them in erection of the machinery in Midhani unit at Hyderabad. Therefore, the contention of the Revenue that as the amounts reimbursed by Midhani under a separate contract for the technical services rendered by a non resident company, it must be deemed that there was a business connection , and it attracts the provisions of Section 9(1)( vii) of the Income Tax Act cannot be accepted and the judgments relied upon by the Revenue are the cases where there was a separate agreement for the purpose of technical services to be rendered by a foreign company, which is not connected for the fulfilment of the main contract entered into principal to principal. This is not one such case and thus the contention of the Revenue cannot be accepted in the circumstances and nature of the terms of the contract of this case. 58. No doubt, in an annexure to the supply contract the lumpsum price is bifurcated in two componen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which software was an inseparable parts incapable of independent use and it was a contract for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty. In our view, the aforesaid judicial pronouncement clearly supports the proposition advanced by the assessee in the present case. In fact, in so far as the factual aspect is concerned, the Assessing Officer has clearly stated that the copyright of software vests only with the CGI Group and therefore, even from that standpoint, there can be no divergence from the assessee s point that what has been transacted in the license agreement is only the grant of user right in the copyrighted software and not the use of copyright itself. Therefore, having regard to the fact-position and the judgment of the Hon ble Delhi High Court, wherein the decision of the Special Bench in the case of Motorola Inc. (supra) has since been approved, the view of the assessee has to be upheld. 12. Before parting, we may refer to the decisions relied upon by the learned CIT-Departmental Representative before us, namely, the decision of Authority in the case of IMT Labs (India) P Ltd (supra) and also of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earned by it was not liable to be treated as royalty following the judgement of the Hon ble Delhi High Court. Accordingly, the appeal of the assessee has to succeed. 13. In the result, the appeal of the assessee is allowed. 9. We find the Tribunal while deciding the issue has also considered the decision of the Hon ble Karnataka High Court in the case of Samsung Electronics Co. Ltd., (Supra) and a number of other decisions. Considering the totality of the facts of the case and respectfully following the decision of the Coordinate Bench of the Tribunal in assessee s own case for assessment year 2005-06 which is the basis for reopening the assessment for the impugned assessment year, we hold that the license charges earned by the assessee is not liable to be treated as Royalty. Accordingly the grounds raised by the assessee are allowed. ITA No. 158/PN/2011 (Assessment Year 2007-08) : 10. Grounds raised by the assessee are as under : Ground of appeal No. 1 : That the Hon ble DRP and consequentially the learned Assessing Officer has erred in law and facts on license charges received under software license agreement granting user right in software as royalty under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement between India and Germany (DTAA)? 7. The appeals in ITA(L) No.1362 of 2012 relating to assessment year 2005-06, ITA(L) No.1881 of 2012 relating to assessment year 2004-05 and ITA(L) No.1880 of 2012 relating to assessment year 2007- 08 are pending for disposal before the Hon ble Bombay High Court. 8. The assessee before us has made applications under section 158A(1) of the Act for both the captioned assessment years i.e. 2008- 09 and 2009-10 pointing out that identical question of law has been framed by the Hon ble Bombay High Court and the final decision on the said question of law be applied. In view thereof, the assessee claimed that it would not raise any such question of law before the Bombay Hon ble High Court under section 260A of the Act and / or Hon ble Supreme Court of India,. The applications moved by the assessee under Form No.8 are available on record, which in turn, were forwarded to the Assessing Officer who has submitted report dated 22.12.2014. The Assessing Officer on verification of record, has reported that the question of law mentioned in (a) is involved in the appeals filed by the Department before the Hon ble Bombay High Court for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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