9911796707
TMI Blog2015 (3) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer, International Taxation, Ward-1(1), Bangalore (The Assessing Officer) under sections 201(1) and 201(1A) of the Act. The appellant craves that the orders of the learned CIT(A) and the learned Assessing Officer, being unsustainable and bad in law, be set aside. 2) The learned CIT(A) has erred under the facts and circumstances of the case in confirming the order of the learned Assessing Officer by holding that the appellant was under an obligation to deduct tax at source under section 195 of the Act, on the payments made by the appellant towards the purchase of software to non-resident entities - namely, Cadence Design Systems (Ireland) Limited and Reliant Electronic Design Services Pte Limited. 3) The learned CIT(A) has erred in law and facts in confirming the order of the learned Assessing Officer by concluding that the payments made by the appellant for the use of copyrighted software are in the nature of "royalty" as defined in Explanation 2 to section 9(1)(vi) of the Act. 4) Without prejudice to the above, based on the facts and circumstances of the case, the appellant respectfully submits that the learned CIT(A) has erred in law and in facts, on the following coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents were made to Cadence and M/s Reliant Electronic Design Services Pvt. Ltd. for downloading of licensed software. The Assessing Officer held that the payments made to Cadence Design Systems Limited and M/s Reliant Electronic Design Services Pvt. Ltd. were in the nature of royalty and failure to deduct tax as required under section 195 of the Act attracted liability under section 201(1) and 201(1A) of the Act. Accordingly, orders were passed under section 201(1) and 201(1A) of the Act by the Assessing Officer on 26th March, 2010 making the appellant liable for tax under section 201(1) and interest under section 201(1A) of the Act. The details of the assessment years concerned, the amounts paid and the tax and interest that was levied under section 201(1) and 201(1A) of the Act are as under:- Learned Assessing Officer's orders dated 26th March, 2010 CIT(A)'s order dated 3rd February, 2011 ITA No. AY Payee Amount (in INR) Tax under section 201(1) Interest under section 201(1A) 526/B/2011 2007-08 Reliant 1,948,997 216,555 87,810 527/B/2011 2008-09 Reliant 3,398,300 377,589 107,742 528/B/2011 2009-10 Reliant Cadence 3,916,375 664,350 508,969 85,633 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only a licence to use the software for internal business without having any right for making any alteration or reverse engineering or creating sub-licences. What is transferred under the said licence is the licence to use the software and copyright continue to be with the non-resident as per the agreement. Even as per the agreement entered into with the other distributors as also the end user licence agreement, it is clear that the distributor would get exclusive non transferable licence within the territory for which he is appointed and he has got right to distribute via resellers the Software, upon payment of the licenses set forth in Exhibit A to the agreement only to end users pursuant to a valid Actuate shrinkwrap or other Actuate license agreement and except 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 ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplier of software cannot be accepted. 21. It is further contended by the learned senior counsel appearing for the respondent & that In view of the fad that what Is supplied by the non-resident to the respondent in India is only a shrink wrapped software / off the-shelf software, which is not customised to suit the needs of the respondent, the said software is to be treated as goods and there is sale of the software and copy of the software. Therefore, the question of paying any royalty would not arise. In support of the said contention, the learned senior counsel appearing for the respondents' has strongly relied upon the decision of the Hon'ble Supreme Court in TATA CONSULTA.NCY SERVICES Vs. STATE OF ANDHRA PRADESH (2004 ITR (Vol. 271) 401) (hereinafter referred to as the TCS's case), wherein the Hon'ble Supreme 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 'good& under Section 2(h) of the said Act and also the provisions of Article 366(12) of the Constitution of India, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the payee to make deduction under Section 195(1) of the Act. 23. It Is well settled that in the absence of any definition of copyright In the Income Tax Act or DTAA with the respective Countries, in view of clause 3 of the DTAA, reference is to be made to the respective law regarding definition of Copy right, namely, Copyright Act, 1957, In India, wherein it is clearly stated that "literary work Includes computer programmes, tables and compilations Including computer [databases[ Section 16 of the Copyright Act, 1957 states that no person shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise than under and in accordance with the provisions of the said Act or of any other law for the time being in force, but nothing in this section shall 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old once shall be deemed to be a copy already in circulation. It may also be noted that under Section 51 of the Act dealing with 'When Copyright infringed" states that Copyright in a work shall be deemed to be Infringed - when any person, without a licence granted by the owner of the Copyright or the Registrar of Copyrights under the Act or in contravention of the conditions of a licence so granted or of any condition Imposed by a competent authority under the Act does anything, the exclusive right to do which is by the Act conferred upon the owner of the Copyright. Section 52 of the Act dealing with certain acts not to be Infringement of copyright states that the following acts shall not constitute an Infringement of copyright, namely "xxx (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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght or copyright under the impugned agreements or licenses cannot *be accepted. Accordingly, we hold that right to make a copy of the software and use it for internal business by making copy of the same and storing the same In the hard disk of the designated computer and taking back up copy would itself amount to copyright work under Section 14 (1) of the Act and licence is granted to use the software by making copies, which work, but for the licence granted would have constituted Infringement of copyright and licencee is in possession of the legal copy of the software under the licence. Therefore, the contention of the learned senior counsel appearing for the 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of explanation 2 to section 9(1)(vi) of the Act. In any view of the matter, in view of the provisions of section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. Once it is held that payment made by the respondents to the nonresident companies would amount to 'royalty' within the meaning of Article 12 of the DTAA with the respective country. It is clear that the payment made by the respondents to the nonresident supplier would amount to royalty. In view of the said finding, it is clear that there is obligation on the 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' taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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