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M/s Tejas Networks Ltd. Versus The Dy. Director of Income-tax, International Taxation, Circle-2 (1) , Bangalore

TDS u/s 195 - whether the payments made for acquiring the shrink-wrap Software amounts to royalty u/s 9(1)(vi) and also Indo-Ireland DTAA and, therefore, tax at source required to be deducted as per the provision of sec. 195? - Held that:- Respectfully following the decision of the Hon’ble Karnataka High Court in the case of Samsung Electronics Co. Ltd., (2011 (10) TMI 195 - KARNATAKA HIGH COURT ) and also decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case [2015 (11) T .....

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eign 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 non-resident 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 .....

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09-10 to 2011- 12. 2. During the course of hearing in ITA No.750 authorized representative of the assessee brought to our notice that the assessee has already filed an appeal in ITA No.31/Bang/2015 dated 5/6/2015 for the asst. year 2009-10 on similar issues which was disposed off by this Tribunal vide order dated 31/6/2015. Hence, in this appeal nothing to adjudicate, becomes infructuous and dismissed accordingly. Now, we proceed with ITA No.716 and 717. 3. Brief facts of the case are that the a .....

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ce dated 25/12/2011 why the assessee should not be considered assessee in default for not deducting tax at source u/s 195 in respect of payment in question. In response to notice, the assessee s authorized representative Shri Puneeth, C.A appeared and submitted that the payment made to the non-resident Indian was made for the use of software under non exclusive and non transferable and licensed to use the software. Accordingly, the payments in question are not chargeable to tax in India and, the .....

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ly held that the assessee is default u/s 201 and 201(1A) and passed order u/s 201 and 201(1A) dated 14/3/2013 as under:- From the above discussion, it is proved that the payments made by the assessee to Cadence, Ireland during the FY 2008-09 & 2010-11 in terms of a license, constitute Royalty, both u/s 9(1)(vi) of the Income-tax Act, 1961, and under the DTAA between India and Ireland, and is chargeable to tax in India. As per sec. 195 of the Income-tax Act, the assessee was liable to deduct .....

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ult in respect of tax not deducted at source on royalty payments to Cadence, Ireland. It is liable to pay tax deductible in this regard along with the interest u/s 201(1A). Tax Liability of the assessee: The tax liability of the assessee, Tejas Networks Ltd., u/s 201(1) & 201(1A) for the asst. year 2009-10 (FY 2008-09) is determined as under: Month Amount in Rs Tax deductible u/s 201(1) Rs. Interest u/s 201(1A) Rs. 08-07-2008 537,500 53,750 30,638 14.-10-2008 593,750 59,375 32,063 11-12-2008 .....

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-11) is determined as under: Month Amount in Rs. Tax deductible u/s 201(1) Rs Interest u/s 201(1A) Rs. 13.08.2010 2,046,494 204,649 65,488 31.01.2011 1,969,393 196,939 5 3,174 Total 4,015,887 401,588 118,662 4. Aggrieved by the order u/s 201 and 201(1A) of the Act, the assessee preferred on appeal before the learned CIT(A) by declaring the assessment and contended before the learned CIT(A) that the payment made in question were not royalty with the meaning of sec. 9(1) of Indo- Ireland DTAA. The .....

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on paid as consideration for the right to use copy-rightedsoftware amounts to Royalty within the meaning of the Act read with respective DTAA, the contentions of the assessee s representative are rejected. 5. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 6. The authorized representative of the assessee during the course of hearing brought to our notice that the appeals are already decided against the assessee in assessee s own case in ITA No.31/Bang/2015 dated 5/6/20 .....

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olved in these appeals are decided against the assessee in ITA No.31/Bang/2015 dated 5/6/2015. We find that the issue before us is whether the payments made for acquiring the shrink-wrap Software amounts to royalty u/s 9(1)(vi) of the Income tax Act and also Indo- Ireland DTAA and, therefore, tax at source required to be deducted as per the provision of sec. 195 of the Income-tax Act. As pointed out by the AR, the issue is already decided in favour of the assessee in assessee s own case by this .....

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ion of "royalty", it is clear that the necessary ingredient to be satisfied to find out as to whether the payment would amount to "royalty" is as follows -payment of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work. It has been universally accepted that a literary work is entitled to copyright and wherefore, a literary work is entitled to be registered as copyright. In India, the provisions of sec .....

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spondents in the case represented by Sri Ganesh, learned senior counsel and Sri Aravind Dattar, wherein it is a case of purchase, sale or distribution or otherwise of the off-the-shelf software. It is described as a "software licence agreement", wherein it is averred that customer accepts an individual, nontransferable and non-exclusive licence to use the licensed software program(s) on the terms and conditions enumerated in the agreement. It is further averred that the customer-Samsun .....

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nt 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 licences set forth in exhibit A to the agreement only to end users pursuant to a valid Actuate shrinkwrap or other actuate licence agreement and except as expre .....

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py any part of the software or documentation. The distributor may not use subdistributors 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 origina .....

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the licences provided therein and confidentiality is protected. Therefore, on reading the contents of the respective agreement entered into by the respondents with the non-resident, it is clear that under the agreement, what is transferred is only a licence to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement, as referred to above, and the nonresident supplier continues to be the owner of the copyright and all other intellectual property rights .....

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nsfer of right to use the copyright for internal business as per the terms and conditions of the agreement. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of copyright or any part thereof under the agreements entered into by the respondent with the nonresident supplier of software cannot be accepted.………… ………..It is well settled that in the absence of any definition of "copyright .....

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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 the meaning of "copyright" reads as follows : "14. Meaning of copyright.-For the purposes of this Act, 'copyright' means the exclusiv .....

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municate 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 computer programme, (i) to do any of the acts specified in clause (a) ; (ii) to sell or give on commercial rental or offer for sale or f .....

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copies of the work to the public not being copies already in circulation ; (iv) to include the work in any cinematograph film ; (v) to make any adaptation of the work ; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv) ; (d) in the case of a cinematograph film, (i) to make a copy of the film, including a photograph of any image forming part thereof ; (ii) to sell or give on hire, or offer for sale or hire, any copy of .....

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is section, a copy which has been sold 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 author .....

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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." It is clear from the abovesaid 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, i .....

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t, but for the licence. Therefore, licence is granted for taking copy of the software and to store it in the hard disk and to take a back-up copy and right to make a copy itself is a part of the copyright. Therefore, when licence to make use of the software by making copy of the same and to store it in the hard disk of the designated computer and to take back-up copy of the software, it is clear that what is transferred is right to use the software, an exclusive right, which the owner of the cop .....

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nts to the non-resident suppliers can be treated as "royalty" is not helpful to the respondents in the present cases as in the said case, the Delhi High Court was considering the provisions of section 40(a)(i) of the Act and the order of the High Court reads as follows (page 223) : "What is found, as a matter of fact, is that the assessee has been purchasing the software from Microsoft and sold it further in Indian market by no stretch of imagination, it would be termed as royalty .....

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and license is granted to use the software by making copies, which work, but for the licence granted would have constituted infringement of copyright and the licensee 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 .....

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ards supply of shrink-wrapped software, or offthe-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 con .....

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ted computer if licence 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. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C. D. or the C. D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles s .....

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an the definition of "royalty" under the DTAA as the right that is transferred in the present case is the transfer of copyright including the right to make copy of software for internal business, and payment made in that regard would constitute "royalty" for imparting of any information concerning technical, 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 .....

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