TMI Blog2006 (12) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... s intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the programme is tangible, movable and available in the market place. The fact that some programmes may be tailored for specific purposes need not alter their status as 'goods' because the code definition included 'specially manufactured goods'. In yet another decision in the case of Tata Consultancy Services v. State of Andhra Pradesh [ 2004 (11) TMI 11 - SUPREME COURT] held that the purchaser of a computer programme does not receive mere knowledge but receives an arrangement of matter which makes his computer perform a desired function. This arrangement of matter recorded on a tangible medium constitutes a corporeal body. A software recorded in physical form becomes inextricably inter-wined with or part and parcel of the corporeal object upon which it is recorded, be that a disc, tape or hard drive or other device. Apex Court has also noted its earlier decision in the case of Associated Cement Co. Ltd. [ 2001 (1) TMI 248 - SUPREME COURT] and held that once a computer programme embodied in a medium, it takes the character of goods even under the narrow defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) erred in holding that consideration paid in respect of transaction in computer software is in the nature of royalty under the Double Taxation Avoidance Agreement between India and USA, as well as under the Income-tax Act, 1961. (iv)That on the facts and in the circumstances of the case, the learned CIT(A) erred in holding that tax was deductible under section 195 from the consideration paid in respect of transaction in computer software. (v)That the learned CIT(A) erred in holding that the ITO was correct in demanding tax and mandatory interest from the appellant in respect of transactions in computer software entered into by the appellant with non-resident/foreign companies. (vi)That the learned CIT(A) erred in holding that the ITO was correct in demanding interest from the appellant when the ITO had not levied any interest in his order dated 28-11-2003, which was in appeal before the learned CIT(A). 3. The assessee is a company registered under the Companies Act, 1956. The assessee is engaged in the business of providing networking solutions to its customers. The said activity of the assessee includes sale of software packages to customers. For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below. He submitted that the main controversy in this case is whether the payments are covered by royalty definition in the Act and the Indo-US DTAA. The Assessing Officer has taken the view that the consideration is for the granting of license in respect of intellectual property and the licensed property is covered by the words 'patent', 'invention', 'secret formula or process' and 'scientific work' used in the Act. According to the Assessing Officer, the DTAA also uses some or similar words and consideration for use of these intellectual properties is covered by royalty definition. In the statement of facts, it was mentioned that assessee used the software for its business purposes. In the written submissions, it was mentioned that the assessee sold the imported software packages to its customers. The learned DR further took us to the definition of 'royalty' as described by the learned CIT(A) in his order at pages 4 and 5. He also invited our attention to the word 'software' as literary work that was discussed at pages 6 and 7 of the learned CIT(A)'s order. He also explained to the best of his effort as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty; (iii)the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv)the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva)****** (v)the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or. . . . Sub-clause (iva), which was inserted to Explanation w.e.f. 1-4-2001, is as under : (iva)the use of or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB. Section 90(2) provides that if the provisions of Tax Treaty between India and the country of the non-resident are more beneficial to such non-resident, then the provisions of Tax Treaty shall overright the provisions of the Act. In view of this, we find force in the stand taken by the learned counsel for assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquiring a copy of such programme) in a manner, which does not constitute infringement of the copyright, the payment therefore would not amount to royalty. 6.3 It can therefore be noted that under the OECD model commentary also, payments for acquiring a copy of a computer programme will not be treated as payments for rights to use the copyright in the computer programmes. Accordingly, such payments are to be considered as commercial income under Article 7 and not as royalty under Article 12 of the Treaty. 6.4 Besides that our view is fortified by the decision in the case of Samsung Electronics Co. Ltd. India Software Operations v. ITO [2005] 94 ITD 91 (Bang.) wherein it has been held that payments made for acquiring readymade off the shelf software is not in the nature of royalty as the seller does not grant the right to use the copyright in the software to the purchaser of the copy of the software. Computer software, once copied in a medium, becomes tangible goods and the transaction is purchase/sale of goods. The payment is to be classified as a price for purchase of goods. 6.5 In yet another decision in ITA Nos. 864, 865, 3132 and 3133/Bang./04 in the case of Sonata In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y manufactured goods), which are movable at the time of the identification for sale'. 6.7 Further, it is to be noted that computer programme may be copy-rightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the programme is tangible, movable and available in the market place. The fact that some programmes may be tailored for specific purposes need not alter their status as 'goods' because the code definition included 'specially manufactured goods'. In yet another decision in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 the Hon'ble Apex Court after citing several decisions of the Courts of the USA has noted that it has been held that the purchaser of a computer programme does not receive mere knowledge but receives an arrangement of matter which makes his computer perform a desired function. This arrangement of matter recorded on a tangible medium constitutes a corporeal body. A software recorded in physical form becomes inextricably inter-wined with or part and parcel of the corporeal object upon which it is recorded, be that a disc, tape or hard drive or o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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