TMI Blog2010 (11) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-fareast-language:EN-US;} <![endif]--> Shri R.V. Easwar, Hon ble President and Shri J. Sudhakar Reddy, Accountant Member For the Appellant : Shri Narendra Singh For the Respondent : Shri Arvind Sonde. O R D E R Per J. Sudhakar Reddy, A.M. These are appeals filed by the Revenue directed against the order of the CIT(Appeals)-XXXI, Mumbai. As the issues arising in these appeals are common and as they relate to the same issue of purchase/use of software, from different parties, who are residents of Singapore and as all these agreements of purchase/use of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it over the provisions of the Income-tax Act, 1961 as per section 90(2) of the I.T. Act, 1961. 1.3 The AR submitted that the AO has examined the License Agreement and has referred to Para 19 of the License Agreement and has concluded that for the reasons given by him in the order that the payment made by the Appellant to SUN is royalty within the meaning of Article 12 of the DTAA and also u/s 9(1)(vi) of the Income-tax Act, 1961 1.4 The AR has also submitted that the same issue has been examined by me in my Order No. CIT(A)XXXI/DDIT(IT)-303/02-03/06-07 dated 29/10/2007 in the Appellant s own case. The AR has submitted his written submissions dt. 29/10/2007 and has reiterated all the argument taken by him in that appeal which have been considered in my above mentioned order. The AR has submitted in conclusion that the above payment made for purchase of software is not royalty but only business income and is accordingly taxable in India, only if SUN has a PE. 5. The terms and conditions of purchase are brought out at para 1.5 and 1.6 of the order of the CIT(Appeals) which are extracted below for ready reference : 1.5. On the other hand, the AO has examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions related to the owner s network; or (4) the transfer, assignment or sublicense by owner of the Software Licenses to a owner affiliate (or vice versa) or between owner affiliates, in conjunction with a transfer of a portion of the owner s network, provided that in each such case, such transferee, assignee, sublicense or outsorucee agrees in writing to abide by all the terms and conditions set forth in the software Licenses and the seller is informed of the same in writing by owner and provided further that the rights transferred, assigned sublicensed or granted to outsourcees, as the case may be, shall be those reasonably necessary to fulfil. 19.5 Owner and its affiliates shall have the right to translate, abridge and/or make as many numbers of copies of the Documentations as required. Further owner and its affiliates shall have the right to make as many copies of the software as are reasonably necessary for the use of the software in accordance with this agreement. Owner shall reproduce all copyright notices as provided in the original software on all copies thereof. 19.6 Owner shall not translate, reverse, engineer, modify, decompile, disassemble or create derivative w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not received any right for transferring or modifying the software license or decompiling, reverse engineering, or disassembling it. The appellant has also got no power to decode the machine code of software. The appellant has got no power to make copies of software except for backup purposes. From a perusal of the terms of the agreement reproduced above, it is very apparent that the appellant has acquired the right solely in connection with its internal operations and right to use the software is confined for the express purpose of its business. With these facts in mind the taxability of payment received by M/s TIBCO is examined. 8. She further observed at para 1.11 of the impugned order as follows : 1.11 A close perusal of the definition of royalty in both these treaties reveals that the definition of Royalty regarding the copyright or trademark or secret formula is same. The definition of Indo-US DTAA is primarily expanding the definition of royalty in Indo-Singapure DTAA. Accordingly, I hold that my decision in the case of Appellant in Appeal No. CIT(A)XXXI/DDIT(IT)2(1)/IT-303/02-03/06-07 dated 29/10/2007 and Appeal No. CIT(A)/XXXI/DDIT(IT)2(1)IT-407/02-03/07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case has proceeded before the Income-tax authorities and the arguments addressed before us that the crux of the issue is whether the payment is for a copyright or for a copyrighted article. If it is for copyright, it should be classified as royalty both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payments is really for a copyrighted article, then it only represents the purchase price of the article and therefore, cannot be considered as royalty either under the Act or under the DTAA. This issue really is the key to the entire controversy and we may now proceed to address this issue. 156 We must look into the meaning of the word copyright as given in the Copyright Act, 1957 Section 14 of this Act defines Copyright as the exclusive right subject to the Provisions of this Act, to do or authorize the doing of any of the following acts in respect of a work or any substantial part thereof, namely: (a) in the case of a literary, dramatic or musical work, not being a computer programme,- (i) to reproduce the work in any material form including the storing of it in any medium by electronic means: (ii) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in addition also the right to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme. This additional right was substituted w.e.f. 15.1.200. The difference between the earlier provision and the present one is not of any relevance. What is to be noted is that the right mentioned in sub-clause (ii) of clause (b) of Section 14 is available only to the owner of the computer programme. It follows that if any of the cellular operators does not have any of the rights mentioned in clauses (a) and (b) of section 14, it would mean that it does not have any right in a copyright. In that case, the payment made by the cellular operator cannot be characterized as royalty either under the Income-tax Act or under the DTAA. The question, therefore, to be answered is whether any of the operators can exercise any of the rights mentioned in the above provisions with reference to the software supplied by the assessee. Further, the Delhi Special Bench of ITAT in paras 162, 168 and 169 held as follows: 162. A conjoint reading of the terms of the supply contract and the provisions of the Copyright Act, 1957 clearly shows that the cellular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment received by the assessee in respect of the software cannot be considered as royalty either under the Income-tax Act or the DTAA . (Emphasis supplied) The Bangalore A-Bench of Tribunal in the case of Hewlett-Packard (India)(P) Ltd. vs. ITO 5 SOT 660 (Bang) held as follows : Section 9(1)(vi) provides that royalty receivable by a non-resident from a person in India is deemed to accrue or arise in India. Further, 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 override the provisions of the Act [para 6). Article 12(3) of the India-USA DTAA defines the term royalty . As per the India-USA DTAA royalty in respect of the subject-matter of a copyright includes only the payments for the use i.e., exploitation of the copyright of such literary/artistic or scientific work. Therefore, in order to be classified as royalty, the right of the person in possession of the subject-matter of a copyright should be to utilize such copyright in the manner which is otherwise protected by the respective copyright law in favour of the owner of the copyr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made to H, USA. Therefore, the claim of the assessee was liable to be allowed.[para 6.8]. 10. Now we extract the relevant provision under the Indo-Singapore DTA : The definition of Royalty as per Indo-Singapore DTA as given in Article 12(3) reads as under : 12(3).The terms royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use : a. any copyright of literary, artistic or scientific work, including ceinematograph films or films or tapes used for radio or television broadcasting , any patent, trademark , design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information. b. Any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities prescribed in paragraphs 4(b) or 4(c) of Article 8 For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person 11. The definition of Royalty is similar to the definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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