TMI Blog2010 (11) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... re resident of Netherland. The softwares in question are undisputedly operational softwares, purchased for the internal use of the assessee. The assessee was granted non-exclusive , perpetual, irrevocable, royalty free, worldwide license to use the number of copies of the software enumerated in the agreement solely for internal operation, including use of software for ASP Services and web housing services. The parties from whom the assessee acquired the software do not have a PERMANENT ESTABLISHMENT in India. 3. The assessee purchased the software for Seismic Data Processing/Interpretation Software for O G Division from M/s Jason Geosystems BV and for Reservoir Engineering Software for O G Division from Geoquest Systems BV, Netherlands. 4. The learned CIT(Appeal) in her order dated 19-11-2007, has considered an agreement for purchase with M/s Jason Geosystems BV, Netherlands and in order dated 21-08-2008 has considered an agreement for purchase with Geoquest Systems BV, Netherlands. The facts are brought out at para 1.1 to 1.5 of her order dated 19-11-2007 which are extracted below for ready reference : 1.1 M/sReliance Industries Limited, (M/s RIL or Appellant), is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and has not purchased the software and thus the transaction dos not amount to sale. I find that the AO has taken the same arguments as taken by him in respect of appeal No. CIT(A)XXXI/DDIT(IT)2(1)/IT-303/02-03/07-08 and which arguments have been examined and dealt with by me in the said Appeal Order dt. 02.11.2007. 5. The facts given by the CIT(Appeals) in her order dated 21-01-2008 regarding agreement for purchase with Geoquest Systems BV, Netherlands are more or less the same as given in her order dated 19-11-2007. 6. The terms and conditions of purchase with M/s Jason Geosystems BV, Netherlands are brought out at para 1.6 of the order of the CIT(Appeals) dated 19- 11-2007 which are extracted below for ready reference : `1.6 I have also examined the Software License Agreement between the Appellant and JG. The Appellant has entered into an agreement for sale and purchase of software with JG. General terms and conditions of purchase are prescribed in the agreement. Clauses 2 6 of the Software License Agreement provide for the Software License and Intellectual Property. The same reads as under:- 2. Software License 2.1 JASON grants to CUSTOMER, subject to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manual and User manuals in one softcopy (on CD) and c) One Security key. In case of Network copy the Security key allows the software tools to be installed on Network serve and any number of client machines connected to the Net Work Server. Net Work copies of Software can be Concurrently accessed and used by as many users as are the Supplied number of Network Copies. Thus, a perusal of Para 2 of the Special terms of Purchase Order reveals that the Appellant has not received any right or copy right over the software. 7. The general terms and conditions of agreement of purchase can be summarized as under: i) The assessee is not entitled to use the software for ASP Services on behalf of third party. ii) The assessee has no right to use, copy, duplicate or display the software except as specifically provided in the agreement. iii) The assessee cannot make more copies of the software than what is specified in the agreement. iv) The assessee cannot provide access to the software to any one, other than assessee s employees, contractors or consultants under a written contract by which all of them would be bound by the terms and conditions as are applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07, is applicable to this case as well. Therefore, following my order in that appeal, I hold that the payment made by the appellant to M/s Paradigm is only business income of M/s. Paradigm and not royalty. In the absence of any PE in India, business profit is not taxable in India as per Article-5 7 of DTAA. In view of this appeal on ground No.1 to 7 is allowed. 9. This Bench of the Tribunal, on similar issue, in the case of purchase of software from USA vide its order dated 29th Oct., 2010 has held as follows 12. The Bangalore Bench of the Tribunal in the case of Samsung Electronic Company Ltd. vs. ITO reported in 276 ITR (AT) 1 held as follows : Held, allowing the appeals, that the provisions of the Income-tax Act would be applicable to the extent they were more beneficial to the assessee. Otherwise, the provisions of the Double Taxation Avoidance Agreement had to be followed. Therefore, the provisions of the Double Taxation Avoidance Agreement had to be followed for the purpose of deciding the issue whether payments made by the assessee was royalty or not. The primary condition for bringing within the definition of royalty in the Double Taxation Avoidance Agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Cl. (a); (ii) to sell or give on commercial rental for sale or for commercial rental any copy of the computer programme; Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental, (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two-dimensions of a three-dimensional work; (ii) to communicate the work to the public; (iii) to issue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted to exploit the copyright commercially and if he is not permitted to do so then what he has acquired cannot be considered as a copyright. In that case, it can only be said that he has acquired a copyrighted article. A small example may clarify the position. The purchaser of a book on income-tax acquires only a copyrighted article. On the other hand, a recording company which has recorded a vocalist has acquired the copyright in the music rendered and is, therefore, permitted to exploit the recording commercially. In this case the music recording company has not merely acquired a copyrighted article in the form of a recording, but has actually acquired a copyright to reproduce the music and exploit the same commercially. In the present case what JTM or any other cellular operator has acquired under the supply contract is only the copyrighted software, which is an article by itself and not any copyright therein. 168. The actual regulations bring out the distinction very clearly between the copyright right and a copyrighted article. They also specify the four rights which, if acquired by the transferee, constitute him the owner of a copyright right. They are: (a) The ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of copyright is embedded, without right to exploir the copyright, does not amount to use or right to use the copyright of such literary/artistic/scientific i.e., copyrighted work [para 6]. Further, as per clause 13.1 of the OECD model commentary, payments made for acquisition of partial rights in copyright would represent a royalty where the consideration is for the right to use the programmes in a manner that would, without such license, constitute an infringement of the copyright. In other words, the payment can constitute royalty only if the transferor grants to the transferee the right to use the copyright of the product. If, on the other hand, the use of the programmes by the transferee (by acquiring a copy of such programme) is in a manner which does not constitute infringement of the copyright, the payment therefor would not amount to royalty. Therefore, under the OECD model commentary also payments for acquiring a copy of a computer programme would not be treated as payments for right to use the copyright in the computer programmes. Accordingly such payments are to be considered s commercial income under article 7 and not as royalty under article 12 of the India-US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on to a media and then sold, becomes goods like any other Audio Cassette or painting on canvas or a book and that the AO is wrong in holding that Computer software on a media, continues to be an intellectual property right. b) That the assessee has purchased a copyrighted article and not the copyright itself. There is no transfer of any part of copyright. c) The present computer software cannot be treated as a patent or an invention. 13. In view of the above discussion, we respectfully follow the decision of the Special Bench of the Tribunal in the case of Motorola Inc. (supra) and hold that the software supplied was a copy righted article and not a copy right and that the payment received by the assessee in respect of the software cannot be considered as royalty under the Income-tax Act. Once it is not royalty under the Income-tax Act, the question of examining whether it is Royalty under the Double Taxation Avoidance Agreement with Netherlands does not arise once it is not Royalty, it is business income and as the assessee does not have a P.E. in India it is not taxable in India. It is well settled that when a particular transaction is taxable as Royalty under the In ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
