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COMMISSIONER OF INCOME TAX-2 Versus HALLIBURTON EXPORT INC

2016 (7) TMI 762 - DELHI HIGH COURT

Sale of pre-packaged software - ‘royalty or ‘fee for technical services’ - whether not taxable as business income? - Held that:- It is not in dispute that Article 12 (3) of the Double Taxation Avoidance Agreement (‘DTAA’) between India and the United States of America (USA) is relevant for deciding the above issue. - Section 90 (3) of the Act makes it clear in the context of an agreement ('treaty') for avoidance of double taxation, that it is only when the provisions of the Act are more bene .....

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ition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. See Director of Income Tax v. Infrasoft Limited (2013 (11) TMI 1382 - DELHI HIGH COURT ) - ITA 363/2016, ITA 36 .....

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for the Assessment Years ( AYs ) 2009-10 and 2010-11. 3. The main question urged by the Revenue for consideration before the Court is whether the consideration received by the Respondent Assessee on sale of pre-packaged software was royalty or fee for technical services and was, therefore, not taxable as business income? 4. It is not in dispute that Article 12 (3) of the Double Taxation Avoidance Agreement ( DTAA ) between India and the United States of America (USA) is relevant for deciding th .....

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business income? In the present case, Double Taxation Avoidance Agreement between India and the United States of America is applicable and to construe royalty conditions stipulated in the DTAA have to be satisfied. The question raised, it is accepted, is covered by the decision of this Court in ITA No. 1034 of 2009, DIT v. Infrasoft Limited decided on 22nd November 2013. In view of the aforesaid decision, the present appeal is dismissed. We note that the Revenue has not disputed that the issue i .....

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he Court came to the following conclusions in paras 87 to 90 of the said order which read as under: 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rig .....

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y right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for "copyrighted" article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific o the nature of computer programs. Copying the program onto the computer's hard drive or random a .....

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ht rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an autho .....

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the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the ow .....

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aid paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 6. This Court then concluded in para 94 that the right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the .....

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