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TMI Blog2016 (10) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... CO No.59/Mds./2015 2. The main grievance of the Revenue in this appeal is that the Ld.DRP has erred in directing the TPO to consider both the BPO and ERP segment relating to the comparable M/s.Jeevan Scientific Technology Ltd., for the purpose of margin computation, ignoring the fact that the ERP segment is totally different from the BPO segment and also without stating reasons for the same. 3. The facts of the issue are that the TPO considered ITES segment of M/s.Jeevan Scientific Technology Ltd. is comparable without including Enterprise Resource Planning (ERP) Division, which is part of ITES segment as mentioned in the company's financial statement. The Dispute Resolution Panel, (DRP) Chennai, has given a direction that income of the M/s.Jeevan Scientific Technology Ltd. includes in ITES segment. The DRP of the opinion that since the business enterprise itself has clubbed ITES and ERP in one segment, and ITES itself is not one homogeneous sector. It appears to be a generic name for all those activities in which information technology plays a dominant role. Hence, DRP directed the TPO to include ERP in ITES segment and computed the profit margin of the company accordingly. Aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out mark-up is the arrangement within the Associated Enterprises (AE). That has no bearing on the applicability of the provisions of the section 9(1)(vi) of the Act and the software was used in India for the purpose of business and profession carried on by the assessee in India. Therefore, the Royalty expenses are taxable in India and upon which TDS liability attracts as per the provisions of the section 195 of the Act. As the assessee has not deducted TDS, the expenses towards Software Reimbursement is disallowed u/s.40(a)(i) and added back to total income of assessee under the head 'income from business or profession'. 5.2 The DRP observed that the reimbursement of software expenses on a cost to cost basis without any mark-up would not constitute income chargeable to tax in India in the hands of Atmel US. Accordingly, assessee shall not be liable to withhold any tax under the provisions of the section 195 of the Act on such reimbursement. Accordingly, the ld. Assessing Officer made addition of Rs. 93,62,867/-. Hence, the assessee is in appeal before us. 6. According to ld.A.R, provisions of the section 195 of the Act cannot be applied as the payment made to non-resident is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has not acquired the copyright of the programme. The ld.D.R is not able to show that the assessee has got any right to use the copyright as software programme. In other words, if the assessee acquires only right to use software and not copyright of the software, then in our opinion the order of Tribunal in the case of ADIT Vs.Bartronics India Ltd.,(supra) is squarely applicable to the facts of the case wherein held as follows:- "39. 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 rights of such literary work. Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right. 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 owner/transferor who divests himself of the rights he possesses in his favour. 42. The license granted to the licensee permitting him to use the programme for its business purpose is only incidental to the facility extended to the licensee to make use of the copyrighted product for its internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said 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. 43. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is not in the nature of royalty. 47. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions ot which are more beneficial. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 48. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 49. In view of elaborate discussion and in the light of the judgment of the Hon'ble Delhi High court in the case of DIT Vs. Infrasoft Ltd. (supra), on which reliance placed by the learned AR, in the present case, the assessee has acquired a readymade off - the shelf comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of ITAT Delhi Bench in the case of Sony India Pvt. Itd. vs. DCIT, ITA No 1189/Del/2005, 819IDel/2007 and 820/Del/2007. The relevant portion is extracted below: 106.2 Thus, creation of unpaid liability and its write back is a normal incident of a business operation which is carried everywhere in accounts to have true picture of profits of the relevant period Having regard to statutory provisions, it cannot be said that provisions or writing both of liability is not port of operating profit or would not be taken into consideration for computing the same. We can therefore make a general observation that all business enterprises are making and writing back liabilities as a normal incident of operating business. Therefore on facts do not see any justification for excluding provisions written both in the profit and loss account as not forming port of the operating profit of the taxpayer. Accordingly claim of the taxpayer is accepted 107. The next item relates to balances written back. In our considered opinion, finding given in respect of provisions written back is equally applicable to balances written both more particularly when Id CIT(A) has not given any separate finding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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