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TMI Blog2017 (1) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... ly cancelled. 2. Erred in upholding the order of learned ADIT, that the impugned payments for purchase of software is for use of or 'right to use copyright' and hence is taxable as royalty u/s 9(1)(vi) of the Act and the respective double tax avoidance agreements between India and the country, where the vendors are resident without appreciating the fact that the Appellant had not acquired any right to use the copyright but had only acquired a user right. 3. Erred in law in confirming the levy of interest u/s 201(1A) of the Act by completely disregarding the provisions of the Act". 2. Vide letter dated 13.06.2012, the assessee has also filed the following additional grounds of appeal: "4. Without prejudice to above grounds and without prejudice to the contentions under the provisions of relevant Double Tax Avoidance Agreements applicable to the above grounds of appeal, the Appellant submits that no tax could have been deducted at source in anticipation of retrospective amendments to the Income-tax Act, 1961 at a later date and therefore, the appellant pleads that it is impossible to make deduction of tax at source on the payments made prior to retrospective amendments made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us. 5. It is seen that the assessee has raised grounds of appeal only against the order u/s 201(1) and 201(1A) in so far as the non deduction of TDS for purchase of copyrighted software. According to the learned Counsel for the assessee, the assessee has purchased the licensed software which has been used for discharge of its services to its AEs and there is no transfer of ownership or the right to use the copyright to the assessee. Therefore, it is not in the nature of royalty and no TDS was liable to be made. He also placed reliance upon the judgment of the Hon'ble Delhi High Court in the case of Pr. CIT-6 vs. M. Tech India P Ltd in ITA No.890/2015 dated 19.01.2016 wherein after considering the decision of the Hon'ble Supreme Court in the case of Tata Consultancy Services vs. Andhra Pradesh, reported in (2004) 271 ITR 401(S.C), it was held that where payments are made to acquire products which are patented or copyrighted, the consideration paid would have to be treated as a payment for purchase of the product, rather than conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The court held the same to be goods within the meaning of Section 2(b) of the said Act and consequently exigible to sales tax under the said Act. Clearly, the consideration paid for purchase of goods cannot be considered as 'royalty'. Thus, it is necessary to make a distinction between the cases where consideration is paid to acquire the right to use a patent or a copyright and cases where payment is made to acquire patented or a copyrighted product/material. In cases where payments are made to acquire products which are patented or copyrighted, the consideration paid would have to be treated as a payment for purchase of the product rather than consideration for use of the patent or copyright. 13. A Coordinate Bench of this Court has also expressed a similar view in the case of Infrasoft (surpa). In that case, the Revenue sought to tax the receipts on sale of licensing of certain software as royalty. The Tribunal held that there was no transfer of rights in respect of the copyright held by the Assessee in the software and it was a case of mere transfer of copyrighted article. This Court concurred with the Tribunal and held that what was transferred was not copyright or the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9(1)(vi) of the Act and the Article 12(3) of the India-USA Double Tax Avoidance Agreement ('the India-USA tax treaty'). 3. Erred in upholding the order of learned ADIT, that the impugned payments for purchase of software is for use of or 'right to use copyright' and hence is taxable as royalty u/s 9(1)(vi) of the Act and the respective double tax avoidance agreements between India and the country, where the vendors are resident without appreciating the fact that the Appellant had not acquired any right to use the copyright but had only acquired a user right. 4. Erred in upholding the order of learned ADIT, that the impugned payments for software support services as fees for technical services taxable u/s 9(1)(vi) of the Act and under the respective double tax avoidance agreements between India and the country, where the vendors are resident" 10. Brief facts are that during the survey u/s 133A of the Act conducted on 19.01.09 referred to in the appeal for A.Y 2006- 07 in the above paragraphs, it was found that the assessee has made remittance to Verizon Business Services, USA for 'leased circuit line charges' without deduction of tax at source. During the proceedings u/s 201(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below has submitted that the business service agreement is between Verizon Business, USA and the Qualcomm Inc, USA and the assessee is only a beneficiary of such an agreement. He has also drawn our attention to various clauses of the agreement to demonstrate that 'providing of the equipments at the customers' premises is limited to the territory of the USA and not elsewhere. Therefore, according to him, even if certain equipment is provided by Verizon Business, USA to the group company, it is at USA and not to the assessee company in India. It is submitted by him that the service provided by Verizon to the assessee is only Bandwidth services and does not involve any right to use the scientific or commercial equipment as alleged by the AO. In support of his contentions that the leased circuit line charges are internet and Bandwidth services and payments for such services is not royalty, the learned Counsel for the assessee placed reliance upon the following judgments: (a) Asia Satellite Telecommunications Co. Ltd, vs. DIR (2011) 332 ITR 0340. (b) CIT vs. Estel Communications (P) L:td (318 ITR 0185) (c) B4U International Holdings v. Dy.CIT (32 CCH 0151) (d) Infosys Technolo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its partner in India. It is not just network connection but the equipment required to access the network connection. From the CPE agreement, it is seen that a customer may purchase or take on rent/lease the CPE. The customer may also provide its own CPE if approved by Verizon and maintenance is done by Verizon subject to the customer providing the necessary information to Verizon. Therefore, it is clear that the CPE is not personalized/sophisticated modified equipment for specific and exclusive use of the assessee. It is a sophisticated product, but the payment made by the assessee cannot be said to be for use of scientific or commercial equipment within the meaning of 'royalty' under the Indian Income Tax Act. 14. In the case of Asia Satellite Telecommunications Co. Ltd (cited Supra), the Hon'ble Delhi High Court was considering the case of a lease of transponder capacity to TV channels to a non resident and the Hon'ble Delhi High Court has held that the process carried on in the Transponder in receiving signal and transmitting the same, is an inseparable part of the process of the satellite and that process is utilized only by the person who is in control thereof and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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