TMI Blog2017 (1) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... o utilize the copyright embedded in the software, but it is seen that the assessee has been granted only a right to use the software product. We agree with the assessee’s contention that the software purchased by the assessee is the copyrighted articles and cannot be construed as the license to use the copyright itself. In view of the same, we find that this issue is covered in favour of the assessee by the decision of the Hon'ble Delhi High Court in the case of M.Tech India (P) Ltd (2016 (1) TMI 812 - DELHI HIGH COURT ) wherein held that what was transferred was not copyright or the right to use a copyright but a limited right to use the copyrighted material and that did not give rise to any royalty income. - Decided in favour of assessee. Payments made to Verizon Business USA for providing internet and bandwidth services and also providing CPE to the assessee is not in the nature of royalty and therefore, TDS provisions are not applicable. - ITA Nos.1664 to 1667/Hyd/2011 - - - Dated:- 28-10-2016 - Smt. P. Madhavi Devi, Judicial Member AND Shri S.Rifaur Rahman, Accountant Member For The Assessee : Shri Ravi Bharadwaj For The Revenue: Shri K.E. Sunil Babu, DR O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidiary of QUALCOMM Inc, San Diego, USA. Qualcomm group is engaged in the design, development, manufacture and marketing of digital wireless telecommunication products and services based on its Code Division Multiple Access (CDMS) technology. QIPL operates through its units in Hyderabad, Bangalore, Mumbai and New Delhi and is engaged in providing the software design, development and testing services to its group companies. QIPL delivers its products to Qualcomm Inc, USA at cost plus 15% consideration. 4. A survey u/s 133A of the I.T. Act has been conducted on 19.01.2009 in the business premises of the assessee to examine the assessee s compliance of TDS provision. During the said survey, from the ledger extracts of the assessee company, it has been found that QIPL has made several foreign remittances without deducting tax u/s 195 of the I.T. Act. The AO observed that the assessee has made payment without deducting tax for use of software licenses to various companies in USA, UK, and Germany etc. It was the case of the assessee that the payment is for purchase of the copyrighted article and therefore, the deduction of tax at source was not necessary. However, the AO held that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singapore etc. The copies of the invoices are produced in the form of a paper book and a glance through them shows that the payments are for purchase of End User License packages. The assessee gets the right to use the product. Thus, it can be seen that what the assessee has been granted is the license to use the software to test whether the wireless equipments are working according to the desired specifications. Thus, it can be see that the software is for assisting the assessee in rendering its services of software development and testing services to its group companies. Thus, these softwares are, in a way, the tools used the assessee. By the issuance of license to use the software, it cannot be said that the assessee has been granted a right to utilize the copyright embedded in the software, but it is seen that the assessee has been granted only a right to use the software product. We agree with the assessee s contention that the software purchased by the assessee is the copyrighted articles and cannot be construed as the license to use the copyright itself. In view of the same, we find that this issue is covered in favour of the assessee by the decision of the Hon'ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with that decision. Thus, the said decision is of no assistance to the Revenue in this case. 15. In another case, Dynamic Vertical Software India P. Ltd. (supra), this Court had reiterated the view that payment made by a reseller for the purchase of software for sale in the Indian market could by no stretch be considered as royalty . Further, since the payment for the licensed software has been treated as not royalty but payments for purchase of software, the payment for support services also cannot be treated as royalty. 7. In the result, assessee s grounds of appeal are allowed. 8. The additional ground of appeal is that the assessee cannot be expected to have deducted tax at source in anticipation of the retrospective amendment to the I.T. Act at a later date. We find that none of the Officers below have applied the amended provisions and therefore, this additional ground of appeal is misconstrued. In view of the same, the additional ground of appeal is not admitted and the assessee s appeals are allowed. 9. As regards the assessee s appeals for the A.Ys 2007- 08, 2008-09 and 2009-10 are concerned, common issues have been raised in all the appeals. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rebates etc. He also observed that as per clause (i) of the agreement, Verizon provides Vice Over IP Service, Network Access, Private Line- Metro Access Service, Private Line-US Private Line Service, Internet dedicated service, GigE Port only services, Internet Dedicated Ethernet Service, Internet Dedicated Managed Service, Managed WAN Service, Private IP Domestic, Private IP- International, Customer Premises Equipment etc. He also observed Verizon provides a network design consultant who will create a Customer Design Document (CDD) based on the Statement Of Requirements (SDR) agreed to by the customer. 11. After going through the Verizon Business Services Agreement and various clauses thereof, the AO was of the opinion that the Verizon has provided connectivity facility which mainly consists of advanced connectivity network and equipments which have been connected through the under-sea cable and further connected by the routers and digital circuit. Thus, according to him, connectivity is to Band Connectivity upto the premises of the customer s locations and this connectivity helps in communicating and exchange of data and voice services. Further, he also went through the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h QIPL, recorded during the course of survey proceedings on 19.01.2009 in support of the findings of the authorities below that Verizon provided scientific or commercial equipment to the assessee. 13. Having regard to the rival contentions and the material on record, we find that Verizon Business, USA, has entered into an agreement with Qualcomm Inc, USA and the assessee being a group company of Qualcomm of USA, is also receiving services from Verizon Business, USA. From the nature of the services rendered by Verizon Business, it is seen that these are basically internet or bandwidth services provided to facilitate the assessee in discharge of its obligations to its group companies i.e. providing software design, manufacture and testing services to its group companies through the bandwidth services provided by Verizon. The bandwidth services definitely require certain sophisticated equipment which has to be installed at the customers premises. It is the contention of the assessee that the equipment provided at the customers premises is in the nature of modem and routers which cannot be considered as scientific equipments as defined u/s 9(1)(vi) of the Act and further it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he non-resident to the assessee and there being no privity of contract between the customers of the assessee and the non residents, the conclusion as arrived by the Tribunal that no technical services were provided by the non-resident to the assessee within the meaning of section 9(1)(vii) is justified. 16. The Coordinate Bench of the Tribunal in the case of Infosys Technologies Ltd (cited Supra) has also held that the payments towards the service providers to AT T or MCI Telecommunications are for the use of bandwidth provided for down linking signals in the USA and are not in the nature of consultancy or managerial services nor is it for the use of right to use industrial, commercial or scientific equipment and hence not royalty. 17. We find that all the above cited judgments are very much applicable to the facts of the case before us and respectfully following the said decisions, we hold that the payments made to Verizon Business USA for providing internet and bandwidth services and also providing CPE to the assessee is not in the nature of royalty and therefore, TDS provisions are not applicable. 18. As regards the other ground relating to the payment made for purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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