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TMI Blog2017 (1) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... ening, address verification, criminal check/verification, reference check, database verification, hiring management services, assessment solution which the clients can choose from. 1.1.2. The appellant has entered into an agreement with First Advantage Corporation, United States of America ('FADV US') for use of the CSPi software which is owned by FADV US, a tax resident of USA. Under the said agreement the appellant has made payment for use of the CSPi software amounting to Rs. 1,32,13,654/- for the financial year ended 31,March 2008. As per this agreement, if the appellant is required by law to make any withholding or deduction in respect of income tax as per the provisions of the Act from the consideration payable to FADV US, the appellant shall pay to FADV US such consideration in full, free and clear of any deduction and set-offs without deduction or withholding for or on any income tax as per the Act. The liability on account of withholding tax, if any, will be borne by the appellant. 1.1.3 The appellant filed an application under Section 195(2) of the Act wherein it was submitted that consideration payable towards use of CSPi Software is not taxable in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Cit Vs. CGI Information Systems & Management Consultants (P) Ltd (2014)(275 CTR 72), Synopsis International Old Ltd (2013)(212 Taxman 0454) and CIT Vs. Samsung Electronics Co Ltd (2011)(245 CTR 0481) in order to support the order passed by the AO. On the contrary, the Ld A.R submitted that the assessee has obtained only license to use the software. He submitted that the assessee is entitled to use the software for its internal business operations only (Clause 1 of the agreement). He submitted that the clause 2(b) of the agreement curtails the rights of the assessee and reads as under:- "2(b) Licensee may not (i) (other than accessing the Software as contemplated by this Agreement) attempt to circumvent any security device or licensing restriction contained in the software; (ii) assign, loan, rent, lease, sublease, license, sublicense, encumber, mortgage, translate, modify, alter, adapt, decompile, or disassemble the software or create derivate works based on the software or otherwise reverse engineer the software; (iii) make copies of Licensor Documentation except for one internal archival copy for each Licensed User or (iv) remove alter, cover or obfuscate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and if it is a "royalty", then it has to be taxed at the rate of 15% as provide under the treaty. Thus, the only issue for consideration is, whether the said payment falls within the terms of "royalty" under Article 12(4) of India-Netherland DTAA or under 9(1)(vi) of Income Tax Act. Here again, it is an undisputed fact that, assessee being a tax resident of Netherland has sought benefit under Indo Netherland DTAA, therefore, the payment received by the assessee from its Indian Subsidiary, INFOR India has to be examined under the treaty provisions. Briefly recapitulating the relevant facts for the purpose of our adjudication emanating from the impugned order is that, Assessee Company is engaged in the business of development and sale of computer software and also provides "other general services" in relation to the software. For both the activities, it has entered into a "distribution agreement" with its Indian subsidiary INFOR India which mainly functions as a distributor of computer software. So far as payments received from "other general services" of Rs. 4,79,36,944/-, same has been offered to tax in India as 'fee for technical services' on which there is no dispute. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial, commercial or scientific experience. Thus, in order to tax the payment in question as "royalty", it is sine qua non that the said payment must fall within the ambit and scope of Para 4 of Article 12. The main emphasis on the payment constituting 'royalty' in Para 4 are for a consideration for the 'use of' or the 'right to use' any copyright.......... The key phrases "for the use" or "the right to use any copyright of"; "any patent.......; "or process", "or for information.........,"; "or scientific experience", etc., are important parameter for treating a transaction in the nature of "royalty". If the payment doesn't fit within these parameters then it doesn't fall within terms of "royalty" under Article 12(4). The computer software does not fall under most of the term used in the Article barring "use of process" or "use of or right to use of copyrights" Here first of all, the sale of software cannot be held to be covered under the word "use of process", because the assessee has not allowed the end user to use the process by using the software, as the customer does not have any access to the source code. What is available for their use is software product as such and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv); (d) In the case of cinematograph film, - (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public; (e) In the case of sound recording, - (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the sound recording to the public. Explanation: For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation". Thus, the definition of 'copyright' in section 14 is an exhaustive definition and it refers to bundle of rights. In respect of computer programming, which is relevant for the issue under consideration before us, the copyright mainly consists of rights as given in clause (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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