TMI Blog2017 (1) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... , where domestic laws are made applicable. Here in this case, the ‘royalty’ has been specifically defined in the treaty and amendment to the definition of such term under the Act would not have any bearing on the definition of such term in the context of DTAA. A treaty which has entered between the two sovereign nations, then one country cannot unilaterally alter its provision. Thus, we do not find any merit in the contention of the Ld. DR that the amended and enlarged definition should be read into the Treaty.” - Decided in favour of assessee - I.T.A. No. 3031/Mum/2010, I.T.A. No. 3032/Mum/2010 - - - Dated:- 11-1-2017 - Shri B.R. Baskaran (AM) C.N. Prasad (JM) For The Assessee : Shri M.P. Lohia For The Department : Smt. Anu K. Aggarwal ORDER Per B.R. Baskaran (AM) :- Both these appeals filed by the Revenue are directed against the orders passed by the learned CIT(A)-10, Mumbai and they relate to A.Y. 2008-09 2009-10. 2. The solitary issue agitated in both these appeals is whether the learned CIT(A) was justified in holding that payment made by the assessee for use of software owned by USA company is not royalty subject to deduction of tax at sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement there is no transfer of any copyright, literary, artistic, scientific work or any patent, invention, model, design etc. The AR submitted that FADV US merely provided the access to copyrighted software to the appellant. The appellant does not have the right to use the copyright embedded in the software. In other words, the appellant is not permitted to make copies and sell the software. Except for the limited right to access the copyrighted software for its own business purpose, the appellant does not acquire any right to 1.2.0 exploit the copyright in the software. Whereas use of copyright encompasses exploitation of the right embedded in a copyright, a mere user right is a limited right and consideration paid for such user right cannot be regarded as consideration for use of right to use a copyright. Therefore it was contended that consideration payable to FADV US is for the use of copyrighted article and not for the use of the copyright. Payment for the use of copyrighted article cannot be considered as royalty. The Ld CIT(A), by placing reliance on various case laws, came to the conclusion that the sale of copyrighted article is not royalty. He also held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of DIT Vs. Iftasoft Ltd (264 CTR 329) has taken its view in favour of the assessee in this matter and hence the decision rendered by Hon ble Karnataka High Court, which was relied upon by the Ld D.R, need not be followed. He submitted that the identical issues have been decided by the co-ordinate benches of tribunal in various cases in favour of the assessee by following the decisions rendered by Hon ble Delhi High Court. He submitted that the co-ordinate bench of Mumbai ITAT, in its recent decision dated 13- 06-2016 rendered in ITA No.7048/Mum/2010 in the case of ADIT Vs. M/s Baan Global B V (now known as Information Global Solution (Barneveld) BV) has considered an identical issue under the provisions of Income tax Act as well as India-US DTAA and has decided the issue in favour of the assessee. He further submitted that the provisions of DTAA will prevail over retrospective amendment made in the Income tax Act. 6. We notice that the co-ordinate bench of tribunal has decided an identical issue in the case of M/s Baan Global B V (supra) has considered an identical issue and rendered its decision as under:- 10. We have heard the rival submissions, perused the relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he software product. The payment received by the assessee is purely towards a copyrighted software product as against the payment for any copyright itself. The assessee does not give any right to use the copyright embedded in the software. In other words, the Indian Customer (or INFOR India) except for the limited right to access the copyright software for its own business purpose does not acquire any kind of right to exploit the copyright in the computer software. These facts have not been controverted by the department and, therefore, what has been incorporated and stated by the CIT(A) in his order is reckoned as admitted facts. 11. Now, on these facts, we have to decide, whether the payment received by the assessee can be reckoned as royalty within the terms of article 12(4) of DTAA. Before that, the relevant paragraph of Article 12 dealing with the definition of royalty reads as under:- 4. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely:- (a) in the case of a literary, dramatic or musical work, not being a computer programme, - (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conditions mentioned in section 14 of the Copyright Act are applicable. If the conclusion of Ld, CIT(A) are based on these facts and agreement, then he has righty concluded that the consideration received by the assessee is for pure sale of shrink wrapped software off the shelf and hence, cannot be considered as a royalty within the meaning of Article 12(4) of the DTAA, as the same is consideration for sale of copyrighted product and not to use of any copyright. 12. One of the issue which was raised by the Ld. DR before us is that, the Explanation 4 to section 9(1)(vi) which has been with brought by Finance Act 2012 with retrospective effect in section 9(1)(vi), therefore, the meaning and definition of royalty as given therein should be read into the DTAA. We are unable to appreciate this contention of the Ld. DR because the retrospective amendment brought into statute with effect from 01.06.1976 cannot be read into the DTAA, because the treaty has not been correspondingly amended in line with new enlarged definition of royalty . The alteration in the provisions of the Act cannot be per se read into the treaty unless there is a corresponding negotiation between the two ..... X X X X Extracts X X X X X X X X Extracts X X X X
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