Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

ADIT (IT) 02 (2) , Mumbai Versus M/s. First Advantage Pvt. Ltd. C/o. S.R. Batliboi and Co.

2017 (1) TMI 984 - ITAT MUMBAI

TDS u/s 195 - payment made by the assessee for use of software owned by USA company - whether is not “royalty” subject to deduction of tax at source - retrospective amendment - Held that:- Issue raised by the Ld. DR 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 is unable to be appreciated because the retrospec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

provisions of domestic law like in Article 7 in some of the treaties, 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 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

009-10. 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 source. 3. Facts relating to the issue is narrated as under by the learned CIT(A) in the order passed for A.Y. 2008-09 :- 1.1.2 Brief facts are that the appellant is a resident company, incorporated under the Companies Act, 1956. It is primarily engaged in provid .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ax resident of USA. Under the said agreement the appellant has made payment for use of the CSPi software amounting to ₹ 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 ded .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

contention of the appellant and passed an order under Section 195(2) of the Act holding payments as Royalty under the Act and directing to withhold taxes at 10.56% on gross basis as per Section 115A of the Act . 4. Before Ld CIT(A), the assessee contended as under:- 1.2.0 The appellant referring to the definition of 'Royalty' as per Explanation 2 to section 9(1)(vi) of the Act, contended that that grant of license is in the context of transfer of all or any rights in respect of any copyr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xcept 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by Ld CIT(A), the revenue has filed these appeals before us. 5. We have heard rival contentions and perused the record. The Ld D.R placed his reliance on various case laws including the decision rendered by Hon ble Karnataka High 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 A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

estriction 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 any copyright notice or other proprietary rights notice placed in or o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ordingly he submitted that the payment made by the assessee to a copyrighted article, which is akin to off the shelf software is not royalty. He submitted that the Hon ble Delhi High Court, in the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 finding given in the impugned order and also the various decisions, cited before us. The sole issue involved be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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 tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

no dispute. The dispute is with regard to the payment of ₹ 3,75,25,291/- received by the assessee company as a sale consideration for the computer products supplied by it. The computer software is sold off shelf which is mainly used by the Indian customer in their business for financial accounting, inventory management, HR management etc. INFOR India carries out marketing and sale of the software in India and places order with the assessee. The software supplied is then distributed to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing industrial, commercial or scientific experience . From the plain reading of the article it can be inferred that, it refers to 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 formula or process, or for information concerning industrial, commercial or scientific experience. Thus, in order to tax the payment in question .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 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 doe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

reaty, however, the various Courts have consistently opined that the definition of copyright as given in the Copyright Act, 1957 has to be taken into account for understanding the concept. Section 14 of the said Act defines the copyrights to mean as under:- 14. Meaning of copyright -For the purposes of this Act, "copyright" means the exclusive 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 p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(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 th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n 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) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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), that is, to do any of the act specified in clause (a) from (i) to (vii) as reproduced above. Thus, to fall within the realm and ambit of right to use copyright in the computer software programme, the aforesaid rights must be given and if the said rights are not given then, there is no copyright in the computer pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version