TMI Blog2017 (2) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... Capgemini Business Services India Ltd. vs. ACIT [2016 (3) TMI 280 - ITAT MUMBAI] the assessee can not be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD- ROM which can be said to be sale of ‘good’ by the owner. The consideration paid by the assessee thus as per the clauses of DTAA can not be said to be royalty and the same will be outside the scope of the definition of ‘royalty’ as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a license provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957. - Decided in favour of assessee - ITA No. 7823/Mum/2010 - - - Dated:- 10-2-2017 - Shri D. Karunakara Rao, Accountant Member And Shri Pawan Singh, Judicial Member Revenue by : Shri Jabir Chauhan with Sambit Mishra (DR) Assessee by : Shri Kiran J. Nisar (AR) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further hold that the payment under consideration is in the nature of business income of ZES. Since, the ZES has no Permanent Establishment (PE) in India, the consideration paid is not taxable in India. Thus, aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us. 4. We have heard the ld. ld Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) for assessee and perused the material available on record. At the outset, ld. AR of assessee submitted that the grounds of appeal raised in the present appeal by Revenue are covered by various decisions of Tribunal against the revenue. On the other hand, the ld. DR for the Revenue disputed the contention of ld. AR and would argue that the facts of the present case are different and the grounds of appeal raised by Revenue are not covered. 5. In rejoinder arguments the ld AR for the assessee argued that assessee entered into agreement with ZES on 13 September 2009 for procurement of certain standardized proprietary software (ZES software) in the form of a fully integrated solution for Port operation. ZES is a company which is a tax resident of United States of America (U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to it is not taxable India and granted full relief to the assessee. 7. As per our considered opinion the only issue for our consideration is if the assessee is liable for the payment to ZES for the use of copy right or for copyrighted article. Or in other words the payments made to ZES are its business income or Royalty. The ld.AR for the assessee throughout his submission urged that, ZES provided the assessee a license to use its software on perpetual, non- exclusive, known as assignable, terminable and known sub licensable basis. ZES software is a Shrink wrapped or off the shelf copyrighted packaged software readily available and which has not been customized to meet specific requirement of the assessee. The assessee will have no right to use, copy, and display or print the software or documentation in whole or in part. Similarly the assessee is prohibited from using the software on a service bureau basis or otherwise providing data catching and /or management functionality to third party except or otherwise permitted in the agreement. The AO has not brought any quantity material on record to prove it otherwise. We have noticed that the coordinate bench of this Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apped mass licenses/ agreements. Firstly there are severe doubts about the enforceability of such agreements. In the so called internet license agreement, the end user is supposed to click the icon I agree which means that the end user has agreed to the terms of the license agreement. However, it may be noted that such agreements do not ask the name or address or other details of the user. It is not mentioned in such type of agreements that who is using the product. It is the computer upon which such software is loaded that can be said to have agreed to abide by the terms of the software license as the user remains unidentifiable. In such type of software licenses, there are certain inbuilt mechanism made by the buyer preventing the misuse or infringement of the copyright in the product; the moment the end user attempts to violate such conditions, such software becomes inoperative on the computer or sometimes also damage the other data/applications on the computer. However, for the enforceability of such license agreement it is not known who is actual user or which person actually has violated the terms of the agreement. Suppose, in case of a company a product is purchased by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances, the whole contract can be held to be void. These terms of the mass software license are in the shape of standard terms which the licensee or the user of the product often ignores while accepting the license before downloading the software. The courts in India in such a situation have opined that such standard conditions put in a contract which are often in the form of standard format and being so much detailed and numerous and are generally not read by the other party/buyer of the product, should be fair and any unfair condition restricting the users rights relating to the goods or the services availed of, which can be held to be unreasonable and against the public policy, cannot be enforced. Thus these licenses create a clear conflict between copyright law and contract law, which have different purposes and objectives. The technological restrictions such as encryption technology and transactional design having restrictions on the development, use, services, may be called in question under the Competition Act, 2002 also. Further the condition in the agreement that the ownership of each copy of software would remain with the software publisher and that the user will ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n right, then it cannot be said that the user has infringed the rights of the purchaser, who in fact has paid the consideration to use the copyrighted work. The use of information in the work by the purchaser for which he purchases such a product/diskette/CD ROM is thus comes within the scope of fair use. Copyright does not protect the fair or exclusive use of the information rather, the purpose of copyright protection is to regulate the dissemination of information viz. production of the copies of the copyrighted work/information and distribution thereof. The use of information viz. a new technology or invention can, however, be protected under the Patents Act, 1970. However, it is pertinent to mention here that even under the Patents Act 1970, the computer Software cannot be patented. The computer software, subject to certain exception, have been specifically excluded from patentable items under the Patents Act, 1970. 40. At this stage, we think it appropriate to discuss here the relevant provisions of the Copyright Act, 1957 also. The copyright has been defined under section 14 of the Copyright Act, 1957 as under: 14. Meaning of copyright For the purposes of this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lays or offers for sale or hire, or (ii) distributes either for the purpose of trade or to such an extent as to affect prejudicially the owner of the copyright, or (iii) by way of trade exhibits in public, or (iv) imports into India, any infringing copies of the work Provided that nothing in sub-clause (iv) shall apply to the import of one copy of any work for the private and domestic use of the importer. Explanation.- For the purposes of this section, the reproduction of a literary, dramatic, musical or artistic work in the form of a cinematograph film shall be deemed to be an infringing copy 42. Certain provisions of section 52 of the Copyright Act which are relevant are also reproduced as under: 52. Certain acts not to be infringement of copyright.- (1) The following acts shall not constitute an infringement of copyright, namely: (a) a fair dealing with a literary, dramatic, musical or artistic work 104 [not being a computer programme] for the purposes of private use, including research; criticism or review, whether of that work or of any other work; (aa) the making of copies or adaptation of a computer programme by the lawful pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted by the owner of the copyright or in contravention of the conditions of a license so granted does anything, the copyright of the owner is stated to be infringed. However a perusal of the above provisions of the Copyright Act also reveals that even in some cases unauthorized uses of a copyright work is not necessarily infringing. An unlicensed use of the copyright is not an infringement unless it conflicts with one of the specific exclusive rights covered by the copyright statue. Further there are certain exceptions also. As per the proviso to sub clause (iv) to the clause (b) to section 51, import into India of one infringing copy of any work for the private and domestic use of the importer will not be considered as infringement. Further, the section 52 of the Act provides for certain other exceptions and the doing of such acts as mentioned under section 52 is not considered as infringement of the copyright as per the statute. In case of software, it has been provided that making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme from such copy in order to utilize the computer programme for the purpose of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the original work has been published outside India, as per the provisions of the Copyright Act, apart from the work being original and not copied from elsewhere, the work should be first published in India or if the work is published outside India, the author on the date of publication, if the author is dead, at the time of his death, should be citizen of India. In case of unpublished work, the author on the date of making of a work should be a citizen of India or domicile in India. Section 40 of the Copyright Act 1957, provides for International Copyrights. As per the section 40 of the Act, the Government of India may by an order published in the official gazette direct that all or any provisions of this Act shall apply to the work published or unpublished in any territory outside India. Such a right is extended in relation to countries which have entered into a treaty or which are a party to a convention relating to rights of the copyright owners and have undertaken to make such provisions in their laws in relation to the Indian authors for protection of their rights in their country. Section 40, 40A and section 41of the Copyright Act, 1957 are relevant in this respect. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he uses the said copy for his business purpose and if the said use falls within the scope and purview of the exceptions of section 52, such as the use of it for the purpose for which it is supplied and to make backup copies for temporary purpose as a protection against loss or damage and doing of any act necessary to obtain information essential for operating the software for the purpose for which it is purchased etc. as provided under section 52, then in that event it cannot be said to be an infringement of copyrights of the author or owner of the work. As held by the Hon ble Karnataka High Court in the case of Samsung Electronics Company Ltd. Others (supra) while relying upon Article 3 sub section (2) of the DTAA with US as the identically worded article being there in almost all the tax treaties with other countries, that any term not defined in the convention shall, unless the context otherwise requires, have the meaning which it is under the laws of that State concerning the tax to which the convention applies. In view of above, when we see the definition as per the statutory provisions/domestic law of the country i.e. Copyright Act,1957 of India which is the taxing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Income Tax Act, we have given our findings only in respect of the scope of royalty under the DTAA. 51. In view of our detailed discussion made above, the assessee cannot be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD- ROM which can be said to be sale of good by the owner. The consideration paid by the assessee thus as per the clauses of DTAA cannot be said to be royalty and the same will be outside the scope of the definition of royalty as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a license provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act, 1957. 8. The above referred decision was further followed by the coordinate bench in Reliance Industries Ltd (supra). Thus, considering the above legal discussion we find that the grounds of appeal raise ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
