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2017 (3) TMI 430 - ITAT MUMBAI

2017 (3) TMI 430 - ITAT MUMBAI - TMI - Royalties - payment to foreign companies towards purchase of certain software for its internal use in the business of the assessee - India-USA DTAA - P.E. in India - Held that:- As decided in assessee's own case [2016 (6) TMI 96 - ITAT MUMBAI ] the payments made for purchase of standardized software cannot be considered to be a royalty with the meaning of provisions of sec. 9(1)(vi) as well as India-USA DTAA. The orders passed by Ld CIT(A) holding the above .....

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sbir Chouhan ORDER Per Bench:- In all these appeals, the common issue urged is whether the payments made by the assessee herein to foreign companies towards purchase of certain software for its internal use in the business of the assessee is liable to tax in India as Royalties under the provisions of sec. 9(1)(vi) of the Income tax Act read with India-USA DTAA. The assessee made applications u/s 195(2) of the Act for remitting the payments without tax deduction at source. The AO held that the pa .....

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nt in India. The revenue has filed the appeals in those cases, where the Ld CIT(A) has decided the issue by holding the same as not royalty, but business profits. The assessee has filed appeals, where the Ld CIT(A) has upheld the view of the AO that the payments constitute royalty. 2. In all these cases, the assessee has purchased software from various parties for using the same in its Jamnagar Refinery complex. The case of the Ld A.R is that the software is a standardized software supplied to t .....

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ases, which includes assessee s own case also in ITA Nos. 1980 to 1984, 1986, 2523,2529/M/2008. 3. On the contrary, the ld D.R submitted that the Explanation 4,5 and 6 inserted by the Finance Act, 2012 to section 9(1)(vi) and Explanation inserted after sec. 9(2) are applicable to the instant cases. The Ld D.R has also given detailed written submissions on various points contested by him. 4. However, as stated earlier, the co-ordinate bench has considered an identical issue in the assessee s own .....

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venience, we extract below the relevant observations made by the coordinate bench in the assessee s own case:- 19. A perusal of the above definitions in treaties with different countries reveal that in all the treaties, the Article 12 therein, generally, deals with the payments in respect of royalties and almost identical/similarly worded definition of royalty has been provided in the treaties of India with various countries. This fact has also been noticed by the Hon'ble Karnataka High cour .....

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y short and restrictive definition, whereas, the definition of the royalty as provided under the Income Tax Act is a very wide and inclusive definition but the same seems to be somewhat vague also. A careful reading of the relevant provisions under the DTAA and as compared with that of the Income Tax Act, 1961, reveals that the DTAA covers only a part of the items mentioned under sub clauses (i) to (v) to Explanation 2 to section 9(1)(vi). A perusal of the definition of royalty as provided in Ar .....

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at the term literary work includes software also, which contention we will discuss in the latter part of this order. Now coming to the relevant provisions of the Income Tax Act,1961, we may mention here that the scope of royalty under clauses (a), (b), & (c) to section 9(1)(vi) is very broad to cover consideration paid for any right, property or information used or services utilized for the purpose of business or profession. Further, we find that the said clauses (a), (b) & (c) of sectio .....

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information used or services utilized for the purpose of business or profession by such resident to a non resident. Further, vide various explanations introduced subsequently; the above definition of the royalty has been further expanded. Explanation 4 inserted by Finance Act, 2012, provides that the transfer of rights in respect of any right, property or information includes and has always included the right for use or right to use a computer software including granting of a license. We find t .....

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software‟ under the definition of right , property‟ or information.‟ Hence, the computer software has been recognized as a separate item not only in 2nd proviso to clause (vi) but in Explanation 4‟ also and has been included in the definition and within the scope of the words right‟, property‟ or information‟ as provided under clauses (b) and (c) to section 9(1)(vi) . The term computer software‟ has not been included in the meaning and scope of th .....

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he provisions of section 90, the definition of royalty as provided under DTAA is to be taken. So far as the reliance of the Ld. D.R. on the decision of the Hon ble Madras High Court in the case of Vrizon Communication Singapore (supra) and of the Mumbai Tribunal in the case of Viacom 18 Media Pvt. Ltd. (supra) is concerned, we find that the said decisions have been rendered in context of some other item relating to the consideration paid for transponder/band width/telecom services. In that conte .....

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of DIT vs Nokia Networks OY [2012] Taxmann.com 225 (Delhi) has held that though Explanation 4 was added to section 9(1)(vi) by the Finance Act 2012 with retrospective effect from 1.6.1976 to provide that all consideration for user of software shall be assessable as royalty, the definition in the DTAA has been left unchanged. That in Siemens AG 310 ITR 320 (Bom), it was held that amendments cannot be read into the treaty. As the assessee has opted to be assessed by the DTAA, the consideration ca .....

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that the amendments cannot be read into the treaty. On the wording of the treaty, we have already held in Ericsson (supra) that a copyrighted article does not fall within the purview of Royalty. Further, in a recent judgment in the case of DIT Vs New Skies Satellite BV, (ITA 473/2012 vide order dated 08.02.2016), the Hon ble Delhi High Court has observed that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend its operation to the terms of an in .....

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t competent to effect amendments to international instruments. As held by the Hon ble Supreme Court in Azadi Bachao Andolan (2003) 263 ITR 607, these treaties are creations of a different process subject to negotiations by sovereign nations. While relying on the decision of the Hon ble Madras High Court, in CIT vs VR. S.RM. Firms & Ors, the Hon ble Delhi High Court has held that the tax treaties are considered to be mini legislation containing in themselves all the relevant aspects or featur .....

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ion 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Hon ble Delhi High Court concluded in the said decision (supra) that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty prior to the amendment in the Income Tax Act will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases .....

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thers (supra), Synopsis International Old Ltd. (supra) and of the Tribunal in the case of Reliance Infocom Ltd. (supra), the different Benches of the High Courts and the Tribunal have been unanimous to hold that as per the law laid down by the Hon ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (2003) 263 ITR 607, that where a specific provision is made in the DTAA, that provision will prevail over the general provisions contained in the Income Tax Act if, the same is mo .....

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and that the provisions of the DTAA will, in such an event, override the provisions of the Income Tax Act. Since, in the cases in hand also, the Ld. AR of the assessee has stated that the definition of treaty in the DTAA is more beneficial to the assessee and that the case of the assessee be decided taking the definition as provided in the treaty, hence, in the light of above cited decisions, we proceed to examine as to the consideration paid by the assessee for the purchase of the software can .....

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ience, scientific equipment etc. However, the Ld. DR has neither stressed nor has advanced any argument as to that software falls in any of the above mentioned other categories. All the contentions of the revenue are concentrated on the point that software is covered under the term copy right in a literary work and thus included in the definition of royalty as provided under the DTAAs of India with the other countries as detailed in the table above. It has been submitted by the ld. DR that the d .....

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which it has under the laws of that State concerning the tax to which the convention applies. Hence, the reference is to be made to the respective law of the taxing State (India in this case) regarding the definition of literary work and copyright . The relevant part of the Article 3 of the DTAA for the purpose of ready reference is reproduced as under: Art 3. (2.) As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise .....

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rial form, i.e. writing or print or in some form of notation or symbols, which means in a form capable of either visually or audibly recreating the representation of the original work. As per the provisions of section 2(o) of the Indian Copyright Act, 1957, the term literary work includes computer programs, tables and compilations including computer data base. Therefore, the computer software has been recognized as a literary work in India, if they are original intellectual creations. 26. The ne .....

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nt between them. The rights assigned by the author/owner of the software would be very specific in their scope, indicating clearly to the purchaser the actions that he/she is permitted to perform in relation to the software embedded in such discs. Software contracts, like many other transactions, are governed by the common law principles as embodied in the Indian Contract Act. Contracts can be in the nature of sale or assignment/license. If the computer software is considered as a 'goods' .....

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tion of liability, distribution of the software, etc. These are generally biased towards the licensor. Now, the question before us is as to whether the sale of such computer software by the non-resident to the resident assessee amounts to the transfer for the use of or the right to use any copyright in a literary work? 27. The plea raised on behalf of the Revenue is that in case of sale of software, the title to the disk, manual etc. in which the software is embedded may pass to the buyer, but, .....

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ll other intellectual property rights; license is granted for making use of the copyright in respect of software under the respective agreement and that the same would amount to transfer of part of the copyright. The Ld. DR has also relied upon another decision of the Hon ble Karnataka High Court in the case of CIT vs. Synopsis International Old Ltd. (2013) 212 taxman 454, wherein, the Hon ble Karnataka High Court has observed that even in case of end-user software license agreement granted for .....

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amme in respect of the copyright. The Hon ble Karnataka High Court while analyzing the provisions of the DTAA held that the consideration paid for the use or right to use the said confidential information in the form of computer programme software itself constitutes royalty and attracts tax. 28. However, different benches of the Hon ble Delhi High Court in the case of DIT vs. Infrasoft Ltd. (supra); DIT vs Nokia networks OY (supra) and in the case of DIT vs. Ericson A.B.(supra) have been unanimo .....

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o. The Hon ble Delhi High Court has observed that in such a case there is no transfer of any right in respect of copyright to the assessee and it is a case of transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty. The Hon ble Delhi High Court has further held that what is transferred is neither can be right in the software nor the use of the copyright in the software, but is the right to use .....

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t. It is intangible, incorporeal right in the nature of privilege, quite independent of any material substance such as manuscript. The transfer of the ownership of a physical thing in which copyright exists comes to the purchaser with the right to do with it whatever he pleases, except the right to make copies and issue them to the public. Just because one has the copyrighted article, it does not follow that one has also copyright in it. 29. Now, after going through the divergent views of the di .....

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Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh‖ 271 ITR 401 (2004), has considered computer software as 'goods' and stated that notwithstanding the fact that computer software is intellectual property, whether it is conveyed in diskettes, floppy, magnetic tapes or CD ROMs, whether canned (shrink-wrapped) or uncanned (customized), whether it comes as part of the computer or independently, whether it is branded or unbranded, tangible or intangible; .....

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e would be goods.' The Hon ble Apex court while citing the decision of the US court in Advent Systems Ltd v Unisys Corporation (925) F 2d 670 (3rd Cir 1991), held that a computer program may be copyrightable as intellectual property, does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, movable and available in the market place. In such a case, the intellectual property has been incorporated on a media for purposes of transfer. The software .....

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chnical advice or information technology, an intangible asset, but the moment the information or advice is put on media, whether paper or cassette or diskette or any other thing, that what is supplied, it becomes chattel. The Hon ble Supreme Court, thus, held that the intellectual property such as drawings, license and technical material when put on a media is to be regarded as an article and there is no scope for splitting the engineering drawings or encyclopedia into intellectual input on the .....

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he Indian Copyright Act 1957 "Computer Programme" means a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result; As per Explanation 3 to section 9(1)(vi), the computer software has been defined as follows: … computer software‟ means any computer programme recorded on any disc, tape, perforated media or other information stora .....

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n a media such as book, film or CD or screen etc. Now a days, not only the computer programmes, but also, the other literary work can be transmitted over the internet from one media/computer to the other media /computer. But these expressions of ideas called literary work including computer programmes cannot be read or utilized without downloading or writing them on a media. Hence, though the same as a result of advancement in technology can be transmitted in an intangible form, but to constitut .....

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he copyright doesn t protect the idea itself but only protects the way or the manner in which such ideas are expressed. 31. In the case in hand, the software has been embedded in a disk. The assessee/purchaser after paying the price of the disk, is supposed to have right to use that goods/disc. On the completion of the sale, the property in such a goods passes to the buyer and the buyer has every right of fair use of the said product and subject to the conditions mentioned in the sale agreement .....

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required for the fair use for the purpose for which the product is purchased by him. Section 52 of the Copyright Act expressly recognizes such a right of the purchaser, which we will discuss in later part of this order. Further, the computer software, as generally observed, has a shorter life cycle. When software is sold, the owner gets the price of the copy of the product/work. He in fact receives the price for the expected life of the work and product. In such case the purchaser pays the price .....

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software itself, but also, over people who may wish to use the software and that the owner of the software decides who will use his work. It has therefore been strongly contended on behalf of the Revenue that it is the right given to use the copyright in the software. We, however, are not convinced with the above argument of the revenue. Even if, the owner of a software makes a contract for sale/supply of such software to a specific person/persons as it may not be of use to general customers, be .....

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software is not a license but it is a sale of a product which of course is a copyrighted product and the owner of the copyright by way of agreement puts the conditions and restrictions on the use of the product so that his copyrights in such copyrighted article or the work, may not be infringed. The purchaser gets the right to use the product/diskette along with the property in the good in the shape of work embedded or written in it when the sale is complete i.e. when such diskette/COD ROM is de .....

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atutory rights of the purchaser/user of the software can be curtailed or done away with by the terms of such licenses/agreements. A License Agreement, in spite of the fact that it may fulfill all the requirements of a valid contract, such an agreement may not be enforceable, if, its stipulations conflict with the law governed in the country where such licenses are intended to be enforced, or if it is an unconscionable or unreasonable bargain. In computer software, generally it is the tendency of .....

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software is legally entitled to fair use that copy of software even without a license from the software publisher and any condition put in a license restricting the fair or reasonable use of the product purchased by the buyer in that respect will have to be ignored. If the license severely limits the rights of the consumers, such as implied conditions and warranties in a contract, it cannot be enforced. If in the license agreement, there are certain conditions which are in violation of the provi .....

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estricting the fair use of right of the user/purchaser of the product. It is also a determinative factor as to whether the property in the goods after buying the product/ software CD has passed on to the purchaser or not as per the provisions of Sale Of Goods Act 1930 . So what the buyer buys is the copyrighted product and he is entitled to fair use of the product as is provided under section 52 of the Copyright Act. He is also entitled to perform all or any of the activities which is essentiall .....

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hat whether such an license agreement is signed or not by the licensee/purchaser, still the owner of the product will have the copyrights in such a product, as are defined and explained under the Indian Copyright Act; even the registration of the product or the work under the Copyright Act is not compulsory. The owner of the work is deemed to be protected in relation to the copyrights in the work but the fair use of the product/work cannot be denied and any clause in such agreement should be dee .....

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ing the reproduction 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 the product itself by the purchaser for the purpose 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 work, rather, the purpose of copyright protection is to regulate the reproduction of the copies of the .....

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ht 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 Act, copyright means the exclusive right subject to the provisions of this Act, to do or authorize the doing of ay 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 from including .....

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s. (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in cl. (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 the essential object of the rental. …………………… 36. A perusal of the above provisions of the copyrig .....

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rchased does not constitute right to use the copy right in work. Our above view also finds support from certain other provisions of the Copyright Act, which we discuss in the following paras. 37. Section 51 of the copyright Act deals as to when the copyright is infringed, which, for the sake of convenience, is reproduced as under: CHAPTER XI Infringement of Copyright 51. When copyright infringed. -Copyright in a work shall be deemed to be infringed- (a) when any person, without a licence granted .....

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ss he was not aware and had no reasonable ground for believing that such communication to the public would be an infringement of copyright; or (b) when any person- (i) makes for sale or hire, or sells or lets for hire, or by way of trade displays 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 .....

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fringement 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 possessor of a copy of such computer programme, from such copying order to utilize the com .....

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therwise readily available; (ac) the observation, study or test of functioning of the computer programme in order to determine the ideas and principles which underline any elements of the programme while performing such acts necessary for the functions for which the computer programme was supplied; (ad) the making of copies or adaptation of the computer programme from a personally legally obtained copy for non-commercial personal use; 39. The proviso to section 57 of the Act is also relevant. Th .....

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ht if such distortion, mutilation, modification or other act would be prejudicial to his honour or reputation: Provided that the author shall not have any right to restrain or claim damages in respect of any adaptation of a computer programme to which clause (aa) of sub-section (1) of section 52 applies. 40. Hence, as per section 51 of the Act, copyright in a work shall be deemed to be infringed when any person without license granted by the owner of the copyright or in contravention of the cond .....

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(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 po .....

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rwise readily available, the observation, study or test of functioning of computer programme with determination, the ideas and principles necessary for the functions for which the computer programme was supplied and the making of copies or adaptation of computer programme from a personally and legally obtained copy from non-commercial personal use, have been excluded from the definition of infringement of copyright. Even import of one infringed copy of the work for private and domestic work of t .....

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Copyright Act, then the computer software‟ will have to be included in the term literary work‟ but to constitute royalty‟ under the treaty, the consideration should have been paid for the use of or the right to use the copyright in the literary work‟ and not the literary work‟ itself. 42. Further, when we read the definition of copyright and literary work as provided in the Copyright Act, 1957, it is also important to note down that what constitutes infringement of .....

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mputer programme to which clause (aa) of sub section (1) of section 52 applies. 43. Further in case of imported software i.e. 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 cas .....

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ed 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. Sections 40, 40A and section 41of the Copyright Act, 1957 are relevant in this respect. Section 42 of the Copyright Act, however, put certain restrictions on the rights in works of foreign authors first published in India wherein it has been provided that if a f .....

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s a treaty with that country or if India and that other country are signatories of the certain international treaties or conventions e.g. Berne convention to which India is a signatory. Under such circumstances, in respect of works done in foreign countries or by foreign authors, the copyright does not automatically flow or extended to them. The rights of the foreign author are to be examined in the light of the Copyright Act and the relevant treaty or the convention, if any, signed by India wit .....

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se of such right would amount to infringement of copyright if a license or permission in this respect is not given by the owner; and when assessee has purchased a copyrighted product, whether the use of the same for the business purpose of the assessee is covered within the exceptions as provided under section 52 of the Copyright Act. Further, in case of imported work/product, whether the protection of copyright is available to the foreign author in terms of section 40,40A, 41 and 42 of the Copy .....

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ecessary to obtain information essential for operating the software for the purpose for which it is purchased etc. as provided under section 52of the copyright Act, then in that event it cannot be said to be an infringement of copyrights of the author or owner of the work. Even 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 almos .....

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being purchased and doing of such other acts including making of copy for protection from damage or loss cannot, in any case, said to be any infringement of copyright whether or not any license in this respect has been granted by the author/owner of the work. The right to use or for use of the product accrues to the purchaser by the operation of the statute and as held by the Hon ble Delhi High Court in the case of Infrasoft Ltd. (supra), the same would amount to the sale of a goods and the act .....

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where the owner of the copyrighted work may restrict the use of or right to use the work by way of certain terms of the license/software agreement, the validity or the enforceability of the same may be subject matter in other laws such as Indian Contract Act 1872 , Sale of goods Act 1930 or the Consumer Protection Act 1986 etc., but, the same in any way can not be said to grant of or infringement of copyright in the light of specific statutory provisions of Copyright Act 1957. 46. While finaliz .....

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f royalty in the relevant India-UK Treaty, there was no specific mention of word computer software along with other terms such as literary, artistic or scientific work, patent, trade mark etc. The Tribunal observed that such a language of the India-UK DTAA was in sharp contrast to the specific use of the term computer software or computer software programme together with other terms such as literary, artistic or scientific work, patent, trade mark etc. in many other DTAAs such as IndiaMalaysia T .....

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ght to use any copyright of a literary, artistic or scientific work……….. plan, knowhow, computer software programme, secret formula or process…..' Similarly, the DTAA between India and Kazakhstan defines the term 'royalties' in Article 12(3)(a) to mean : '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 software, cinematograph films…'. Similar .....

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Since Article 13(3)(a) of the DTAA with UK does not contain any consideration for the use of or the right to use any 'computer software', the same cannot be imported into it. 47. The above analysis made by the Tribunal (supra) of various tax treaties of India with other countries clinches the issue. Even at the cost of repetition, we deem it proper to refer to the observations of the Hon ble Delhi High Court in the case DIT Vs New Skies Satellite BV, (supra), that an international instru .....

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Government of India intended to include consideration for the use of software as 'Royalties', it explicitly provided so in the DTAA with the concerned country viz. Malaysia, Kazakhstan and Turkmenistan. We find that in the cases before us, in the DTAA of India with respective countries (names mentioned in the chart given above), the definition of royalty in none of the respective treaties specifically include any consideration for the use of or the right to use any computer software and .....

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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 .....

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rnational Old Ltd. (supra ), though, a view in favour of the Revenue has been taken, but the Hon ble Delhi High Court in the case of DIT vs. Infrasoft Ltd. (supra), which is a latter decision, has discussed the Samsung case also and has taken the view in favour of the assessee. The Hon ble Delhi High court has taken the identical view favouring the assessee in the case of DIT vs Nokia Network (supra) and in the case of DIT vs. Ericson A.B. (supra) also. The Hon ble Bombay High Court in the case .....

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g that construction which favours the assessee. Reliance can also be placed in this regard on the decision of Hon ble Supreme Court in Bihar State Electricity Board and another vs. M/s. Usha Martin Industries and another : (1997) 5 SCC 289. We accordingly adopt the construction in favour of the assessee. 5. 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 .....

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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, IN .....

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oftware. So far as payments received from other general services of ₹ 4,79,36,944/-, same has been offered to tax in India as fee for technical services on which there is 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 managem .....

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essee 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 .....

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ght 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 . 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, .....

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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 softw .....

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to be examined in the impugned case as to whether there is any use or right to use of copyright? The definition of copyright, though has not been explained or defined in the treaty, 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, "copy .....

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orm 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 subclauses (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 renta .....

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ies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to 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 fil .....

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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), 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 rig .....

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not sublicense or modify the software. None of the 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 .....

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