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2017 (4) TMI 763 - ITAT MUMBAI

2017 (4) TMI 763 - ITAT MUMBAI - [2017] 55 ITR (Trib) 372 - Payment received for network access and related services - payment for acquisition of copyrighted software OR copyright over such software - Royalty receipt - P.E. in India - business income taxed in India - DTAA - Held that:- 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 cop .....

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ld by the learned CIT(A); and is also is evident from the terms of MSA, because no such rights has been given by the assessee to the IT Service providers. - Further by making use or having access to the computer programs embedded in the software, it cannot be held that either WIPRO/IBM are using the process that has gone into the software or that they have acquired any rights in relation to the process as such. The software continues to be owned by the assessee and what WIPRO/IBM is getting .....

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ticle 12(4) of the India-Netherland DTAA. Thus, the matter is decided in favour of the assessee and against the revenue - ITA No.5051/Mum/2009, ITA No.3818/Mum/2011, ITA No.729/Mum/2012 - Dated:- 15-3-2017 - Shri Amit Shukla, JM& Shri Ashwani Taneja, AM For The Revenue : Shri Jasbir S Chouhan For The Assessee : Shri Rahul K Mitra, Harsh Kapadia and Paras S Savla ORDER Per Amit Shukla, Judicial Member The appeals for assessment years 2006-07 & 2007-08 have been filed by the revenue agains .....

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y of this consolidated order. In all the appeals the core issue involved is, whether the payments received by the assessee from IT service providers, like WIPRO & IBM for providing network access to use copyrighted software is in the nature of royalty or not. 2. In order to understand the facts and implications thereof on the issue involved, we will take up the appeal for the A.Y. 2006-07, wherein the Revenue has raised the following grounds:- 1. On the facts and in the circumstances of the .....

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y rights of which belong to the assessee) which would qualify as royalty under clause 4 of Article 12 of the DTAA between India and the Netherlands, being payments received for use of secret process. 3. The brief facts qua the issue involved are that the assessee company is a tax resident and registered in Netherlands. It is mainly engaged in the business of providing information technology support services, IT helpdesk and network infrastructure services to Shell Group Companies comprising of:- .....

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A) with certain IT service providers viz., WIPRO & IBM. Pursuant to such agreement, these IT service providers could enter into separate agreement to provide IT services to Shell Group entities including its entities in India. In order to provide such IT services by WIPRO & IBM, they were required to have access to network and software of the assessee company. Before the AO, the assessee vide letter dated 04.12.2008 have made elaborate submission on services rendered by the assessee and .....

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ices to Shell group companies comprising: - Inf ormat ion Technology ( IT ) suppor t f or solving any IT related problems faced by users i.e. , any problem faced by users for appl ication sof tware for accessing any application sof tware, e-mails, computer repairs and maintenance etc, desktop, laptop and workstation support; -Services related to Wide area network (WAN') and Local area network (for connection to the global servers; and -Facilitating teleconferencing and video conferencing ser .....

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services." Further, 'Services has been def ined in Article 1 - Def initions as "the combined Sub-services provided by S/TI BV to the IT Services Provider under this Agreement, which Sub-services include the GI Services, the STO Services and the provision by SITI BV to the IT Service Provider and Service Personnel of access to and/or use of GI sof tware and/or Opt ional Software........ Similar provisions are contained in the agreement between SITI BV and IBM (attached as Annexure .....

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of the Act or as per the provisions of the relevant double taxat ion avoidance agreement , whichever is more beneficial. 3.5.3 SITI BV is a non-resident for Indian tax purposes. Accordingly, SITI BV could be assessed as per the provisions of the Act or as per the Treaty, whichever is more beneficial to SIT/ BV. In view of the same, the non- taxability of the services rendered SIT/ BV has been examined under the provisions of the Treaty. 3.5.4 Article 12(4) of the Treaty defines the term royalty .....

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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. 3.5.6 Even under the agreements entered into with WIPRO and IBM, SITI BV only provides them access to the software ie computer programme. SITI BV does to provide them the right to use the copyright embedded in the software. In other words, WIPRO/IBM is not permitted to make copies and sell the softw .....

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e and not for the use of copyright. 5. In pursuance of the agreement entered into between the assessee and service providers, the amount received by the assessee in various assessment years are as under: Name AY 2006-07 AY 2007-08 AY 2008-09 Total Wipro 3,63,17,017 84,74,506 52,92,362 50,083,885 IBM 2,73,26,777 63,48,802 77,25,598 41,401,177 Total 6,36,43,794 1,48,23,308 1,30,17,960 91,485,062 According to the assessee this amount cannot be considered as royalty and in absence of any PE, no busi .....

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r intellectual property or a thing. He held that Explanation 2 to section 9(1)(vi) is applicable, because software is an intangible property and consideration for use of such property was in the nature of royalty . He also referred to various decisions, which has been discussed by him in the assessment order. Thereafter, he held that this software is a process used by a computer to achieve desired results and to arrive at this conclusion he referred to the decision of ITAT, Delhi Bench in the ca .....

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of definition as enshrined in article 9(1)(vi) read with Explanation 2. Accordingly, he taxed the entire payment as royalty and since the tax rate under the DTAA was 10%, therefore, he taxed the royalty @10%. 7. The learned CIT(A) after considering the entire gamut of facts and submissions made by the assessee, observed that the agreement for supply of software provided to WIPRO/IBM was for mere use and access the copy righted software of the assessee. The assessee does not provide them the righ .....

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of right to use a copyright. Hence, he came to the conclusion that payment received for allowing mere use of copyrighted article cannot be held as payment for royalty. He further held that royalty as per treaty has a more restricted scope and definition than under the Act. After analysing sections 13 & 14 of the Copyright Act 1957 , he held that no copyright as envisaged under this Act has been transferred. His relevant conclusion on this point reads as under: 1.22 Examination of the agreem .....

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o duplicate the software, to issue copies of software in public or to reverse engineer, de compile or modify the software. Thus, sale of software by the Appellant to WIPRO/IBM cannot be said to be the transfer of the copyright either in part or in whole. Thus, consideration paid by WIPRO/IBM to Appellant for acquiring copy of software is not for the use of copyright or transfer of right to use of copyright. As mentioned above, copyright is different from the work in respect of which copyright su .....

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sed the relevant finding given in the impugned orders as well as the material referred before us at the time of hearing.As stated earlier, the assessee had entered into service agreement (MSA) with WIPRO/IBM to provide IT services to various Shell Entities. Under this agreement, the assessee provides restricted software / network access and related IT support services to WIPRO/IBM. Before us, the learned counsel submitted that the relevant articles and clauses given in the Master service agreeme .....

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I and IT Service Provider have entered into a MSA ('as defined' below) under which IT Service Provider, either directly or as a subcontractor of an affiliate of IT Service Provider, may be providing certain MSA Services (as defined below) to Shell Companies (as defined below); B. In order to be able to provide MSA Services, IT Service Provider has requested and SITI has agreed to provide certain Services (as defined below). Article 1. Definitions: "GI Services "shall mean the s .....

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n the Master Service Arrangement (as may be amended from to time) for the provision of offshore IT services as entered into between srn and IBM Netherland B. V., with contract number LDMO4/00005. … "MSA Services" shall mean the IT services provided under MSA by the IT Service Provider either directly or as a sub-contractor of affiliate of IT Service Provider, as further described in a Statement of Work entered into by the IT Service Provider (or an IT Service Provider Affiliate, .....

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GI Services, the STO Services and the provision by S117 to the IT Service Provider and Service Personnel of access to and/or use 401 software and/or Optional Software, all as further specified in Exhibit A. "GI software" shall mean the mandatory GI client software that shall be provided by SITI to the IT Service Provider as part of the GI Services. The exact mandatory 01 client software that will be provided to the IT Service Provider will depend on the equipment used by the IT Servic .....

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Service Provider in order to provide the MSA Services. "STO Services" shall mean the services as specified in Exhibit A, section II ARTICLE 3. PROVISION OF SERVICES. SITI shall provide the IT Service Provider with the Services. SITI shall at its sole discretion be entitled to subcontract any part of the Services to a Third Party orThird Parties, but S117 shall remain solely responsible for the provision the Services. The IT Service Provider shall not subcontract nor delegate any of its .....

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ing the specific. terms and conditions of access and/or use as may be set out in Exhibit A, section III (as may be amended from time to time), if any. Optional Software. In addition to access to and/or use of the GI software, the IT Service Provider may, in order to provide the MS'A Services agreed in certain Statements of Work, need to access and/or use certain Optional Software. In such case the IT Service Provider 01 Focal Point shall request SI11 the right to access and/or use the Option .....

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. The IT Service Provider shall ensure that the IT Service Provider GI Focal Point shall be duly authorized to financially commit the IT Service Provider for the order placed by the IT Service Provider GI Focal Point. The IT Service Provider shall furthermore ensure that the IT Service Provider GI Focal Point shall follow all instructions as may be given from time to time by SITI. Access/Use restrictions. The IT Service Provider shall ensure that: I) only Service Personnel with a strict need to .....

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TI reserves the right to unilaterally add or remove certain software from the GI software and to stop the IT Service Provider fromaccessing and/or using certain Optional Software or request the Service Provider to stop accessing and/or using certain Optional Software. SI71 also reserves the right to unilaterally amend the specific terms and conditions for access and/or use of the GI software and/or Optional Software, as may be set out in Exhibit A, section III. In the event that SUL at its sole .....

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able Third Party licensor to access and use such Optional Software or a substantial equivalent, so that the IT Service Provider shall continue to be able to provide MSA Services. In the event that SITI requests the Service Provider to slop accessing and/or using certain Optional Software (unless Optional Software has already been remotely removed from the IT Service Provider equipment by SITI), the IT Service Provider shall ensure that all Service Personnel immediately stop accessing and using s .....

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ties of the Service Personnel accessing and/or using the GI software and/or Optional Software. Subject to applicable Law, SITI shall have the right to log into and monitor the IT Service Provider's and Service Personnel s access to and use of any of the GI software and Optional Software at any time without notice. The IT Service Provider shall permit SITI or its authorizedrepresentative s at all reasonable times, to audit the IT Service Provider's and Service Personnel's access to an .....

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Provider and/or the Service Personnel in accordance with this Agreement Infringes such Third Party's Intellectual Property Rights. As a condition of this indemnity, IT Service Provider shall (i) notify SITI promptly in writing of any allegation of infringement (ii) make no admission relating to the infringement; and (iii) allow SITIto conduct all negotiations and proceedings and give SITI all reasonable assistance. The foregoing indemnity shall not apply to the extent that the infringement .....

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exceptions of the foregoing paragraph do not apply, if the IT Service Provider's and/or the Service Personnel's access or use of the GI software or Optional Software in SITI's reasonable opinion are likely to be held to be infringing, SITI shall at its option and expense take one or more of the following actions in order to procure the right for the IT Service Provider and the Service Personnel to continue to use and/or access the GI software or Optional Software in question; I. rep .....

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ional Software is likely to be held to be Infringing, remove the GI software and/or Optional Software from the list included in Exhibit in which case the IT Service Provider shall ensure that all Service Personnel immediately stop using and/or accessing such GI software and/or Optional Software and upon request of SITI the IT Service Provider shall, unless the GI software or Optional Software in question has already been remotely removed by SITI, as soon as reasonably possible return to SITI suc .....

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I software and Optional Software are owned by SITI and/or SITI's Third Party licensors and remain vested in SITI or its Third Party licensors (as applicable). SITI is not expected to make, create or generate any Work Products in the performance at the Services under this Agreement, however in the event that SITI does make, create or generate any Work Products in the performance of the Services, the Intellectual Property Rights in such Work Products shall vest exclusively in SITI and/or SITI& .....

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tion. Upon termination of this Agreement, for whatever reason, the IT Service Provider shall ensure that all Service Personnel immediately slop using and/or accessing all GI software and Optional Software and the IT Service Provider shall return to SITI as soon as reasonably possible all the GI software and all Optional Software together with the associated documentation, including ('but not limited to) manuals relating to the GI software and Optional Software, license certificates etcetera, .....

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ervice Provider of access to and/or use a/UI software and Optional software is terminated, the IT Service Provider shall, unless the UI software and all Optional Software has already been remotely removed by SITI, return to SITI as soon as reasonably possible all the GI software and all Optional Software together with the associated documentation, including (but not limited to) manuals relating to the GI software, or Optional Software, license certificates etcetera, which may, he in the IT Servi .....

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r Optional Software on such equipment is removed as soon as such equipment is no longer used for provision of the MSA Services. ARTICLE 17. NETWORK ACCESS In order for SITI to provide the Services and for the IT Service Provider and Service Personnel 10 make use of the Services, the Service Personnel shall be allowed to access certain parts of the IT network of Shell Companies. IT Service Personnel shall ensure that the Service Personnel only access and use the IT network of Shell Companies in s .....

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rmation Access and Sharing services. 4. Remote Access Services. The above-mentioned services shall be provided by 5177 in the same manner as they are provided to other Shell Companies and in accordance with the relevant sections of the GI service level agreement as agreed between SITI and other Shell Companies. In the event of a conflict between the relevant sections of the GI service level agreement as agreed between SIT1 and other Shell Companies and the terms and conditions and Exhibits of th .....

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as provided by SITI. Section II STO Services STO services are the end-to-end connectivity services provided by SITI, by means of which the IT Service Provider shall be provided with a connection to (certain parts of) the IT network of Shell Companies. Section III In addition to the terms and conditions stated in this Agreement the following specific terms and conditions of access and/or use apply: Al the date of signature of this Agreement, other than the provisions already set out in this Agre .....

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software. This right is subject to the terms and conditions set out in that article and provides following restrictions on to the rights so granted: 1) Only service personnel with a strict need to use and/or access the GI software in order to provide MS services shall use and/or access the GI software and/or Optional software; and 2) Such Service personnel shall only access and/or use the GI software and optional software in a normal operational manner and only in so far as strictly necessary t .....

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of the IPRs and clearly states that GI/operational software shall at all times remain vested with the assessee. Similarly, termination agreement under Article 8.2 provides the immediate stop of access of using GI/operation software and the party shall return the software along with many other things. 10. The learned counsel further submitted that all these terms and conditions as enshrined in MSA will only go to show that the assessee does not in any manner give any right to use any copyright e .....

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assessee has not allowed WIPRO/IBM to use the process by using the software as they do not have any access to the source code. What is allowable for their use is their software product as such and not a process embedded in it. In any case, he submitted that by making use of or having access to the computer programs embedded in the software, it cannot be said that WIPRO/IBM are using the process the process that has gone into the software or that they have acquired any rights in relation to the p .....

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v Baan Global B V [2016] (ITA 7048/Mum/2010 • CIT v. Halliburnton Export Inc. [2016] ITA 363/2016 (Del-HC) • DIT v. Nokia Network OY [2012] 25 taxmann.com225 (Del-HC) • DIT v. Ericsson A.B. [2012]246 CTR 422 (Del -HC) • DDIT v. Solid Works Corpn [2012] 18 taxmann.com 189 (Mum - Tri) • Galatea Ltd. v. DCIT [2016]67 taxmann.com 190 (Mum- Tri) • Capgemini Business Services (India) Ltd. vs. ACIT [2016] 68 taxmann.com 36 (Mum-Tri) • DDIT v. Reliance Industries Limi .....

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payments for use or right to use of a computer software under the ambit of royalty. Such an amendment has to be read into the Treaty, because the scope of definition and meaning of royalty under the Act and DTAA are by and large same. In support, he strongly relied upon the decision of CIT vs. Siemens Aktiongesellschaft, 310 ITR 320; and Vaicom 18 Media Private Ltd. vs. ADIT (2014) 162 TTJ 336. He gave a small writeup on this aspect, which for the sake of ready reference is reproduced below: 1. .....

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indly be kept in mind: i) The exact question of law before the Hon'ble High court was NOT that whether Amendments in the I.T. Act can be read into the DTAA or not and therefore, the Hon'ble High Court cannot be said to have answered it as claimed. ii) In the said case, old DTAA (1960) between India and Germany was under consideration in which "Royalty" had not been defined.( Para 15). iii) "Royal ty" under the I.T. Act has been def ined in Explanation 2 to S.9(1)(vi), .....

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nation 3 to 6 and explanation below S.9(2) are only clarificatory provisions inserted subsequently. vi) For the purpose of the present appeal, the def inition of "royalty" as applicable has been defined both under the DTAA as well as I.T. Act and the issue is regarding the application of Explanations (clarif icatory provisions) inserted in the Act into the DTAA by virtue of article 3(2) of the DTAA. vii) The said decision in the case of Siemens AG, supra was rendered in 2008 when the o .....

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ty, " Royalty" was not def ined both under the then DTAA and the I.T. Act and what was the character of payment under the DTAA. ix) It is not disputed by the Revenue that the provisions of DTAA, i f beneficial to the assessee shall prevail over the provisions of the I.T. Act. 2.In my respectful submissions, a perusal of Bombay HC decision in the case of Siemens AG, supra would reveal that: i) In the operational part (paras 27 to 31) of the judgment in the case of Siemens AG, supra, now .....

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referred over the provisions of the I.T. Act. iii) In paras 13, 22 and 28 of its order, the Hon'ble HC has approved the insertion of Explanation below S.9(2) inserted by the Finance Act 2007, thereby implying that the Clarif icatory Explanations could be read into modern DTAAs. iv) Mumbai Tribunal , in the case of Viacom 18 Media (P. ) Ltd. (2014) 162 TTJ 336 (Mum) has explained the import of Bombay HC decision in right perspective in paras 16 and 17 of its order while rejecting the assessee .....

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e ostensible that:- Firstly, any kind of right granted to WIPRO/IBM cannot be passed on or transferred to any other person and only WIPRO/IBM is legally permissible to exercise this right. Secondly, the right to access/use of software is again subject to various terms and conditions, which has been highlighted under Article 4 The right which has been given to WIPRO/IBM is not unfettered but has a very limited use for the own business purpose and not otherwise. Thus, only limited right to access/ .....

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t has to be seen in terms of Article 12(4) of DTAA, which reads as under:- 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 formula or process, or for information concerning industrial, commercial or scientific experience. From the plain reading of the article it can be inf .....

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ticle 12. The main emphasis on the payment constituting royalty in Para4 is for a consideration for the use of or the right to use any copyright.......... The key phrases are 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 unde .....

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mbedded in it. Several processes may be involved in making computer software but what the customer uses is the software product as such and not the process, which are involved into it. What is required 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, .....

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ce 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 ac .....

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in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work; (ii) to communicate the work to the public; (iii) to issue copies 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 t .....

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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 . 13. 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, t .....

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s held by the learned CIT(A); and is also is evident from the terms of MSA, because no such rights has been given by the assessee to the IT Service providers. 14. Further by making use or having access to the computer programs embedded in the software, it cannot be held that either WIPRO/IBM are using the process that has gone into the software or that they have acquired any rights in relation to the process as such. The software continues to be owned by the assessee and what WIPRO/IBM is gettin .....

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d in [2013] 39 Taxmann.com 88, wherein host of other decisions have been referred and relied upon. In the A.Y. 2008-09, the learned CIT (A) has relied upon the decision of Hon ble Karnataka High Court in the case CIT vs. Samsung Electronics Co. Ltd. [2013]345 ITR 494 and some other decisions of the Tribunal. We find that the Hon ble Delhi High Court has taken note of this fact and also analysed the payment of software within the ambit of royalty as defined under Article 12 of the India US Treaty .....

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ork. Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including lice .....

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l copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for t .....

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erated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or e .....

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of the rights he possesses pro-tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only int .....

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icensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall includ .....

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eement between the Assessee Company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licensee shall return the software including supporting information and licence authorization device to Infrasoft. Xxx xxxx xxxxx xxxxx .....

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AA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 95. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of so .....

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the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Andhra Pradesh High Court in the case of SAMSUNG ELECTRONICS CO. LTD (SUPRA) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup co .....

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nal and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DIT v. M/s Nokia Networks OY (Supra) as not amounting to acquiring a copyright in the software . The ratio of the above decision clearly clinches the issue which is applicable in the ca .....

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it has applied only a tangible property and payment made for acquiring such a property cannot be regarded as payment by way of royalty. The relevant observation of the High Court in Alcatel Lucent (supra) in this regard reads as under: We have noticed, at the outset, that the ITAT had relied upon the ruling of this Court in Director of Income Tax V. Ericsson A.B. (2012) 343 ITR 470 wherein identical argument with respect to whether consideration paid towards supply of software along with hardwar .....

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iew these findings. Moreover, another finding of fact is recorded by the Tribunal that the Cellular Operator did not acquire any of the copyrights referred to in Section 14 (b) of the Copyright Act, 1957. 55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Income -Tax Act or under the DTAA. We have to keep in mind what was sold by the assessee to the Indian customers was a GSM whic .....

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e. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an integral part thereof. On these facts, it would be useful to refer to the judgment of the Supreme Court in TATA Consultancy Services Vs. State of Andhra Pradesh (2004) 271 ITR 401 (SC), wherein the Apex Court held that software which is incorporated on a media would be goods and, therefore, liable to sales tax. Foll .....

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to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a s .....

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of the finding given above, we uphold the order of the CIT(A) that the payment received by the assessee for sums amounting to ₹ 3,75,25,291/- does not amount to royalty within the meaning of Article 12(4) of Indo-Netherland DTAA and accordingly, the same is not taxable in India. Since, admittedly, the assessee has no PE in India; therefore, same cannot be taxed as business income under Article 7. Accordingly, ground raised by the revenue stands dismissed. The aforesaid decision clearly cl .....

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ill not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate incom .....

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n Communications Singapore Pte. Ltd. The Hon ble High Court has specifically clarified as to why the said judgment of Madras High Court cannot be applied in such cases after observing as under:- 31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. V. The Income Tax Officer, International Taxation I, [2014] 361 ITR 575 (Mad), the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of roy .....

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