TMI Blog2017 (9) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... o the end users. Therefore, we are of the opinion that payment by the assessee to ASL for procuring and distributing copyrighted software on principal to principal basis could not be treated as payment towards royalty. ASL was not having a PE in India, therefore, the assessee was not liable to deduct tax at source as per the provision of section 195 of the Act, hence, for its failure it cannot be treated as A-I-D u/s. 201. Reversing the order of the FAA we decide effective First effective Ground of appeal. As far as grossing of tax-rate is concerned, we want to state that we have already held that assessee was not liable to deduct tax at source, therefore, the issue of grossing up would not arise. Secondly, even if the taxes were to be paid same were to be paid by ASL. But, we have already held that as it was not having PE in India so ASL was not supposed to pay tax in India. Levy of interest u/s. 201(1A) of the Act. We have already held that the assessee was not liable to deduct tax for the payments made by it. Therefore, there would not be any liability towards payment of interest under section 201(1A). - IT APPEAL NOS. 3506 TO 3510 (MUM.) of 2014 And ITA No. 2757 TO 2758 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indo-UK Double Taxation Avoidance Treaty (DTAA) Article-13(3)(a) and Explanation-2 of Section 9(vi) to define the term royalty. He observed that ASL software would qualify as invention, that same were patented and trade-marked by ASL under the copyright Act and other similar Acts, that the soft-wares were different from books of literature, music or art-work, that the softwares were composed by specifically trained personnel, that even if it was considered as literary work it was an invention, that the payments made for the use or right to use the software amounted to royalty payments, that it would receive softwares from ASIL and sub-license it to customers Indian territory, that nowhere in the agreement it was mentioned that the assessee was required to purchase the software from ASL and then to sell it to customers, that the assessee was receiving annual fee from the customers and was transferring the major portion of the same to ASL under the nomenclature of royalty, that the software licensed by ASL was not a sale to the assessee, that it was right to use the product for which ASL was charging royalty from it, that the quarterly payment made by it to ASL were royalty payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that ASL stated that the words end user, license, delivery products, sub license and royalty had definite meaning. He argued that ASL had sold the assessee a software product i.e. a copy righted article, that no right was sold to the assessee in the copy right which ASL had, that there was difference between copyrighted article and copyright, that there was sale of copyright, that the payment could not be termed royalty, that software was a separate entity, that it was not covered by IPR, it was also not covered by section 9(1)(vi) of Explanation-2 of the Act or Article 13.3 of DTAA, that softwares are included in Explanation -4 to section 9(1)(vi), that the DTAA did not make any reference to software, that amendments were made to the Act after the payments were made by the assessee to ASL, that the amendments were retrospective, that the assessee was deducting tax after the amendment to avoid litigation. He referred to the case of Financial Software Systems (P.) Ltd. v. Dy. CIT/Asstt. CIT [2014] 47 taxmann.com 410 (Chennai - Trib.); Channel Guide India Ltd. v. Asstt. CIT [2012] 139 ITD 49 1993 (9) TMI 164 (Mum.); Pr. CIT v. M. Tech India (P.) Ltd. [2016] 381 ITR 31 2016 (1) TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Product and shall be subject to this Agreement. The Company shall, promptly upon receipt of a New Version, provide a copy of the same to each End User of the relevant Product and ensure that all relevant marketing and promotional materials and all demonstrations of the relevant Product include such New Version. Some of the other useful clauses of the agreement are reproduced,as same would be helpful in deciding the issue and same read as under: 7. Sub-licences 7.1 Subject to clause 7.3 below, the Company shall ensure that every End User to which the Company provides one or more of the Products shall enter into a valid and binding Sub-licence with the Company on the Standard Terms set out in Schedule C. 7.2 AVEVA may amend the Standard Terms from time to time and the Company shall, upon receipt of written notice of the same and subject to clause 7.3 below, incorporate such amendments into all subsequent Sub-licences. 7.3 Prior to entering into the first Sub-licence in any jurisdiction within the Territory the Company shall ensure that the Standard Terms are reviewed by a reputable experienced lawyer qualified to practice in such jurisdiction and that written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h such Sub-licence Fees shall be deemed to be Initial Fees and Annual Fees shall be as set out in AVEVA Group plc's revenue recognition policy as amended from time to time. 13. Intellectual property rights and indemnities 13.1 The Company acknowledges that AVEVA owns or is licensed to use all copyright and other intellectual property rights of whatever nature in and relating to the Products and any related documentation. 13.2 In the event that new inventions, designs, processes or other works or materials of whatever nature evolve in the performance of or as a result of this Agreement, the Company acknowledges and agrees that all intellectual property rights in the same shall belong to AVEVA (unless otherwise agreed by AVEVA in writing) and the Company shall, on request, assign to AVEVA with full title guarantee all intellectual property rights in and to the same and shall execute and do all such instruments and things as are necessary to vest in AVEVA full legal title in the intellectual property rights in and to the same absolutely and as sole beneficial owner. We find that the assessee had entered into a distribution agreement with ASL to distribute the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords if the payment is not for intellectual properties such as copyright, patents trademarks etc., the payment cannot be treated as royalty. The assessee had acquired right to sell the copy righted article (software products) and not the right to use the copyright. We would like to refer to case of Vinzas Solutions India (P.) Ltd. of Hon'ble Madras High Court (supra), wherein it was held that there was a difference between a transaction of sale of a copyrighted article and one of, coyrights itself, that the provisions of section 9(1)(vi) as a whole would stand attracted in case of latter and not former. Similarly in the case of Dynamic Vertical Software India (P.) Ltd. the Hon'ble Delhi High Court dealt with similar issue. In that matter the assessee was purchasing the software from Microsoft and sold it further in Indian market. The AO treated the payment made by the assessee to Microsoft as royalty and, therefore, came to the conclusion that tax at source was to be deducted. The FAA confirmed the order of the AO, however, the Tribunal deleted the addition. The Hon'ble Court held that by no stretch of imagination it would be termed as royalty . In the other cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perform the impossible. We find that in the case of B4U International Holdings Ltd. v. Dy. CIT (IT) [2012] 21 taxmann.com 529/52 SOT 545 (Mum.) the Tribunal had held as under :- 17.Coming to the argument of the Learned Departmental Representative that the amendment to the Finance Act, 2012 changes the position, we find that there is no change in the DTAA between India and USA. Thus, the amendment have no affect on our decision. In the case of Leonhardt Andra Und Partner, GmbH v. CIT [2001] 249 ITR 418/[2002] 122 Taxman 223 the Hon'ble Calcutta High Court has held as under :- royalty was not defined in the Agreement for Avoidance of Double Taxation between India and Germany and was not included within the term industrial and commercial profits . The term royalty not being defined in the Agreement for Avoidance of Double Taxation the definition in the Act would prevail. Therefore, the sums received by the assessee for design and technical services for the construction work were in the nature of royalty within the meaning of the term in section 9(1)(vi) of the Act, which was taxable and did not constitute industrial and commercial profits. The fact that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be any liability towards payment of interest under section 201(1A). Fifth ground stands allowed. ITA.s/3507-3510/Mum/2014, AY.s.2008-09 to 2011-12 8. Following our order for the AY.2007-08, we hold that assessee was not liable to deduct tax at source for the above mentioned AY.s also, that it cannot be treated as A-I-D, that the interest charged by the AO u/s. 201(1A) was not leviable for these years also. We decide the effective Ground of appeal for all the years in favour of the assessee. ITA.s/2758 2759/Mum/2016, AY.s.2009-10 to 2010-10: 9. As stated earlier, the assessee has filed appeals against the orders, dated 07.12.2015, of the FAA for the above mentioned two AY.s also. Details of dates of filing of returns, retunred incomes, assessed incomes can be summarised as under: AY. ROI filed on Returned income Assessment date Assessed income 2009-10 30.09.209 7.55crores 21.03.2013 23.28crores 2010-11 15.10.2010 4.73 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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