9911796707
TMI Blog2018 (12) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... undisputed that the amount received by the assessee from "Provision of Support Services" was been offered to tax on gross basis as per Article 12 of India-Ireland Double Taxation Avoidance Agreement (DTAA). It is also not in dispute that there is no Permanent Establishment (PE) of the assessee in terms of Article 5 of DTAA in India. In the present appeal, the dispute pertains to the taxability of amount received by the assessee from "Sale of Software". During the course of assessment, the AO directed the assessee to submit as to why the receipts on account of "Sale of Software" may not be taxed as income from Royalty as per the provisions of section 9(1)(vi) of the Act and Article 12 of the Agreement for Avoidance of Double Taxation between India and Ireland. In response, the assessee submitted copies of Distributor Agreements executed by it with its Indian distributor and copies of End User Licence Agreements. The assessee also submitted copies of invoices raised by it on its Indian Distributors. Before the AO, it was submitted by the Assessee that neither the Distributor nor the End User had a right to reverse engineer, reverse-compile or otherwise reengineer software products. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land is eligible to claim taxation under the DTAA if provisions of DTAA are not beneficial to assessee. The relevant DTAA in this case is India-Ireland DTAA. As per Article 12 of the DTAA, royalties 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 or films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft or for information concerning industrial commercial or scientific experience. According to the submissions made by the assessee the payments received for sale of software, without allowing any right to use the copyright in the software, would not be covered within the scope of 'royalty' under the DTAA. The assessee also submitted that the parting of intellectual property rights inherent in and attached to the software product in favor of the distributors is what is contemplated by the definition of 'royalty' provided in the DTAA. Merely authorizing the distributor to distributo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty' means payments of any kind received as a consideration for the use or the right to use any copyright of literary, artistic or scientific work whereas in the Income-tax Act, royalty means consideration for the transfer of all or any rights including the granting of a license. Therefore, under the DTAA to constitute royalty there need not be any transfer of or any rights in respect of any copyright. It is sufficient if consideration is received for use of or the right to use any copyright. Therefore, if the definition of royalty in the DTAA is taken into consideration it is not necessary there should be a transfer of any exclusive right. A mere right to use or the use of a copyright falls within the mischief of Explanation (2) to clause (vi) of sub-section (1) of section 9 and is liable to tax. Therefore, there is no substance in the said contention." Similar view was also upheld by jurisdictional Delhi Tribunal in the case of Microsoft Corporation vs. ADIT (8 ITR 522) wherein the payments for software were held to be taxable as royalty both under the Act and the DTAA and the Authority for Advance Rulings in the rulings pronounced in the cases of Millennium IT Software Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on the judgements of Delhi High Court in the case of Infrasoft Ltd., Dynamic Vertical Software India (P) Ltd. and M. Tech India P. Ltd. cannot be relied upon since the issue has not attained finality and the department has filed SLP in few cases and the decision of the Hon'ble Supreme Court is still pending". The departmental position is clear in this regard and the panel is part of assessment process. Therefore the issues in challenge before Hon'ble Apex Court need to be kept alive. The objection of the assessee are dismissed in view of the foregoing. In view of above discussion on each of the grounds of objection, the Assessing Officer is directed to complete the assessment as per the directions of the DRP as above." 2.3 The Assessee is now in appeal before us. Following grounds of appeal have been raised:- "1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in holding that the consideration received by the Appellant for supply/distribution of its copyrighted software to the Indian distributors qualifies as 'royalty' under section 9(1)(vi) of the Act as well as Article 12 of the India-Ireland Double Taxation Avoidanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R invited our attention to Para 23 of the decision in the case of Nokia Network (supra). 4.0 The Ld. CIT (DR), on the other hand, did not dispute the contentions raised by the Ld. AR. By placing reliance on the order passed by the lower authorities it was submitted by him that the view expressed by them does not require any interference by this Court. 5.0 We have carefully considered the facts of the case and the material available on record. There is no dispute as regards the facts of the case. After considering the facts of the case and the arguments of both the sides, we are of the opinion that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court. In the case of Ericsson A.B., (supra), the Hon'ble Jurisdictional High Court has held as under:- "Once one proceeds 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 Act or under the DTAA. It is apparent that what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble Jurisdictional High Court in the case of Infrasoft Ltd. (supra), wherein their Lordships held as under:- "86. The Licensing Agreement shows that the license is nonexclusive, non-transferable and the software has to be uses in accordance with the agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include Infrasoft's copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensee's own business as defined within the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and nontransferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated 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 enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright ..... X X X X Extracts X X X X X X X X Extracts X X X X
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