TMI Blog2017 (3) TMI 1742X X X X Extracts X X X X X X X X Extracts X X X X ..... upport services for solving IT related problems to its Indian subsidiary. Hence, unless and until the services are not made available, same cannot be taxable in India The issue is identical to that of Sandvik Australia Pty. Ltd. [2013 (4) TMI 643 - ITAT PUNE]. We therefore following the aforesaid decision and INFRASOFT LTD. [2013 (11) TMI 1382 - DELHI HIGH COURT]held that the amount received by assessee cannot be considered to be royalty or FTS and therefore not taxable in India. We therefore hold accordingly. Thus, the grounds of the assessee are allowed. - ITA No.1719/PUN/2011 - - - Dated:- 24-3-2017 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For the Appellant : Shri Dhanesh Bafna For the Respondent : Shri A.K. Modi ORDER PER ANIL CHATURVEDI, AM : This appeal filed by the assessee is emanating out of the order of Dy.Director of Income Tax (International Taxation) I, Pune dt.28.10.2011 for the assessment year 2008-09. 2. The relevant facts as culled out from the material on record are as under :- 2.1. Assessee is a foreign company which filed its return of income for A.Y.2008-09 on 30.09.2008 declaring total income of Rs.Nil. The cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded by the AO that license fee for the use of customized software received by the assessee from its affiliate concern partakes the nature of royalty within the meaning of Sec.9(1)(vi) of the I.T.Act, 1961 and within the meaning of Article 12 of DTAA between India and Sweden. He accordingly held the amount received by the assessee to be royalty and taxable at 10%. The draft order of AO was upheld by DRP by holding as under : a) First Ground of objection. 10. The submission of the assessee and the facts brought out by the Assessing Officer were / considered in detail by the Panel. The issue is whether the amount received by the assessee was royalty. There was no controversy about the arrangement that the assessee maintained an Enterprise Resource Planning (ERP) System, namely, SSCS and SSSS. The data was maintained in a central hub and was upgraded from time-to-time by the assessee. The data was essential to maintain the sales related data of the group in a central location to enable the Sandvik group devise appropriate marketing strategies by analyzing the market position of the group, devise strategies to develop new customers, make plans to retain the old customers, de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any services to be quantified as FTS under the Treaty, following 3 conditions are required to be cumulatively satisfied. i) Such services make available knowledge, experience, skill, know-how, processes or consist of the development and transfer of technical plan or design; ii) The service recipient is enable to make use of the technical knowledge for his own benefit and without recourse to the performer of the services in future; and iii) Such knowledge, experience, skill, know-how, processes are technical in nature. He therefore submitted that mere provision of services is not enough to attract Article 12. He further submitted that assessee is providing application development services for various IT-platforms. The services include project planning and control, system analysis, test and documentation. Services are performed both as new development and as maintenance and further development/enhancement. The software is made available to the related concerns for which the assessee receives periodic payments on actual usage of software. He further submitted that assessee is not into the trade of the software and the payment which were received by the assessee was not for selling t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent establishment in India and hence the said income is not taxable in India. The submission of the assessee of not having permanent establishment in India is not controverted by the Revenue. As per the agreement dated 01.01.2013 entered between the assessee and Sandvik Asia Private Limited the nature of services is as under: ABSS is providing application development services for various IT-platforms. The services include project planning and control, analysis, systems analysis, test and documentation. Services are performed both as new development and as maintenance and further development/enhancements. The Customer has the right to acquire development services. If not otherwise agreed the Customer is the owner of the acquired systems/performed development. The Customer is responsible for appointing a system owner who is responsible for seeing to that his applications have the required quality, security level, functionality, legal adherence and user instructions. The Customer/system owner is also responsible for seeing to that the established user instructions are followed. ABSSS is responsible for seeing to that the application development services acquired is mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. 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 licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere 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 either under the Income Tax Act or under the DTAA. 92. The licensees 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from 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 copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is quali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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