TMI Blog2019 (3) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... per definition of ‘royalty’ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of ‘royalty’. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of ‘royalty’ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled. Payment with regard to provision of IT support charges i.e. internet charges, use of e-mail charges, backup support services, etc. was held to be ‘royalty’ - HELD THAT:- The terms of DTAA between India and Australia and India and USA are similar and applying the said ratio to the facts of present case, we hold that the amount paid by assessee for internet charges, use of e-mail facility and backup support services is not ‘royalty’ under Article 12 of DTAA between India and USA and is also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer of technology and in the absence of same, it cannot be said to be payments in the nature of Fees for Technical Services. Applying the said ratio, we hold that there was no liability upon the assessee to deduct tax at source on the aforesaid payments and hence, assessee cannot be held to be in default under section 201(1) and 201(1A) Reimbursement of salary of expat employees - HELD THAT:- Where the Hon'ble Supreme Court has only dismissed SLP, then no ruling on principle being laid down by the Apex Court, the proposition laid down by the jurisdictional High Court of Bombay in MARKS & SPENCER RELIANCE INDIA PVT. LTD. [2017 (5) TMI 1638 - BOMBAY HIGH COURT] would rule. Accordingly, we further hold that the assessee having deducted tax at source out of salary paid to employees deputed, has not defaulted under section 201(1) / 201(1A) of the Act. The grounds of appeal of assessee allowed. - ITA Nos.905 & 906/PUN/2015, ITA Nos.907 & 908/PUN/2015 - - - Dated:- 23-1-2019 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Assessee : Shri Nikhil Pathak For the Revenue : S/Shri Ajay Modi, Pankaj Garg and Sudhendu Das ORDER PER SUSHMA CHOWLA, JM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant Company was not required to withhold tax u/s. 195 on above amounts; (b) the payment of lease line charges to Deere Co. USA were not covered under the definition of 'royalty' in Section 9(1)(vi) of the Act and hence, the assessee company was not required to deduct any TDS on the said payments. (c) the payment of lease line charges to Deere Co. USA was in the nature of reimbursement of expenses and no tax was deductible at source. 6] The learned CIT(A) erred in making an enhancement by holding that the appellant company ought to have deducted TDS on the charges on account of training and reimbursement of salary paid to Deere Co.USA without appreciating that the appellant company was not required to deduct any TDS on the above referred payments and accordingly, the enhancement made by the learned CIT(A) is not justified at all and the demand raised may kindly be deleted. 7] The learned CIT(A) erred in holding that the appellant company should have deducted TDS on the training fees paid to Deere Co. USA of ₹ 6,392,707/- on the ground that the same constituted fees for technical services under the Income Tax Act as well as under the DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.4 and 5 are against non deduction of TDS on lease line charges. The ground of appeal No.6 raised by assessee is against enhancement by the CIT(A) on payment made for training and reimbursement of salary paid and non deduction of TDS on the same. The grounds of appeal No.7 and 8 are against stand of authorities below that training fees were in the nature of fees for technical services and TDS provisions are applicable. The grounds of appeal No.9 to 12 are against payment for reimbursement of salary, on which TDS had to be deducted @ 30%, the CIT(A) calls it fees for technical services and TDS should have been deducted. The ground of appeal No.13 raised by assessee is without prejudice on the issue of grossing up. 5. The learned Authorized Representative for the assessee pointed out that John Deere India Pvt. Ltd. was engaged in software development services, IT support services, whereas John Deere Equipment Pvt. Ltd. was engaged in the manufacture of tractors and John Deere Equipment Pvt. Ltd. had merged with John Deere India Pvt. Ltd., so all the appeals were under the same name. 6. Briefly, in the facts of the case, the Assessing Officer received information that during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of technical plans or technical design. The Assessing Officer thus, held that services provided by assessee were made available to the users as per interpretation of the term make available as per MOU to India-USA DTAA for various reasons, which are enumerated at pages 9 to 11 of assessment order. Since in the present case, service provider had provided full range of IT services regarding SAP implementation, maintenance, project development, support, customization of softwares, etc., the Assessing Officer held the same to be technical services, which were used by assessee for its business purposes. He further noted that recipient was enabled to use technology which the provider had provided. He further held that service provider had made available the technology, knowledge, experience, skill to the recipient and the same was used by recipient to carry on its work on its own use and could be used in future, without recourse to the service provider. The Assessing Officer further held that the said knowledge, experience, skill made available was of enduring nature and had direct nexus with the business which the recipient was carrying on. Therefore, provision of above services by D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ientific work because the set of instructions which defined a computer programme enabled the computer to perform particular task or carry out particulars functions. The said task was not simple and involved lot of skill, time, labour and considerable experimentation. Therefore, computer software or a computer programme may be included under scientific work. The payment for right to use software was therefore, as per the Assessing Officer, in the nature of royalty and taxable as royalty as per clause (v) of Explanation 2 of section 9(1)(vi) of the Act. He, then referred to amendment made by Finance Act, 2012, which according to him, had clarified that right to use computer software, (including granting of license) was royalty . He referred to Explanation 4 under section 9(1)(vi) of the Act. He also referred to Memorandum to the Finance Bill, 2012 introducing the said amendment and held that in view of said Explanation the payment was in the nature of royalty and taxable as royalty under section 9(1)(vi) of the Act. The next view of the Assessing Officer was that computer programmes were copyrightable subject matter, just like any other literary work. However, copyright protec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de or the object code of software had been protected under the Copyright Act, the software could even qualify as secret formula or secret process and even by this meaning the payment received for granting software license came under the heading of royalty . The Assessing Officer thus, observed that character of above payments received for right to use software and for support services clearly was royalty as defined in Article 12 of the respective DTAA as well as Explanation 2 to section 9(1)(vi) of the Act. He then referred to various Circulars issued by CBDT regarding views of the Government of India on the issue of software license. He observed that the Legislative intent was to bring software under royalty provisions and then granting conditional exemption wherever necessary. He then observed that receipts on account of right to use software (license fee) and support services were in the n nature of royalty under the Act as well as DTAA with respective countries. He referred to various decisions of different Courts for the proposition that payments received for supply of software work were taxable as royalty . The Assessing Officer thus, held that payments received by fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbursement and such reimbursement of expenses was not liable to TDS. This contention of assessee was also not accepted by Assessing Officer as once the income was chargeable to tax as royalty or FTS under the DTAA, it was taxable on the gross basis and no deduction for the expenses incurred for the same were to be allowed. Further, the assessee had not submitted documentary evidence to prove that above mentioned payments were reimbursement at cost. Accordingly, assessee s contention in this regard was not accepted and the Assessing Officer held that the payments by assessee were in the nature of FTS / royalty within meaning of section 9(1)(vi) and 9(1)(vii) of the Act and also within meaning of Article 12 of DTAA between India and USA. The Assessing Officer thus, invoked provisions of section 195 of the Act for payment of license fees and held that the assessee was bound to deduct taxes before remitting the money to non-resident and by not deducting or withholding taxes, the assessee was in default in terms of sections 201(1) and 201(1A) of the Act and was thus, treated as assessee in default. The Assessing Officer observed that tax was to be deducted @ 15% as per DTAA and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct. The CIT(A) held that the assessee should have deducted tax at source on the payments made for reimbursement of payments made for acquiring software license. He thus, confirmed the demand and interest raised by the Assessing Officer in respect of said payments. 12. The next issue adjudicated was the payment for leased line charges. In this regard, he referred to the decision of the Hon ble High Court of Madras in the case of Verizone Communications Singapore Pte Ltd. Vs. DDIT (2013) 263 CTR (Mad) 497, wherein it was held that use of leased line was the use of equipment and hence, payment for use of leased circuit was taxable as royalty . The Hon ble High Court had further held that even if the payment was not treated as one for the use of equipment, it would be for the use of process provided, whereby through the assured bandwidth, the customer was guaranteed the transmission of data and voice. The provisions of DTAA dealing with royalty taxation were held to be pari materia with the Income Tax Act, hence, the payment was taxable both under the Income Tax Act and DTAA. The CIT(A) applying the said decision held that the payment made for the use of leased line charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which then debited the salary cost of deputed employees to the assessee company. These employees were covered by Secondment Agreement entered into between Deere Co. and assessee. The CIT(A) relied on the decision of the Hon ble High Court of Delhi in the case of Centrica India Offshore Pvt. Ltd. Vs. CIT [TS-237-HC-2014(Del)], wherein it was held that Secondment Agreement amounts to rendition of technical services. The Hon ble High Court had further held that secondees were regular employees of overseas entities and were seconded for a limited period of time to the assessee, but the assessee had a right to terminate the secondment; but it had no right to terminate the original and subsisting employment of the seconded employees. The Hon ble High Court held that when there was a provision of services, the quantum of payments made would not make any difference to taxability. The CIT(A) held that facts in the assessee s case were similar to the facts before the Hon ble High Court and where Deere Co. remains the legal employer of the expatriate employees, then it was case of provision of technical services through employees, which satisfied make available condition, hence the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to sample copy of Software License Agreement entered into by Deera Co. The said agreement is placed at pages 1 to 13 of factual Paper Book. The agreement was between Dakota Software Corporation, a New York Corporation (in short Dakota ) and Deere Company, under which Dakota being the owner of certain softwares and provider of services, had provided Deera Company, access and use software and services. As per clause 2.1, software and any user manuals or on-line help functions relating to the software could be used only by an authorized user. As per clause 2.2 it was clarified that there was no right to copy, modify the said software. Clause 4 further provides that no rights are conveyed while using software. He then referred to another agreement entered into by Deere Co. with Altair Engineering Inc., copy of which is placed at pages 14 to 17 of factual Paper Book and pointed out that as per clause 2, a limited, non-exclusive, non transferrable license was granted and as per clause 3, there were restrictions on use, installation, copy, modify, etc., except as expressly authorized in the agreement. As per clause 4, the ownership rights in patents, copyrights, trademarks, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and pointed out that what was decided by the Hon ble High Court of Delhi was difference between copyright and copyrighted article. He pointed out that sometimes a person can take backup of copyrighted article but that would not imply that person has acquired rights in such copyrighted articles. He then also pointed out that the Hon ble High Court of Delhi in para 98 has distinguished the ratio laid down by the the Hon ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra). 19. The learned Authorized Representative for the assessee then referred to the decision of the Hon ble High Court of Delhi in Pr.CIT Vs. M. Tech India (P.) Ltd. (2016) 67 taxmann.com 245 (Delhi), placed at pages 317 to 322 of legal compilation and also of Mumbai Bench of Tribunal in ADIT (IT) Vs. TII Team Telecom International (P) Ltd. (2011) 60 DTR 177 (Mumbai Trib.). The learned Authorized Representative for the assessee pointed out that Mumbai Bench of Tribunal has referred to DTAA between India and Israel, which are similarly worded as DTAA between India and USA and has held that the decision of Delhi Bench of Tribunal in Gracemac Corporation Vs. ADIT (2010) 42 SOT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta storage charges were not in the form of royalty . Our attention was drawn to the breakup of expenses which are placed at pages 164 and 165 of factual Paper Book. The learned Authorized Representative for the assessee pointed out that software charges paid of ₹ 4,22,73,399/- in assessment year 2007-08 have been held to be payment of royalty . Further, internet charges paid of ₹ 27,09,701/- have been held to be IT support services including service charges of ₹ 6,63,652/- and other charges like email, VPN charges and on-line meeting charges of ₹ 22,94,256/-. The learned Authorized Representative for the assessee pointed out that the amounts paid at best were mere reimbursement of expenses incurred by associated enterprise and it was definitely not royalty and / or fees for technical services. 21. Coming to the next issue raised vide grounds of appeal No.4 and 5 i.e. deduction of tax at source on leased line charges, the learned Authorized Representative for the assessee pointed out that there were leased lines established between Pune office of assessee and US entity office. He pointed out that both the authorities below had relied on the ratio laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013) 35 taxmann.com 577 (Ahmedabad Trib.). In this regard, he pointed out that when it is case of general training without any transfer of technical knowledge, then it is not fees for included services and hence, is not liable for tax deduction at source. 24. Coming to the grounds of appeal No.9 to 12, the learned Authorized Representative for the assessee pointed out that the CIT(A) had held the assessee liable for tax deduction at source out of salary paid to expats. He pointed out that associated enterprise deputed certain employees from USA to India to work as normal employees of Indian concern. However, salary was paid to Deere Co., USA and TDS was deducted and deposited. He referred to the order of CIT(A) and in paras 3.2 to 3.7, the CIT(A) was of the view that it was fees for technical services and hence enhancement notice was given to the assessee in this regard. The learned Authorized Representative for the assessee stressed that the same cannot be charged twice as they were working as employees and not imparting any technical knowledge to a concern in India; hence it cannot be called as fees for technical services. It was also stressed by him that in case tax was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as placed on the ratio laid down by Mumbai Bench of Tribunal in ADIT Vs. M/s. Mark Spencer Reliance India P. Ltd. in ITA No.905/M/2012, relating to assessment year 2010-11, order dated 04.09.2013. Referring to the facts of said case, the learned Authorized Representative for the assessee pointed out that assessee was Joint Venture Co. between Marks Spencer PLC and Reliance Retail Ltd. and it was case of initial phase, wherein four personnel were deputed on salary basis. Since no technical services were made available, it was held to be a not case of fees for technical services. The learned Authorized Representative for the assessee pointed out that the Hon ble Bombay High Court had upheld the said order of Tribunal. The learned Authorized Representative for the assessee stressed that there was mere deputation of personnel to render day-to-day operations and no technical service was provided to the staff or no technical services were availed and / or no technical services were provided to the assessee. On the other hand, out of salary paid, TDS was deducted @ 30% and even it is held to be a case of providing services, then also there was no default as same rate of tax withhol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed provisions of the Act, the said payment was duly covered. He then made reference to different agreements entered into by Deere Co. and pointed to different facets of agreement, which were entered for the use of software. The first agreement is placed at pages 1 to 6 of Paper Book i.e. between Dakota Software Corporation and Deere Co. He pointed out that software may be used only by the authorized user and then referred to the definition of authorized user at page 7 of Paper Book. He then referred to agreement between Altair Engineering Inc. and Deere Co. at page 14 onwards of Paper Book and pointed out that contention of learned Authorized Representative for the assessee was that it was non-exclusive license. However, whether license was exclusive or non-exclusive, it can make the same to be case of royalty . He referred to Explanation 2(v) under section 9(1)(vi) of the Act and pointed out that if exclusive rights were sold, then it was not royalty . In this regard, reliance was placed on the decision of Hon ble High Court of Calcutta in CIT Vs. Davy Ashmore India Ltd. (1991) 190 ITR 626 (Cal), wherein it is held that where transferee retains the property rights in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... New Delhi in the case of SkillSoft Ireland Ltd., In re_* (2015) 62 taxmann.com 304 (AAR New Delhi), placed at pages 109 to 112 of legal compilation filed by learned Departmental Representative for the Revenue. He pointed out that the said decision is dated 20.07.2015 i.e. after decision of the Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra). The learned Departmental Representative for the Revenue stressed that case of DIT Vs. Infrasoft Ltd. (supra) was also referred before the AAR. He further pointed out that next aspect is whether it is off the shelf and shrink RAP software purchased by assessee or not. He pointed out that simply because the assessee had entered into elaborate agreement, it cannot be case of off the shelf or shrink RAP software. In this regard, he placed reliance on the decision of the Hon ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra). Meeting next contention of learned Authorized Representative for the assessee that software was utilized for its own use and not for copying and selling or sub-leasing, he referred to the ratio laid down by the Hon ble High Court of Karnataka in the case of CIT Vs. Synopsis I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). Our attention was drawn to para 31 and he fairly admitted that AAR has not dealt with the ratio laid down in DIT Vs. Infrasoft Ltd. (supra), but has decided the issue otherwise and it implies that the said decision has been taken into account. He further stressed that the facts in the case of EY Global Services Ltd. (supra) and the facts of present assessee were similar, wherein standard facility was created. 31. The learned Departmental Representative for the Revenue also placed reliance on the decision of AAR in the case of SkillSoft Ireland Ltd., In re_* (supra) with special reference to para 26, which talks of copyright versus copyrighted article. He pointed out that in DIT Vs. Infrasoft Ltd. (supra) at page 29, the phrase used is copyright rights, which is not there anywhere in the Act. He also referred to the reliance placed upon by learned Authorized Representative for the assessee in Allianz SE Vs. ADIT (IT) (supra), which in turn, had relied on the decision of the Hon ble High Court of Delhi in DIT Vs. Ericsson A.B. New Delhi (supra) and pointed out that in the facts of the said case, the purchase was of hardware and software and also the said concern had PE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. He then pointed out that if it is literary work, then use of copyright is there, so provisions of section would apply since expression used is in respect of which is very broad term. He concluded by holding that since in such scenario it was incumbent upon the assessee to deduct tax at source and in the absence of the same, the assessee had defaulted and was liable for charging of tax under section 201(1) of the Act and interest under section 201(1A) of the Act. 34. Coming to the next issue of IT support services, the learned Departmental Representative for the Revenue referred to the breakup of expenses provided at page 164 of Paper Book. He then referred to DTAA between USA and India with special reference to Article 12(4)(a) and pointed out that it is not known whether IT support services are royalty or for enjoyment, in case it is for enjoyment, then Article 12(4)(a) and not Article 12(4)(b) is applicable. He admitted that there is no question of make available and reliance placed upon the learned Authorized Representative for the assessee in this regard was misplaced. 35. Coming to the next issue of leased line charges, he referred to the order of Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorized Representative for the assessee pointed out that the said issue was squarely covered by the decision of the Hon ble High Court of Delhi in Centrica India Offshore Pvt. Ltd. Vs. CIT (supra) which has been affirmed by the Hon'ble Supreme Court in (2014) 51 taxmann.com 386 (SC). In the facts of said case, the assessee and Indian company had entered into Secondment Agreement with overseas companies and sought employees on Secondment and the Hon ble High Court had held that since the employees of those companies used their technical knowledge and skill while assisting the assessee in conducting its business of quality control and management, it amounts to reimbursement by assessee to overseas companies towards salaries of 300 employees and amounted to fees for technical services and liable to tax in India. He also pointed out that the facts of present case are also identical to the facts before the Bangalore Bench of Tribunal in Flughafen Zurich, AG Vs. DDIT (2017) 79 taxmann.com 199 (Bangalore Trib.) and in the case of Secondment of skilled personnel for rendering services, amount received was taxable in the hands of overseas company and he stated that in such scenario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Revenue has not made any proposition. In respect of order of the Hon'ble Supreme Court in Centrica India Offshore Pvt. Ltd. Vs. CIT (supra), he pointed out that the Hon'ble Supreme Court had only dismissed the SLP. He further stated that it is settled law, that, when SLP has been dismissed, it is not law of the land. In this regard, he placed reliance on the ratio laid down by the Hon'ble Supreme Court in V.M. Salgaocar Bros. (P.) Ltd. Vs. CIT (2000) 243 ITR 383 (SC) and Palam Gas Service Vs. CIT (2017) 81 taxmann.com 43 (SC). He then stressed that the Hon'ble Supreme Court in the case of Centrica India Offshore Pvt. Ltd. Vs. CIT (supra), no ruling on principle has been laid down by the Hon'ble Supreme Court. He further pointed out that factually Centrica India Offshore Pvt. Ltd. was formed and various ventures /vendors were also formed, who had to be supported, so expats trained vendors were deputed and hence these payments to expats. He stressed that facts were absolutely different. On the other hand, he again relied on the decision of Ahmedabad Bench of Tribunal in the case of Burt Hill Design (P.) Ltd. (supra) and Mumbai Bench of Tribunal in ADIT Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngapore Pte Ltd. Vs. DDIT (supra), which has been taken care by the Pune Bench of Tribunal in M/s. T-3 Energy Services India Pvt. Ltd. Vs. JCIT (supra). 43. Coming to the last issue of royalty on software, he pointed out that there was decision by the Hon ble High Court of Delhi and there is decision by the Hon ble High Court of Karnataka and both have different views. The learned Departmental Representative for the Revenue placed reliance on the decision of Hon ble High Court of Delhi in Pr. CIT Vs. M.Tech India (P.) Ltd. (supra) and pointed out that the issue is decided against assessee, though the learned Authorized Representative for the assessee had also relied upon the same. He pointed out that the learned Departmental Representative for the Revenue has referred to only two lines in para 12, wherein it was observed that in case of right to use software, payment if so made, would amount to royalty ; but entire para 12 of the said decision has to be read. The Hon ble High Court has clarified later that it was necessary to make distinction between cases where the consideration is paid to acquire right to use patent or copyright and cases where payment is made to acquire pate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no interest, so even for CTR CD, the same principle applies and hence, the contention of learned Departmental Representative for the Revenue in this regard fails. He stressed that how tally CD programme is developed was not concern of the person purchasing the said CD. It is only use / application which is of interest to the user. The object code is provided but same is only for translating the software into readable product. The source code was needed to the person operating it. The learned Authorized Representative for the assessee in this regard placed heavy reliance on the decision of Mumbai Bench of Tribunal in ADIT (IT) Vs. TII Team Telecom International (P) Ltd. (supra) and pointed out that while dealing with DTAA between India and Israel on identical facts, the issue has been considered in paras 15 to 17 of the said decision. He stressed that by grant of non exclusive license, no exclusive rights over the product were given to the assessee. He countered the contention of learned Departmental Representative for the Revenue that if it is handing over of exclusive rights, then it is case of business or capital gain but all the decisions of various Benches of Tribunal hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany has defaulted as provided in sub-section (1), then he is liable to pay simple interest for the period of default in addition to the demand raised under sub section (1). The authorities below have held the assessee to have defaulted in not deducting the tax at source and has raised demand under section 201(1) and interest under section 201(1A) of the Act. 48. With regard to grounds of appeal No.1 to 3, the case of authorities below was based on the amended provisions of section 9(1)(vi) of the Act, wherein Explanation has been inserted with retrospective effect, whereas the learned Departmental Representative for the Revenue has made submissions that even in the pre-amended provisions of the Act, payments made by assessee were akin to royalty or fees for technical services and were amenable to tax deduction at source. The case of assessee is multi-fold; first is that it is not royalty or fees for technical services and no technology has been made available and at best, it is case of reimbursement against some payments and hence provisions of section 9(1)(vi) or its amended provisions are not applicable. Secondly, even if you hold that the same is royalty, then provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India30 or for the purposes of making or earning any income from any source in India: 50. Clause (vi) of section 9(1) of the Act talks about income by way of royalty payable the Government; or (b) a person who is a resident; or (c) a person who is a non-resident. The proviso lays down that the provisions of clause (vi) would not apply if the payment was made in pursuance to an agreement made before first day of April, 1976 and the agreement was approved by the Central Government. 51. The term royalty is defined as per Explanation (2) under section 9(1) of the Act which reads as under:- Explanation 2.-For the purposes of this clause, royalty means consideration (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6.-For the removal of doubts, it is hereby clarified that the expression process includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. 55. The case of Revenue is that payment made by the assessee is for use of software and amounts to payment of royalty, in view of the amendment made by the Finance Act, 2012 with retrospective effect from 01.06.1976. The case of the learned Departmental Representative for the Revenue before us has enlarged the meaning of royalty and stated that even if we do not look at the retrospective amendment by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) had rejected the claim of assessee in turn, relying on the ratio laid down by Pune Bench of Tribunal in Cummins Inc Vs. DCIT (2014) 146 ITD 460 (Pune), order dated 08.08.2013 and also on the ratio laid down by Mumbai Bench of Tribunal in DDIT Vs. Reliance Infocom Ltd. (supra), order dated 06.09.2013. Vide order dated 06.12.2017 in MA Nos.28 29/PUN/2017, relating to assessment years 2004-05 2006-07 in the case of Cummins Inc Vs. ACIT, Tribunal has held that there was a mistake apparent from record in the order of Tribunal, which needs to be rectified, wherein the Tribunal in its order had failed to consider the decision of Co-ordinate Bench in the case of Allianz SE Vs. ADIT (2012) 51 SOT 399 (Pune) and also the decision of Hon ble High Court of Delhi in DIT Vs. Ericsson A.B. two others (2012) 343 ITR 470 (Del). Thus, the Tribunal vide order dated 06.12.2017 has recalled its order in Cummins Inc. (supra). It may also be noted that Mumbai Bench of Tribunal in bunch of Miscellaneous Applications had also recalled its order in DIT Vs. Reliance Infocom Ltd. / Lucent Technologies Hindustan Ltd., against which the Revenue filed Writ Petition before the Hon ble Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse, distribute, sub-license or rent to any third party any portion of software or documentation. Clause 2.2.5 clearly provides that except authorized user, information would not be disclosed, permitted access to, or make available to any third party other than an authorized user, any portion of software or the documentation or in particular, do not allow any party to use the software. In order to provide services outside the scope of statement of work, by clause 2.2.6, export the software in violation of any US Department of Commerce, Export Administration Regulations or other laws or regulations. Under the confidential information as referred in clause (3), during the term of agreement, each party undertook to treat confidentially any document or other information which had been provided to it and designated in writing as confidential information by the other party. The said clause also provided that the terms and conditions of this agreement and any statement of work hereunder constitute confidential information of both parties and the software and documentation constitutes confidential information of Dakota Software Corporation. Under clause (4), it is specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot to be done; first being not to copy, modify or create derivative works based upon software / documentation, hack, illegally gain access to, or reverse engineer the software in whole or in part or admit to do so. Then clause 2.2.3 prohibits and provides defeat, disable or circumvent any protection mechanism related to the software, including, without limitation any code which necessitates or solicits agreement to End User License before use of software or attempt to do so. It is further provided by clause 2.2.4 that Deere Co. is not to sell, lease, license, distribute, sub-license or rent to any third party any portion of the software or the documentation. Then, it is provided that unless authorized in writing, the Deere Co. was not to disclose, permit access to, or make available to any third party other than the authorized user, any portion of software or the documentation, which was further clarified as not to allow any party to use software in order to provide services outside the scope of statement of works; or export the software in violation of any US Department of Commerce, Export Administration Regulations or other Laws or Regulations. As per clause 4, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air or its suppliers. Then, there is confidentiality clause, under which is agreed upon between the parties beside other terms of the said agreement. It is specified in the confidentiality clause that licensee acknowledges that all applicability rights in patents, copyrights, trademarks, service marks and trade secrets embedded in the products are owned by Altair and / or its suppliers. The licensee further acknowledges that the products and all copies thereof, shall remain sole and exclusive property of Altair and / or its suppliers. 63. Similarly, Deere Co. had entered into an agreement with another concern ANSYS, Inc. and the terms of said agreement were similar as to the other agreements. As per clause 3.2, it was provided that the license grants no title or rights of ownership, copyright or any other intellectual property right in or related to the products though under the license, it was permitted for making reasonable number of copies for internal backup, archival, disaster recovery and security purposes. The licensee was also permitted to install and use the products for installation testing, disaster recovery testing, disaster recovery, internal classes and traini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of definition of royalty under Article 12(3) of DTAA. 65. The Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) have noted that under the license agreement, license was non-exclusive, non-transferrable and the software had to be used in accordance with agreement; the licensee was permitted to make only one copy of software and associated support information and that also for backup purpose. All copies of software were the exclusive property of Infrasoft and it was stipulated that copy shall include Infrasoft copyright and all copies of software also; and without consent of the licensor, the software could not be loaned, rented, sold, sub-licensed or transferred to any third party. The Hon ble High Court further went on to hold that distinction had to be made between acquisition of copyright and copyrighted article; copyrighting was distinct from material object. 66. The Hon ble High Court in DIT Vs. Infrasoft Ltd. (supra) vide its decision dated 22.11.2013 was of the view that where the assessee was governed by Indo US DTAA, the income of assessee would be chargeable to tax in terms of provisions of Indo-US DTAA and if the same was more advantageo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Clauses (a) and (b) of Section 14, it would mean that it does not have any right in a copyright. In that case, the payment made by the cellular operator cannot be characterized as royalty either under the Income-tax Act or under the DTAA. The question, therefore, to be answered is whether any of the operators can exercise any of the rights mentioned in the above provisions with reference to the software supplied by the Assessee. 157. We may first look at the supply contract itself to find out what JTM, one of the cellular operators, can rightfully do with reference to the software. We may remind ourselves that JTM is taken as a representative of all the cellular operators and that it was common ground before us that all the contracts with the cellular operators are substantially the same. Clause 20.1 of the Agreement, under the title License , says that JTM is granted a non - exclusive restricted license to use the software and documentation but only for its own operation and maintenance of the system and not otherwise. This clause appears to militate against the position, if it were a copyright, that the holder of the copyright can do anything with respect to the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session. (e) Not use or transfer the Software and/or the Documentation outside India without the written consent of the Contractor and after having received necessary export or re -export permits from relevant authorities. This clause places stringent restrictions on the cellular operator so far as the use of software is concerned. It first says that the cellular operator cannot make the software or portions thereof available to any person except to its employees and even with regard to employees it has to be only on a need to know basis which means that even the employees are not to be told in all its aspects. What the Assessee can do is only to tell the particular employee what he has to know about the software for operational purposes. The cellular operator has been denied the right to make copies of the software or parts thereof except for archival backup purposes. This means that the cellular operator cannot make copies of the software for commercial purposes. This condition is plainly contrary to Section 14(a)(i) of the Copyright Act which permits the copyright holder to reproduce the work in any material form including the storing of it in any medium by electroni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. The purchaser of a book on income-tax acquires only a copyrighted article. On the other hand, a recording company which has recorded a vocalist has acquired the copyright in the music rendered and is, therefore, permitted to exploit the recording commercially. In this case the music recording company has not merely acquired a copyrighted article in the form of a recording, but has actually acquired a copyright to reproduce the music and exploit the same commercially. In the present case what JTM or any other cellular operator has acquired under the supply contract is only the copyrighted software, which is an article by itself and not any copyright therein. 163. We may now briefly deal with the objections of Mr. G.C. Sharma, the learned senior counsel for the Department. He contended that if a person owns a copyrighted article then he automatically has a right over the copyright also. With respect, this objection does not appear to us to be correct. Mr. Dastur filed an extract from Iyengar's Copyright Act (3rd Edition) edited by R.G. Chaturvedi. The following observations of the author are on the point: (h) Copyright is distinct from the material object, copyright ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in relation to the copyright are limited to those necessary to enable the user to operate the program, for example, where the transferee is granted limited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user's computer hard drive or for archival purposes. In this context, it is important to note that the protection afforded in relation to computer programs under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer program. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution to the public by sale or other transfer of ownership, or by rental, lease, or lending. (ii) The right to prepare derivative computer programmes based upon the copyrighted computer programme (iii) The right to make a public performance of the computer programme. (iv) The right to publically display the computer programme. 169. A copyrighted article has been defined in the regulation (page 147 of the paper book) as including a copy of a computer programme from which the work can be perceived, reproduced or otherwise communicated either directly or with the aid of a machine or device. The copy of the programme may be fixed in the magnetic medium of a floppy disc or in the main memory or hard drive of a computer or in any other medium. 170. So far as the transfer of copyrighted articles and copyright rights are concerned, the regulation goes on to say (page 148 of the paper book) that the question whether there was a transfer of a copyright right or only of a copyrighted article must be determined taking into account all the facts and circumstances of the case and the benefits and burden of ownership which have been transferred. Several examples have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave elaborated on the four rights being:- (i) The right to make copies of the computer programme for purposes of distribution to the public by sale or other transfer of ownership, or by rental, lease, or lending. (ii) The right to prepare derivative computer programmes based upon the copyrighted computer programme (iii) The right to make a public performance of the computer programme. (iv) The right to publically display the computer programme. 69. The judgment has to be read as a whole and it is not desirable to pick up one word and point out the defects because the word has to been seen in the context and if we look at the context, then the Hon ble High Court very clearly decided whether in the given case, person had got copyrighted articles and no copyright right in the said articles. 70. The Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) then refers to the decision of the Hon ble High Court of Delhi itself in DIT Vs. Ericsson A.B. (2012) 343 ITR 470 (Del), wherein it was held that once it is held that payment in question is not royalty which would come within the mischief of clause (vi), the Explanation will have no application and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival 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 purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 72. The Hon ble High Court then referred to the decision of the Hon ble High Court of Karnataka in CIT Vs. Samsung Electronics Co. Ltd. (supra) and distinguished the same holding as under:- 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are patented or copyrighted, the consideration paid would have to be treated as a payment for purchase of the product rather than consideration for use of the patent or copyright. 74. The Hon ble High Court has thus, made distinction between the cases where consideration is paid to acquire right to use, patent or copyright and cases where payment is made to acquire patented or copyrighted products / material and has held that where the payment is made to acquire products which are patented or copyrighted, consideration paid would have to be treated as payment for purchase of product rather than consideration for use of patent or copyright. In para 13, the Hon ble High Court in Pr.CIT Vs. M.Tech India (P) Ltd. (supra) refers to earlier decision of Coordinate Bench of the Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) and also refers to the reliance placed upon by the Revenue on the decision of the Hon ble High Court of Karnataka in CIT Vs. Samsung Electronics Co. Ltd. (supra) and holds that the Bench in DIT Vs. Infrasoft Ltd. (supra) has unequivocally expressed its view that it was not in agreement with that decision. The question was thus, decided holding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, this has not been established. It is not even the case of the Revenue that any right contemplated under section 14 of the Copyright Act, 1957, stood vested in this cellular operator as a consequence of article 20 of the supply contract. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . 60. Mr. Dastur is right in this submission which is based on the commentary on the OECD Model Convention. Such a distinction has been accepted in a recent ruling of the Authority for Advance Ruling (AAR) in Dassault Systems KK 229 CTR 125. We also find force in the submission of Mr. Dastur that even assuming the payment made by the cellular operator is regarded as a payment by way of royalty as defined in Explanation 2 below Section 9 (1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13, para 3 of the DTAA. This is so because the definition in the DTAA is narrower than the definition in the Act. Article 13(3) brings within the ambit of the definition of royalty a payment made for the use of or the right to use a copyright of a literary work. Therefore, what is contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular argument is raised later. 82. In such scenario, the proposition laid down by AAR is not binding for deciding the issue raised before us especially where the issue has been elaborately decided by the Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra). The learned Departmental Representative for the Revenue pointed out that the said decision of the Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) was also referred before AAR but while deciding the issue, no cognizance of the said decision has been taken by AAR. Before the Hon ble High Court of Delhi in DCIT Vs. M.Tech India (P) Ltd. (supra), the Senior Counsel for Revenue had placed reliance on SkillSoft Ireland Ltd., In re_* (supra); but the Hon ble High Court relied on DIT Vs. Infrasoft Ltd. (supra) for the proposition that what was transferred was not copyright or right to use copyright but limited right to use copyrighted material and that did not give rise to any royalty income, rejecting case of Revenue to tax the receipts on sale of licensing of certain software as royalty . The learned Departmental Representative for the Revenue has also placed reliance on the decision of AAR in the case of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o referred to the decision of the Hon ble High Court of Karnataka in the case of CIT Vs. Synopsis International Old Ltd. (supra) for the proposition that storage in computer was copyright. He further placed reliance on the decision in the case of Gracemac Corporation Vs. ADIT (supra) for this proposition. We find no merit in the objections raised by the learned Departmental Representative for the Revenue. First of all, reliance placed upon by the learned Departmental Representative for the Revenue for the said proposition especially where the Hon ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) has decided the issue and as far as the Delhi Bench of Tribunal in Gracemac Corporation Vs. ADIT (supra) is concerned, then the jurisdictional High Court has held otherwise and the said proposition is to be applied. The decision of the Hon ble High Court of Karnataka in the case of CIT Vs. Synopsis International Old Ltd. (supra) is on the same basis as in the case of the Hon ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra) which has been overruled by the Hon ble High Court of Delhi in a later decision in DIT Vs. Infrasoft Ltd. (supra). 85. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The exclusive rights to do or authorize the doing of certain acts as mentioned in clause (a) and clause (b) of section 14 vests in the owner of the work such as to reproduce the work, to issue copies, to make translation or adaptation, to sell or give on commercial rental in respect of a work. The internal use of the work for the purpose it has been purchased does not constitute right to use the copy right in work. A combined reading of clause-3 and clause-8 of the Agreement dated 15.12.2008 between the appellant and NPL, clearly shows that the Appellant had only a right to use the computer software and did not have right to use copyright in the computer software. In other words none of the rights as is envisaged under Sec.14(a) or (b) of the Copyright Act, 1957 was conveyed by the agreement dated 15.12.2008. Therefore the payment in question made by the Assessee to NPL cannot be regarded as ―Royalty . As we have already observed the Act does not specifically include ―computer software in the term ―literary work and under such circumstances, if we apply the provisions of Act to define the scope of ―Literary Work , then perhaps the ―computer software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gram is nothing but a set of instruction lying in the passive state and this execution of instructions is a process or a series of processes . No doubt, in terms of the provisions of s. 2(ffc) of the Indian Copyright Act, 1957, a computer program, i.e. software, has been defined as 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 , but the moot question is as to what is that a customer pays for when he buys, or to put it in technical terms obtains licence to use the software-for the process of executing the instructions in the software, or for the results achieved on account of use of the software. To draw an analogy, it is akin to a situation in which a person hires a vehicle, and the question could be as to what does he pay for-for the use of the technical know-how on the basis of which vehicle operates, or for the use of a product which carries passengers or goods from one place to another. The answer is obvious. When you pay for use of vehicle, you actually pay for a product which carries the passengers or goods from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analogous to that of less general. This principle of interpretation of statutes, in our considered view, holds equally good for interpretation of a treaty provision. Explaining this principle in more general terms, a very distinguished former colleague of ours Hon ble Shri M.K. Chaturvedi, had, in an article Interpretation of Taxing Statutes (AIFTP Journal: Vol. 4 No. 7, July, 2002, at p. 7), put it in his inimitable words as follows : Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretation are also based on commonsense approach. Suppose a man tells his wife to go out and buy bread, milk or anything else she needs, he will not normally be understood to include in the terms anything else she needs a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader vers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f royalty. In the facts before the Hon ble High Court, the assessee was a company incorporated in Thailand, which was engaged in the business of providing digital broadcasting services as well as consultancy services to its customers, who consist of both Residents and Non-residents. The services were provided through satellites and the assessee had derived income from lease of transponders of its satellites. The assessee therein was the service provider and the receipts were sought to be taxed under section 9(1)(vi) of the Act. The Hon ble High Court considered the preamended and post-amended provisions of the said section and observed that though the Revenue authorities considered the income from data transmission services as taxable as royalty under section 9(1)(vi) of the Act; however, the Tribunal on the basis of ratio laid down in Asia Satellite Telecommunications Co. Ltd. Vs. DIT (supra) did not. The Hon ble High Court in that case had held that receipts earned from providing data transmission services through provision of space segment capacity on satellites did not constitute royalty within the meaning of section 9(1)(vi) of the Act. It was further held that while providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 9(1)(vi) of the Act indeed was clarificatory as the Revenue suggested or prospective, give what its nature may truly be. The Hon ble High Court further commented that the issue of taxability of income of assessee may be resolved without redressal of above question purely because the assessee did not press the said line of argument and had instead stated that ultimate taxability of income shall rest on the interpretation of terms of DTAA. The Hon ble High Court vide para 39 onwards then took note of Article 12 of the DTAA, under which the State of Residence had the primary right to tax royalty; the Source State shall concurrently have the right to tax the income, to the extent of 15% of total income. The Hon ble High Court also observed that before the amendment brought about by the Finance Act, 2012, the definition of royalty under the Act and DTAA were treated as pari materia. Again reference was made to the ratio laid down in Asia Satellite Telecommunications Co. Ltd. Vs. DIT (supra) and observed that the question was whether in an attempt to interpret the two definitions uniformly i.e. domestic definition and the treaty definition, the amendments will have to be read into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a double taxation avoidance agreement, unless the said double taxation avoidance agreement are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no double taxation avoidance agreement. 19. The above judgment was delivered by the Hon ble High Court on 08.02.2016. 89. Applying the said proposition, the Tribunal in M/s. Tata Technologies Ltd. Vs. DDIT (IT)(supra) had decided the issue of governance under DTAA between two countries and in the absence of any amendment to the definition of royalty in the said DTAA, whether the assessee could be held to be in default in non deduction of tax at source out of payments made on account of payments made to Non-resident entities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO (supra). The learned Authorized Representative for the assessee in this regard, pointed out that the Hon ble High Court of Madras analyzed the applicability of Explanations 5 and 6 to section 9(1)(vi) of the Act. However, the applicability of Explanation 4 to section 9(1)(vi) of the Act was not before the Hon ble High Court of Madras. Further, the clarificatory nature of amendment to section 9(1)(vi) of the Act was neither questioned nor decided, but was applied to assessment year pre-dating the amendment. However, reliance was placed on the decision of the Hon ble High Court of Delhi in DIT Vs. New Skies Satellite BV (supra), wherein it was held that the amendment to section 9(1)(vi) of the Act by insertion of Explanation 4 would not have any effect on the interpretation of the term royalty under the respective DTAAs. 26. We have already adjudicated similar issue in the case of M/s. T-3 Energy Services India Pvt. Ltd. Vs. JCIT in ITA No.826/PUN/2015, relating to assessment year 2010-11, order dated 02.02.2018 and held as under:- 16. The second connected issue is whether such payments made to associated enterprise for the lease line charges are royalty or FTS a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra) could not stand because the basis of that ruling had been undone. The second proposition which was raised was whether DTAA applied and resulted rendering activity non taxable was also argued by the Revenue would not arise, since the DTAA predated the amendment. The Counsel for the assessee therein however, contended that the matter was no longer res integra. It was argued that the Revenue could not contend that any change in the substantive law would automatically result any like change in respect of taxability of transaction or service which was otherwise taxed in terms of DTAA, or which was subject to lower rate of tax mandated by a treaty. Reliance in this regard was placed on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (2009) 310 ITR 320 (Bom) and the Hon ble High Court of Andhra Pradesh in Sanofi Pasteur Holding SA Vs. Dept. of Revenue and Others (2013) 354 ITR 316 (AP). Reliance was also placed on the ratio laid down by the Hon ble High Court of Delhi in DIT Vs. Nokia Networks OY (2013) 358 ITR 259 (Del), wherein the context was the efficacy of interpretation given to Statute i.e. Explanation inserted to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loying interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this court, indefensible. 18. Referring to the decision of Apex Court in Union of India Vs. Azadi Bachao Andolan Arn. (2003) 263 ITR 706 (SC) and The Vienna Convention on the Law of Treaties, 1969, the Hon ble High Court held the amendments to a treaty must be brought about by an agreement between the parties. Unilateral amendments to treaties are therefore, categorically prohibited. The Hon ble High Court held that the words in the treaty would be controlled by definition of those words in the treaty, if they are so provided. In case they are not provided, then the domestic law shall mandatorily supply the import to be given to the word in question. The Hon ble High Court concluded by holding that the amendments to domestic law cannot be read into treaty provisions without amending the treaty itself. It was thus, held that mere amendment to section 9(1)(vi) of the Act could not result in a change and it was imperative that such amendment was brought about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. We hold that the same need not to be gone into since the issue otherwise stands decided in favour of assessee. The Hon ble High Court of Delhi in DIT Vs. New Skies Satellite BV Ors. (supra) have held that even though the term royalty as used in section 9(1)(vi) of the Act has been amended by introducing Explanation retrospectively, but in view of no change in the definition of royalty in DTAA, the beneficial provisions of DTAA would apply. The amendment made under the Act does not affect the terms of DTAA unless and until the same is amended by two Contracting States. 27. In the present case before us the Assessing Officer has held that the payment made by the assessee was royalty as per definition of royalty under the DTAA also. We find no merit in the said stand of Assessing Officer, in view of the issue being so held in DIT Vs. Infrasoft Ltd. (supra). We further hold that payment made for purchase of software was not royalty as per definition of royalty under the DTAA between India and USA, Germany and Singapore, since the term royalty under the DTAA with these different countries had not been amended. Even if the definition of royalty under the Act stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t once a term has been defined in DTAA, then the said term is to be applied unless and until the parties to the DTAA amend the same. The Hon ble High Court of Delhi in DIT Vs. Nokia Networks OY (supra) had applied the proposition laid down by the Hon ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (supra) and held that the amendments could not be read into the treaty. Unilateral amendment by the Indian Government to the term royalty by way of amendment to section 9(1)(vi) of the Act cannot be extended to the meaning of the term royalty defined under DTAA. 30. Applying the principle laid down by the Hon ble High Court of Delhi in DIT Vs. New Skies Satellite BV (supra), we hold that where the provisions of DTAA overrides the provisions of Income-tax Act being beneficial and the definition of royalty having not undergone any amendment in DTAA, the assessee was not liable to withhold tax on the payments made for purchase of software. The amended provisions of section 9(1)(vi) of the Act brought into force by the Finance Act, 2012 are applicable to domestic laws and the said amended definition cannot be extended to DTAA, where the term royalty had been defined o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty would amount to royalty . First of all, we hold that the aforesaid payments of IT support services, support charges are not in the realm of royalty as no technology was made available to the assessee. It is service provided to the assessee by associate entity in USA and there is no merit in holding that the assessee was liable to deduct tax at source out of such payments to its associated enterprises. In this regard, we find support from the ratio laid down by the Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra), by Ahmedabad Bench of Tribunal in DCIT Vs. Bombardier Transportation India (P.) Ltd. (supra) and also on the ratio laid down by Chennai Bench of Tribunal in ACIT Vs. Vishwak Solutions (P.) Ltd. (supra), wherein it has been held that payments made for data storage charges were not in the realm of royalty . The Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra), wherein agreement existed for providing backup services and IT support services and the Non-resident company receives payment thereof, since no technical knowledge had been made available to the Indian subsidiary, then such services rendered by Non-resident company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or internet charges, use of e-mail facility and backup support services is not royalty under Article 12 of DTAA between India and USA and is also not royalty under section 9(1)(vi) of the Act. 93. The assessee has filed breakup of expenses at pages 164 and 165 of factual Paper Book. Accordingly, we hold that internet charges paid of ₹ 27,09,701/-, line charges of ₹ 39,87,960/-, service charges of ₹ 6,63,652/- and other charges i.e. VPN charges, online meeting charges, etc. of ₹ 22,94,256/- are not payment of royalty and are not even for make available of any technical services and hence, there was no requirement to deduct tax at source out of such payments. In the said breakup, the assessee has also pointed out that software charges paid were to the tune of ₹ 4,22,73,399/-, which we have already held in the paras hereinabove, not liable for deduction of tax at source. 94. Before parting, we may also again point out that the order of CIT(A) needs to be reversed as it has placed reliance on the decision of Pune Bench of Tribunal in the case of Cummins Inc (supra), which has been recalled by Miscellaneous Application and there is no basis for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s- -vis royalty and also the amendment in the Income Tax Act widening the scope of royalty. 97. The learned Departmental Representative for the Revenue has pointed out that the issue raised in the present appeal is case of equipment royalty which is squarely covered by order of the Hon ble High Court of Madras in the case of Verizone Communications Singapore Pte Ltd. Vs. DDIT (supra). 98. We find that objections raised by the learned Departmental Representative for the Revenue are not fully correct. The Assessing Officer had held it to be a case of both equipment and process royalty. As far as the issue of process royalty is concerned, admittedly, the issue stands covered by the ratio laid down by the Tribunal in M/s. T-3 Energy Services India Pvt. Ltd. Vs. JCIT (supra), which in turn, had relied on the ratio laid down in DIT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (supra). The Tribunal after referring to the decision in DIT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (supra) in paras 17 to 20 had further vide paras 21 and 22 held that where the term royalty under DTAA between India and USA was not amended, then the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable would be law which existed at the time the DTAA was entered into. In the facts of the case before us, the word royalty is defined in DTAA entered into between USA and India and applying the ratio in CIT Vs. Seimens Aktiongesellschaft (supra), we hold that once a term has been defined in DTAA, then the said term is to be applied unless and until the parties to the DTAA amends the same. The Hon ble High Court of Delhi in DIT Vs. Nokia Networks OY (supra) had applied the proposition laid down by the Hon ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (supra) and held that the amendments could not be read into the treaty. Unilateral amendment by the Indian Government to the term royalty by way of amendment to section 9(1)(vi) of the Act cannot be extended to the meaning of the term under DTAA. Hence, we hold reliance of learned Departmental Representative for the Revenue on Mumbai Bench of Tribunal in Viacom 18 Media (P.) Ltd. Vs. ACIT (supra) and Bangalore Bench of Tribunal in Vodafone South Ltd. Vs. DDIT (IT) and also Mumbai Bench of Tribunal in C.U. Inspections (I) (P) Ltd. Vs. DCIT (supra) are not to be applied in view of the issue being settled by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the portion allocable to the assessee was charged on cost to cost basis. Hence, it cannot be said that there was any income element which has arisen in the case and consequently, we hold that where the assessee had reimbursed the expenses having no income element, there is no requirement to withhold tax out of such payments. The case of Revenue in this regard is that it is not case of reimbursement but is a case of payment to third party through its associated enterprise and hence, the need for withholding tax. We have already decided this issue in the paras hereinabove that under the provisions of DTAA, the term royalty is defined and it does not cover any such services availed and payment made and hence, there is no merit in the stand of Revenue in this regard and the same is dismissed. In any case, the privity of contract is between Qwest Communications Inc, the service provider and T-3, USA, who in turn had received bandwidth and passed on the services to various entities of group on cost to cast basis. The assessee as recipient of services had reimbursed the same and in the absence of profit / income element, there is no liability to deduct tax at source. Hence, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbursement of salary of expat employees of ₹ 4,58,66,353/-. The learned Authorized Representative for the assessee explained that these were the payments which were not considered by Assessing Officer in assessment order, but enhancement was made by CIT(A). The first payment was in respect of training expenses, wherein the learned Authorized Representative for the assessee explained that employees of assessee company were enrolled for various e-learning courses which were available on John Deere Learning Portal and the employees had just to login to the portal, search for the courses, which were available and meet his or her training needs and enroll for the course. The assessee pointed out that these were not in the nature of fees for included services as nothing was being made available by way of technical knowledge, experience, skill, know-how or process. The second set of payments were for reimbursement of salaries, wherein Deere Co. USA had deputed staff to assessee company, as per Secondment Agreement between assessee and Deere Co. 103. The case of Revenue in all these grounds of appeal starting from grounds of appeal No.6 to 12 is that the payments made by as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be covered by the definition of fees for technical services but what is really the decisive factor is not the fact of training services per se but the training services being of such a nature that it results in transfer of technology. In the present case, the training services rendered by the service provider are general in nature as the training is described as in house training of IT staff and medical staff and of market awareness and development training . Clearly this training does not involve any transfer of technology. In any case, in order to successfully invoke the coverage of training fees by make available clause in the definition of fees for technical services, the onus is on the revenue authorities to demonstrate that these services do involve transfer of technology. That onus in not at all discharged by the Assessing Officer, or even by the learned Departmental Representative. In the written submissions filed before us, main thrust of the arguments is that ―the services provided were in the nature of fees for technical services as defined in Explanation 2 to Section 9(1)(vii) of the Income Tax Act , that ―the AO has finally held that the service pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 201(1) and 201(1A) of the Act. The grounds of appeal No.6 to 8 are thus, allowed. 107. Now, coming to last issue raised vide grounds of appeal No.9 to 12 against reimbursement of salary of expat employees. The case of assessee before us is that it had deducted tax at source out of said salary payments under section 192 of the Act; whereas the case of Revenue is that it is the case where assessee was required to deduct tax at source as the said payments constitute Fees for Technical Services and for non deduction had defaulted under section 201(1) and 201(1A) of the Act. Both the authorities below have relied on various case laws in this regard, but first we must look at the Secondment Agreement entered into between the parties, which is placed at pages 111 to 117 of factual compilation. The scope of agreement is that Deere Co. would provide assessee with professionals in accordance with qualifications, requirements set by assessee for performance of appropriate functions on behalf of assessee in its interest. The assessee has pointed out that it had established its unit in 1999 and this agreement was entered into between the parties in the year under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed, then it cannot be held to be law of land as propounded by the Hon'ble Supreme Court in V.M. Salgaocar Bros. (P.) Ltd. Vs. CIT (supra) and Palam Gas Service Vs. CIT (supra). Accordingly, we hold that where the Hon'ble Supreme Court has only dismissed SLP, then no ruling on principle being laid down by the Apex Court, the proposition laid down by the jurisdictional High Court of Bombay in DIT Vs. M/s. Mark Spencer Reliance India P. Ltd. (supra) would rule. Accordingly, we further hold that the assessee having deducted tax at source out of salary paid to employees deputed, has not defaulted under section 201(1) / 201(1A) of the Act. The grounds of appeal No.9 to 12 are thus, allowed. 111. The ground of appeal No.13 is on without prejudice basis and the same does not stand in view of our allowing various grounds of appeal raised by assessee on different issues. 112. The facts and issues in ITA Nos.906/PUN/2015 to 908/PUN/2015 are identical to the facts and issues in ITA No.905/PUN/2015 and our decision in ITA No.905/PUN/2015 shall apply mutatis mutandis to ITA Nos.906/PUN/2015 to 908/PUN/2015. 113. In the result, all the appeals of assessee are allowed. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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