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TMI Blog2019 (3) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... judicate the issues, reference is being made to the facts in ITA No.905/PUN/2015, relating to assessment year 2007-08. 3. The assessee in ITA No.905/PUN/2015 relating to assessment year 2007-08 has raised the following grounds of appeal:- 1] The learned CIT(A) erred in holding that the assessee company should have deducted TDS on the payments made to Deere & Co. USA of Rs. 51,928,969/- on account of for software license fees and IT support services on the ground that the same was taxable under the Income Tax Act as well as under the DTAA as Royalty. 2] The learned CIT(A) erred in not appreciating that the amount of Rs. 51,928,969/- was not covered under Royalties and or fees for technical services of the DTAA between India and USA as well as under the Income Tax Act and therefore, the Appellant Company was not required to withhold tax u/s. 195 on above amounts and accordingly, the demands raised of tax and interest u/s 201(1) and 201(1A) may kindly be deleted. 3] The learned CIT(A) ought to have appreciated that the payments made to Deere & Co. USA was on account of reimbursement of software license fees and IT support services and since there was no income earned by the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deduct TDS on the said payments. 10] The learned CIT(A) erred in holding that Deere & Co. by deputing its employees to the appellant company was providing technical services to the appellant company and accordingly, the TDS was required to be deducted on such payments. 11] The learned CIT(A) failed to appreciate that as per the secondment agreement between the appellant company and Deere & Co., all the expat employees are on the roll of the appellant company and TDS u/s 192 is deducted in respect of the salary paid to them and hence, there is no question of holding that the services rendered by these employees constituted fees for technical services under the Income Tax Act as well as under the DTAA between India and USA. 12] The learned CIT(A) erred in not appreciating that Deere & Co. was not providing any fees for technical services to the appellant company by deputing its employees to the appellant company and therefore, there was no question of deducting any TDS on the reimbursement of the salaries of the expat employees. 13] Without prejudice to the above grounds, the learned CIT(A) erred in not appreciating that the A.O. had grossed up the amounts chargeable to TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof. The main plea of assessee before the Assessing Officer was that the above said payments made to Deere & Co., USA and associated enterprise of assessee, were not taxable in India and the assessee was not liable to deduct tax at source under section 195 of the Act. This plea of assessee was not accepted by the Assessing Officer. The Assessing Officer at page 5 of assessment order has summarized services provided by Deere & Co., USA to the assessee. The Assessing Officer was of the view that the consideration received by Deere & Co. was on account of various IT support services, use or right to use softwares, access to server (scientific equipment) and leased line charges. The Assessing Officer observed that the assessee had not contested the chargeability of above payments under the provisions of the Act. The Assessing Officer thus, held that the assessee agreed that the above payments were taxable as fees for technical services under section 9(1)(vii) of the Act. The main contention of assessee that payments for above services were mere reimbursement and had no element of income and further that these IT services could not be said to be made available to the assessee, was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t taken up by Assessing Officer was the consideration paid for use or right to use software and he was of the view that the same was chargeable as 'Royalty' as per section 9(1)(vi) of the Act and Article 12(3) of DTAA. The Assessing Officer noted the provisions of section 9(1)(vi) of the Act i.e. income by way of royalty and observed that the assessee had not provided end-user license agreements with the software suppliers; hence exact nature of software provided and the terms and conditions were not named. However, he was of the view that in case of payments for license, non-resident receives consideration for transfer of all or any right for use or right to use computer software and owned all right, title and interest in the softwares. Therefore, what the supplier parts with to the end user was only right to use software for its application and one of the rights embedded was the right to copy and use, which was transferred by supplier to the assessee, therefore what was being transferred was right to use software. He referred to the definition of 'royalty' and also definition of 'computer software' as provided in Explanation 3 under section 9(1)(vi) of the Act and was of the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en software invariably be included under the category of secret formula or process. He further observed that since the source code or the object code of software had been protected and was not available freely, these software could even qualify as secret formula or process, therefore, payments received were 'royalty' as per clause (i) and (iii) of Explanation 2 of section 9(1)(vi) of the Act i.e. payment received as consideration for the use or right to use secret formula or process. The Assessing Officer also observed that the assessee was getting access to the knowledge database/servers of Deere & Co., which access was maintained by service provider online and such right to access would amount to transfer of copyright to use the copyright held by foreign company and payment received by foreign company on this behalf was license to use the said database and such payment was to be treated as 'royalty'. He placed reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Wipro Ltd. in ITA No.2804/2005, judgment dated 15.10.2011. In view of the said facts and amendment to section 9(1)(vi) of the Act, the Assessing Officer held that payments made by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that for providing these services, the service provider uses complex and highly sophisticated industrial, commercial or scientific equipment and charges for the same; therefore receipts on account of leased line charges could be termed as for the use of various industrial, commercial or scientific equipment used for WAN, data connectivity, internet services. Therefore, as per the Assessing Officer, it was 'royalty' as per Explanation (iva) of section 9(1)(vi) of the Act i.e. payment received as consideration for the use or right to use any industrial, commercial or scientific equipment. It was also 'royalty' under the Article 12(3)(b) of DTAA as payment received was consideration for the use or right to use industrial, commercial or scientific equipments. The Assessing Officer was of the view that payment was for transmission of data or cable / optic fibre; was payment for process as defined in Explanation 6 to section 9(i)(vii) of the Act, hence it was also 'royalty' as payment was received as consideration for the use or right to use process and rendering of services in connection with such process. He points out that payment made by assessee for leased line charges were al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as its taxability under DTAA was concerned, he referred to the decision of Pune Bench of Tribunal in the case of Cummins Inc for assessment years 2004-05 and 2006-07 in ITA Nos.73 & 74/PN/2011, order dated 08.08.2013, wherein also the right to use software was held to be taxable as 'royalty' under DTAA. Accordingly, he held that payments made to above company were to be taxed as 'royalty'. He further placed reliance on the ratio laid down by Mumbai Bench of Tribunal in the case of DDIT Vs. Reliance Infocom/Luscent Technologies [(TS-433-ITAT-2013(Mum)], in which also the payments made for acquiring right to use software was treated as 'royalty'. The plea of assessee that between conflicting decisions of CIT Vs. Samsung Electronics Co. Ltd. (2009) 185 taxmann.com 313 (Kar) and DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com 88 (Del), the decision in Infrasoft (supra) being later decision rendered after discussing Samsung (supra), should be followed, was not accepted being decisions of non jurisdictional High Courts when decision of jurisdictional Tribunal was available. The assessee also pointed out that there were conflicting decisions of some Tribunals i.e. in the case of Allianz SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeded according to the said pattern, hence web based training programme could not be satisfaction of 'make available' condition which was provided in DTAA. The CIT(A) was of the view that the said payments were taxable as FTS, since the training imparted to employees was technical in nature and the payments made for the same were held to be taxable under section 9(1)(vi) of the Act. The plea of assessee that payments could not be covered as FTS as no technical knowledge was imparted, was not accepted in the absence of necessary details and evidences. He further referred to MOU between India and USA, DTAA, which shows that technical training was considered to be taxable under clause (iv)(b) of DTAA. Further example 6 and 9 given in the MOU, training imparted to staff was considered to satisfy 'make available' condition. Accordingly, he held that payments made towards training programmme were liable to be taxed under Income Tax Act and DTAA and he placed reliance on various decisions. In view thereof, he held that payments of Rs. 63,92,707/- made in assessment year 2007-08 and Rs. 94,75,408/- made in assessment year 2008-09 were taxable and the assessee ought to have deducted tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entity software groups. The Assessing Officer was of the view that use of software license is copyright and hence TDS had to be deducted. He further pointed out that the CIT(A) vide para 2.7 at page 10 relied on the decision of Pune Bench of Tribunal in Cummins Inc. Vs. DDIT (2013) 38 taxmann.com 286 (Pune - Trib.) and also decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd. (2009) 185 taxmann.com 313 (Kar); but the CIT(A) does not rely on the decision of Pune Bench of Tribunal in Allianz SE Vs. ADIT (IT) (2012) 21 taxmann.com 62 (Pune) and judgment of the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com 88 (Del). The learned Authorized Representative for the assessee then referred to DTAA between India and USA and referred to Article 12(3), which defined 'royalty' and pointed out that it deals with payment of any kind received for the use of or right to use any copyright of literary, artistic or scientific work, etc. He stressed that the said Article would be applicable when copyright was purchased but not when copyrighted article was purchased. The learned Authorized Representative for the assessee drew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional Paper Book, wherein also PTC remains the owner of all software that it develops. 17. The learned Authorized Representative for the assessee pointed out that the issue of withholding tax on the payments made to Deere & Co. against purchase of software license and IT support services has been decided in turn, relying on the ratio laid down by the Pune Bench of Tribunal in Cummins Inc. Vs. DDIT (supra). He however, pointed out that the said order of Tribunal has been recalled in MA Nos.28 & 29/PUN/2017, copy of which is placed at pages 308 to 316 of legal compilation. He then referred to the decision of Tribunal in Allianz SE Vs. ADIT (supra) and pointed out that factual aspects were same, in that case the issue which was decided was in respect of license to use software and it was held that the same was not copyright and did not amount to 'royalty'. Our attention was drawn to para 10 of the said decision, wherein reference was made to the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra) and it was observed that the said decision dealt with a case of requirement to deduct tax at source under section 195(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort, etc. The learned Authorized Representative for the assessee pointed out that the CIT(A) had combined the same with royalty, in view of the ratio laid down by the Tribunal in Cummins Inc. Vs. DDIT (supra). However, IT support charges paid were not in 'royalty' as there was no use of copyrights or copyrighted articles. He stressed that at most, it may be considered as fees for included services under DTAA. However, fees for technical services talks of 'make available' of technology but there is no technical knowledge made available. This is only backup service provided. He stressed that there is no requirement for withholding tax out of such payments. In this regard, he relied on the ratio laid down by Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (2013) 31 taxmann.com 256 (Pune - Trib.), wherein the issue was pursuant to DTAA between India and Australia. However, the terms of two DTAA i.e. DTAA between India and USA and DTAA between Indian and Australia were identical. He pointed out that main server group was in USA and server was used for storing data, it could not be said that payment was for royalty, as server was not under the domain of assessee. He then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of assessee. The learned Authorized Representative for the assessee thus, pointed out that there was no requirement to deduct TDS on leased line charges. 22. Coming to ground of appeal No.6, the learned Authorized Representative for the assessee refers to enhancement made by CIT(A), wherein it holds that reimbursement of salary and payments for web based training were both in the nature of fees for technical services and hence, were liable for tax deduction at source. 23. The grounds of appeal No.7 and 8, under which the issue was raised against what was training charges. The learned Authorized Representative for the assessee pointed out that training which was taken by the employees of assessee from associated enterprise was web based training, under which person read material on various facets of working on websites. Our attention was drawn to screen shots of training procedure, copies of which is placed at pages 56 to 58 of Paper Book and pointed out that the said training was only available to the employees and once they log in, then only charges were charged. He pointed out that this was like reading book and there were none to answer query. He further pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the benefit of assessee on assignment defined by it. This agreement was executed on 01.05.2005 effective from 01.09.2005. He pointed out that the factory of assessee was established in 1999. He then referred to the factual aspects of the case relied upon by the CIT(A) i.e. Centrica India Offshore (P.) Ltd. Vs. CIT (supra) and strongly pointed out that the facts were completely different, where a offshore entity had deputed technical personnel to train Indian employees and this was case where the operations in India required expats, hence there was 'make available' of skill behind services, to other party. He stressed that it was newly formed company which did not have necessary human resources and the associated enterprise deputed employees to train Indian employees; whereas this was not the case of assessee whose factory was established in 1999 and for specific purpose, certain personnel were deputed by Deere & Co. to perform activities in India. He pointed out that similar issue has been considered by the Ahmedabad Bench of Tribunal in the case of Burt Hill Design (P.) Ltd. (2017) 79 taxmann.com 459 (Ahmedabad - Trib.). He referred to the facts of said case and pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the facts of present case, wherein the Tribunal had relied on the decision of Allianz SE Vs. ADIT (IT) (supra) and the the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra). He further referred to the decision of the Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. New Delhi (2011) 16 taxmann.com 371 (Delhi) and decision of the Hon'ble High Court of Andhra Pradesh in CIT Vs. Sundwiger EMFG & Co. (2003) 262 ITR 110 (AP) and pointed out that even if Pune Bench of Tribunal in Allianz SE Vs. ADIT (IT) (supra) had relied on the said decision. 26. The learned Authorized Representative for the assessee stressed that amended provisions of section 9(1)(vi) of the Act were not applicable since there is no amendment to definition of 'royalty' under DTAA and only the beneficial provisions are to be applied when both the provisions of the Act and all DTAA are attracted. He stressed that before amendment to section 9(1)(vi) of the Act, payments made for use of software were not covered as royalty and since the provisions of DTAA are not being amended, then there is no question of applying amended provisions of section 9(1)(vi) of the Act to the facts of present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whether payment was for copyright or copyrighted article would be totally irrelevant. He further referred to the said decision, which is dated 03.08.2010, under which the Hon'ble High Court has also interpreted what is license and pointed out that the same may be exclusive or non-exclusive and it has been held that even non exclusive license was granted by an authority to do a present thing, but it never conveyed by itself an interest in the property. However, it enabled a person to do that which he could not otherwise do except unlawfully. He then referred to the conclusion of the said decision, wherein the Hon'ble High Court had held that where there is transfer of certain rights which the owner of copyright possessed with the said computer software, then it is case of 'royalty' being paid and was within mischief of Explanation (2) of clause (vi) of section 9(1) of the Act and there was liability to pay tax. 28. Coming to the next contention of learned Authorized Representative for the assessee that source code was not with the assessee, the learned Departmental Representative for the Revenue has countered and pointed out that object code and source code both are protected c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Copy Right Act with special emphasis on clause (b) sub-clause (2), wherein the term 'computer programme' includes to sell or give on commercial rental, offer for sale or for commercial rental any copy of computer programme. 30. He then again referred to the contention of learned Authorized Representative for the assessee that the assessee was getting right to use software product which is copyrighted article. In case such a right is bestowed upon the assessee, then it is case covered under the definition of 'royalty'. The learned Departmental Representative for the Revenue again strongly placed reliance on the ratio in the case of Gracemac Corporation Vs. ADIT (supra), wherein it has been held that though there is no definition of copyrighted article in the Copy Right Act, but the same is defined in OECD guidelines. The learned Departmental Representative for the Revenue placed on record the definition of copyrighted article in OECD guidelines. It was brought to the knowledge of learned Departmental Representative for the Revenue that after the decision of the Delhi Bench of Tribunal in Gracemac Corporation Vs. ADIT (supra), there is contrary decision by the Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue distinguished the said facts and pointed out that the said decision talks of process royalty, whereas the assessee's case was not process royalty. He admitted that Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra) had relied on DIT Vs. Infrasoft Ltd. (supra) and held that it was not case of 'royalty'. The learned Departmental Representative for the Revenue strongly placed reliance on the decision of AAR in the case of EY Global Services Ltd. (supra), wherein the difference between copyright or copyrighted articles has been elaborated upon and then again placed reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Synopsis International Old Ltd. (supra) and decision of AAR in the case of SkillSoft Ireland Ltd., In re_* (supra). The learned Departmental Representative for the Revenue pointed out that where the assessee had entered into an agreement with Dakota Software Corporation, it was like a case of book writer and publisher. 33. Now, coming to the next aspect of the decision of Hon'ble Bombay High Court in NGC Network (supra), he pointed out that second proviso of section 9(1)(vi) of the Act talks of only co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Representative for the Revenue placed reliance on the observations of CIT(A) at page 23 and pointed out that the assessee had not supplied information and even the nature of services were not clear, so the question was of make available. He strongly relied on para 3.6.1.2 to 3.6.1.4 of CIT(A)'s order and pointed out that the reliance of learned Authorized Representative for the assessee on Sandvik Australia Pty. Ltd. Vs. DDIT (supra) was not correct as the issue before the Tribunal supports services rendered and not training services. 37. Coming to the next decision of Ahmedabad Bench of Tribunal in ITO Vs. Veeda Clinical Research (P) Ltd. (supra), he admitted that it clearly decides the issue. In this regard, he again pointed out that the issue has been considered and decided by AAR in Intertek Testing Services India (P.) Ltd., In re_* (2008) 307 ITR 418 (AAR), which has considered the issue of group services and in Mersen India (P.) Ltd., In re_* (2013) 353 ITR 628 (AAR) and also on Shell India Markets (P.) Ltd., In re* (2012) 342 ITR 223 (AAR) and decision of Cochin Bench of Tribunal in US Technology Resources (P.) Ltd. Vs. ACIT (2013) 39 taxmann.com 23 (Cochin - Trib.) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expats were availed but he countered the contention of learned Authorized Representative for the assessee that the TDS deducted out of salaries paid to such expats under section 192 of the Act; but he questioned that once they were not on payroll of assessee company, where was the question of such deduction of tax. 39. Then coming to the last aspect i.e. reimbursement of expenses, the learned Departmental Representative for the Revenue has filed written submissions in this regard and placed reliance on various case laws and filed copies of relevant case laws, which we shall refer while deciding the said issue. 40. The learned Authorized Representative for the assessee then took up his rejoinder and pointed out that there were four issues arising in the present appeal (a) royalty on software and IT support services, (b) payment of leased line charges, (c) training charges and (d) reimbursement of salaries of expats. With regard to reimbursement of salaries of expats, he pointed out that learned Departmental Representative for the Revenue had relied on the ratio laid down in Centrica India Offshore Pvt. Ltd. Vs. CIT (supra), which is confirmed by the Hon'ble Supreme Court; but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The learned Authorized Representative for the assessee stressed that no adverse comments have been made by the learned Departmental Representative for the Revenue on the said decision of the Hon'ble Bombay High Court in DIT Vs. M/s. Mark & Spencer Reliance India P. Ltd. (supra). 41. Coming to next issue of training charges, the learned Authorized Representative for the assessee pointed out that there were various modules available on web; training was given on the web and there was no interactive session, in case there was any query to be answered, but no person was available to answer the same. This was like reading a book. However, the learned Departmental Representative for the Revenue on the other hand, had relied on the decisions where interactive training was given, so it was held to be a case of fees for technical services. However, the facts of present case were different. He then gave an example of Gym instructor, wherein in two months, there was interactive session but that does not make available any technology, so no question of fees for technical services. 42. Coming to the next issue of lease line charges, he placed heavy reliance on the decision of Pune Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use or right to use any copyright'. Referring to the decision of the Hon'ble High Court of Karnataka which observed that when you purchase CD, then purchased copyright. However, as per section 14 of the Copy Right Act, when you made re-engineered copy sale, then it is copyright and not otherwise. He referred to the decision of the Kolkata Bench of Tribunal in ITC Ltd. Vs. ADIT (2017) 79 taxman.com 206, wherein section 14 of the Copy Right Act has been referred to, which explains the meaning of copyright and vide paras 20 and 21, the issue has been explained and decided in favour of assessee and it has been held that the issue has to be decided in the light of definition of 'royalty', as contained in DTAA read with relevant provisions of the Copy Right Act. The Tribunal in ultimate has decided that the assessee is not in default under section 201(1) of the Act. 44. The learned Authorized Representative for the assessee again explained that when any person operates the tally, then you download the software and use it and there is no question of paying royalty for using such programme. However, the learned Departmental Representative for the Revenue on the other hand, argued that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Departmental Representative for the Revenue. 45. We have heard the rival contentions and perused the record. At the outset, we must complement both the learned Authorized Representatives in elaborately bringing to our attention different case laws on the issues and making submissions on each aspect of the issue arising in the present set of appeals. We have gone through the Paper Book filed by them and even case laws relied upon by them individually and have heard at length on different dates and now we proceed to decide the issues raised in the present appeals. 46. The issue which arises in the present case is in relation to payments made by assessee to its associated enterprise in respect of various aspects. The case of Revenue Department is that for all such payments as referred in orders of authorities below, were liable for tax deduction and since the assessee has failed to deduct tax at source out of payments made, hence has defaulted under section 201(1) and 201(1A) of the Act. 47. Section 201(1) of the Act provides that where any person who was required to deduct any sum in accordance with provisions of the Act or under section 192 of the Act being an employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. (iii) income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India; (iv) a dividend paid by an Indian company outside India; (v) income by way of interest payable by- (a) the Government ; or (b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of 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 interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India; (vi) income by way of royalty payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in subclauses (i) to (iv), (iva) and (v)." 52. The Assessing Officer observed that in the facts of the present case, the payment made by assessee would fall under any of the clauses (i) to (iii) under Explanation 2 to section 9(1)(vi) of the Act. 53. Explanation 3 reads as under:- "Explanation 3.-For the purposes of this clause, "computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data." 54. Further, the Finance Act, 2012 with retrospective effect from 01.06.1976 has inserted Explanations 4, 5 and 6 which read as under:- "Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f DTAA have not been rectified or amended and in the absence of the same, since under the earlier provisions, the payment made by assessee did not akin to payment of 'royalty' and applying the provisions of DTAA which are more beneficial to the assessee, the assessee could not be held to be in default. 57. Before proceeding further, we may also refer to Article 12 of DTAA between India and USA, which has been reproduced under paras 6 to 8 of the order of Assessing Officer. The assessee has filed on record the copies of agreement, under which it has purchased software from different entities and the learned Authorized Representative for the assessee has exhaustively taken us through various terms and conditions of said agreements and has pointed out that under the aforesaid terms and conditions, the payment made by assessee was for copyrighted article and for other purposes, cannot be termed as 'payment of royalty'. It is not covered under the umbrella of 'royalty' under DTAA agreement and since more beneficial provisions are to be applied to the assessee, then as per DTAA terms, the assessee cannot be held to be liable for payment of TDS under the provisions of section 9(1)(vi) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement which has been relied upon by the learned Authorized Representative is between Dakota Software Corporation and Deere & Co. Under clause (1), it is recognized that Dakota Software Corporation was the owner of certain software and was provider of services. The assessee wanted to access and use the software and services. Clause (2) provided that the said software and any user manuals or online help functions relating to software may be used only by authorized user i.e. a person to whom Deere & Co. provides user ID and password; and representation in this regard had to be made by Deere & Co. to Dakota Software Corporation. In clause (2) itself it is provided that Deere & Co. was responsible to ensure that each authorized user agrees to comply with the terms of agreement. Under clause 2.2.1, it is categorically mentioned that Deere & Co. could not copy, modify or create derivative works based upon the software or documentation. Further, it is provided that Deere & Co. would not hack, illegally gain access to or reverse engineer the software in whole or in part or attempt to do so; further it is provided that Deere & Co. would solicit the agreement to the End User Licens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are Corporation. In case of any unauthorized use or access to the software, it was incumbent upon Deere & Co. to notify Dakota Software Corporation immediately and to cooperate in any litigation proceedings, etc. to protect the rights of Dakota Software Corporation. Thereafter, other terms of said agreement and terms of warranty and limitation, assignments, dispute resolution and miscellaneous provisions are provided. 61. Exhibit-A to the said agreement is Dakota End User License. Under the said agreement, it is provided that End User License was legal agreement between Deere & Co. and Dakota Software Corporation granting certain rights to access and use Dakota's software and any user manuals or online help functions relating to the software. In case, either party did not agree to the terms of End User License, then the same should not be accessed and the same should be clicked on cancel button. As per clause (1), End User License was granted by Dakota Software Corporation under and subject to Master Agreement, as referred in the paras above and statement of work between Dakota Software Corporation and any other legal entity which was licensing access and use of software and ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms of agreement. It was understood that the users would make backup copies of products, provided that Altair's Proprietary Rights notices were reproduced on each such backup copy. It is also provided that licensee would freely modify and use Templates, and create interfaces to Licensee's proprietary software for internal use only. However, such modification shall not be subject to Altair's warranties, indemnities, support or other obligations, etc. It is further agreed that licensee shall indemnify, defend and hold harmless Altair for the actions of its permitted users. As per clause (3), there are restrictions on use, wherein licensee shall not (a) install, use, copy, modify, merge or transfer copies of products except as expressly authorized in the agreement; (b) use any backup copies of products other than to replace original copies provided by Altair, in case it is destroyed or damaged; (c) disassemble, decompile or 'unlock', reverse translate, reverse engineer, or in any manner decode the software or ISV software for any reasons and beside others, not to allow third parties to access or use the products wide area network, internet location or time sharing arrangement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of, or the right to use any copyright. Section 9(1)(vi) of the Act defines 'royalty' and we have already reproduced relevant portion of the said section in the paras hereinabove. The authorities below were of the view that because of insertion of Explanation 5 to section 9(1)(vi) of the Act with retrospective effect from 01.06.1976, where the meaning of term 'royalty' has been extended to include use of copyright or copyrighted article is to be applied and on such application, the assessee was held to be in default. The case of learned Departmental Representative for the Revenue is that even under the pre-amended provisions of the Act, Explanation 2 to section 9(1)(vi) of the Act involves transfer of some rights in respect of copyright and would cover the issue which is raised in the present appeal. The case of assessee on the other hand, is that since it had not received any copyright but was only receiving copyrighted article in the form of software, then it is not royalty and was not covered under the provisions of section 9(1)(vi) of the Act. In the alternate, it is submitted by the learned Authorized Representative for the assessee that since the definition of 'royalty' has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the Assessee on that basis. If the payment is really for a copyrighted article, then it only represents the purchase price of the article and, therefore, cannot be considered as royalty either under the Act or under the DTAA. This issue really is the key to the entire controversy and we may now proceed to address this issue. 156. We must look into the meaning of the word "copyright" as given in the Copyright Act, 1957. Section 14 of this Act defines "Copyright" as "the exclusive right subject to the provisions of this Act, to do or authorize the doing of any of the following acts in respect of a work or any substantial part thereof, namely: --------- It is clear from the above definition that a computer programme mentioned in Clause (b) of the section has all the rights mentioned in Clause (a) and in addition also the right to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme. This additional right was substituted w.e.f. 15.1.2000. The difference between the earlier provision and the present one is not of any relevance. What is to be noted is that the right mentioned in Sub -clause (ii) of Clause (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is evident from the use of the words in Article 20.1 of the agreement, "restricted" and "not otherwise". Thus JTM has a very limited right so far as the use of software is concerned. It needs no repetition to clarify that JTM has not been given any of the seven rights mentioned in Clause (a) of Section 14 or the additional right mentioned in Sub-clause (ii) of Clause (b) of the section which relates to a computer programme and, therefore, what JTM or any other cellular operator has acquired under the agreement is not a copyright but is only a copyrighted article. 159. Clause 20.4 of the supply contract with JTM is as under: 20.4 In pursuance of the foregoing JT MOBI LES shall: (a) not provide or make the Software or Documentation or any portions or aspects thereof (including any methods or concepts utilized or expressed therein) available to any person except to its employees on a "need to know" basis; (b) not make any copies of Software or Documentation or parts thereof, except for archival backup purposes; (c) when making permitted copies as aforesaid transfer to the copy/copies any copyright or other marking on the Software or Documentation. (d) Not use the Softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re for any other purpose than what is permitted and shall not also license or sell or in any manner alienate or part with its possession. This has to be read with Clause 20.5 which says that the license can be transferred, but only when the GSM system itself is sold by the cellular operator to a third party. This in a way shows that the software is actually part of the hardware and it has no use or value independent of it. This restriction placed on the cellular operator (not to license or sell the software) runs counter to Section 14(b)(ii) of the Copyright Act which permits a copyright holder to sell or let out on commercial rental the computer programme. For this reason also it cannot be said that JTM or any cellular operator acquired a copyright in the software. 162. A conjoint reading of the terms of the supply contract and the provisions of the Copyright Act, 1957 clearly shows that the cellular operator cannot exploit the computer software commercially which is the very essence of a copyright. In other words a holder of a copyright is permitted to exploit the copyright commercially and if he is not permitted to do so then what he has acquired cannot be considered as a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article, you also have the copyright right therein, still it would mean that the copyright rights are transferred (acquired by JTM) and it would not be a case of merely giving the right to use and consequently Article 13 of the DTAA would not apply. Mr. Dastur, however, was fair enough to concede that if the Department is right in saying that if you have the copyrighted article, you also have the copyrighted rights, then Clause (v) of Explanation 2 below Section 9(1) of the Income-tax Act will apply because his clause ropes in "transfer of all or any rights" and is not restricted to "use" or "right to use", the copyright. However, he added that since the basic proposition of the Department has been demonstrated to be wrong, Clause (v) of Explanation 2 below Section 9(1) is not an impediment to accepting the assessee's contention. 165. We may also usefully refer to the Commentary on the OECD Model Convention (dated 28.1.2003) which is of persuasive value and which throws considerable light on the character of the transaction and the treatment to be given to the payments for tax purposes. Paragraph 14 of the Commentary, a copy of which was filed in Paper book No. V is relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he four possible categories. Two such categories are the transfer of copyright rights and the transfer of a copyrighted article. The U.S. regulations distinguished between transfer of copyright rights and transfer of copyrighted articles based on the type of rights transferred to the transferee. Briefly stated, if the transferee acquires a copy of a computer programme but does not acquire any of the rights identified in certain sections (of the U.S. Regulations), the regulation classified the transaction as the Transfer of a copyrighted article. Paragraph 3 of the Explanatory Note says that if a transfer of a computer programme results in the transferee acquiring any one or more of the listed rights, it is a transfer of a copyright right. 167. Paragraph 4 says that if a person acquires a copy of a computer programme but does not acquire any of the four listed copyright rights, he gets only a copyrighted article but no copyright. 168. The actual regulations bring out the distinction very clearly between the copyright right and a copyrighted article. They also specify the four rights which, if acquired by the transferee, constitute him the owner of a copyright right. They are: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle of the DTAA with Sweden. -------- 184. In view of the foregoing discussion, we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the Assessee in respect of the software cannot be considered as royalty either under the Income-tax Act or the DTAA." 67. The Hon'ble High Court while referring to the decision of Tribunal in Motorola Inc Vs. DCIT (supra) in the said case noted that the Tribunal had held and rightly so, 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. 68. The learned Departmental Representative for the Revenue had pointed out that there is no term as copyright right but we find no merit in the stand of learned Departmental Representative for the Revenue in this regard; especially if we look at paras 66 and 67 of the said judgment, wherein it is very clearly mentioned that if a person acquires copy of computer programme, but it has not acquired any of the four listed copyright rights, he gets only co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, disassemble or reverse-engineer the Software without Infrasoft's written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft." 71. The Hon'ble High Court concluded by holding as under:- "87. In order to qualify as royalty 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 acquisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as under:- "12. In the cases where an Assessee acquires the right to use a software, the payment so made would amount to royalty. However in cases where the payments are made for purchase of software as a product, the consideration paid cannot be considered to be for use or the right to use the software. It is well settled that where software is sold as a product it would amount to sale of goods. In the case of Tata Consultancy Services v. State of Andhra Pradesh: (2004) 271 ITR 401 (SC), the Supreme Court examined the transactions relating to the purchase and sale of software recorded on a CD in the context of the Andhra Pradesh General Sales Tax Act. The court held the same to be goods within the meaning of Section 2(b) of the said Act and consequently exigible to sales tax under the said Act. Clearly, the consideration paid for purchase of goods cannot be considered as 'royalty'. Thus, it is necessary to make a distinction between the cases where consideration is paid to acquire the right to use a patent or a copyright and cases where payment is made to acquire patented or a copyrighted product/material. In cases where payments are made to acquire products which are pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra). Relying on the ratio laid down by the Hon'ble Supreme Court in Tata Consultancy Services Vs. State of Andhra Pradesh (2004) 271 ITR 401 (SC), the Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. (supra) had held as under:- "56. A fortiorari when the assessee supplies the software which is incorporated on a CD, it has supplied tangible property and the payment made by the cellular operator for acquiring such property cannot be regarded as a payment by way of royalty. ........ 59. Be that as it may, in order to qualify as royalty payment, within the meaning of section 9(1)(vi) and particularly clause (v) of Explanation 2 thereto, 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. Section 2(o) of the Copyright Act makes it clear that a computer programme is to be regarded as a "literary work". Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the present case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Rulings (Income Tax), New Delhi in the case of SkillSoft Ireland Ltd., In re_* (supra) and had strongly pointed out that the said decision is dated 20.07.2015 i.e. after the decision of the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) and hence, the said ratio is to be applied. He also pointed out that the case of DIT Vs. Infrasoft Ltd. (supra) was also referred by the AAR. 80. The Hon'ble Bombay High Court in Prudential Assurance Company Ltd. Vs. DIT (supra) has held that the Ruling of AAR binds the applicant, CIT(A) and IT authorities subordinate to him and shall apply in relation to transactions in which Ruling is sought. 81. The Mumbai Bench of Tribunal in G.D. Metal Steel Pvt. Ltd. Vs. ACIT (2011) 12 taxmann.com 165 (Mum) has laid down that Rulings given by AAR, not being part of Judicial hierarchy cannot lay down the binding precedence for anyone. The Rulings indeed deserves highest respect and consideration, it cannot be open to anyone to treat this as binding judicial precedent. The Tribunal further held that in sharp contrast with binding Rulings, which are binding even if the Rulings have not dealt with a particular argument is raised later. 82. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Delhi Bench is misplaced, since the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra), in later decision has already decided the issue. 84. Now, we may also refer to other aspects raised by the Assessing Officer and CIT(A) to hold that the payment was in the nature of 'royalty' as defined under section 9(1)(vi) of the Act under Explanation 2. The Assessing Officer has referred to section 2(o) of the Copyright Act, which defines literary work to include computer programs, tables and compilations, etc. According to the Assessing Officer, it was literary work under the Copyright Act. He further goes on to hold that since source code was kept confidential, then software invariably was to be included in the category of secret formula or process. He was of the view that it could even qualify as scientific work. The issue thus raised is whether it falls within Copyright Act. The plea of learned Departmental Representative for the Revenue in this regard was that both object code and source code were protected copyrights under the Copyright Act and when object code is transferred, it becomes copyrightable subject matter. He also referred to the decision of the Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the storing of it in any medium by electronic means; (ii) to issue copies the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-cls. (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in cl. (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental." 20. A perusal of the above provisions of the copyright Act reveals that the computer software is included in the definition of literary work and is covered under the purview and scope of copyright. The exclusive rights to do or authorize the doing of certain acts as mentioned in clause (a) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f cl. (v) in Expln. 2 to s. 9(1)(vi) which also covers consideration for "transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work" a provision which is clearly larger in scope than the provision of art. 12(3) of the Indo-Israel tax treaty. The word "of" between 'copyright' and 'literary, artistic or scientific work" is also missing in the statutory provision. The treaty provision that we are dealing with are thus certainly not in pari materia with this statutory provision, and, by the virtue of s. 90(2) of the Act, the provisions of India Israel tax treaty clearly override this statutory provision. In Gracemac decision (supra), the Co-ordinate Bench was of the view that the provisions of the applicable tax treaty and the IT Act are "identical"-a position which does not prevail in the situation before us. We, therefore, see no reasons to be guided by Gracemac decision (supra). The next issue that we need to consider is whether a payment for software can be said to be a payment for "process" as a computer program is nothing but a set of instruction lying in the passive state and this execution of instructi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after a very erudite and detailed discussion, concluded that "we are unable to subscribe to the view taken by the Tribunal in the impugned judgment on the interpretation of s. 9(1)(vi) of the Act". It cannot, therefore, be open to us to approve the stand of the Revenue to the effect that the payment for software is de facto a payment for process. That is a hyper-technical approach totally divorced from the ground business realities. It is also important to bear in mind the fact that the expression 'process' appears immediately after, and in the company of, expressions "any patent, trademark, design or model, plan, secret formula or process". We find that these expressions are used together in the treaty and as it is well-settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. This principle of interpretation of statutes, in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Delhi in DIT Vs. Nokia Networks OY (2013) 358 ITR 259 (Del) had held that Explanation 4 was added to section 9(1)(vi) of the Act by Finance Act, 2012 with retrospective effect from 01.06.1976 to provide that all consideration for use of software shall be assessable as 'royalty'. However, the definition in DTAA has been left unchanged. It is an admitted fact that though Explanation 5 has been inserted in section 9(1)(vi) of the Act but no amendment has been made to the definition under DTAA, since the provisions of DTAA are beneficial to the assessee, then the said provisions would be applied. In this regard, we find support from the ratio laid down by the Pune Bench of Tribunal in T 3 Energy Services India Pvt. Ltd. Vs. JCIT (supra), wherein it was held as under:- "17. The Hon'ble High Court of Delhi in DIT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (2016) 382 ITR 114 (Del) has elaborated on the general principles relating to international transactions of DTAA vis-à-vis royalty and also the amendment in the Income-tax Act widening the scope of royalty. In the facts before the Hon'ble High Court, the assessee was a company incorporated in Thai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 9(1)(vi) of the Act vis-à-vis DTAA. The Hon'ble High Court had rejected that any amendment could change the situation and render the service or activity taxable. The Hon'ble High Court thereafter took note of various decisions on the issue including that of Hon'ble High Court of Madras in Verizon Communications Singapore Pte. Ltd. Vs. ITO (supra) and disclined to conclusively determine or record a finding as to whether amendment to section 9(1)(vi) of the Act indeed was clarificatory as the Revenue suggested or prospective, give what i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 in the agreement as well and hence, the amendments were not applicable to DTAA. The finding of the Hon'ble High Court was thus, as under:- "60. Consequently, since we have held that the Finance Act, 2012 will not affect article 12 of the double taxation avoidance agreement, it would follow that the first determinative interpretation given to the word "royalty" in Asia Satellite, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of agreement being available with the Assessing Officer, the findings of Assessing Officer that software was in nature of literary or scientific work, cannot stand. When going into the aspect of purchase of software being royalty or not, the issue which has to be seen is whether the assessee had purchased copyright or copyrighted articles. The purchase of software by a person cannot be held to be work of literary or scientific work. There is no merit in the observations of Assessing Officer in this regard and the same are dismissed. 25. Before us, the learned Authorized Representative for the assessee strongly stated that the Hon'ble High Court of Karnataka does not deal with the amendment to section but otherwise holds it be 'royalty'. He placed reliance on different decisions of the Hon'ble High Court of Delhi contrary to the same. The learned Departmental Representative for the Revenue on the other hand, pointed out that the amendment was clarificatory in nature as held by the Hon'ble High Court of Madras in Verizon Communications Singapore Pte. Ltd. Vs. ITO (supra). The learned Authorized Representative for the assessee in this regard, pointed out that the Hon'ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transmission services to its customers, control of satellite always remained with satellite operator and the customers were only given access to transponder capacity and hence, the payment could not be termed as royalty for the use of a process or equipment. The said decision was in the context of section 9(1)(vi) of the Act and the provisions of DTAA were not considered therein. The Hon'ble High Court in the case of New Skies then took note of the amendment by the Finance Act, 2012, which inserted Explanations 4, 5 and 6 under section 9(1)(vi) of the Act. The Revenue before the Hon'ble High Court claimed that the said Explanations were clarificatory and it had settled the matter i.e. reasoning in Asia Satellite Telecommunications Co. Ltd. Vs. DIT (supra) could not stand because the basis of that ruling had been undone. The second proposition which was raised was whether D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the treaty as well. The Hon'ble High Court held as under:- "41. This court is of the view that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, it is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts for the proposition that telecommunication services rendered by Non-residents outside were not taxable in India. The learned Departmental Representative for the Revenue on the other hand, pointed out that the payment to Non-residents on account of it being routed through holding or related company abroad, was taxable. Both learned Authorized Representatives have relied on series of decisions for the proposition as to whether the payments to Non-residents paid directly or routed through a third party on account of lease line charges falls within amended definition of 'royalty', which is to be applied retrospectively. In view of the ratio laid down by the Hon'ble High Court of Delhi in DIT Vs. New Skies Satellite BV (supra) and Delhi Bench of Tribunal in Shin Satellite Public Co. Ltd. Vs. DDIT (IT) (2011) 12 taxmann.com 6 (Del), we are not going into the aspect of the amendment to section 9(1)(vi) of the Act, under which Explanations 4, 5 and 6 have been added, which interalia, amends the definition of 'royalty' with retrospective effect. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 'laws in force' would not only include a tax already covered by the treaty but would also include any other tax as taxes of a substantially similar character subsequent to the date of the agree ment as set out in article I(2). Considering the express language of article I(2) it is not possible to accept the broad proposition urged on behalf of the assessee that the law would be the law as applicable or as define when the double taxation avoidance agreement was entered into." 29. In the facts of the case before the Hon'ble Bombay High Court the word 'royalty' was not defined in German Treaty and in that context, the Hon'ble Bombay High Court held that they were unable to accept the assessee's contention that law applicable 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 Treaties entered into between USA and India, Greece and Singapore with 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 amend the same. The Hon'ble High Court of De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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. 91. Now, coming to second part of grounds of appeal No.1 to 3, wherein the payment made by the assessee 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', in view of the ratio laid down by the Pune Bench of Tribunal in the case of Cummins Inc (supra). The said decision has been recalled by the Tribunal in Miscellaneous Application filed and hence, the said proposition was not applicable. In the facts of the case, the main server of the group was established in USA and that server was used for storing data, which was admittedly not under the domain of assessee. The question which arises is that whether the payments made by the assessee for use of such facility 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself." 92. The Tribunal further vide para 16 held that where no technical knowledge was made available or expertise was made available to the recipient of Indian company, then such case is not covered in clause (g) of para 3 to Article 12 of India and Australia Treaty. It was further observed that where the assessee had only provided backup facilities and IT support services for solving IT related problems to its Indian subsidiaries and where no technical services were made available, the same could not be taxable in India. It was further held that the amount received by assessee could not be treated as 'royalty' even under normal provisions of the Income Tax Act. 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 not 'royalty' under section 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o have defaulted in terms of section 201(1) and 201(1A) of the Act. 96. The assessee before us has explained that lease lines were established between Pune office of assessee and US entity office. The authorities below had relied on the decision of the Hon'ble High Court of Madras in the case of Verizone Communications Singapore Pte Ltd. Vs. DDIT (supra). However, we find that the issue raised in the present appeal is squarely covered by the order of Pune Bench of Tribunal in M/s. T-3 Energy Services India Pvt. Ltd. Vs. JCIT (supra), wherein it has been held that payment made for such lease line charges was not royalty under DTAA and hence, there was no obligation to deduct tax at source. The Tribunal in turn, had relied on the decision of the Hon'ble High Court of Delhi in DIT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (supra). The Hon'ble High Court of Delhi had decided the issue on the general principles relating to international transactions of DTAA vis-à-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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one nation which is party to an agreement to tax income which otherwise was not subject to tax. Such income would not be subject to tax under the expression 'laws in force'. . . While considering the Double Tax Avoidance Agreement the expression 'laws in force' would not only include a tax already covered by the treaty but would also include any other tax as taxes of a substantially similar character subsequent to the date of the agree ment as set out in article I(2). Considering the express language of article I(2) it is not possible to accept the broad proposition urged on behalf of the assessee that the law would be the law as applicable or as define when the double taxation avoidance agreement was entered into." 22. In the facts of the case before the Hon'ble Bombay High Court the word 'royalty' was not defined in German Treaty and in that context, the Hon'ble Bombay High Court held that they were unable to accept the assessee's contention that law applicable 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax Act and the definition of 'royalty' having not been undergone any amendment in DTAA, the assessee was not liable to withhold tax on the lease line charges paid by it. 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 has been defined originally and not amended." 99. The Tribunal further decided the issue of whether expenditure incurred by assessee was reimbursement of charges and held as under:- "25. Now, coming to the next aspect of the issue that reimbursement of charges is not subject to tax in India. The basic principle underlying the same is that where reimbursement of expenses do not include any income element, then the same is not subject to tax in India. The assessee before us has filed extensive evidence in this regard i.e. Qwest Communications Inc had raised charges upon T-3, USA and 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 reimburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment royalty. 101. Applying the said propositions to the facts of present case, we hold that the assessee has not defaulted in non deduction of tax at source out of payments made for lease line charges. We also uphold the alternate plea of assessee that the said lease line charges are at best reimbursement of expenses and hence, not liable for deduction of tax at source. The grounds of appeal No.4 to 5 are allowed. 102. The next issues which are raised vide grounds of appeal No.6 to 12 are in respect of training fees paid to Deere & Co. of Rs. 63.92.707/-, which as per the Assessing Officer was even for technical services under the Income Tax Act as well as under DTAA between India and USA. Vide grounds of appeal No.7 and 8, the assessee has raised the said issue. Vide grounds of appeal No.9 to 12, the authorities below have held the assessee to be in default for non deduction of tax at source on charges paid to Deere & Co. on account of reimbursement of salary of expat employees of Rs. 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices to apply technology contained therein. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (346 ITR 504) and Hon'ble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd (346 ITR 467) in support of this proposition, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. We, therefore, hold that unless there is a transfer of technology involved in technical services extended by the UK based company, the 'make available' clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 13(4)(c) of India UK tax treaty. No doubt, as pointed out by the learned Assessing Officer, there can indeed be situations in which technical training is imparted resulting in transfer of technology, even consideration for rendering of training services will 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider were general in nature and which did not involve any transfer of technology, it was held that where the onus was on Revenue authorities to demonstrate that these services too involve any transfer of technology and since that onus was not discharged, then the payment was not covered by the definition of 'Fees for Technical Services'. The facts of the said case are similar to the facts before us, wherein training availed by employees of assessee were web based services available on internet and no technical knowledge was being imparted by service provider and the Revenue has failed to demonstrate that the services did involve 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) 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 befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Vs. CIT (supra) and pointed out that the issue was decided against assessee. He also pointed out that SLP filed by assessee has been dismissed in the said case. 110. On the other hand, the learned Authorized Representative for the assessee has pointed out that factual aspects of said case were entirely different, where a offshore entity had deputed technical personnel to train Indian employees and hence, it was case of 'make available of skill behind services', to other parties. In this regard, he has placed reliance on the ratio laid down by the Ahmedabad Bench of Tribunal in the case of Burt Hill Design (P.) Ltd. (supra), wherein tax was deducted out of salary and it was held that there was no liability to deduct tax under section 201(1) of the Act. In respect of ratio laid down by the Hon'ble High Court of Delhi in the case of Centrica India Offshore Pvt. Ltd. Vs. CIT (supra), it was pointed out that where SLP has been dismissed, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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