TMI Blog2019 (5) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... Logo and Trade Marks were in the nature of Royalty covered under Article 12 of the Double Tax Avoidance Agreement (DTAA) between India and USA and therefore, the Assessee, Indian Company was liable to deduct tax at source and pay the same to the State. On account of its failure to do so, it was also liable to pay interest thereon u/s 201(IA) - appeal dismissed - Tax Case Nos.2184 And 2185 of 2006 - - - Dated:- 23-4-2019 - Dr. Justice Vineet Kothari And Mr. Justice C.V. Karthikeyan For the Appellant : Mr.S.Gopalakrishnan Official Liquidator For the Respondent : Mr.Karthik Ranganathan Senior Standing Counsel assisted by Mr.S.Rajesh COMMON JUDGMENT DR.VINEET KOTHARI, J. The Assessee M/s.Zylog Systems Limited, Chennai now said to be in Liquidation, had filed these Tax Cases under Section 260-A of the Income Tax Act, by raising the following purported substantial questions of law arising from the order passed by the Income Tax Appellate Tribunal dated 27.1.2006, by which the learned Tribunal dismissed the Appeal filed by the Assessee for the Assessment Years 2001-02 and 2002-03 and upheld th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival submissions on either side, and also perused the material available on record. Admittedly, the assessee entered into an agreement with a foreign company M/s. Bluestone Software Inc. Clause 1.4 of the agreement reads as follows: 1.4 License to Use BluestoneTrademark/Service Marks. Bluestone grants to Licensee a worldwide, non-exclusive, non-transferable license to use the trademarks, service marks, notices, and/or logos of Bluestone which are set forth on Exhibit F (which may be updated from time to time by an agreement of the parties) solely to indicate that the Applications contain the Licensed Products and/or for any other purpose specifically authorized by this agreement. 20. From the above clause in the agreement it is very clear that the assessee was given the right to use trademark and logo of the foreign company Mls.Bluestone Software Inc. in order to market the commodity as Licensed Product of Mis. Bluestone Software Inc. Therefore, the assessee was given a right to use the trademark by the foreign company for which the assessee has to pay the amount annually. Clause 1.1 of the agreement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntific equipment other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 or Article 8. 23. From a bare reading of the above definition given in the Double Taxation Avoidance Agreement, it is very obvious that any payment received as consideration for use of or right to use copyright or an artistic work or a trademark design or plan would amount to royalty within the meaning of Article 12(3) of the Double Taxation Avoidance Agreement. In. this case, what was paid by the assessee as an annual fee is for the use of software which gives a right to use, copy develop and market the same by using the trademark and logo of Mls.Bluestone Software Inc. Therefore, the payment made by the assessee as annual fee would be for the purpose of using the software for copying and developing and also for using the trademark or logo for marketing the product in Indian market. Therefore, in our opinion, the payment of annual fee by the assessee to Mls.Bluestone Software - Inc. squarely falls within the definition royalty as provided in Article 12(3) of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd export of software for use of its parent company. The software developed by the assessee is for in-house use by the parent company. The assessee imported software product from Tektronix Inc., USA. The assessee has also imported software product from France and Sweden. The assessee contended before the Bangalore Bench of this Tribunal that the software imported by the assessee are readily available in market, therefore, the payment made to software company cannot be treated as royalty. In those factual situations, the Bangalore Bench of this Tribunal found that under Double Taxation Avoidance Agreement, the consideration paid must be for use or right to use any copyright of literary or artistic or scientific work. The Bangalore Bench found that the assessee has received only a copy of the copyright article and the incorporeal right to software remained with owner. Therefore, the Bangalore Bench concluded that the assessee had merely purchased a copy of the copyright article, therefore, the payment does not fall within the. meaning of royalty as provided in Double Taxation Avoidance Agreement . In the case before us/ as per agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the payment was relatable to royalty within the meaning of Double Taxation Avoidance Agreement, irrespective of explanation to Section 191 the assessee is liable to deduct tax. Therefore, it may not be necessary for this Tribunal in this case to go into the explanation to Section 191 and find out whether it is retrospective in operation or prospective in operation. 29. Now coming to charging of interest under Section 201(IA), the contention of the assessee is that the interest has to be computed from the date on which tax was deductible to the date on which tax was actually paid. Since, the tax was not deducted and tax was not paid, it is not practicable to calculate interest on the basis of provisions of Sec.201(IA). We have also carefully gone through the decision of this Tribunal in the case of Anusha Investments Ltd. (supra). There is no dispute that the charging section and computation procedure provided in the machinery provision constitute an integrated code. When the income could not be computed as per the machinery provisions provided under the Act, there cannot be any levy of tax. In this case, it is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. Clause 2.1 deals with grant of rights. It provides, Software License Synopsys hereby grants licencee a non-exclusive, nontransferable license, without right of sub-licence of use the licensed software and design techniques only in the quantity authorized by a licensee in accordance with the documentation in the use area. Licensee may make a reasonable number of copies of the licensed software for backup and/or archival purposes only. Merely because the words non-exclusive and non-transferable is used in the said licence it does not take away the software out of the definition of the copyright. The word licenced software has been defined. Similarly, the words design, design technique is also defined. The word documentation is also defined and it is not in dispute what is granted is a license. Even if it is not transfer of exclusive right in the copyright, the right to use the confidential information embedded in the software in terms of the aforesaid licence makes it abundantly clear that there is transfer of certain rights which the owner of copyright possess in the said computer software/programme in respect of the copyright owned in terms of the DTAA th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order. 7. The learned Official Liquidator for the Assessee could not controvert the aforesaid submission of the learned Senior Standing Counsel for the Revenue. 8. Having gone through the judgment of the Karnataka High Court and the order impugned of the learned Income Tax Appellate Tribunal, we agree with the view taken by the Karnataka High Court on the issue that the payments made by the Assessee Company to the US Company for user of its Software, Logo and Trade Marks were in the nature of Royalty covered under Article 12 of the Double Tax Avoidance Agreement (DTAA) between India and USA and therefore, the Assessee, Indian Company was liable to deduct tax at source and pay the same to the State. On account of its failure to do so, it was also liable to pay interest thereon under Section 201(IA) of the Act. 9. Thus, we do not find any merit in the present Appeals filed by the Assessee and the same are liable to be dismissed and accordingly, the same are dismissed. The questions framed, as quoted above, are answered against the Assessee and in favour of the Revenue. No order as to costs. - - TaxTMI - TMITax - Income ..... 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