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TMI Blog2019 (2) TMI 1656X X X X Extracts X X X X X X X X Extracts X X X X ..... of design, development and marketing of digital wireless telecommunications products and services based on Code Division Multiple Access ('CDMA'), Orthogonal Frequency Division Multiple Access ('OFDMA') and other technologies. It filed its return of income on 30th September, 2014 declaring nil income and claiming a refund of Rs. 27,57,260/-. The Assessing Officer, during the course of assessment proceedings, observed that the assessee has provided services and received revenues from the following customers:- S. No. Customer Nature of Services Amount Received 01 Sistema Shyam Teleservices Ltd. BREW 1,79,27,054/- 02. Tata Teleservices Limited BREW 1,76,74,580/- 03. Tata Teleservices(Maharashtra) Ltd. BREW 49,23,473/- TOTAL 4,05,25,107/- 04. Sohamsaa Systems Private Limited Software License fee - Royalty 14,43,952/- 05 Real Image Media Technologies Pvt. Ltd. Software License fee - Royalty 55,61,980/- 06. AllGo Embedded Systems Pvt. Ltd. Software License fee - Royalty 6,11,000/- 07 Smartplay Technologies(India) Pvt. Ltd. Software License fee - Royalty 6,25,000/- TOTAL 82,41,932/- 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The Assessing Officer followed the reasoning given in the earlier years' orders in the case of M/s Qualcomm, which were confirmed by the CIT(A) and DRP, for the current year also and brought to tax an amount of Rs. 4,05,25,107/- being royalty from Tata Teleservices Limited, Systema and Tata Teleservices (Maharashtra) Limited under BREW agreement taxable @ 10.56% as per IT Act 1961 and Rs. 69,43,355/- being Royalty from M/s Alcatel Lucent Technologies India Pvt. Ltd., Aricent Technologies, TTSL, Tech Mahindra and Wipro Limited as test tools taxable @ 10.56%. The observations of the Assessing Officer at para 10 of the assessment order is relevant which is being reproduced as under:- (a) "The payment received by the assessee under the BREW Operator Software agreements qualifies as royalty as per Indian Income Tax Act as well as India- US DTAA. The reasons have been mentioned in detail in the assessment orders for AY 2008-09 and 2011-12. (b) The income of the assessee from licensing of BREW software Indian operators is taxable under section 9(1) (vi) of the I.T. Act and under article 12 of Indo - US DTAA. (c) (i) Section 9(1 )(vi) of the I.T. Act is a deeming pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a copyrighted article and not for light to use copyright 1. Erred in upholding the application of provisions of section 9(l)(vi)(b) of the Income-tax Act, 1961 (the 'Act') and Article 12 of lndia-US tax treaty (Tax treaty') for taxing the income of the Appellant earned towards sale of copyrighted article i.e. BREW software to telecom operators in India. 2. Erred in principle in holding that the sale of a copyrighted article shall be governed by the Sale of Goods Act, 1930 and the Indian Customs Act in case of import of an article and considering the transaction under BREW Operator agreement is not subject to Indian Customs Act, the sale of BREW software is not a copyrighted article. 3. Erred in comparing the transaction of sale of BREW software by QTI with grant of right by an author to a publisher for printing and making of copies, without appreciating the fact that there is no grant of right to use copyright by QTI to the telecom operators. Whereas in the case of a publisher, the right to use copyright is granted by the author for printing and making copies in exchange of royalty. 4. Grossly erred in concluding that QTI grants a right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 7. So far as Ground No.1 and 2 are concerned, the ld. counsel for the assessee, referring to the order of the Tribunal for assessment year 2005-06 to 2008-09 vide ITA No.3701 & 3702/Del/2009, 5343/Del/2010 and 4608/Del/2011, order dated 20th February, 2015, submitted that the Tribunal in the consolidated order has held that royalty from Brew Operators Agreement is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) of the Act as well as Article 12 of the Indo-US Treaty. He submitted that following the above decision the Tribunal, again, in assessee's own case in ITA Nos.5353/Del/2012, 1241/Del/2014, 7064/Del/2014 & 189/Del/2016 from assessment year 2009-10 to 2012-13 vide consolidated order dated 16th April, 2018 has followed the same and held that royalty from BREW Operators Agreement is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) of the Act as well as Article 12 of the IT Act. He accordingly submitted that this being a covered matter in favour of the assessee by the decision of the Tribunal in assessee's own case for past so many years, the order of the CIT(A) should be set aside and the grounds raised by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has invoiced an amount of Rs. 2,52,70.569 to Tata Teleservices Limited under BREW (Binary Runtime Environment forWireless) agreement. It was noted that it is an application development platform, developed by Qualcomm, for mobile phones that enables users to download and run applications for playing games, sending messages and sharing photos etc. It was also noted that this platform runs between the application and wireless device's chip operating system so that programmers can develop applications for wireless device without the code for system interface or understanding operating systems. It was also noted that end users of BREW customers are the carriers who pay an enablement fees based on device sales or a revenue share for application software that are downloaded. On these facts, the Assessing Officer proceeded to bring the same to tax by observing as follows: I have perused the submissions made by the assessee. However, this hypothesis is not correct as Software is licensed and not sold. Furthermore as per the terms of the BOA as reproduced above, the assessee has given TATA Teleservices the license to reproduce and install the copyrighted soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and is in appeal before us. 105.We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 106. We find that the payment in question is admittedly the payment is for a software which is for a copyrighted article and not the copyright itself. There is nothing on record to suggest that the payment is for the copyright itself. In this view of the matter, the issue is clearly covered, in favour of the assessee, by Hon'ble Delhi High Court's judgment in the case of DIT v.Infrasoft Ltd. [2014] 220 Taxman 273/[2013] 39 taxmann.com 88wherein Their Lordships have, inter alia, observed as follows: '85. The Licensing Agreement shows that the license is nonexclusive, non-transferable and the software has to be uses in accordance with the Agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include Infrasoft's copyright and other proprietary notices. All c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 acquisition of a "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for "copyright ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts 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 be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of which are more beneficial. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97.What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Andhra Pradesh High Court in the case of Samsung Electronics Co. Ltd.(supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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