TMI Blog2019 (2) TMI 1656X X X X Extracts X X X X X X X X Extracts X X X X ..... inging to tax the royalty from Test Tools Agreement. The grounds raised by the assessee are accordingly allowed. - ITA No.7231/Del/2017 Assessment Year : 2014-15 - - - Dated:- 12-2-2019 - Shri R.K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member Assessee by: Shri Nishant Thakkar, Advocate Revenue by: Shri G.K. Dhall, CIT, DR ORDER R.K. Panda, This appeal by the assessee is directed against the order dated 21st September, 2017 of the CIT(A)-23, New Delhi, relating to assessment year 2014-15. 2. The facts of the case, in brief, are that the assessee Qualcomm Technologies Inc. (QTI) is a company incorporated in the United States of America and is a wholly owned subsidiary of Qualcomm Incorporated, USA ( Qualcomm ). Pursuant to a corporate restructuring with effect from 1st October, 2012, substantially all the principal business units of Qualcomm (i.e., Qualcomm CDMA Technologies ( QCT ), Qualcomm Wireless Internet ( QWI ), Qualcomm Strategies Initiatives ( QIS ) etc., are now operated by QTI and its direct and indirect subsidiaries. QTI is engaged in the business of design, development an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices Limited Test Tools 11,14,957/- 11 Tech Mahindra Limited Test Tools 15,62,000/- 12 Wipro Limited Test Tools 8,75,855/- TOTAL 69,43,355/- 3. He observed that the assessee has offered the income mentioned in Sl.Nos.4 to 7 to tax in India as royalty. However, the payments made to persons mentioned at Sl.Nos.1 to 3 was stated to be not taxable in India. Similarly, it was explained that the amount received from persons mentioned at Sl.Nos. 8 to 12 of the above table on account of test tools are also not taxable in India. It was argued that based on the nature of services rendered by the assessee and the provisions of Article 12 of the Indo-US DTAA, the revenue received by the assessee under the BREW Agreements are not in the nature of royalty/fees for included services. Therefore, the revenue received under BREW Operator Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provision seeking to tax royalty payable by one non-resident to another non-resident in relation to income earned from a source in India. Under the provisions of section 9(1) (vi) (c) of the I.T. Act, it is not mandatory to bring the payer to tax before initiating the proceedings against the person receiving royalty income. (ii) In terms of Article 12(7) (b) of the DTAA between India and USA, the royalty arising to QTI is clearly taxable in India. The relevant article is reproduced as under:- Where under sub-paragraph (a), royalties or fees for included services do not arise in one of the contracting states, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the contracting states, the royalties or fees for included services shall be deemed to arise in that contracting state. In view of above, Hon ble DRP has confirmed the proposed additions of Royalty made on account of revenue received through BREW Operator Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 to use copyright to the telecom operators under the BREW Operator agreement and by disregarding the fact that the telecom operators are not permitted to make copies under the BREW agreement except for the purposes of back-up and archival. 5. Erred in not following the principles of judicial discipline and disregarding the judgement of the jurisdictional Hon'ble ITAT in the case of QUALCOMM Incorporated on similar facts. 6. Erred in irrelevantly presuming that the Appellant has conceded to the taxability under the Act merely because the Appellant has sought to rely on the beneficial scope of provisions under the Treaty. No. 2 - Revenue received by the Appellant under the Test Tools agreements is towards upgrades of software not for right to rise copyright 7. Erred in not considering the fact that the income under the Test Tools agreements for AY 2013-14 was offered by the Appellant to tax in order to buy peace and not to concede the position of non-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee should be allowed. 8. The ld. DR, on the other hand, heavily relied on the order of the Assessing Officer and CIT(A). 9. We have heard the rival submissions and perused the relevant material available on the record. We find, the Assessing Officer, in the instant case, following his order for the earlier years, brought royalty from Brew Operators Agreement to tax in the hands of the assessee u/s 9(1)(vi) of the Act as well as Article 12 of the Indo-USA DTAA. The ld.CIT(A) upheld the action of the Assessing Officer. We find the issue stands decided in favour of the assessee by the decision of the Tribunal in assessee s own case from assessment year 2005-06 to 2012-13. We find the Tribunal, in the consolidated order dated 16th April, 2018 for assessment year 2009-10 to 2012-13, vide para 46 of the order, has discussed the issue and held that the royalty from BREW Operators Agreement is not chargeable to tax in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 software. The license fee for the right to reproduce and use the BREW Software cannot be anything else but royalty. There is a distinction between sale and license since in a sale no agreement is entered into between buyer and seller, however in case of licensing of software an agreement is entered into between copyright holder and the user. Grant of license is granting the user a right to use the software. The assessee's submission that in cases where rights acquired are limited and necessary only to enable the user to operate the program and allow the user to copy the program on the user's computer hard drive, payments would not be treated as towards royalty but as towards business income is not acceptable. The assessee itself agrees that payment is made for only the right to use the software and no other title or interest in the software is transferred to the payer. There is no transfer of ownership rights. Various de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensee's ownbusiness as defined within the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee orused 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 ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred arespecific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, wherethey do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as royalty either under the Income Tax Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub-licence or transfer the copy of software to any third party without the consent of Infrasoft. 93. The licensee has been prohibited from copying, de compiling, de-assembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee company and its customers stipulates that all copyrights and intel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DITv. M/s Nokia Networks OY(Supra) as not amounting to acquiring a copyright in the software. 99. In view of the above we accordingly hold that what has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income.' 107.Learned Departmental Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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