TMI Blog2016 (11) TMI 1651X X X X Extracts X X X X X X X X Extracts X X X X ..... puted that the said definition had not undergone any change despite the amendment to Sec. 9(1)(vi) brought in through Finance Act, 2012. It is trite law that an assessee can fall back on the DTA when it is more advantageous to it. Hon ble Delhi High Court in the case of Infrasoft Ltd [ 2013 (11) TMI 1382 - DELHI HIGH COURT] had clearly held that subsequent amendment to Sec. 9(1)(vi) of the Act in so far as it relates to definition of Royalty was not relevant when an assessee relied on DTAA provisions which were more beneficial to it. In the circumstances, following decisions of Co-ordinate Bench of earlier years, we are of the opinion that the receipts of the assessee from DSSPL could not have been considered as Royalty in the hands of the assessee liable for taxation in India. Addition made stands deleted. - Decided in favour of assessee - I.T.A. No. 1399/Mds/2014 - - - Dated:- 30-11-2016 - Shri N.R.S. Ganesan, Judicial Member And Shri Abraham P. George, Accountant Member Appellant by: Shri. Pranith Golecha, C.A. Respondent by: Shri. G.M. Doss, IRS, CIT. ORDER Abraham P. George, In this appeal filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned assessment year was based on the very same regional support agreements entered by the assessee with M/s. DSSPL which was considered by the co-ordinate Bench in the decisions for assessment years 2002-03 to 2006-2007. 4. Per contra, ld. Departmental Representative strongly supporting the orders of the lower authorities submitted that decisions cited by the ld. Authorised Representative had not considered Explanation 4 to Sec. 9(1)(vi) of the Act which was brought in by Finance Act, 2012 with retrospective effect 01.06.1976. According to the ld. Departmental Representative, through the Explanation, definition of Royalty was broadened to include transfer of copy righted software as well as copy right in software. As per ld. Departmental Representative, by virtue of the said Explanation, payments received by the assessee from DSSPL came within the ambit of Royalty. Thus, according to him, as per the mandate of Sec. 9(1)(vi) of the Act, royalty income had to be deemed as arising or accruing in India, and therefore liable to tax in the hands of the assessee. 5. Ad libitum reply of the ld. Authorised Representative was that definition of the term Royalty in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for this reason, the payment for software cannot be treated as payment for use of copyright in the software. As we hold so, we may mention that in the case of Gracemac (supra), a contrary view has been taken but that conclusion is arrived at in the light of the provisions of clause (v) in Explanation 2 to Section 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 Article 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 Section 90(2) of the Act, the provisions of India Israel tax treaty clearly override this statutory provision. In Gracemac decision (supra), the coordinate bench was of the view that the provisions of the applicable tax treaty and the Income Tax Act are identical - a position which does not prevail in the situ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within meanings of that expression under Explanation 2 to Section 9 (l)(vi) of the Income Tax Act. However, when this decision came up for scrutiny of Hon'ble Delhi High Court, in the case reported as Asia Satellite Telecommunications Co Ltd Vs DIT (332 ITR 340), Their Lordships, 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 Section 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, trade mark, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Bench in the case of Motorala Inc. vs. DCIT(2005-TII-10-ITAT-DEL-SBINTL), the Tribunalhas held that the payment is not in the nature of income arising or accruing in India within the meaning of Section 9(1)(vi) and therefore, no taxability arises in India on such payments. The Tribunal held that it is a case of outright purchase and no income arises in India . Contention of the ld. Departmental Representative before us is that there was an amendment to Sec. 9(1) (vi) by Finance Act, 2012 which retrospectively brought in Explanation 4 thereby expanding the meaning of the term Royalty to include transfer of any right whether it was through a copy righted software, or a copy right in software. In other words, as per ld. Departmental Representative Royalty would be payable irrespective of whether the item sold was shrink wrapped software or not. However, we find that Co-ordinate Bench had in its orders for the earlier years relied on the DTAA between India and USA for construing the meaning of the term Royalty which was available in Article 12(3). It is not disputed that the said definition had not undergone any change despite the amendment to Sec. 9(1)(vi) brought in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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