TMI Blog2020 (10) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty under the provision of section 9 (1)(vi) of the Act as well as Article 12 of the India-Sweden DTAA. - Decided in favour of assessee. - ITA No. 1185/Del/2019 - - - Dated:- 20-10-2020 - Shri R.K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Assessee : Shri Vishal Kalra, Advocate For the Department : Shri Satpal Gulati, CIT(DR) ORDER PER R.K. PANDA, AM This appeal filed by the assessee is directed against the order dated 1.11.2018 of Ld. CIT(A)43 New Delhi relating to assessment year 2014-15. 2. Facts of the case, in brief, are that the assessee is a company incorporated in Sweden and is engaged in the business of sale of software products and rendering information technology services. The business of the assesseee includes software materialization, marketing and support of the software material Qlikview for which it enjoys all intellectual property rights such as patent, trademark and copy rights. The assessee has entered into an agreement with its subsidiary QlikTech India Private Ltd. for onward sale of shrink wrapped software to the end users/ customers in India as per the distribution / license agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on evidence (which is unverified) from the internet, some of which are only Analysts' comments. 5. The learned CIT(A) has erred in law and on facts in coming to a completely new conclusion, not canvassed by the Assessing Officer ( AO ). Without prejudice to the above - 6. The learned CIT(A) has erred in law and on facts in concluding that the consideration received by the Appellant is for the transfer of information of commercial or industrial nature without appreciating the fact that what is being distributed is only a software, as a product, and not any commercial or industrial information as such. Copyright vs Copyrighted Article 7. The learned AO and the CIT(A) have erred in law and on facts in holding that the sale of software products by the Appellant to its Indian distributors for further sale to endusers is in the nature of transfer of copyright and therefore taxable in hands of the Appellant as 'royalty' under the provisions of section 9(i)(vi) of the Act as well as under Article 12 of the India-Sweden DTAA 8. The learned AO and the CIT(A) have erred in law and on facts in failing to appreciate that the sale of software is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... den, therefore, in view of Section 90(2) of the Act or the DTAA whichever is more beneficial to the assessee shall apply. He submitted that since the definition of royalty provided under Article 12 of the India-Sweden DTAA is more beneficial as compared to the provisions of Section 9(1)(vi) of the Act, therefore, the DTAA shall apply. He submitted that the Tribunal in assessee s own case for the immediately preceding asstt. Year i.e asstt. Year 2012-13 and 2013-14 had held that what is being provided by Qlik India to end users is neither the copyright in the software nor the use of the copyright in the software but right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. It has held that the right that is being 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. He submitted that the QlikTech Software product in question in the current year and also in the preceding assessment year is the same, He further submitted that the sale of software in the instant case cannot be held to be use of process or information conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. He submitted that the amendment in the DTAA unilaterally cannot be enforced, therefore, the provisions of Section 9(1)(vi) are not applicable to the instant case. Relying on various other decisions he submitted that the courts have held that in the case of sale of software the payment is towards the sale of copyrighted article and not towards the copyright and therefore, do not get covered by the definition of royalty as per the DTAA and therefore, not taxable in India. He accordingly submitted that payments received by the assessee during the subject assessment year from the sale of software would not be taxable under section 9(1)(vi) of the Act read with Article 12 of the India-Sweden DTAA. 8. Ld. DR on the other hand strongly relied on the order of the Ld. CIT(A). He submitted that Ld. CIT(A) has distinguished the case of the assessee by highlighting that it is not a case of sale of simplicitor software. He submitted that Ld. CIT(A) using the information available in public domain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome up before the Tribunal in assessee s own case in the immediately preceding assessment years. We find in those two years the revenue had come up before the Tribunal challenging the order of the Ld. CIT(A) wherein he had held that receipts of the assessee from sale of software are not taxable as royalty although by selling software assessee has transferred the rights to use to software. Ld. CIT(A) in those two years have held that receipts of the assessee from sale of software are not taxable as royalty even when explanation 4 to section 9(1)(vi) of the Act clearly states that consideration in respect of transfer of all or any rights for use or right to use a computer software irrespective of the medium through which such right is taxable as royalty. We find the Tribunal after considering various decisions including the decision of Hon ble Delhi High Court in the case of DCIT Vs Infrasoft Ltd. 264 CTR 329 and in the case of DIT Vs M/s Nokia Networks (358 ITR 259) has decided the issue as under :- 6. In this background the points to be adjudicated would be a) Whether the receipts from sale of software be treated as royalty or not. b) Whether the effect of amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to the Software,and copies made by Licensee, are owned by or duly licensed to Infrasoft. 86. The Licensing Agreement shows that the license is non-exclusive, 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 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 own business 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 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 Sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a nonexclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies made by the licensee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to Infrasoft. 94. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 95. We have not exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation that the right to use granted through licensing of a software does riot fall within the meaning of Royalty as provided for in the domestic law or the DTAA. Any consideration for the same is not taxable as Royally under section 9(1)(vi) or the relevant DTAA. Thus what has been transferred by the appellant 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. 10. Regarding the applicability of amendment in Section 9(1)(vi) brought out by Finance Act, 2012, we find that this issue of applicability has been examined in the case of DIT Vs New Skies Satellite BV by the Hon ble Delhi High Court in ITA 473/2012. The Hon ble Court observed that the only manner in which change in position of the provisions of the treaty can be relevant only if such change is incorporated into the agreement itself and not otherwise. A chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise. A change in executive position cannot bring about a unilaterall legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State s discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this Court to hold that such amendments are applicable to the DTAAs. 11. From the above judgment, it can be concluded that the amendment in the DTAA unilaterally cannot be enforced, hence, the provisions of Section 9(1)(vi) are not applicable to the instant case. The contention of the Assessing Officer cannot be upheld. 12. In the result, both the appeals of the revenue are dismissed. 11. Since the facts of the instant assessment year are identical to the facts of the two preceding assessment years decided by the Tribunal in assessee s o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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