TMI Blog2021 (10) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 - N.V. Vasudevan, Vice President And B.R. Baskaran, Member (A) For the Appellant : Nageshwar Rao, A.R. For the Respondents : Neera Malhotra, D.R. ORDER Per B. R. Baskaran, Accountant Member The assessee has filed this appeal challenging the final assessment order dated 15.4.2019 passed by the A.O. for assessment year 2016-17 u/s. 143(3) r.w.s. 144C(13) of the Act in pursuance of directions given by Ld. Dispute Resolution Panel (DRP). The Ld. A.R. submitted that the only issue urged by the assessee relates to validity of assessing the sale proceeds of software sold to Indian customers as royalty income. 2. The Ld. A.R. submitted that the assessee is a company incorporated and operating in Netherlands and hence, it is a tax resident of Netherlands. During the year under consideration, the assessee has sold software to Indian customers. The assessee is engaged in business of selling software. The sales proceeds received by the assessee was ₹ 1132.10 crores. The A.O. held that the above said sale proceeds constitute royalty both u/s. 9(1)(vi) of the Act and under DTAA entered between India and Netherlands. Accordingly the A.O. passed the draft a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the A.O. for examining it afresh and assessee may be directed to furnish the agreements that may be called for by the A.O. 5. In the rejoinder, the Ld. A.R. submitted that the facts prevailing in 2014-15 and in this year are identical. He submitted that there is no change in the agreement entered by the assessee with the buyers of software. He further submitted that the A.O. examined the various clauses of systems integrated agreements and software license agreement and extracted the same in the assessment order of the year under consideration. He submitted that a reading of the clauses extracted by the A.O. would show no copy right is passed on to the buyer of the software. Accordingly, he submitted that the decision rendered by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra) will squarely apply to the facts of the present case and hence the sale consideration received by the assessee on sale of software licenses shall not become royalty within the meaning of DTAA entered between India and Netherlands. 6. We heard the rival contentions and perused the record. We notice that the assessee is entering into two types of ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Cisco's policies including, but not limited to trademark usage and advertising policies, and be subject to Cisco's prior written approval. Integrator agrees not to attach to any Products any trademarks, trade names, logos, or labels other than an aesthetically proper label identifying the Integrator, its location and its relationship to Cisco. Integrator further agrees not to affix any Marks to products other than genuine Products. 8. The relevant portion of the Software License Agreement is reproduced below showing the License restrictions: 2.0 LICENSE RESTRICTIONS 2.1 If CISCO NAM Software is licensed to a Service Provider by an Integrator, Integrator may grant Service Provider the non-exclusive, non-transferable license to distribute Remote Site Software in the Territory to its End Users subject to these Special License Terms on a temporary basis while Service Provider is providing call centre services via the CISCO NAM Software to such End User. Service Provider's license to such End User must be via a Sublicense between Service Provider and End User where this Sublicense meets the requirements set forth in the Agreement to which this Exhibit is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware under ASD, one (1) compact disc master containing the Update image(s) and update instructions. 3.2.1.2. For category S Product, Maintenance Releases, if released by Cisco, will be provided to Integrator upon request. In order to receive Major Releases and Version Releases, Integrator must subscribe to the SSP Program. 3.2.1.3 For all other Software Updates, if released by Cisco, will be provided to Integrator upon request. 3.2.2 Release Support. Cisco will support each Major Release and Version Release in accordance with the Cisco End-of-Life policy as posted at http://www.cisco.com/end/US/products/products_end-of-life_policy.html.Cisco, in meeting any support obligations, may require an upgrade to a subsequent release. 3.2.3 Software patches. When required, Cisco will provide new Software to Integrator to correct a problem, or provide a network-bootable Software image, as Integrator and Cisco agree. 3.3 Hardware support. Cisco will provide Advance Replacement service for Hardware as follows: 3.3.1 Cisco shall provide Advance Replacement service as follows: Cisco will ship the replacement non-configured Service Part the same business day providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under consideration also. He submitted that the assessee is not transferring any copy right, but granting only user license. Accordingly, it has been contended that the decision rendered by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (supra) was rightly applied by the co-ordinate bench in AY 2014-15 and the same should be followed in this year also. 8. In the instant case, we noticed that the AO has extracted relevant clauses of the agreement in the assessment order and they are reproduced by us in the preceding paragraphs. A perusal of the same would show that the assessee is granting license to the integrators and also authorizing the integrator to grant license only for the purpose of using the software. An identical issue of granting license to use software was examined in the context of its taxability as royalty by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (supra). The Hon'ble Supreme Court examined this question considering four types of situations, which has been narrated as under:- 4. The appeals before us may be grouped into four categories: (i) The first category deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EULA. 47. In all these cases, the license that is granted vide the EULA, is not a license in terms of section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in sections 14(a) and 14(b) of the Copyright Act, but is a license which imposes restrictions or conditions for the use of computer software. Thus, it cannot be said that any of the EULAs that we are concerned with are referable to section 30 of the Copyright Act, inasmuch as section 30 of the Copyright Act speaks of granting an interest in any of the rights mentioned in sections 14(a) and 14(b) of the Copyright Act. The EULAs in all the appeals before us do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid position will suffice. If an English publisher sells 2000 copies of a particular book to an Indian distributor, who then resells the same at a profit, no copyright in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 11. We also notice that the decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Co Ltd. (supra) has been reversed by Hon'ble Supreme Court in paragraph 101-102 of its order. Similarly, the decision rendered in the case of Synopsis International Old Ltd. (supra) by Hon'ble Karnataka High Court has been reversed in paragraph 103 - 109 of its order. Before us, the Ld. A.R. submitted that the terms of agreements remain the same during the year under consideration also. Accordingly, as per the decision rendered by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra), sale proceeds received by the assessee on sale of software licenses cannot be categorized as Royalty within the meaning of provisions of DTAA. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete the addition made as royalty income. 12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 30th Sept, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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