TMI Blog2022 (3) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. - I. T. A. Nos. 6603/Delhi/2019 And 191/Delhi/2021 - - - Dated:- 16-11-2021 - N. K. Billaiya (Accountant Member) And Sudhanshu Srivastava (Judicial Member) For the Assessee : Ananya Kapoor , Advocate For the Department : Smt. Anupama Anand , Commissioner of Income-tax, Departmental representative ORDER N. K. BILLAIYA (ACCOUNTANT MEMBER) .- 1. I. T. A. Nos. 6603/Delhi/2019 and 191/Delhi/2021 are two separate appeals by the assessee preferred against the two separate orders of the Commissioner of Income-tax (Appeals)-43, New Delhi dated May 3, 2019 and February 5, 2020 pertaining to the assessment years 2015-16 and 2016-17 respectively. 2. Since common grievances are involved in these appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity. 3. The common grievance relates to :- (1) Treating revenue received by the assessee under the BREW agreement as taxable under the provisions of article of India-US DTAA. (2) Treating revenue received by the assessee under the test tool agreements as income of the assessee. 4. At the very outset the counsel for the assessee stated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the grant of licence to manufacture the various products for the right to use products of the assessee's intellectual property portfolio which includes certain software right essential to and/or useful in the manufacture and sale of certain wireless products. 7. After considering the submissions of the assessee the Assessing Officer discussed the assessment history as under : 9. Assessment history In the earlier years, in the case of Qualcomm, the Assessing Officer made the following observations which are also identically applicable in the assessee's case for the current assessment year : (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 the assessment years 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 Income-tax Act and under article 12 of Ind-US DTAA. (c)(i) Section 9(1)(vi) of the Income-tax Act is a deeming provision seeking to tax royalty payable by one non-resident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance Jio Infocomm Ltd. are identical and has same spirit. Hence, the same is also treated as royalty under the provisions of the Income-tax Act, 1961 and also under the Indo-USA DTAA as mentioned above. 11.7 in the view of the above discussions the income of the asses see from licensing of BREW software, under the head Test Tools and development of Ultrason Software is taxable under section 9(1)(vi) of the Income-tax Act and under article 12 of Indo-US DTAA. 9. A perusal of the past history of the assessee show that the impugned quarrel started from the assessment year 2005-06 and this Tribunal in Qualcomm Incorporated v. Asst. DIT, International Taxation (I. T. A. Nos. 3701 and 3702/Delhi/2009, 5343/Delhi/2010 and 4608/Delhi/2011) for the assessment years 2005-06 to 2008-09 has considered the quarrel and held as under : 102. That takes us to ground No. 4, as raised by the assessee, against holding that the revenues received by the appellant under the BREW Operator Agreement and BREW Carrier Agreement is taxable as royalty income in India under section 9(1)(vi) of the Act and article 12 of the India-USA tax treaty. The assessee contends that in doing so, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 decisions of the Supreme Courts and High Courts clarify that sales constitutes out and out transfer, whereas in licence there is only right to use. Some of these decisions are at CIT v. CIBA of India Ltd. [1968] 69 ITR 692 (SC), CIT v. Wavin (India) Ltd. [1999] 236 ITR 314 (SC), CIT v. Hindustan General Electrical Corporation Ltd. [1971] 81 ITR 243 (Cal), 67 ITR 227 ??. Thus this reasoning of the assessee has no legal or factual basis. In this case, the user only has a right and gets a licence to use the software. Even in the OECD commentary it is mentioned that the character of payments received in transactions involving the transfer of computer software depends upon the nature of rights that the transferee acquires under the particular arrangement, regarding the use and exploitation of the program. The rights in computer programme are in the form of intellectual property. It has further mentioned payments made for the acquisition of partial right in the copyright (without the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from making copies, decompile, disassemble or reverse-engineer the Soft ware 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 rights in and to the software, and copies made by licensee, are owned by or duly licensed to Infrasoft. 86. 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 manus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially coextensive with the owner/transferor who divests himself of the rights he possesses pro tanto. 89. The licence granted to the licensee permitting him to down load 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. 90. 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 artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in the nature of royalty. 94. We have not examined the effect of the subsequent amendment to section 9(1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the assessee is covered by the DTAA, the provisions of which are more beneficial. 95. The amount received by the assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 96. 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. 97. We are not in agreement with the decision in the case of CIT v. Samsung Electronics Co. Ltd. [2012] 345 ITR 494 (Karn) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, are the same. 114. In view of the above position, and following our decision for the assessment year 2007-08, we hold that the observations made in the order for the said year will apply mutatis mutandis to this assessment year as well. The issue regarding taxation of royalty in respect of the CDMA handsets and equipment thus stands restored to the file of the Assessing Officer, and the addition in respect of invoicing the revenues under the BREW agreement thus stand deleted. 115. In the result, the appeal for the assessment year 2008-09 is also partly allowed in the terms indicated above. I. T. A. Nos. 3701 and 3702/Delhi/2009 Assessment years 2005-06 and 2006-07 116. That leaves us with the I. T. A. Nos. 3701 and 3702/Delhi/ 2009, i. e., appeals filed by the assessee for the assessment years 2005-06 and 2006-07 against the consolidated order dated June 26, 2009 passed by the Commissioner of Income-tax (Appeals) in the matter of assessment under section 143(3) of the Income-tax Act, 1961, which was a consolidated order for the assessment years 2000-01 to 2006-07. 117. Vide order dated January 31, 2013, a co-ordinate Bench of this Tribunal has alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2014-15 this Tribunal following the earlier orders of the co-ordinate Bench held as under : 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 royally from BREW Operators Agreement to tax in the hands of the assessee under section 9(1)(vi) of the Act as well as article 12 of the Indo-USA DTAA. The learned Commissioner of Income-tax (Appeals) 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 the asses see's own case from the assessment years 2005-06 to 2012-13. We find the Tribunal, in the consolidated order dated April 16, 2018 for the assessment years 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 hands of the assessee under section 9(1)(vi) of the Act as well as article 12 of the Indo-US DTAA. 11. In so far as the second issue is concerned the co-ordinate Bench held as under : Respectfully following the orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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