TMI Blog2022 (4) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee was also holding the licensing of software products of Microsoft company in the Territory of India and selling to its customers in India,dealt with the identical issue as involved in the instant cases and while relying upon dictum laid down in Engineering Analysis Centre of Excellence Pvt. Ltd. case, accepted the proposition that licensing of software products of Microsoft in the territory of India by the Respondent (Assessee) is not taxable in India as Royalty under Section 9(1)(vi) of the Act read with Article 12 of the Indo US DTAA - Decided in favour of assessee. - ITA No. 3209 & 3210/Del/2018 - - - Dated:- 31-3-2022 - SHRI R. K. PANDA , ACCOUNTANT MEMBER AND SHRI N. K. CHOUDHRY , JUDICIAL MEMBER Revenue by : Shri Anand Kumar Kedia , CIT DR Assessee by: Shri Satyen Sethi , Adv ORDER PER N. K. CHOUDHRY , J. M. 1. These appeals have been preferred by the revenue against the orders dated 28.02.2018 impugned herein passed under section 250(6) of the Income Tax Act 1961 (in short the ACT ) by the ld. Commissioner of Income Tax (Appeals) 44, New Delhi { in short Ld. Commissioner } for the assessment years 2009-10 and 2010- 11. 2. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alter any grounds of appeal at the time or before the hearing of the appeal. 6. For brevity we will decide this appeal ground-wise. 7. Ground No. 1 is challenge to the deletion of addition made by the AO qua consideration received by the Assessee from various entities on account of sale/supply of software, by treating as royalty within the meaning of Article 12(3) of the India-Singapore-DTAA. 7.1 The Revenue department has claimed that the Assessee being a company based at Singapore providing professional services, software and network equipment etc. and during the year under consideration, has provided the said services to the companies in India like Mphasis Ltd and Gems Techno Solutions (India) Pvt. Ltd etc. and therefore, the issue was cropped up as to whether payment received for sale of software by the Assessee from the said companies, is to be treated as royalty as per the Act and DTAA. The AO held the consideration received on sale of software as royalty in nature and therefore, rightly added the said consideration received as addition in the income of the Assessee. However, the Ld. Commissioner held contrary while following the principle of consistency an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computer, including a workstation, terminal, or other digital electronic device (Computer). You may permit a maximum of five computers to connect to the single computer running the software product solely to access the internet using the internet connection sharing feature of the software product ..however, you must acquire and run a license for each separate computer on or from which the software product is installed, used .. When it comes to an end-user who is directly sold the computer programme, such end-user can only use it by installing it in the computer hardware owned by the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. In all these cases, the license that is granted vide the EULA is not a licence 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 .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue submits that ITAT has erred in holding that licensing of software products of Microsoft in the Territory of India by the Respondent was not taxable in India as Royalty under Section 9(1)(vi) of the Act read with Article 12 of the Indo US DTAA.{highlighted by us} 3. He states that the Tribunal has failed to appreciate that the distribution model in the case of the respondent assessee involved making of multiple copies of the software clearly indicating transfer of copyright. 4. Having heard learned counsel for the appellant, this Court finds that the issue raised in the present appeals is no longer res integra as the Supreme Court in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr., (2021) SCC OnLine SC 159 has held as under:- 4. The appeals before us may be grouped into four categories: i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act. xxxx xxxx xxxx 101. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income Tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income Tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA. Further, the expression copyright has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the AAR in Citrix Systems (AAR) (supra) does not state the law correctly and is thus set aside. xxxx xxxx xxxx 173. Our answer to the question posed before us, is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term royalty as held by the Supreme Court in Engineering Analysis Centre (supra). 15. We may also note that the learned AAR in its Impugned Order has relied upon its earlier view in Citrix Systems Asia Pacific Pty Ltd., In Re., (2012) 343 ITR 1 (AAR), which has been expressly stated to be bad law in Engineering Analysis Centre (supra). 16. The submission of the learned counsel for the Revenue that the judgment of the Supreme Court in Engineering Analysis Centre (supra) cannot be applied because it confines itself only to the four categories mentioned in paragraph 4, also cannot be accepted. Though the Supreme Court was on facts considering the four categories of cases that arose in the appeals before it, it has laid down the law for general application. The law, as laid down by the Supreme Court, when applied to facts of the present case, squarely covers the same in favour of the petitioners. 17. The submission ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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