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TMI Blog2022 (3) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the learned assessing officer and the directions of Hon'ble DRP to the extent prejudicial to the appellant is had in law and liable to be quashed. Grounds relating to treatment of income from distance education under provisions of Income Tax Act,1961. 2. The Hon'ble DRP has erred in confirming the action of Id. AO in passing the assessment order under section 143(3) read with section 144(C) of the Act. 3. The Hon'ble DRP and the ld. AO have erred in holding that the income earned by the appellant is in nature of royalty under section 9(1)(vi) of the Income Tax Act,1961. 4. The ld. AO has failed to appreciate that the payment made by a resident company to the appellant cannot be treated as royalty, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the local laws of Malaysia. The company is an educational institution based out of Malaysia which provides online education courses to individuals and corporates. Edunxt is an educational institution based out of Malaysia which provides online education courses to individuals for various post-graduation courses. During the FY 2013-14, Edunxt had provided services to ABMC in the form of online education in MBA course to certain employees of ABMC. 2.1 It is submitted that the program was delivered and offered through the Edunxt platform (Learning Management System hosted on a third party cloud which is located outside India). The program duration is approximately 24 months comprising of 9 core subjects, 2 elective subjects and 1 research pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld.AO, assessee raised objections before the DRP. The DRP observed as under: "Having considered the submissions, we not at the outset, that the assessee could not furnish any documentation as to the terms governing the used of Edunxt platform (Learning Management System), though called for. Only the invoice raised by the assesse was submitted which do not contain any terms of use of the software provided and delivered to the employees of ABMCL. It is rather difficult to accept the contention that the assessee had not entered into any agreement either in writing or e-form as to the terms of use of the said software provided to the ABMC and its employees. The issue of taxability is addressed in this factual frame work." 3.2 The DRP thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efinition of royalty under Article-12 of the India-Malaysia is narrower than the definition of royalty under the Act. He submitted, while providing access to the online database the assessee does not provide the customer any right to use the copyright in the database. It is submitted, the assessee does not transfer any ownership right to the subscriber such as right to copy the database for reproduction and sale, right to grant license to any person who wishes to use the database. 4.3 He submitted, by providing access to the database, the assessee does not impart any information relating to underlying experience, skill, etc., which is required for evolving the database. It was also submitted that assessee do not share its experience, techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. We have perused the submission advanced by both sides in light of records placed before us. The Ld.AR submitted that under India Malayasia DTAA as per Article 12(3) of the "Royalty" is defined as "payments of any kind received as a consideration for the, "use of", or the "right to use", any copyright of a literary, artistic, or scientific work, including cinematographic films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or information concerning industrial, commercial, or scientific experience. The relevant article reads as under: "12. Royalty ......... 3. The term "royalties" as used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld.AR herein above. Hon'ble Supreme Court after analysing the provisions of Income tax Act, provisions of DTAA, the relevant agreements entered by the assessees with nonresident software suppliers, provisions of Copy Right Act, the circulars issued by CBDT, various case laws relied by the parties, concluded as under:- "CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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