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TMI Blog2019 (12) TMI 1642X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and in law, the learned CIT(A) has erred in holding that the Appellant is liable to withhold tax under section 195 of the Act at the rate specified in the DTAA or Act, whichever is beneficial. 3. To adjudicate on the above grievances, only a few material facts need to be taken note of the assessee before us is a domestic company engaged in the business of providing support services. During the relevant previous year, the assessee has made payment of us Rs. 1,58,062/- to Exida Asia Pacific Pte. Ltd., Singapore for licence fees C25 concurrent licences for "exSILentia version 3 ultimate bundle". While the assessee deducted tax at source @10%, while making the remittance, the assessee preferred an appeal under section 248 against the TDS liability, claiming that no tax is deductible from licence fee paid for software. Learned CIT(A) rejected the contentions of the assessee, and, in the operative portion of the order, observed, inter alia, as follows:- 6. The submission made by the appellant has been examined. It is seen that the appellant has made a payment to M/s Exida for obtaining a license to use exSilentia 3.0 Software by the appellant. The claim of the appellant is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based) or it can be accessed through the infra-network of the purchaser through Citrix(r) platform or can be accessed online. The 'Ultimate' version of the software comprises of a right to use safety related databases of the seller being in the nature of Exida Safety Equipment Reliability Handbook Viewer and a Proprietary Equipment Reliability Database in addition to SERH. These databases are specific to the online/intranet version with Citrix(r) platform. 6.4 Hence, while the plain standalone version of exsilentia software is in the nature of an independent software, the enterprise version is not so. There is a critical difference between the two as significant proprietary databases are allowed to be accessed by the enterprise Versions. Clearly the license fee paid by the purchaser not only relate to the cost of software but also for use or right to use such proprietary information. 6.5 Keeping in view the overall nature of the software license acquired by the appellant, it is noticed that this does not represent off-the-self or shrink wrapped software but software access alongwith database access which enables the appellant to conduct Safety Integrity Level Verific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar DTAA provision, has been held to be outside the ambit of "royalty". While holding so, the coordinate bench, in the case of ITO vs Cadila Healthcare Ltd. [(2017) 162 ITR 575 (Ahd)] has observed as follows:- 17. We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon'ble Delhi High Court in the case of DIT Vs Nokia Networks OY [(2013) 358 ITR 259 (Del)]. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. As a matter of fact, the AO righty noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(o) of the Copyright Act, includes 'literary database' but then he fell in error of reasonin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerning industrial, commercial or scientific experience. (4) The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or perform in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 15, as the case may be, shall apply. (5) Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience". The Special Bench, after a very erudite discussion on various facets of the issue before them, concluded that "we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the assessee in respect of the software cannot, therefore, be considered as royalty either under the IT Act or the DTAA". Right now we are only concerned with the provisions of the tax treaty, and we have noticed that the provisions of tax treaty as before the Special Bench are exactly the same as before us in this case. The issue, therefore, as to whether payment for supply of software can be viewed as a payment for copyright or not is no longer res integra. The Special Bench has decided this issue in favour of the assessee, and the views so expressed by the Special Bench, being from a higher forum than this division bench, are binding on us. In any case, as the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of India Israel tax treaty clearly override this statutory provision. In GracemacCorpn. case (supra ), the coordinate bench was of the view that the provisions of the applicable tax treaty and the Incometax Act are "identical" - a position which does not prevail in the situation before us. We, therefore, see no reasons to be guided by Gracemac Corpn. case (supra ). The next issue that we need to consider is whether a payment for software can be said to be a payment for "process" as a computer program is a nothing but a set of instruction lying in the passive state and this execution of instructions is 'a process' or 'a series of processes'. No doubt, in terms of the provisions of section 2(ffc) of the Indian Copyright Act, 1957, a computer program, i.e., software, has been defined as "a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result", but the moot question is as to what is that a customer pays for when he buys, or to put it in technical terms 'obtains licence to use' the software - for the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of, expressions "any patent, trade mark, design or model, plan, secret formula or process". We find that these expressions are used together in the treaty and as it is well settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. This principle of interpretation of statutes, in our considered view, holds equally good for interpretation of a treaty provision. Explaining this principle in more general terms, a very distinguished former colleague of ours Hon'ble Shri M.K. Chaturvedi, had, in an article 'Interpretation of Taxing Statutes' (AIFTP Journal: Vol. 4 No. 7, July, 2002, at p. 7), put it in his inimitable words as follows : "Law is not a brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism. Similarly, the rules relating to interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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