TMI Blog2023 (12) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 and the India-UK DTAA . Thus the authorities below committed an error in taxing the impugned receipts as royalty . Grounds raised by the assessee are allowed. - Shri Kul Bharat, Judicial Member And Dr. B.R.R. Kumar, Accountant Member For the Assessee : Sh. Ajay Vohra, Sr. Adv.; Ms. Somya Jain, Ms. Shaily Gupta; Sh. Archit Kabra. For the Department : Sh. Vizay B. Vasanta, CIT(DR) ORDER PER KUL BHARAT, JM: These two appeals preferred by the assessee pertain to A.Y. 2014-15 and 2015-16. Since facts and grounds for adjudication are similar, both the appeals were taken up for hearing together and are being disposed of by a consolidated order for the sake of brevity. 2. First we take up ITA no. 393/Del/2018 pertaining to the A.Y. 2014-15. The assessee has raised following grounds of appeal: 1. That the assessing officer erred on facts and in law in completing the assessment at an income of Rs. 77,72,01,480 as against NIL income, returned by the appellant. 2. That the assessing officer/ DRP erred on facts and in law in characterizing the total income of Rs. 77.72,01,480 received during the relevant previous year from Volvo Group e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The only effective ground in this appeal is regarding characterizing payment of INR 77,72,01,480/- received by the assessee during the relevant previous year as royalty and taxing at 10% of gross receipts. 5. Learned Sr. Counsel Shri Ajay Vohra vehemently argued that the authorities below grossly erred in characterizing and taxing the payment received by the assessee as royalty. He contended that the issue is otherwise squarely covered in favour of the assessee by the judgment of the Hon ble Supreme Court rendered in the case of Engineering Analysis Centre for Excellence (P) Ltd. Vs. CIT 432 ITR 471 (SC) as well as the judgment of the Hon ble Delhi High Court in the case of DIT Vs. Infrasoft Ltd. [ITA 1034/2009] 39 taxmann.com 88. Learned Sr. Counsel submitted that the authorities below failed to appreciate the facts in right perspective and did not consider the submissions made on behalf of the assessee during the proceedings before the lower authorities. He reiterated the submissions as made by the assessee before learned DRP. He submitted that the short issue involved in this appeal is whether the payment received by the assessee can be characterized as royalty. He took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le companies (who are not paying similar payments and also not owning significant intangibles) considered by the TPO, whether the margin of the taxpayer is lower after paying royalty amounts for the technology transferred by the AE: vi. copies of agreements based on which the taxpayer paid the royalty and their scope and validity, vii. the development or usage of the intangible property and the factors affecting the royalty rate. The rate at which the company has paid royalty to the AE vis-a-vis independent parties and the method of computation of such royalty that are paid/ payable by the taxpayer to the AE(s); viii. whether any cost benefit analysis has been undertaken by assessee 2.1.6.1 The assessee has claimed in its submissions before us that the amount received by the assessee is towards certain standard facilities required for the running of operations of the Volvo Indian entities and that by providing such facilities to the Volvo Indian entities they do not use or obtain a right to use the copyright in any of the software/business application as it merely has access to the information/data processed by the software/application owned and executed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 352/ Bang/2009 (2010-TII-55ITAT-BANG-TP) it has been held as follows: Therefore it is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable. The payment terms as pointed out by the TPO are independent of the nature or volume of services. The assessee has defeated in this primary examination itself The TPO is also justified in making a pertinent observation the expenses are apportioned by Singapore affiliate among different country centres on the basis of their own agreements and not on the basis of the actual services rendered to the individual units. It is in addition to the above fundamental flaw that the TPO has made a clear findings that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee company. Therefore, we are of the considered view that the TPO is justified in holding that he assessee has no proved any commensurate benefits against the payments of service charges to the Singapore affiliate. Therefore, the TPO is justified in making the adjustment of ALLP under sec. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lysis Centre of Excellence Private Limited v. Commissioner of Income Tax and Anr., 2021 SCC OnLine SC 159. He submits that vide the Service Agreement and the MOU, the EYGSL (UK) provides to EYGBS (India) a non-exclusive non-assignable sub-licence (with no right to grant further sub-licences) to use the deliverables and/or services. The EYGSL (UK) purchases the software from third-party vendors by way of a licence for the use of the same by member EY firms. The payment received by EYGSL (UK) from its members is for the use of computer software loaded on its server by the creation of a standard facility for which access is granted to all the EY member firms. He submits that in terms of the judgment of the Supreme Court in Engineering Analysis Centre (supra), there is no transfer of copyright in favour of the member firms, including EYGBS (India), and therefore, the payment received from EYGBS (India) by EYGSL (UK) does not amount to royalty Signature Not Verified Digitally Signed Signing Date:10.12.2021 18:30:13 under Article 13 of the Double Taxation Avoidance Agreement between India and the United Kingdom (hereinafter referred to as the India-UK DTAA ‟ ). 10. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users. iii) The third category concerns cases wherein the distributor happens to be a foreign, non- resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users. iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end users. xxxxx 42. The subject matter of each of the DTAAs with which we are concerned is income tax payable in India and a foreign country. Importantly, as is now reflected by explanation 4 to section 90 of the Income Tax Act and under Article 3(2) of the DTAA, the definition of the term royalties shall have the meaning assigned to it by the DTAA, meaning thereby that the expression royalty , when occurring in section 9 of the Income Tax Act, has to be construed with reference to Article 12 of the DTAA. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights 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 aforesaid book is transferred to the Indian distributor, either by way of licence or otherwise, inasmuch as the Indian distributor only makes a profit on the sale of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of the Copyright Act. To this extent, there will be no difference between the position under the DTAA and explanation 2 to section 9(1)(vi) of the Income Tax Act. xxxxx 119. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. iii)Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of the physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 13. A reading of the above judgment would clearly show that for the payment received by EYGSL (UK) from EYGBS (India) to be taxed as royalty , it is essential to show a transfer of copyright in the software to do any of the acts mentioned in Section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the enduser to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as royalty . 14. In the present case, the EYGBS (India), in terms of the Service Agreement and the MOU, merely receives the right to use the software procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as royalty ‟ as held by the Supreme Court in Engineering Analysis Signature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A no. 2780/Del/2022. The assessee has raised following grounds of appeal: Re: Violation of principles of natural justice 1. That on the facts and circumstances of the case and in law, the order dated 26.09.2022 passed by the Commissioner of Income Tax (Appeals) [CIT(A)] under section 250 of the Income Tax Act, 1961 ('the Act') is patently erroneous and bad-in-law. 1.1. That the CIT(A) erred in passing the impugned order without granting an opportunity of being heard through video conferencing/personal hearing inasmuch as the officer before whom the hearing through video conferencing was conducted is different from the officer passing the impugned order, which is in gross violation of principles of natural justice. 1.2. That the CIT(A) erred in passing the impugned order by not considering all the submission(s) filed by the appellant which is in gross violation of principles of natural justice. 1.3. That the CIT(A) erred in passing the impugned order on mere conjectures and surmises made on the basis of vague assumptions which are wholly contrary to the facts of of the the case. Re: Merits 2. That on the facts and circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in levelling false and baseless allegations, on mere conjectures and surmises, without appreciating the facts of the case. 2.8. That the CIT(A) further erred in holding that a software program is a process as defined in terms of clause (iii) of Explanation 2 to section 9(1)(vi) of the Act without appreciating that the Volvo Group Indian entities only receive services to access the IT facilities and the appellant does not make available any secret formula or process to the Indian entities. 3. That on the facts and circumstances of case and in law, the CIT(A) erred in not adjudicating the ground relating to non-taxability of reimbursement of pension cost of Rs. 40,11,217 paid by the appellant in respect of employees of Volvo India Pvt Ltd (VIPL). 3.1. That the CIT(A) erred in not appreciating that the said receipts were in the nature of reimbursement received for social security contribution made by the appellant for employees of VIPL in Sweden and hence the same was not taxable under the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing. 9. Facts, in brief, are that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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