TMI Blog2024 (1) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... as not read/ interpreted the agreements between the assessee and the distributor/ end user in the proper context. Having gone through the various clauses of the distributor agreement, we hereby hold that the subject matter is squarely covered by the judgment of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Supra). Appeal of the assessee is allowed. - Shri Challa Nagendra Prasad, Judicial Member For the Assessee : Sh. Suryanarayan, Sr. Adv., Ms. Mansa, Adv. For the Revenue : Sh. Vizay B. Vasanta, CIT-DR ORDER PER DR. B. R. R. KUMAR:- The present appeal has been filed by the assessee against the order of Assessing Officer dated 30.01.2023 for the A.Y. 2020-21. 2. The assessee has raised the following grounds of appeal are as under:- 1. That the order of the Respondent/Assessing Officer ('AO' for short) dated 30.01.2023, passed under section 143(3) read with Section 144C of the Income Tax Act, 1961 (the Act), pursuant to the directions of the learned Dispute Resolution Panel ('the DRP' for short), is bad in law, contrary to the facts and circumstances of the case, provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition of shrink wrapped software; (ii) the AE is rendering reverse training and associated services, and consequently arrived at incorrect conclusions. 10. That the AO grossly erred in misinterpreting clause 12 of the agreement between the Appellant and its AE and alleging that the clause mentions the copies of the software for onward sale, without appreciating that the clause does not confer any right to make copies and explicitly states that the ownership remains with the licensor. 11. That the AO grossly erred in misinterpreting the facts of this case and concluding that the Appellant's case is not covered by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis (supra). 12. That the AO, by referring to the features of the software, grossly erred in concluding that the software distributed by the Appellant is not a shrink-wrapped software, without appreciating that the features or applications of the software have no bearing on whether the receipts are in the nature of 'royalty'. 13. That the AO grossly erred in misinterpreting clauses of the agreement between the Appellant and third parties, by stating that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to entities domiciled in India. For the AY under consideration, the Assessee filed its original return of income [ Rol'] on 12 February 2021 and filed its revised return of income on 23 March 2021, declaring total income as 'Nil' and claiming a tax refund of INR 2,34,03,813 due to TDS credits. The income was declared 'Nil' due to the position adopted by the Assessee in light of the Hon'ble SC judgment in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs CIT in CA Nos. 8735-8736 of 2018. The Assessing Officer treated the receipts earned by the assessee through sale of software as taxable u/s 9(1)(vi) of the Act as well as under Article 12(3) of India-Singapore DTAA and accordingly proposed to charge amount of Rs. 23,21,52,964/- as FTS taxable @ 10%. In this connection the AO made the following observations in the contract of the assessee with its AE and tried to differentiate the judgment of the Hon ble Apex Court in the case of Analysis Centre of Excellence Pvt. Ltd. (supra). a. As per the clause 5, the AE undertakes to develop and extend or to procure the development and extension of its SYSTEMS so far as it is commercially reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its AEs/ distributors has concluded that the facts of the instant case are differentiable on multiple accounts from the judgment of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Exellence Pvt. Ltd. 7. Before the ld. DRP, the assessee has submitted that the facts of his case are squarely covered by the judgment of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Exellence Pvt. Ltd. It was submitted that as per the agreement between the assessee and the Indian entity (distributor, MTRM) there is only transfer of right to use software which is being granted. It is submitted that the assessee is merely licensee the software products to Indian end users without removing the name of the ultimate end user. It is further submitted that what is sold to the Indian customers is only a software product along with the non-exclusive, nontransferable license to merely enable the use of the product. The assessee has reiterated that the assessee is purchasing the software from its non-resident supplier/owner and selling/ distributing to Indian end users either for their own business or for onward selling and in the entire chain of event th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware: Assessee puts forward the explanation that features/ applications of the software do not have a direct nexus with whether the same is shrink wrapped software or not. It is stated that the features as noted by the learned AO merely indicates that the software performs the function of converting data points into information which clearly depicts that this is a standard software which can be used by various third parties. (B). Agreement between the assessee and IndusInd Bank Limited: 1. W.r.t clause 16.4 of the agreement: Assessee submits, that the actual terms of the agreement clearly restricts actions such as decompiling, disassembling etc. except to the extent permissible under the aforesaid Article. A lawful purchaser/acquirer of a computer program is entitled to copy, translate and, ultimately, decompile that program without fear of liability for copyright infringement where the same is in accordance with the Article 6 read with Article 5 of Directive 91/250. In the instant case, Indusind bank can be allowed to decompile the software but only within the statutory guidelines and hence, if can be said that there is no transfer of source code by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Para 7.2, 7.4 and para 16 as well as the definition of terms Computer software, License matrix and License term contained in paras 1.9, 1.19 and 1.21 of the agreement in this regard. (D). Agreement between the Assessee and IDFC Limited ['end user] The assessee submits that this agreement is entered between the Assessee and IDFC United, which is the end user of the software product. The Assessee is not only distributing the product but also earning receipts by directly selling the software product to Indian end users. The end user only acquires the right to use the software product for its own business and cannot use the licensed software product for third parties. The end user has a personal non-exclusive and non-transferable right. The end user does not have any right on the source code of the software product. The end user does not own any right on the copyrights of the software. 9. Following the above, the assessee submitted that the Hon'ble SC Judgment squarely applicable , since the assessee is merely selling the software product to Indian end users for the purpose of its business for a determined period of time which is agreed upon as per the agre ..... 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