9911796707
TMI Blog2023 (12) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... n Surrey , UK. The company is one of the global providers of video solutions for Pay TV operators. It provides advanced and secure video solutions for cloud services, middleware platforms, IPTV, DTH, cable and OTT Pay TV providers. The company offers subscribers video experience on any device. The Company also serves global satellite DTH, cable, telco and over-the top pay TV providers. During the year, the assessee has received the following income: SI. No. Nature of income Amount (Rs.) Remarks A supply of software license and hardware and Provision of support service 14,27,24,656 Income shown as exempt in ROI. (schedule EI of lTR) Total 14,27,24,656 3.2 As per submissions dated 17.11.2022, the assesee has contended its income from India as exempt since it only transfers a right to use to the third party customers and doesn't transfer the right to use the copyright embodied/supply of software license and hardware by the Company. The assesee has relied on the ruling of Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Besides, the assessee has also stated the support services income earned by the company is exempt in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expressly permitted under applicable law; (c) From Acceptance, to use the Components as integrated in the STBs but only as is strictly required to provide the services to the Subscribers; (d) To use the documentation in connection with the operation of the NDS Systems; (e) From Acceptance, to distribute the Viewing Cards to Subscribers in the Territory so that such Subscribers may, in conjunction with the STBs receive the Services in the Territory; and From Acceptance, to grant Subscribers a sublicense to use the NDS Software incorporated into the Viewing Cards but only as is strictly required to receive the Services from DEN and on terms consistent with those set out in Clause 7.2 and 7.4 which relate to the NDS Software contained on the Viewing Cards. 24. The terms of the other licence agreement between the various parties have not been set out in the order of assessment though the copies of the same are available in the Paper Book. The terms of the agreement are clearly similar to the terms of the agreement which the Hon'ble Supreme Court analyzed in the case of Engineering Analysis. We shall anlyse the terms of the Agreement between the Assessee and Bharati Teleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court has observed that under software license agreement, customer is licensed to only use the software as such and not the copyrights in the software, therefore granting of license in such cases does not amount to royalty (Assessee's case is similar - see Article 3.01 and 3.02 of the Agreement). In para 109 of SC judgment, it has been specifically laid down that it is wholly incorrect to say that license in software EULA is license to use copyrights. In para 117 for overall conclusions of SC in the context of distinction between license over copyright and license to use copyrighted product - specifically para 117(v), the Hon'ble Supreme Court has held that even if fee schedule refers to royalty payment, this is consideration for purchase of an integrated system. One has to look at the overall agreement and the real nature of the transaction (para 51 of SC judgment). On the AO's reference in para 4.4 of FAO as license being for use of IPR over viewing cards and software is incorrect since as per Article 3.01 and 3.02 (page 58-59 of paper book), license is for simplicitor use of the software, with several restrictions. Also, as per clause 3.04 (No license to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work is different from owning the physical material in which the copyrighted work may be embodied. Computer programs are categorised as literary work under the Copyright Act. Section 14 of the Copyright Act states that a copyright is an exclusive right to do or authorise the doing of certain acts in respect of a work, including literary work. The Hon'ble Court took the view that a transfer of copyright would occur only when the owner of the copyright parts with the right to do any of the acts mentioned in section 14 of the Copyright Act, 1957(Copyright Act). In the case of a computer program, section 14(b) of the Copyright Act, speaks explicitly of two sets of acts: 1. The seven acts enumerated in sub-clause (a); and 2. The eighth act of selling or giving of commercial rental or offering for sale or commercial rental any copy of the computer program. The seven acts as enumerated in section 14(a) of the Copyright Act, in respect of literary works are: 1. To reproduce the work in any material form, including the storing of it in any medium electronically; 2. To issue copies of the work to the public, provided they are not copies already in circulation; 3. To perform the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license or other similar arrangements under the Copyright Act. The court held that once a DTAA applies, the provisions of the Act can only apply to the extent they are more beneficial to the taxpayer and therefore the definition of 'royalties' will have the meaning assigned to it by the DTAA which was more beneficial. It was held that the term 'copyright' has to be understood in the context of the Copyright Act. The court said that by virtue of Article 12(3) of the DTAA, royalties are payments of any kind received as a consideration for "the use of, or the right to use, any copyright "of a literary work includes a computer program or software. It was held that the regarding the expression "use of or the right to use", the position would be the same under explanation 2(v) of section 9(1)(vi) because there must be, under the licence granted or sales made, a transfer of any rights contained in sections 14(a) or 14(b) of the Copyright Act. Since the end-user only gets the right to use computer software under a non-exclusive licence, ensuring the owner continues to retain ownership under section 14(b) of the Copyright Act read with sub-section 14(a) (i)-(vii), payments for computer soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and laws by not considering the provisions of Double Taxation Avoidance Agreement to conclude whether the payments received are taxable income or not. The assessee is a tax resident of United Kingdom. The assessee is eligible to be taxed as per the provisions of the tax treaty to the extent they are more beneficial than the provisions of the Income Tax Act. 5.5 He submitted that the learned Assessing Officer has erred in facts and laws by not considering the definition of fees for technical services as mentioned in Article 13 of the tax treaty between India and United Kingdom. As per Article 13 of the tax treaty, the term "fees for technical services" means: "payments of any kind of any person in consideration for rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a)of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) f this Article is received; of (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the receipts form maintenance and support services received by the Assessee is not taxable in India. The Assessee has also furnished Tax Residency Certificate which is a mandatory requirement to avail the benefits of DTAA. 6. The ld. D.R. relied on the order of lower authorities. 7. We have heard the rival submissions and perused the materials available on record. As discussed earlier, similar issue came for consideration before this Tribunal in assessee's own case in assessment year 2006-07 in ITA No.363/Bang/2017 dated 12.11.2021 wherein held as under: "18. On question whether the receipts can be taxed as FTS in so far as it relates to receipts from Tata Sky and DEN, it was submitted as follows: a. Mere issue of plastic/fiber cards along with physical set-up box does not constitutes FTS, instead of sale of hardware. b. Supply of products carrying the IP to the customer does not amounts to "FTS". c. The AO and the DRP have erred in holding that provisions of DTAA are very similar to provision of the Act without understanding the legal position. d. The lower authorities have failed to appreciate that the "make available clause" required under the India-UK DTAA are n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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