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TMI Blog2018 (2) TMI 2126X X X X Extracts X X X X X X X X Extracts X X X X ..... rties. When the assessee was asked whether TDS was deducted or not, the assessee replied in negative. Relying on the provisions of section 9(1) of the Act, the assessee submitted that no tax was deductible as the commission in the hands of the non-resident did not arise directly or indirectly through or from any business connection or property or transfer of capital asset in India. The AO was of the opinion that the assessee should have taken a certificate from the AO as per section 195 of the Act, failing which the assessee is liable to deduct tax on the payment to foreign agents. Accordingly, the AO added an amount of Rs.63,56,339/- to the total income of the assessee. The AO also made a disallowance of Rs.17,61,904/- u/s 40(a)(i) of the Act in respect of content & software development expenses. 4. By the impugned order, CIT(A) has deleted the disallowance of export commission paid to foreign parties, after observing as under:- 4.2 I have carefully considered the facts of the case and the submissions of the appellant. I have also gone through the decisions relied on by the Id. AR. There is no dispute regarding the fact that the impugned commission was paid to three foreign par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has taken license from Zagat of certain contents in order to make them available for use on aircraft seatback monitors located in airplanes. 6.1 According to the AO, the licensor has given the right to the assessee of its copyright work for the development of assessee's software. Therefore, the payment would fall under the meaning of royalty u/s 9(l)(vi) of the Act on which tax was deductible. He stated that it would be immaterial whether the licensing right was exclusive or not. What is material is that the assessee makes use of the content in its software and makes payment to the licensor for the contents utilized by it. The AO has also stated that exclusive right could be provided by the foreign company to many companies including the assessee on receipt of certain payments by the foreign company. He also stated that it would not matter whether the payment was made from India or abroad. Accordingly, he treated the payments to these two companies as loyalty u/s 9(l)(vi) and disallowed the payment u/s 40(a)(i) of the Act. 6.2 The Id.AR has stated that a number of international companies are engaged in the business of data collection/organization and creation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s different from the work in respect of which the copyright exists. The appellant has got a copy of the software without any part of the copyright of the software. Thus, payment of the assessee for acquiring copy of the software does not amount to royalty within the definition of Article 13(3) of DTAA with U.K. or Article 12(3) of DTAA with USA. The amounts pair by the appellant to Columbus Travel Media Ltd. and Zagat Survey LLC was purchase of collection of data, i.e. handy information for a traveler such as city overview, hotel/restaurant description, top attractions, shopping, nightlife, performance, calendar etc. Hence, such payments would not constitute royalty under the Act or the Treaty. Further, the appellant has a non-exclusive and non-transferable license to use the Works into its software applications. In this regard, the decision of the Hon'ble Delhi High Court in the case of DIT v. Infrosoft Ltd. 220 Taxman 273 is relevant. The Hon'ble High Court held that non exclusive and non transferrable license to use customerise software was not taxable as royalty. 6.4 The Delhi High Court in case of DIT v. Ericsson A.B, (16 Taxman.com 371) held that in deciding the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such DTAA, as on the wording of such DTAA, a copyrighted article does not fall within purview of "royalty". Such a view was taken in the case of DIT V. Nokia Networks OY 358 ITR 259 (Del.) which was followed in CIT v. Alcatel Lucent Canada 372 ITR 476 (Del.).Taking into consideration various aspects of law on the subject of software licensing/distribution, the ITAT, Mumbai in Novel Inc. v. DDIT (IT) [2012] 16 ITR (Trib.) 10 (Mumbai) decided the issue in favour of appellant with reference to its understanding of the definition of royalty under Indo US Agreement. 6.8 The decision of the Mumbai Tribunal in the case of DIT v. Telecom International Pvt. Ltd. (ITA No.3939/Mum/2010 dated 26/08/2011 is also directly on the issue. The Hon'ble Tribunal in this case after considering the decisions of the Special Bench in the case of Motorola INC (supra) held that copyright is one thing and copyright article is quite another thing. The payments for software cannot be treated as payment for use of copyright in the software. 6.9 In view of the above decisions and the facts narrated above, it is held that payment to M/s Columbus Travel Media Ltd. and Zagat Survey LLC cannot be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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