TaxTMI 
TaxTMI 
2006 (1) TMI 464
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....y a consolidated order. 2. The assessee-company is engaged in the business of development of computer software. The Assessing Officer during the course of survey found that the assessee-company has made payments for purchase of software to non-residents and has not deducted tax at source from such payments. In response to show-cause notice issued to explain the reasons for not deducting tax at source, the assessee submitted that rights in computer software are in the nature of copyright by virtue of section 2 of the Copyright Act and the assessee has merely gained a right to use the computer software. The assessee does not enjoy any right to copyright. Transaction is that of the outright purchase of software which could be compared to th....
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.... or copying should also be characterized as royalty. The learned Assessing Officer was of the view that holding of software as goodwill have no effect as section 195 does not say that it will not be applicable in respect of import of goods. The Assessing Officer further held that source of income of the non-resident person is the activity which the assessee-company is carrying in India and hence such income is originating in India. For this proposition, the Assessing Officer relied on the decision of Supreme Court in Performing Right Society Ltd. v. CIT [1977] 106 ITR 11 in which it was held that source of income of broadcasting of musical works belonging to non-resident was the broadcasting of music, in India. The Assessing Officer, theref....
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....nd its licensing makes sense only with reference to intellectual property rights. The sanction by way of licence is for a consideration, which is royalty because it is for use of a copyright. However, the learned CIT(A) held that licence to use software programme cannot be termed as use of patent, trademark or design. However, it was held that a process is used and hence consideration can be termed as royalty as royalty includes consideration for use of process. It was also held that the consideration is also for use of know-how. 3.4 The fact that software is good is not sufficient to exclude the consideration paid for software from the definition of royalty. A design on CD can be sold but still the consideration will be for design and c....
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....s would result in collection of certain amounts by the State which is not a tax qualitatively. Such an interpretation of the taxing statute is impermissible." (iii)The appellant relied on the recent OECD commentary on article 12 concerning software payment, issued by the Directorate for Financial, Fiscal and Enterprise Affairs Committee on fiscal affairs. The relevant extracts are reproduced as under : "The character of payments received in transactions involving the transfer of computer software depends on the nature of the rights that the transferee acquires under a particular arrangement regarding the use and exploitation of the programme. Although the term 'computer software' is commonly used to describe both the programmes ....
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....incorporated in the media for transfer and both cannot be split up. (iv)The learned A.R. relied on the following orders of the Bench and decision of Special Bench, Delhi : (a) Samsung Electronics Co. Ltd. v. ITO [2005] 94 ITD 91 (Bang.). (b) Lucent Technologies Hindustan Ltd. v. ITO [2004] 82 TTJ (Bang.) 163^3. (c) Ericsson Radio System v. DCIT [Special Bench IT Appeal Nos. 815 and 1798 (Delhi) of 2001]. In the above referred decision, it has been held that the appellant has got a right to use the programme and not right to use copyright. (v)It was further submitted that though the appellant carries on business in India, its source of income is characterised by its customers. The appellant's source of income is its custome....
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....lant had imported off the shelf software from different suppliers in USA, Sweden and France and after observing the agreement between the parties held that, what the appellant had acquired is only a copy of the copyrighted articles, i.e., software, whereas the copyright remains with the owner, i.e., foreign parties. The incorporeal right to software, i.e., copyright remained with the owner and the same was not transferred to the appellant. The right to use of copyright is totally different from right to use the programme embedded in cassette or CD or it may be software. The Tribunal also held that the appellant had acquired a readymade off the shelf computer programme for being used in business. No right was granted to the appellant to util....