TaxTMI 
TaxTMI 
2010 (6) TMI 487
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....nected to each other by an online real time accounting system. Everyday a huge volume of data is generated and stored on the main server situated at head office. This adversely affects the processing speed of the accounting system. 2. To overcome the above problem, we are planning to buy a software which will regularly transfer the data from main server to an auxiliary server in a compressed form and will retrieve the data in uncompressed form whenever required. 3. We, therefore, placed a purchase order with M/s. IXOS Software Asia Pte. Ltd., No. 6 Temasel Boulevard, #2-06, Suntech Tower Four, Singapore 038986 for supply of a software called "IXOX eCON test for R/3". A copy of proforma invoice of USD 43,000 received is enclosed herewith for your perusal. The price stated is net of withholding tax, if any. 4. The details of payments to be made are given in the annexure to is letter. 5. As per the terms of purchase we will obtain a right to make copies of the program to enable operation of the program within our own business only. No source code or programming language or technique will be provided to us with the program. 6. As per provisi....
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....ble to tax and tax to be deducted at source under provision of section 195 of the Act. However, the Assessing Officer did not accept the contention of the assessee. He noted that the assessee itself is doubtful about its claim that the payment to be made to M/s. IXOS Software Asia Pte. Ltd. is commercial income in accordance with Article 7 of the Treaty between India and Singapore. He observed that this claim of the assessee has no basis. The Assessing Officer thereafter analysed the licence agreement between the assessee and M/s. IXOS Software Asia Pte. Ltd. and noted that the Singapore company has granted to the assessee a non exclusive non transferable licence to use the licensed software and the documentation for the term and in the territory in respect of the number of users and installations as referred to in Schedule I of the agreement and may use only the software component of IXOS_eCon Solution Suite. This clearly shows that the assessee has to make payment to the Singapore company a licence fee for computer software. The terms and conditions of the licence agreement, according to the Assessing Officer, clearly show that the Singapore compa....
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....are. They can store the software in the computer. Therefore, copying the software in the computer is given for 50 users. Moreover the intellectual property of the author of a software is protected through a copyright. The intellectual property owner can exploit the intellectual property by allowing any person to copy the software for a fee. He observed that when they permit the customers to use the software through a licence, it is nothing but granting a right to copy the software programme of the computer in the computer. The payment is made for only getting such a right and without that right, the assessee cannot use the intellectual property contained in the Compact Disc. He also explained the meaning of copyright as per section14 of the Copyright Act, 1957. He noted that as per section 14(a)(i) of the Copyright Act, 1957 one of the copyright available is reproduction of the work in any material form including the storing of it in any medium by electronic means. In the instant case, the Singapore company has allowed the copying of the work to the purchaser and thereby earn consideration. The purchaser had used the copyr....
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.... that the software is a secrete process or formula. He discussed as to how a software works in a series of instruments/operations to achieve the defined result. He noted that what the Singapore company granted to the assessee is only a right to use the software i.e., the right to use the secret process and obtain the results. Relying on a couple of decisions, he was of the view that the payment made by the assessee is for the use of the secret process owned by the Singapore company and, therefore, the payment is a "royalty". For this proposition, he relied on the decision of the AAR in the case of P.No.30 of 1999 reported in 238 ITR 296. Distinguishing the various decisions cited before him, he held that the payment to be made by the assessee for the use of computer software or right to use the computer software is taxable in India as "royalty" under Article 12 of the DTAA between India and Singapore. He accordingly upheld the order of the Assessing Officer. Aggrieved with such order of the CIT(A), the assessee is in appeal before us with the following grounds of appeal: 1. A. The learned Commissioner of Income-tax (Appeals) has erred....
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....archiving need. Referring to pages 26 to 50 of the Paper Book, she drew the attention of the Bench to various clauses of the software agreement between the assessee and the Singapore company. Referring to page 31 of the Paper Book she drew the attention of the Bench to the definition of the licence fee which means the fees specified in schedule I payable by the customer to the Singapore company for the use of the licensed software. Similarly, the licensed software means the software which is in Schedule I consisting of a set of instructions or statements for making readable medium and for enhancement, modifications, new versions or new release of that software or part thereof. Referring to page 33 of the Paper Book she drew the attention of the Bench to clauses 2 and 3 of the agreement which defines grant of licence, delivery and installation of the software. She drew the attention of the Bench to clause 4 which defines licence conditions as per Paper Book page 34. As per clause 6 of the agreement, which speaks of licence conditions, software may be used by the customer as directly or through any contractor or representative of the customer in th....
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....ich is placed at Paper Book pages 27-53 the learned DR drew the attention of the Bench to various clauses. Referring to clause 'c' of the recitals, he submitted that the Singapore company has offered to grant the assessee a non-transferable and non-exclusive licence to use the computer software and has offered to provide the assessee with support services and consulting services in respect of the computer software. Referring to page 32 of the Paper Book he submitted that the term of the licence is only for a period of 25 years. Referring to page 43 of the Paper Book, he submitted that the assessee is only having a right to use the software and there is no ownership vested in the assessee and even beyond the period of 25 years the assessee has no right to use the software. Referring to the decision reported in 172 Taxman 284, he submitted that this is not a case of sale and only a royalty agreement. He accordingly supported the order of the CIT(A) and submitted that the grounds raised by the assessee should be dismissed. The learned counsel for the assessee in her rejoinder submitted that the assessee is concerned with Singapore and governed by....
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....ation for the use of, or the right to use : (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information ; ...... ..... ..... ...... ...... ..... .... ........" 17. We find that the Hon'ble Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh as reported in 271 ITR 401, while deciding a sales-tax matter, has held as under (short notes): "The term "goods", for the purposes of sales tax, ca....
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....reported in 94 ITD 91 at paras 18 to 20 of the order, has held as under : "18.On perusal of the agreement between the parties, we are of the view that in the present case also what the assessee had acquired is only a copy of the copyrighted articles i.e., software, whereas the copy right remains with the owner, i.e., foreign parties. The decisions relied upon by the learned DR are distinguishable on facts of the case. 19. From the aforesaid discussion, we find that the incorporeal right to software i.e., copyright remained with the owner and the same was not transferred to the assessee. We have also noticed that the definition of 'royalty' in the DTAA, which has been quoted above. The primary condition for bringing within the definition of 'royalty' in DTAA is that the payments of any kind received as consideration for the use of or right to use any copyright of a literary, artistic or scientific work etc., Right to use of a copyright is totally different from right to use the programme embedded in a cassette or CD or it may be a software. 20.In this case, the assessee had acquired a ready made off the shelf computer programme for being used in its business. No right was g....
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....We find the ld. CIT(A), while holding that the fee paid for acquisition of the software amounts to royalty, has relied on the decision of Authority for Advance Rulings (AAR) in the case of P.No.30 of 1999 as reported in 238 ITR 296. However, we find that the AAR in the case of Dassault Systems K.K. vs. DIT vide AAR No.821 of 2009 order dated 29-01-2010, a copy of which was filed during the course of hearing, after considering the decision of AAR as relied upon by the CIT(A) at paras 17.1 and 17.2 of his order, has held as under : "17.1 Passing on a right to use the facilitating the use of a product for which the owner has a copyright is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to trigger the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be constructed as an authority to enjoy any or all the enumerated rights ingrained in a copyright. Where the purpose of the licence or the transaction is only to establish access to the copyrighted product for internal busin....