TaxTMI 
TaxTMI 
2012 (8) TMI 618
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.... management. In India, Allianz SE holds 26 per cent of the share holding in its joint venture entities, i.e. Bajaj Allianz Life Insurance Company Limited ('BA Life') and Bajaj Allianz General Insurance Company Limited ('BA General'). 3. While completing assessment for the assessment year 2005-06 the license charges received from Bajaj Allianz Life Insurance Co. Ltd. (BA Life) and Bajaj Life Insurance Company Ltd. (BA General) for granting them the right to use Opus software was treated as Royalty income. The AO, therefore, reopened the assessment for the assessment years 2004-05 and 2007-08. Rejecting the various explanations given by the assessee and following his order for A.Y. 2005-06, the Assessing Officer held that transfer/assignment of right to use software by Allianz SE to BA Life constitutes use of copyright; that the license charges paid by BA Life to Allianz SE is taxable as 'royalty' as it is periodic payment towards right to use the software; that the decision of the Hon'ble Supreme Court in the case of Tata Consultancy Services is not applicable as it is in the context of Sales Tax Act; that decisions cited by Allianz SE are distinguishable; that the exploitation o....
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....ment year 2005-06 and submitted that the Tribunal has elaborately discussed the issue and decided the issue in favour of the assessee by holding that the license charges earned by the assessee was not liable to be treated as Royalty. He accordingly submitted that this being a covered matter the appeals filed by the assessee be allowed. 6. The learned D.R. on the other hand tried to distinguish the decision of the Tribunal in assessee's own case and submitted that payment received for supply of software (license program) has been held as taxable as Royalty. For this proposition he relied on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Samsung Electronics Company Ltd. and CIT Vs. Synopsis International Old Ltd. He also relied on the decisions of the Bangalore Bench of the Tribunal in the case of ING Vyasya Bank Ltd. and the decision of the AAR, New Delhi in the case of Millennium IT Software Ltd. and Citrix Systems Asia Pacific Pvt. Ltd. He accordingly submitted that the order of the Tribunal in the assessee's own case should not be followed and the order of the AO be upheld. 7. The learned counsel for the assessee in his rejoinder submitted that i....
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....Allianz AG assigns the right to use the software to BA Life and BA General being its affiliates in India. As per the copyright Law, whenever the assignee of a copyright becomes entitled to any rights comprised in the copyright, he shall be treated as the owner of copyright in respect of those rights. The assignor shall also be treated as the owner of copyright in respect of unassigned rights. If we apply this principle we can say that, in respect of the Authorised territory, the right to use the Software OPUS lies only with Allianz despite the fact that the copyright of OPUS lies with CGI Group. In respect of exercising the right to use the software OPUS, Allianz will have no limitation except as those binding on it by the terms of the Agreement. But will definitely enjoy the right to use the software as its owner. There won't be any other rights associated with OPUS at the disposal of Allianz. e.g. it cannot brand this product as its own, it cannot term this produce as its own, it cannot market this produce etc. Similar to the rights of Allianz in the Authorised Territory, the BA Life and BA General will enjoy the rights in India. The rights in this regard only mean the right to u....
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....India :- (i) All income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situatein India" 51. The submission of Mr. Prasaran, leamed ASG was that Software part of the equipment supply would attract royalty as copy right of the said software programme still vests with the assessee. Therefore, payments made or the licence to use the software programme give rise to royalty for the purposes of both the IT Act as well as DTAA entered into between Sweden and India. Referring to Explanation II (v) to section 1(vi) of the Act as well as Article 13, para 3 of DTAA, it was argued that for the purposes of Income-tax law, is essentially a payment received as consideration for the use or right to use a particular integral property right, whether partially or entirely. 52. We find that the Tribunal has held that there was no payment towards any royalty and this conclusion is based on the following reasoning: (i). Payment made by the cellular operator cannot be characterized as royalty eith....
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....o use any copyright. According to him, since title of the software continued to vest with the assessee as provided in clause 20.2 of the Supply Agreement and the assessee was free to grant non-exclusive licenses to other parties, it follow that there was no full time transfer of copyright but I was only a case of right to use the software, and thus payment for use of software is to be treated as royalty. He further argued that reference to OECD Commentary was not apposite as it could not be used to interpret the scope of the relevant provisions of DTAA. 54. It is difficult to accept the aforesaid submissions in the fact~present casco We have already held above that the assessee did l1( any business connection in India. We have also held that the sur equipment in question was in the nature of supply of goods. This issue is to be examined keeping in view these findings. MOl another finding of fact is recorded by the Tribunal that the COoperator did not acquire any of the copyrights referred to in Sect] (b) of the Copyright Act,1957. 55. Once we proceed on the basis of aforesaid factual finding~difficult to hold that payment made to the assessee was in the nature of royalty e....
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....D. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, miicles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, Stored, Possessed etc. The Software programmes have all these attributes."*************** "In Advent Systems Ltd. v. Unisys Corpn, 925 F. 2d 670 (yct Cir. 1991), relied on by Mr. Sorabjee, the court was concerned with interpretation of uniform civil code which "applied to transactions in goods". The goods therein were defined as "all things (including specially manufactured goods) which are moveable at the time of the identification for sale". It was held: "Computer programs are the product of an intellectual process, but once implanted in a medium are widely distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition.....
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....main contract entered into principal to principal. This is not one such case and thus the contention of the Revenue cannot be accepted in the circumstances and nature of the terms of the contract of this case." 58. No doubt, in an annexure to the supply contract the lumpsum price is bifurcated in two components, viz., the consideration for the supply of the equipment and for the supply of the software. However, it was argued by the learned counsel for the assessee that this separate specification of the hardware/software supply was necessary because of the differential customs duty payable. 59. Be as it may, in order to qualify as royalty payment, within the meaning of Section 9(1) (vi) and particularly clause (v) of Explanation-II thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, aliistic or scientific work. Section 2 (0) of the Copyright Act makes it clear that a computer programme is to be regarded as a 'literary work'. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making....
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....la Inc. (supra) has since been approved, the view of the assessee has to be upheld. 12. Before parting, we may refer to the decisions relied upon by the learned CIT Departmental Representative before us, namely, the decision of Authority in the case of IMT Labs (India) P Ltd (supra) and also of the Hon'ble Karnataka High Court in the case of CIT v. Samson Electronics Co. Ltd 320 ITR 209 (Kar). The Hon'ble Karnataka High Court was dealing with a case of requirement to deduct tax at source under section 195(1) on amounts paid to foreign software supplier. As per Hon'ble High Court, consideration received for granting of right to use software under certain circumstances could be regarded as 'royalty'. The two contrary view, namely, that the Hon'ble Delhi High Court on one hand and that of the Hon'ble Karnataka High Court were before the Mumbai Bench of the Tribunal in the case of M/s Solid Works Corporation in ITA No 3219/MUM/2010, order dated 08.01.2012. The Tribunal after making following discussion applied the view expressed by the Hon'ble Delhi High Court in the case of Ericsson A.B., New Delhi (supra), which was favourable to the assessee:- "8. On the argument of the ld DR ....