TaxTMI 
TaxTMI 
2013 (9) TMI 374
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.... the learned CIT-DR requested for clubbing the four appeals of M/s Lucent as they are interrelated. In the Revenue appeals issue is whether the payments made for acquiring software from No- resident companies is taxable under the provisions of IT Act. The same issue is also in the Lucent appeals. In addition issue of PE, tax credit and levy of interest were other issues in Lucent appeals. Since common issues are involved in these appeals they are heard together. 2. Briefly stated, Reliance Infocomm Ltd., now known as Reliance Communications Ltd. wanted to establish wireless telecommunications network in India. As a part of that it has entered into a Wireless Network General Terms and Conditions contract and Wireless Software contract dated 31.07.2002 with Lucent Technologies Hindustan Pvt. Ltd. (LTHPL), an Indian company of M/s. Lucent group, USA. Wireless software Assignment and Assumption agreement dated 05.08.2002 with LTHPL and Lucent Technologies GRL LLC (LTGL) USA towards supply of software required for telecom network. When Reliance placed first supply orders for software for an amount of US$11,06,56,855, it made applications under section 195(2) before DDIT-2(1) Mumbai r....
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....laced relevant documents on record. Lucent has placed a volume containing pages 1 to 622. The cases were heard over a period of time and various clarifications sought were also placed on record. 5. For the sake of convenience, the appeal in ITA No. 837/Mum/2007 and Lucent's appeals were dealt with in detail. The arguments and findings are mutatis mutandis apply to other cases also, which will be dealt with later. ITA No. 837/Mum/2007 6. In this Revenue appeal, Revenue has raised the following grounds: - "1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deciding that the Assessing Officer was not justified in directing to deduct Tax at Source u/s. 195 of the I.T. Act. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that no income accrues to M/s. Lucent Technologies GRL LLC in India against the payment of US$ 11,06,56,855/- for the supply of software for use in the Reliance Telecom Network. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate that the payment for obtaining computer software is in the nature of 'Royalty' as defined ....
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....erely for the use of software and therefore payment made for the license to use software amounts to royalty within the meaning of section 9(1)(vi). 9. The AO also held that the software can be termed as patent or invention and also scientific work and therefore payment for the use of software would be covered under these categories also as per section 9(1)(vi). The AO also held that software can be, termed a secret formula or process. The AO further referred to the circular of Government of Singapore exempting shrink-wrap software from withholding tax as per Circular 29.12.2000. The AO referred to the US IRS Ruling and held that the payment for software even for a fixed or unlimited period would constitute royalty. The AO referred to the ruling of Australian Court wherein it was held that the amount received in respect of computer software would not be royalty if it does not give any rights in the copyright. The AO held that the software is an intellectual property and falls in the category of copyrights, patents, designs, trade marks, formula, process, commercial/scientific knowledge and therefore consideration received for the license to use the software would constitute royal....
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....Assignor hereby transfers and assigns to the Assignee (i) the Software Contract, together with all rights, entitlements, covenants and obligations of the Assignor under the Software Contract, including but not limited to the supply and delivery of Software to the Purchaser, and (ii) all rights, entitlements, covenants and obligations of the Assignor under Section 15 of the General Terms and Conditions, relating to Software. Assignee hereby assumes, and, agrees with all of the parties hereto, to perform, observe and be bound by each and all of the foregoing obligations and covenants of Assignor. Notwithstanding the foregoing assignment and assumption, as between Assignor and Purchaser, the parties agree that Assignor shall observe and perform and shall continue, to be bound by all of the terms and conditions of the Software Contract and all of the terms and conditions of Section 15 of the General Terms and Conditions and shall remain fully liable to Purchaser under the Contracts to the same extent as if the foregoing assignment and assumption had not occurred. Section 2. Assignee Acknowledgement. Assignee acknowledges that it is fully and completely aware of all the terms and con....
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....stem Software and Office Dependent Software) used. 1. DCS (Digital Cellular Switch) Software ... This Software aids the FWS Hardware to perform Call processing & Call control and Charging. 2. FMM (Flexent Mobility Manager) Software ... This Software aids the FMM Hardware to perform the Management function. 3. UTS Software.... This Software aids the 8Th Hardware to perform the Radio Network control. Central Location The DCS Software & FMM Software are part of FWS Software and are always required as part of the Hardware. This cannot be reused. The BTS Software is applied as per the requirement. FWS and BTS Software are ordered ever/time the Hardware is ordered. FWS and BTS Software can be used only with Lucent equipment." 2.16 The AR has submitted that the appellant had placed 7 purchase orders with LTHPL for the purchase of hardware and had placed 7 purchase orders with LTGL for the supply of software. The AR has explained that the software supplied through this purchase orders was meant for the use in the hardware supplied through the purchase orders by LTHPL. The AR has filed the copy of purchase orders also to explain the software supplied is meant for the us....
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....endor or any Vendor Affiliate generally makes available to other customers or that are set forth In a Document or as mutually agreed upon in writing by the Parties, pursuant to terms and conditions no lets favorable to Reliance than the prices, service levels, terms and conditions set forth in any then-current Document. Commencing on the applicable Commencement Date, Vendor shall perform the Work described in the Documents. All Work provided by or for the Vendor shall comply with all relevant Applicable Laws, Applicable Permits, Specifications, and best practices. Vendor shall also ensure that all Products and Services will, as a minimum, meet the performance and design requirements, functionality and capability defined in the appropriate Standard as set forth in the Specifications. In fulfilling the obligations hereunder, Vendor and Its subcontractors and suppliers shall abide by all Applicable Laws, rules, regulations, codes including tax laws, and regulations prevailing in India and all other applicable jurisdictions." 2.18 Under the Assignment Contract, rights, entitlements, covenants and obligations of LTHPL have passed to LTGL as per section-1 of the Assignment Contract (a....
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.... the Reliance Affiliate) (or vice versa) or between Reliance Affiliates, in conjunction with a transfer of a portion of the Wireless Reliance Network, provided that in each such case, such transferee, assignee, sublicensee or outsourcee agrees in writing to abide by all the terms and conditions set forth in this Section 15 and the Vendor is informed of the same in writing by Reliance and provided further that the rights, transferred, assigned, sublicensed or granted to outsourcees, as the case may be, shall be those reasonably necessary to fulfill the commercial purposes of such transaction. The assignee or sublicensee shall not be a direct competitor of the Vendor involved in the manufacture of telecommunications equipment. 15.1.4 Except as otherwise expressly set forth in the Documents, Reliance shall use such Software only for the operation of the Wireless Reliance Network, or, In the case where the Software is purchased by or on behalf of Reliance Affiliates, for the operations of such Reliance Affiliates in the Wireless Reliance Network. The Software Licenses grant Reliance or Reliance Affiliates no right to and Reliance or Reliance Affiliates will not, sublicense such Soft....
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....e Documents, and provided further that if any such Person is a competitor of Vendor, involved in the manufacture of communications equipment Vendor must approve (such approval not to be unreasonably, withheld or delayed,) such use on a case-by-case basis on commercially reasonable terms and such use shall be subject to an appropriate non-disclosure agreement and (c) when and if Reliance determines that it no longer needs the Software or if Reliance's Software Licenses are cancelled or finally terminated in accordance with and pursuant to the terms of this Section 15 of these General Terms, return all copes (except for any required back-up or archival copies) of such software to vendor or follow commercially reasonable written disposition instructions provided by the Vendor. If the Vendor authorizes disposition by erasure or destruction, Reliance shall remove from the medium on which Software resides all electronic evidence of the Software, both in Its original form and in all copies and derivations thereof, in such manner that prevents subsequent recovery of such original or derived Software. 15.1.6 If as contemplated in Section 15.1.3. Reliance or its Affiliate(s): (i) el....
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.... transferee continues to pay the fees, Including recurring fees, if any, associated with such Software warranty or maintenance pursuant to the relevant Documents. 15.1.7 Except as otherwise provided in this Section 15 or in any of the Documents. Reliance, or any successor to Reliance's title in the relevant portion of the Wireless Reliance Network, shall have no right to transfer, assign or sublicense, Software furnished by Vendor under the Documents without the consent of Vendor, which consent shall not be unreasonably withheld or delayed. If Reliance or such successor elects to transfer or assign any portion of the Wireless Reliance Network purchased under the Documents for which it does not, under the Documents, have the right to transfer, assign or sublicense related Software, Vendor agrees that, upon written request of the transferee or assignee as applicable, of such portion of the Wireless Reliance Network, or of Reliance or such successor, Vendor shall not unreasonably refuse or fall to grant to the transferee, assignee or sublicensee, as applicable, as license to use such Software within the Territory upon payment by the transferee of a re-licensing fee to Vendor on com....
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....d it was held that software is an intellectual property so long as it remains with the software developer. As soon as a copy of the software is produced and is placed on a media, it becomes goods. Software on media is not different from any book or canvas (in case of painting) or compact discs or cassettes in respect of songs and pictures. Hon'ble Supreme Court held that the software and the media cannot be split up since the media has a little value. Hon'ble Supreme Court has observed as under: "A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies' are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film as a video cassette/CD. In all such cases, the Intellectual property has be....
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.... by the DOT. It was held that the payment made for the purchase of software did not partake the character of royalty and as such there was no obligation to deduct tax at source. The facts in the case of appellant are quite similar to this decision. The hardware is being purchased and simultaneously software is also being purchased from LTGL. The software is for the uses in the hardware purchased simultaneously. As per the Contract conditions mentioned in section-15 of the agreement appellant did not acquire any right of duplication of software except for use in its own system. 2.22 Section 9 of the I.T. Act provides for income deemed to accrue or arise in India. Section 9(1)(vi) refers to accrual of income by way of royalty. Explanation-2 to section 9(1)(vi) provides the definition of royalty which reads as under: 9. Income deemed to accrue or arise in India. (1) The following incomes shall be deemed to accrue or arise in India: (vi) in come by way of royalty payable by- (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business....
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....ention, model, design, secret formula or process would amount to royalty. 2.24 On the other hand, the definition of royalty in Article-12(3) of the Indo-Us DTAA provides as under: "Article-12(3). The term "royalties" as used in this article means: (a) payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark 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 or property which are contingent on the productivity, use or disposition thereof; and (b) payments of any kind received as consideration for the Use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of article 8." 2.25 It can clearly be seen tha....
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....an a work of architecture, the author is at the date of the making of the work a citizen of India or domiciled in India; and (iii) in the case of a work of architecture, the work is located In India. Explanation. In the case of a work of joint authorship, the conditions conferring copyright specified in this sub-section shall be satisfied by all the authors of the work (3) Copyright shall not subsist- (a) in any cinematograph film if a substantial part of the film is an infringement -of the copyright in any other work; (b) in any sound recording made in respect of a literary, drama tic or musical work, if in making the sound recording, copyright in such work ahs been infringed. (4) The copyright in a cinematograph film or a sound recording shall not affect the separate copyright in any work in respect of which or a substantial part of which, the film, or, as the case may be, the sound recording is made. (5) In the case of a work of architecture copyright shall subsist only in the artistic character and design and shall not extend to processes or methods of construction" 2.28 Section-13 therefore clearly provides that - the copyright shall subsist only in res....
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....f computer programme. 2.31 Examination of the agreement of the appellant with LTGL reveals that section-15 of the agreement quoted earlier forbids the appellant from transferring, assigning, sublicensing or using by outsourcing the software. The agreement also forbids the appellant from decompiling, reverse engineering, disassembling or decoding the software. Section-15 also contemplates that all copies of the software provided to the appellant are the copyright of LTGL. These copies shall be held secret and software shall not be disclosed to anybody else. Agreement provides that all copies of software shall be returned to LTGL upon termination or cancellation or the agreement. Agreement also provides that the appellant shall use the software only for the operation of wireless Reliance network and shall not sublicense or modify the software. The perusal of section-15 of the agreement clearly reveals that the appellant has got a copy of software for being used in its telecom network. The appellant has got no right as envisaged in section-14 of the Copyright Act to duplicate the software, to Issue copies of software in public or to give copies of software in rent or even to revers....
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....TR (AT) 62, TTJ 01. In this case the Hon'ble ITAT had discussed the provisions of the Copyright Act. They examined the conditions in the non- exclusive restricted license of the software and found-that the supplier of software had only transferred a copy of the software or copyrighted article but had not transferred any of the copyright. Under these circumstances, consideration received for the sale of Copyright article, namely, software was held not to be royalty, it was also held that copyright is different from the copyright article. In this case the issue of software provided to the cellular operator for setting up the cellular telephone network was covered. It was held that the software which is provided by the supplier for the use in the cellular network does not involve transfer of any part of copyright of the software but only amounts to sale of a copyrighted article, namely, the copy of computer programme. Copyright continue to remain with the supplier of the computer programme. 2.34 The Hon'ble Delhi Bench of ITAT in the case of Lotus Asia Specific ITA No.564 to 566/Del/05 order dated 28.04.2006 have also examined the same issue and have held that in the cask of a sale....
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....of provisions of DTAA entered into by two sovereign countries. Hon'ble ITAT accordingly held that the payment received for the sale of copyrighted article, namely, a copy of computer programme without transfer of any of the copyright does not amount to royalty as per the DTAA. 2.37 The Hon'ble ITAT, Bangalore Bench in the case of Hewlett Packard India (P) Ltd. (2006) 5 SOT 660 (Bang) has also considered a similar case. In this case Indian company was engaged in the business of providing network solution to its customers. This activity includes sale of software packages to customers. For this purpose the Indian company had imported readymade software Packages from Hewlett Packard USA. The Indian company sold these software Packages to its customers in the packed conditions Hon'ble ITAT held that the consideration received by the foreign company for the sale of software Packages to the Indian company did not amount to royalty within the meaning of Artlcle-12(3) of the Indo-US DTAA. It was held that the sale of copyrighted article is different from the transfer of the copyright in the computer software. 2.38 It is therefore very apparent from several decisions of Hon'ble ITAT th....
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....td. (cited supra) wherein it has been held that one has to look at the position of law under the Income-tax Act, 1961 and not be guided by provisions of foreign statute unless it is shown what the statute deals with, its provisions and context of observation. No assistance can be drawn from a circular of Govt. of Singapore. Thus in the absence of the study of the Singapore Income-tax Law and Singapore Copyright Law, no Reliance can be placed on the Circular of Govt. of Singapore. 2.42 Hon'ble ITAT in the case of Sonata Information Technologies Ltd. has also considered the observations of USA in respect of acquisition of a copyrighted article as well as the observations of Australia regarding the acquisition of software. Hon'ble ITAT had held that under both US and Australia views, payments for acquisition of software being a copyrighted article do not amount to royalty but are payments only in respect of a copyrighted article. The appellant has produced the copy of Australian Taxation Office ruling TR93/12 from which it is seen that the payment received for a sale of copy of programme is only price of the sale of goods and does not amount to royalty. US observation on the copyri....
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....bove discussion, it is held that the appellant under the Software Contract acquired only a copy of software programme and did not acquire any copyright over such software as envisaged by section-14 of the Copyright Act. Under these circumstances, payment made by the appellant to LTGL cannot be said to be payment for the use of or right to use of copyright. Thus, payment amounted only for purchase of copyrighted article and does not amount to royalty within the meaning of Artilce-12(3) of the DTAA. It is accordingly held that the AO was not justified in directing to deduct the tax at source u/s.195. No income accrues to LTGL in India against the payment of US 1106,56,855/- for the supply of software for use in the Reliance Telecom Network. Appeal on ground No. 1 to 7 is allowed. 11. Thus the learned CIT(A) accepted Reliance contentions that what it obtained was only a copyrighted article which does not have any copyrity and section 14 of Copyright Act does not apply as Reliance does not have any right to duplicate software, to issue copies of software. Ld CIT(A) relied on the Coordinate Bench decision in the case of Samsung Electronics 276 ITR (AT) 1, Lucent Technologies Hindusta....
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.... 'copyright' argument, the learned counsel simplified the logic by referring to Income Tax commentary of Kanga & Palkiwala to submit the publisher may have copyrights of authors but the ultimate user by purchasing the book gets only a copyrighted article and no copyrights. It was the submission that Reliance has no interest in intellectual rights of seller and only interest Reliance has is as to how the network functions and helps in communication system. Since the software is in binary system, the word license is used but this is different from License of copyright contemplated in the Act. Reliance is not exploiting any license/copyright while using the software purchased. 14. Continuing the arguments, learned counsel referred to the master agreement where the contract is for supply of hardware, software and services for establishing the network. It was the submission that the software supply contract was assigned to M/s. Lucent LLC USA and the same was to ensure that the software helps in equipment usage, as the equipment can work only with the software. He referred to the purchase order placed, as is referred by the learned CIT(A) that each purchase of equipment matches with ....
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.... (AP) (2) Graphite India 86 ITD 384 (3) James Mackintosh & Co P Ltd 93 ITD 466 (Pune) (4) Metchem Canada Inc 5 SOT 121 (Mum) It was the submission that OECD commentary was relied on even by the Special Bench in the case Motorola (supra) in order to interpret the DTAA. The learned counsel then relied on the following cases in support of the contentions: 1) DIT vs Ericson AB 204 Taxmann 192. 2) Solid Works corporation 51 SOT 34. 3) Allianz SE in ITA/1569/PN/08 dt. 14/03/12. 4) Sonata information Tech Ltd. in ITA4446/Mum/2011 dt.03/04/12. 5) Tata Consultancy Services Ltd 271 ITR 401(SC). 6) BSNL Vs Union of India 2006(2) S. T. R 161(SC) 17. The learned counsel also submitted detailed note on 'Royalties' under various treaties as the Reliance also purchased from various other Country-Resident companies. Arguments were also placed on 'goods', 'equipment' used in definitions. Lastly, it was also contended that the issue of existence of PE in the case of Lucent cannot be considered as AO has not raised the issue in his order. It was his submission that additional grounds cannot fasten liability. 18. In reply, the learned counsel for Revenue relied on the d....
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....s difference in the values of the carrier media and the software, the 'sale' of carrier media is ignored being very small. AO did not agree that it was sale for the following reasons: - 1. License remains a license, irrespective of the period involved and 2. In this fast paced technological progress, the rate of obsolescence in software is very high. Hence, license in perpetuity has no significance since the economic life of software itself is limited. The title and proprietary rights would remain with Lucent. AO gave a finding that it is quite clear from the section 15 of the Wireless Network General terms and conditions Contract that the software is the property of Lucent. It has also provided in the Agreement that the applicant would not be the owner Software but would remain the licensee for the use of or the right to the copy right. It is no way to reconstitute as a sale of software. 20. Lucent argued before AO that Reliance has been granted in perpetuity irrevocable, non-exclusive, unrestricted, unlimited royalty free license to use the software for its benefit in connection with the ownership, operation and maintenance of its Wireless Reliance Network. The intell....
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....nput, processing and output. A program is normally written in a computer language say cobol, c+, fortran, basic etc. This is known as "source code". When this program is converted into an executable form so that computer can understand the same, it is called "object code". A user of program normally gets the object code and not the source code. The source code remains secret property of the developer. 4.2. Transfers in respect of software. In the present case, we are concerned with granting of license to use a software developed by the assessee to Reliance Communications Ltd (earlier known as Reliance hnfocomm). Reliance has been granted a non- transferable right. The seller has indemnified the buyer/Licensee against any breach of any intellectual property or Patent regulations in using, maintaining or transferring of the software tools. 4.3. Whether sale of software is sale of Goods? 4.3.1 The title and proprietary notices of the software would remain with assessee. who is the owner of the programme. The Software Distribution/ Reseller Agreement makes it very clear that the software is the property of the assessee. It is also provided in the Agreement that the user wou....
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....n is capable of more than one meanings, the Court would attempt to resolve that ambiguity in a manner consistent with the purpose of the provisions and with regard to the consequences of the alternative constructions". (Para 52) 4.3.3 Let us now consider the applicability of Tata Consultancy Services Co.'s case (supra) for the transaction under consideration. It is pertinent to consider the contention usually raised that as 'Software' is - a tariff item both under the Customs and Excise Laws and Sales Tax Acts, the provisions of Sec.195 are not applicable, as Sec.195 is not applicable to payments made for import of goods. In this regard, it is to note that 'Package Softwanes' are neither goods nor services; they are a separate 'genre by itself. i.e. intellectual property. The mere fact that customs law or sales tax law deems it to be goods for the purpose of their Act, does not change the inherent character of the 'software'. In fact, World Trade Organisation (WTO) which has been ratified by more than 140 countries, has 3 main agreements: 1. Agreement on trade of goods (GATT) 2. Agreement on trade of services (GATS) 3. Agreement on trade of intellectual property rights ....
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....neral Sales Tax Act, 1957. The Court held that the expression 'goods' as defined in Article 366(12) of the Constitution of India and as also defined under section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957 was very wide and included all types of movable property -- whether tangible or intangible goods' for the purpose of sales tax could not thus be given narrow meaning. The real test whether an article was 'goods' or not was whether it was capable of abstraction, consumption and use and whether it could be transmitted, transferred, delivered, stored or possessed. A software programme might consist of various commands which enable the computers to perform a designated task But the moment it was put on a disc and copies ware made and marketed. it became chattel exigible to sales tax. Intellectual property, once it was put on to media, whether in the form of books, canvas, computer disc or cassettes and marketed, would become goods. The Supreme Court referred to its earlier decision in Associated Cement Companies Ltd V Commission of Customs 2001 AIR (SC) 862 which it felt directly dealt with the question in issue. The question in Associated Cement Companies Ltd.'s case (su....
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....of a court decision, which has binding authority, must thus be read in the light of the facts of the case and the issue considered. The Supreme Court has pointed out the following in CIT Vs. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC): "..... it is neither desirable nor permissible to pick out a word or a sentence from the judgement of this court, divorced from the context of question under consideration and treat it to be the complete 'law' declared by this court. The judgement must be mad as a whole and the observations from the judgement have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and to pick out words or sentences from the judgement, divorced from the context of the questions under consideration by this court, to support their reasonings..." As we have pointed out above, in Tata Consultancy Services' case (supra) the issue under consideration was whether sale of disc / f....
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....T 700) (Ban galore) = (2006-TIOL-270-lTAT-BANG) is distinguishable on facts as in that case clause (iva) to Explanation 2 to section 9(1) (vi) inserted by the Finance Act 2001 w. e. f. 2002-03 has not been considered." 4.3.7 In view of the above the Reliance on the case of Tata Consultancy Limited by the assessee is misplaced. It may also be mentioned here that various other decisions which have been relied upon by the assessee also considered and relied upon the decision in case of Tata Consultancy Limited, and so all these decisions will not help the assessee. 4.4. Concept of Royalty 4.4.1 The term 'royalty' normally connotes the payment made to a person who has exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or a thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Intellectual property law is that area of law, which is concerned with the protection of ideas, the expression of ideas, invention and commercial goodwill. It includes copyright law, the law of patents, breach of confidence, design law, trademark law and....
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....rship of which remains with the developer and only a limited right is given to the user. It is not necessary that the property should be protected by a statute. 4.5. Why separate clauses for Royalty and FTS 4.5.1 The section 9(1)(vi) of the Act was introduced by the Finance Act, 1976 w.e.f 01.01.1977. The CBDT circular No. 202 explained the intention of the legislation in this regard as under - "Source rule for "royalty"--Section 9(1)(vi) 15.1 A non-resident taxpayer is chargeable to tax in India in respect of income by way of royalty, which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India. The Income-tax Act, however, does not contain any definition of the term "royalty" nor is there any clear-cut source rule specifying the circumstances in which royalty income can be regarded as accruing or arising in India. Further, lump sum payments made for the supply of know-how are not chargeable to tax where such know-how is supplied from abroad and the payment therefore is made outside India even though the know-how is used in India, if no part thereof is attributable to any services rendered in India. 15.2 ....
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....profession carried on by such person in India or for the purposes of making or earning any income from any source in India:" 4.6.2 It can be seen that section 9(1)(vi)(b) provides that if a resident makes a payment to a non-resident, the such sum payable shall be deemed to be income of the payee accruing or arising in India if the following two conditions are satisfied - i. The payment should be in the nature of royalty as defined under explanation 2 to the sub section. ii. The purpose of the payment should be neither for the business carried out by such person outside India nor for making or earning an income from a source outside India. 4.6.3 The assessee's basic argument is that the payment does not fall under the mischief of explanation 2 to section 9(1(vi) of the Act. The term Royalty' has been defined under Explanation 2 to Section 9(1)(vi) of the Act to mean: "consideration (including any lump sum consideration but excluding any consideration which would be the Income of the recipient chargeable under the head "Capital gains") for - (i) the transfer of all or any rights (including the granting of a license) In respect of a patent Invention, model, design, s....
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....n a copyright right is transferred, it would fall under the scope of royalty. Only exception in the case of tangible properties is the equipment. The use of equipment is also covered by the scope of royalty w.e.f. 01/04(2002. 4.6.6 The clauses (i) and (iii) refers to the same category of properties i.e patent, invention, model etc. In clause (i). payment of "transfer of any right" in respect of such properties but clause (iii) refers to actual 'use' of such properties. What is the distinction between a 'right to use' and 'use'. It can be understood by a simple example of taking a house on rent vis-a vis subletting to a third party- In this case, a tenant as well as subtenant pay rent. A tenant makes the payment for his right to use whereas the sub tenant pays for actual use of the house. Similar is the situation when a vendor in India acquires know-how from abroad and sells it to actual user. In this case the vendor acquires a right to use covered by clause (i) whereas the actual user pays for actual use covered by clause (iii) of the explanation. 4.6.7 Thus as per the provisions of Sec.9(1)(vi) of the income Tax Act 1961, any payment on account of Royalty made by the Residen....
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....nlinking the same with the help of that process shows that they have "use" of the same. Time of telecast and the nature of programme, all depends upon the telecasting companies and, thus they are using that process; 4.7.3 The 'process' has been defined in Ordinary Dictionary as "a particular course of action intended to achieve a result". It is a co- cordinated set of actions that produce a result. White Information Technology has automated specific tasks for pre-defined workflow, the advent of web services opens the prospect of automating the entire end- to-end processes without sacrificing business agility. 4.7.4 As per Corpus Juris Secundum, the meaning of the term "process" as understood n Patent Laws is: * A mode, method or operation whereb~' a result or effect is produced. * a means devised for the production of a given result. * an operation done by rule in order to secure a result. This is exactly how a software works - in a series of instructions/ operations to achieve a desired result. The program which instructs a computer to perform the desired operation often goes through a series of evolutionary steps from preliminary conception to detailed and compl....
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....process digital images in accordance with a given mathematical procedure expressed as an algorithm. The program had been developed for computer aided design (CAD) of engineering and similar products, and the application was upheld once the claim was amended so as to cover only uses which started with a computerized image; the original claim was for less specific methods of using the algorithm. The claim was accepted because it was directed to a 'technical process'. At root, what mattered was that CAD is a widely used and most valuable aid to product design. iii. Merrill Lynch's Application : application program for analyzing data). The claimed program could be used in an automated market for shares and similar securities. It analysed customer's orders to buy and sell against given criteria; those which met the criteria were then carried out. The Court of Appeal held this unpatentable under the 1977 Act. The program could be introduced into any suitable computer in any encoding language, causing data to be acted upon so as to carry out legal transactions, rather than technical production in any ordinary sense. iv. Gale's Application : new method of calculation). The applicant'....
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.... it. A patent is a document which gives you the right to stop other persons from making, copying, using or selling your information. Patents are the oldest and strongest form of intellectual property. There is a rigorous examination procedure where the scope of the patent claims is tested, and searches are made for anticipation of the invention by others. 4.8.3. What is a design? If you have created a new design (a new shape, form or appearance of an article), you can protect your design by registering it. There are two different types of designs which can be registered. i.) An aesthetic design - just for the beauty of the shape configuration or ornamentation. ii.) A functional design, where the shape, configuration is necessitated by the function. 4.9.2 The Second Proviso to section 9(1 )(vi) of the Act itself state as under: "Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a license) in respect of computer software supplied by a non-resident manufacturer along wit....
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.... circular was intended to remove any doubt that a software supplied with a license in India will be taxable as royalty under section 9(1)(vi) of the Act. 4.10. Sub section (IA) of section 115A of the Act 4.10.1 Further, taxability of income of import of software has been amply clear in the Income Tax Act through sec. 11 5A (which deals with tax on dividends, royalty and technical services fees in the case of foreign companies) wherein it has been provided under (1A) as under: "Where the royalty referred to in clause (b) of sub-section (1) is in consideration for the transfer of all or any rights (including the granting of a license) in respect of copyright in any book to an Indian concern or in respect of any computer software to a person resident in India, the provisions of sub-section (1) shall apply in relation to such royalty as if the words the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy occurring in the said clause had been omitted." 4.10.2 Section 115 provides rates of tax in respect of roy....
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....databases. "Copyright under section 14 means the exclusive right subject to the provisions of this act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof , namely, (a) in the case of a literary, dramatic or musical work, not being a computer Program, (i) to reproduce the work in many material form including the storing of it in any medium by electronic means. (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any transaction of the work; (vi) to make any adaptation of the work; (vii) to do, in relation or an adaptation of the work, any of the acts specified in relation to the work in sub-clause (i) to (vi). (b) in the case of a computer Program: (i) to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer Program: PROVIDED that such commercial rental does not apply in respect of computer progra....
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....utor has acquired a copyright right. The payment for copyright right is royalty and not for copyrighted item. 4.12.2 The above statement is correct when we are dealing with tangible properties like books, paintings, model etc because these are the end products in themselves. This is not correct in the case of intangible properties like software, designs etc. Royalties are two types - copyright royalties and know-how royalties. In case of later, the payment for mere use would qualify as royalty. For instance standardized design for construction of a particular type of bridge. The developer only gives a right to use to the payer. The design is given in the form of a booklet with detailed drawings etc. It is in the physical form but it does not qualify as a tangible property or a copyrighted item. It comes under the know-how royalty. Similar is the case of software. Even the standardized software will fall under the category of know how royalty. 4.12.3 If it is presumed that software on carrier media disks or tapes is an copyrighted article and not an intangible property, then sale of software on a CD will not be royalty but if the same software is downloaded on internet with th....
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....e) or for the accomplishment of other tasks (application software). It can be transferred through a variety of media, for example in writing, on a magnetic tape or disc, or on a laser disc. It may be standardised with a wide range of applications or be tailor made for single users. It can be transferred as an integral part of computer hardware or in an independent form available for use on a variety of hardware. The rights In computer software are a form of intellectual property. Research into the practices of OECD Member countries has established that all but one protect software rights either explicitly or implicitly under copyright law. Transfers of rights occur in many different ways ranging from the alienation of the entire rights to the sale of a product which is subject to restrictions on the use to which it is put. The consideration paid can also take numerous forms. These factors may make it difficult to determine where the boundary lies between software payments that are properly to be regarded as royalties and other typos of payment". 4.12.5 Several important points have been considered while coming to the conclusion that supply of software by the assessee will be cha....
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....anation 2 defining royalty. c) Alternately, software is a property similar to patent, invention, design, secret formula, process etc. d) The CBDT in circular no 621 of 19/1 2/1991 .has categorically stated that payment for acquisition of software under a license is royalty. The intention of the legislation in subsequent amendments i.e. second proviso to sec 9(1 )(vi), sect 11 5A(1 A) and 8OHHE is clear in this regard. 4.13.2 In view of the above, it is held that payment made by the assessee for use, or right to use software is in the nature of royalty liable to tax in India under domestic law. 4.14 Conclusion under treaty law: 4.14.1 The term 'royalty' has been defined in a different way under most of the double tax avoidance treaties India has with different countries. The definition of royalty as per Article 12(3) of Indo-USA treaty is as under - (a) payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting any patent, trademark, design o....
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....h can determine whether a number is prime number or not, is a secret process. The user of such software uses the process without knowing how the software works. Thus the payment for use of software is for use of a secret process. Consequently, the payment would be in the nature of royalty. 4.15 Thus income relatable to the supply of software under the present contract answers to the description of royalty, as the software in question are copyrights which have been given to Reliance Communications Ltd., for use. Since the provisions of the Act and the DTM are very clear on this point, no reference to the Copyright Act or to any other source appears necessary. 4.16 Without prejudice to the fact that use of software program on computer will amount to transfer of copyright under section 14 of the Copyright Act, the payment will also be covered as the payment for use of secret process. Further, the software in general is an intellectual property and allowing its use by sale or by renting is covered by Royalty. 4.17.1 The impact of introduction of explanation 2(iva) to set 9(1)(vi) was lucidly considered by the Hon'ble ITAT, Hyderabad and it held in case of M/S Front tine soft L....
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.... right to use any patent, trade mark design or model, plan, secret formula or process. It is important that, in order that a payment may be treated as royalty for the purposes of article XIII of the agreement for avoidance of Double Taxation between India and the U.K., the person who is the owner of such patents, designs or models, plans, secret formula or process, etc., retains the property in them and permits the use or allows the right to use such patents, designs or models, plans, secret formula, etc. In other words, where the transferor retains the property right in the designs, secret formula, etc. and allows the use of such right, the consideration received for such user is in the nature of royalty. Where, however, there is an outright sale or purchase, the consideration is for the transfer of such designs, secret formula. etc., and cannot be treated as royalty." (relevant headnote) 2) C.I.T. Vs Ahmedabad Mfg. & Calico Printing Co. (1983) 139 ITR 806(Guj) = (2003-TIOL-210-HC-AHM-IT) "In the case of secret processes, patents, special inventions, when right of exploitation is given by the owner of the inventions, patents etc., to a third party instead of outright sale, t....
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....y of determination is compounded by the case of reproduction of computer software, and by the fact that acquisition of software frequently entails the making of a copy by the acquirer in order to make possible the operation of the software. Various countries have given different treatment of royalties despite OECD recommendation. Indian DTAAs already contained pro visions for taxing equipment rental as royalties, but domestic law did not have specific provisions till 2002-03. The Finance Act 2001 inserted clause (iv) (a) in sections 90) (vi), Explanation 2 to bring about a result diametrically opposite to the OCED recommendations. The said clause is reproduced as below: (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; 24. Where the domestic law is clear, unambiguous and does not suffer from any void or gap, the spirit or intention of international convention, under no circumstances, can override the express provisions of domestic law. ....... 26. With the above background of discussion now we examine the facts of the case under consideration, we find that in the impugned transacti....
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....nto consideration the Ruling of the Advance Ruling Authority (238 ITR 296); the Double Taxation Agreement between India and (1S4 and India and Singapore, provisions of section 9(1)(vi) of the Incometax Act; Indian Copyright Act, 1957. the Revised entry on Article 12 of OECD; the internal Revenue Service Regulation of USA; the Views of the High Powered Committee on Commerce and other facts and circumstances of the present case which could have clearly shown that the payments made by the Assessee was liable to tax in India and consequently the Assessee was bound to be answered in the negative, against the assessee and in favour of the revenue In the against assessee favour revenue negative, the and in of the to deduct tax at source? In the negative, against the assessee and in favour of the Revenue 22. This order of AO was passed with the approval of DRP, Mumbai. Hence assessee Lucent preferred the four appeals to ITAT. The grounds raised by Lucent common to all years are as under: GROUNDS OF APPEAL "1. That on the facts and circumstances of the case and in law, the Additional Director of Income Tax (International Taxation), Range-4, Mumbai ( hereinafter referred to as "t....
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....t not accepting the existence of a PE in India), the DRP authorities ought to have directed the Learned AO and consequently, the Learned AO ought to have proceeded to determine the income attributable to the operations in India and thereafter, compute and profits attributable to such income of the alleged PE in India (as the entire receipts from the sale of software are not taxable in India.) 8. On the facts and in the circumstances of the case and in law the Learned AO and the DRP authorities erred in taking a without prejudice argument that in the even at any appellate level, provisions of Article 12(6) are not considered to be applicable, then the receipts from supply of software to Reliance is to be taxable under Article 12(1)(2) of the DTAA. 9. On the facts and in the circumstances of the case and in law, the Learned AO and the DRP authorities have erred in taking a without prejudice argument that in the event it is held that where the receipts from supply of software to Reliance is not 'royalty' in nature, the business profits of the Appellant are to be computed on the basis of the activities of the PE in India thereby taxing the software receipt on net basis in India. ....
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....234 B of the Act. 16. On the facts and in the circumstances of the case and in law the Learned AO and the DRP have erred in directing to levy interest under section 234D of the Act if it is held at any appellate levels that interest under section 234A or 234B of the Act is not leviable. Penalty 17. On the facts and in the circumstances of the case and in law the Learned AO and the DRP have erred in initiating penalty proceedings against the Appellant under section 271 (1)(c) of the Act." Ground no 1 is general in nature. 23. The learned counsel for Lucent, Sr. P.J. Pardiwalla summarised the issues as under: - a) Whether proceedings under section 147 are valid b) Whether the receipts can be considered as Royalty to be taxed as gross basis c) If the same are Business profits, is there PE and how much to be attributed to PE d) Credit for tax e) Interest under varies provisions 23.1 With reference to the objection regarding reopening he referred to page 193 of the paper book and subsequent filing of ROI to submit that detailed objections are not dealt with by DRP. However there is no ground raised on the issue in appeal before us. 23.2 With reference....
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....ed that as the group company may have a PE but the assessee Lucent does not have PE in India. 23.4 With reference to giving credit of tax, it was the submission that the issue is decided by the order in the case of Lucent technologies GRL LLC 45 SOT 311( Mum). 23.5 With reference to levy of interest under section 234B/C/D it was submitted that the TDS was made as per the directions of AO, so as the amount was covered by TDS provisions, no interest can be levied. Further, he relied on the decision of NGC Network 313ITR 186 of Hon'ble jurisdictional High Court to submit that levy of interest does not arise. 24. In response, the learned counsel for the Revenue supported the orders of AO/DRP. It was his submission that Lucent choose not to file ROI under section 139(1) and so it cannot claim any benefits. Proceedings under section 148 were initiated for the benefit of Revenue. He referred to the doctrine of election (written submissions) and relied on case law of K Sudhakar S Shanbagh Vs ITO 241 ITR 865 ( Bom). It was the submission that the Lucent cannot claim any benefit which was not claimed by filing ROI in time. 24.2 With reference to the arguments on Royalty, Ld. Coun....
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....nt under which software were supplied to Reliance, the meaning of the term Royalty, Copyright and Copyrighted Article, the commentaries of OECD model and UN model tax conventions and various judicial precedents, it was the contention that the consideration received by the parties from Reliance is in the nature of business profit and not Royalty. In the absence of any Permanent Establishment of the respective suppliers in India, the said business profit/income on supply of software is not taxable in India. These contentions were more or less accepted by the learned CIT(A) in all the appeals preferred by the Revenue on the issue. 26. Many of the arguments regarding provisions of section 5(2), section 9(1)(vi), provisions of section 14 of Copyright Act and section 52(1)(aa) of Copyright Act, commentaries of OECD, provisions of DTAA with USA and other countries and arguments that software is 'goods' on the basis of the decision of the Tata Consultancy Services vs. State of Andhra Pradesh 271 ITR 401, all other judicial precedents raised before us were also examined and considered by the Hon'ble Special Bench of the ITAT, Delhi in the case of Motorola Inc., Ericsson Radio Systems and....
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.... In the above cases, the Hon'ble High Court was concerned with the income earned by the assessee as a result of supply of hardware and software under the supply agreement wherein such supplies were made overseas. In the case of DIT vs. Erickson AB 204 Taxman 192, Hon'ble Delhi High Court did not accept the argument that the software component of the supply should be assessed as 'Royalty' because the software was integral part of GSM mobile telephone system and was used by the cellular operator for providing cellular services to its customers. It was embedded in the equipment and could not be independently used. It merely facilitated the functioning of the equipment and was integral part thereof. 28. There is no dispute with reference to the principles established by the Hon'ble Special Bench as approved by the Hon'ble Delhi High Court in the cases cited supra. However, what is to be noted in the above judgements is that the software was supplied along with hardware as part of equipment and there is no separate sale of software. Software was integral part of supply of equipment for Tele-communications in those cases. It is generally called embedded software. 29. The facts in t....
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.... out of the definition of the copyright. The word licensed software has been defined. Similarly, the words design, design technique is also defined. The word documentation is also defined and it is not in dispute what is granted is a license. Even if it is not transfer of exclusive right in the copyright, the right to use the confidential information embedded in the software in terms of the aforesaid license makes it abundantly clear that there is transfer of certain rights which the owner of copyright possess in the said computer software/programme in respect of the copyright owned. In terms of the DTAA the consideration paid for the use or right to use the said confidential information in the form of computer programme software itself constitutes royalty and attracts tax. It is not necessary that there should be a transfer of exclusive right in the copyright as contended by the assessee. The consideration paid is for rights in respect of the copyright and for the user of the confidential information embedded in the software/computer programme. Therefore, it falls within the mischief of Explanation (2) of clause (vi) of sub-section (1) of section 9 of the Act and there is a liabil....
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....t tax at source under section 195(1). This was confirmed by the Commissioner (Appeals) but the Tribunal set aside the order. On appeal, the High Court restored the order of the Assessing Officer. On further appeal, the Supreme Court remanded the matter to the High Court : HELD reversing the Tribunal: (i) U/s 9(1)(vi) of the Act & Article 12 of the DTAA, "payments of any kind in consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work" is deemed to be "royalty". Under the Copyright Act, 1957, a software programme constitutes a "copyright". A right to make a copy of the software and use it for internal business by making copy of the same and storing it on the hard disk amounts to a use of the copyright u/s 14 (1) of that Act because in the absence of such a license, there would have been an infringement of the copyright. Accordingly, the argument that there is no transfer of any part of the copyright and the transaction involves only a sale of a copyrighted article is not acceptable. The amount paid to the supplier for supply of the "shrink-wrapped" software is not the price of the CD alone nor software alone nor the price of l....
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....owned and what was transferred was only the right to use copy of the software for the internal business as per the terms and conditions of the agreement. The right that was transferred was the transfer of copyright including the right to make copy of software for internal business, and payment made in that regard would constitute royalty for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. The payment for the right would constitute "royalty" within the meaning of article 12(3) of the DTAA and the provisions of 9(1)(vi) of the Act. Tax had to be deducted at source on the payment. 32. The Honble High Court of Karnataka considered and analysed the provisions of Income Tax, particularly section 9, in detail in the case of Synopsis(supra) from Para 19 to 27. The detailed discussion on the issue is as under: 19. From the aforesaid judgments it is clear, a distinction has been made between a transfer of a right in a copyright and transfer of a right in a copyrighted article. In view of the language employed in sub-clause (v) to Explanation 2, the question is not whether what is transferred is a right in a copyrig....
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....tomized electronic data] .................................. [Explanation - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India: or (ii) the non-resident has rendered services in India." 20. Income by way of 'Royalty' is liable to tax. The second proviso to Clause (vi) makes it clear that any lump sum payment made by a resident for the transfer of all or any lights including granting of a licence in respect of computer software supplied by a non-resident manufacturer along with a computer of computer based equipment under any scheme approved under the Policy on Computer Software Export, Software Developments and Training, 1986 of the Govt., of India, would not constitute 'Royalty'. For the purpose of the said section, the computer software supplied by a non-resident to a resident falls within the definition of 'Royalty'. If the case....
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....decisions referred to supra. In the entire discussions in the aforesaid two cases, the words used in Clause 5 namely, "in respect or, is not noticed and not discussed. It is well settled law that the legislature is deemed not to waste its words or to say anything in vain. A construction which attributes redundancy to the legislature is not acceptable except for compelling reasons. The Courts always presume that the legislature inserted every word thereof for a purpose and the legislative intention in that every word of the statute should have effect. The intention of the legislature is primarily to be gathered from the words used. The words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their grammatical meaning, unless that leads to some absurdity or unless is something in the context, or in the object of the statute to suggest the contrary. The right way is to take the words as the legislature has given them, and to take the meaning which the words given naturally imply, unless where the construction of those words is. either by the preamble or by the context of the words in question controlled or....
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....islature should be presumed not to have intended the same. Is there any such reason for cutting down the result of the generality of the language used present here? The answer in our opinion must be in the negative. It is true that in many cases stations, sidings, wharves, depots warehouses, cranes and other similar things will be used and it is arguable that in using the words "in respect of" the legislature had such user in mind. It is well to notice however that the legislature must have been equally aware that whereas in some cases accommodation provided by stations will he used, in, some cases sidings will be used, in other wharves, in others warehouses and in other cases cranes, and in certain cases several of these may be used, in most cases there will be no use of all of these. From the practical point of view it is impossible to regulate terminate charges separately in respect of user of each of these several things mentioned. When therefore the legislature authorised the Central Government to fix terminals as defined in S. 3(14), the intention must have been that the terminals leviable would not depend on how many of these things would be used. It is also worth noticing t....
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....e payment must, therefore, be attributable to employment, that is, engagement in work, or to work done. During the period of lay-off, the employer is not in a position to provide work and the employee cannot insist on work being provided or wages being paid to him. The employee is also not wider any duty to work for his master or even to present himself for work. He has to present himself for work if he desires to claim compensation (see S. 25E of the Industrial Disputes Act). But he has an option in the matter. If he remains absent, he will not be entitled to compensation, but he will not lose the right, which he possesses under the standing orders, of reinstatement when the normal working is resumed. The employer cannot insist, on his attendance and there is also no obligation upon 1dm to provide work or to pay wages even if the worker presents himself for work. In order to escape liability for compensation, the employer may provide the worker with alternative employment, but the worker is not bound to accept it. If he does not accept it, he will not be entitled to claim lay-off compensation, but he will not lose his right of reinstatement when the lay-off ends. The compensation ....
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....ene M.R. in Cunard's Trustees v. Inland Revenue Commissioners (1946) 174 LT 133 calls them colourless words. This Court in S.S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. (1960) 2 SCR 926=(AIR 1960 SC 695) construing these words in section 3(14) of the Indian Railways Act, 1890 has held that they are very wide. It seems to us that in the context of section 23(1B) "in respect of" has been used in the sense of being 'connected with' and we have no difficulty in holding that the currency in respect of which there has been contravention covers the sale proceeds of foreign currency, sale of which is prohibited under section 4(1). The intention of the legislature is clear from the explanation to sub-section (1B) of section 23 which provides that "for the purposes of the sub- section properly in respect of which contravention has taken place shall include deposits in a bank where such property is converted into such deposits." If for this sub-section any property in respect of which a contravention has taken place includes deposits into which the property may be converted and can be reached even where the deposits are in a bank, it is not reasonable to think that the sale proce....
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....onsideration paid is for the usefulness of the material object in respect of which there exists a copyright. Therefore, the intention was not to exclude the consideration paid for the use of such material object which is popularly called as copyrighted article. Even in respect of a copyrighted article the same is transferred, no doubt the right in the copyright is not transferred, but a right in respect of a copyright contained in the copyrighted article is transferred. Therefore, the Parliament thought it fit to use the phrase 'in respect of' as contra distinct from the word 'in' copyright. The meaning is clear, intention is clear, there is no ambiguity. Therefore, there is no scope for interpretation of this expressed term inasmuch as in the context in which it is used in the provision. Any other interpretation would lead to the aforesaid provision becoming otiose. 33. Interpreting the Sections of Copyright Act, the issue was further analysed as under in Paras 29 to 36. 29. The copyright Act, also do not define the word copyright in the definition section 2. However, Section 14, gives the meaning of "copyright". This section was substituted for the previous one by the Copyr....
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....ary to be applied to some things to which it would not ordinarily be applicable. Even when the definition clause uses words of very wide connotation a line may have to be drawn so as to exclude categories obviously not intended to be included. 31. When a word has been defined in the interpretation clause, prima facie that definition governs whenever that word is used in the body of the statute. If Parliament in a statutory enactment defines its terms whether by enlarging or by restricting the ordinary meaning of a word or expression, it must intended that, in the absence of a clear indication to the contrary, those terms as defined shall govern what is proposed, authorised or done under or by reference to that enactment. But, where the context makes the definition given in the interpretation clause inapplicable, a defined word when used in the body of the statute may have to be given a meaning different from that contained in the interpretation clause. All definitions given in an interpretation clause are therefore normally enacted subject to the qualification "unless there is anything repugnant in the subject or context, or unless the context otherwise requires". Even in the ab....
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....he subject matter to the contrary to be applied to some things to which it would not ordinarily be applicable. Therefore, while understanding the meaning of the word 'royalty' used in the Income-tax Act as defined in Explanation (2) to section 9(1) of the Income-tax Act the meaning assigned to the word 'copyright' cannot be literally superimposed in that provision. It has to be understood in the context in which it is used as well as it has to be understood in the ordinary, popular and natural sense in which it is understood. Moreover the Copyright Act is concerned with protection of an intellectual property right which is vested in the owner of the copyright and prevention of its infringement. That is why while defining the meaning of the word 'copyright' it is defined as meaning 'exclusive right' to reproduce the work in any material form including the storing of it in any medium by electronic means or to issue copies of the work to the public pot being copies already in circulation or to sell or give on commercial rental or other than for sale or for commercial rental any copy of the computer programme. The reproduction which is sought to be prohibited by the Act but for which t....
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....e right, and also a licence and consideration paid for grant of a licence constitutes royalty for the purpose of the said clause in the Income-tax Act. It is in this background, the discussion whether the payment is for a copyright or for a copyright article would be totally irrelevant. He crux of the issue is whether any consideration is paid for any right, or for granting of licence in respect of a copyright. The word 'in respect of gives a broader meaning. It has been used in the sense of being connected with. When the legislature has advisedly used the words 'in respect of'. The intention is clear and manifest. The said phrase being capable of a broader meaning, the same is used in the section to bring within the tax net all the incomes from the transfer of all or any of the rights in respect of the copyright. 33. In the IT Act, computer software is defined in Expln. 3 to s. 9(1)(vi) to mean any computer programme recorded on any disk, tape, perforated media or other information storage devices and includes any such programme or any customized electronic data. Though this definition holds good for the purposes of second proviso to s. 9(1)(vi), the ordinary meaning and unders....
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....he operation of a program in a computer involves the copying of the program within the computer, this will constitute reproduction. Whenever an object program is run on a computer, it is thereby copied; and whenever a source program is compiled in a computer, it is thereby copied or adapted. A software licence can, therefore, be legitimately considered to be a copyright licence. A major difficulty arising out of the licence clause for users is that it will almost invariably restrict the licensee from transferring the software to any third party. This may result in difficulties if, for example, the licensee wishes to transfer his computer operations to a facilities management company the transfer will require the consent of the licensor and will provide an opportunity for the charging of an additional fee. Licences have up to how normally prohibited any copying of the program, except as necessary for use. This had the consequence that the user could not make backup copies of the program for security purposes, although some licenses specifically conferred a limited right to make backup copies. 36. Ultimately, what the end-user, who pays the consideration requires is, the benefit o....
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....ght. It only prevents that from being unlawful which, but for the licence, would be unlawful. It amounts to a consent or permission by an owner of copyright that another person should do an act which, but for that licence, would involve an infringement of the copyright of licensor. A licence gives no more than the right to do the thing actually licensed to be done. It transfers an interest to a limited extent, whereby the licensee acquires an equitable right only in the copyrighted article. 41. Licences may be exclusive, or non-exclusive. Non-exclusive licence is not defined in the Act. The term 'exclusive licence' is defined in section 2, clause (j). It confers on the licensee and persons authorised by him, to the exclusion of all, other persons, including the owner of the copyright, any right comprised in the copyright in a work. A non-exclusive licence is the grant of authority to do a particular thing with no right of exclusion whatsoever. It never conveys, by itself, an interest in property. It merely enables a person to do that which he could not otherwise do, except unlawfully. 42. The owner of the copyright in any existing work may grant any interest in the right by l....
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....erty embedded in the copyright and not a right in the copyright as such. Therefore the mode adopted or the terminology given is not decisive to decide the nature of transfer. Ultimately, it is the substance which has to be looked into. 44. Therefore, it is necessary to look into the terms of the agreement entered into between the parties, as it would be purely question of fact to be decided on the basis of the intention of the parties as could be gathered from the written words used in the agreement. The relevant terms in the agreement between the parties is as under:- "End user software License agreement Between Synopsys International Limited Unit 1, Blanchardstown Corporate Park Blanchardstown, Dublin 15 Ireland And Athena Semiconductors Private Limited No. 1081, 12th Main Indiranagar Bangalore - 560 038, India 1.3 "confidential information" means (i) the Licensed Product, in object and source code form, and any related technology, idea, algorithm or information contained therein, including without limitation Design Techniques, and any trade secrets related to any of the foregoing. (ii) Synopsys's proprietary knowledge database product So....
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....he world. 1.15 "License Key" means a document (in physical or electronic format) provided by Synopsys to Licensee which reflects the applicable Licensee purchase order and lists: (i) the Licensed Product, including version number and quantity, licensed to Licensee; (ii) the Key server(s); and (iii) the codes which Licensee must input to initialize use of the Key Server(s). 1.16 "Licensed Product(s)" means collectively Design Ware and the Licensed Software. 1.17 "Licensed Software" means' the Synopsys computer software program(s), exclusive of Design Ware, which are licensed by License in object code form and identified in the applicable License Key, including any Bug Fix Release and Minor Enhancement Releases provided by Synopsys pursuant to the terms of the Support Agreement and this Agreement and any Software Upgrade which may be licensed by Synopsys to Licensee. 1.18 "Minor Enhancement Release" means an embodiment of the Licensed Product that delivers minor improvement, incremental features or enhancements of existing features, and/or functionality to the Licensed Product. 1.19 "Software Upgrade" means an embodiment of the Licensed Product that delivers substan....
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.... copies of the Documentation solely for its own internal business purposes to support Licensee's use of the Licensed Product. 2.4 Evaluation License In the event Licensee obtains evaluation copies (which excludes any copy of the Licensed Products issued pursuant to Licensee's purchase order) of the Licensed Product the terms and conditions of this Agreement shall govern, except as follows: (i) Licensee may use such Licensed Product only for internal, non- production evaluation for the purpose of deciding whether to purchase a license for such Licensed Product from Synopsys; (ii) the tern of the Evaluation License will be as specified in the applicable License key; and (iii) Section 9 is amended such that the Licensed Products is provided "AS IS" 2.7 Proprietary Notices. Licensee must reproduce and include the copyright notice and any other notices that appear on the original copy of the Licensed Product and Documentation on any copies may thereof by Licensee in any media. 2.8 License Restrictions. Licensee acknowledges that the scope of the licenses granted hereunder do not permit Licensee {and Licensee shall not allow any third party to: (i) save as expressly ....
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....ghts in any Design Ware incorporated in such Designs and Integrated Designs. 5. Delivery Terms 5.1 Purchase Order. In order to obtain products and services from Synopsys, Licensee must first submit a purchase order. As part of a purchase order, Licensee must identify the Licensed product it wishes to License, the identity (by machine ID number) of the Key server(s) and the location of such Key Server(s). All purchase orders are subject to acceptance by Synopsys, in its sole discretion. Licensee's receipt and use of all Licensed Product and Documentation shall be governed by: (i) the terms and conditions of this Agreements; and (ii) any Agreement Supplement(s) which are executed by both parties. Nothing contained in any purchase order, purchase order acknowledgment, or invoice shall in any way modify such terms or add any additional terms or conditions; provided, however, that such standard variable terms as price, quantity, delivery data, shipping instructions and the like, as well as tax exempt status, if applicable shall be specified on each purchase order or acknowledgement Licensee's purchase order will include, the licensee fee and payment terms as set forth in ....
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....ny breach of this Agreement. Neither party will be liable to the other for damages of any sort solely as a result of terminating this Agreement in accordance with its terms, and termination of this Agreement will be without prejudice to any other right or remedy of either party. The provisions of sections 3, 7, 8.2, 8.3, 11, 12 and 13 shall survive any termination or expiration of this Agreement. 10. Patent and Copyright Infringement 10.1 Indemnity. Synopsys agrees, at its own expense, to defend or, at its option, to settle, any claim or action brought against Licensee to the extent it is based on a claim that the Licensed Software as sued within the scope of this Agreement infringes or violates any United States or European patent, copyright, trademark, trade secret or other proprietary light of a third party, and Synopsys will indemnify and hold Licensee harmless from and against any damages, costs and fees reasonably incurred (including reasonable attorneys' fees) that are attributable to such claim or action and which are assessed against Licensee in a final judgment. Licensee agrees that Synopsys shall be release from the foregoing obligation unless licensee provides Syn....
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....ssess in the said computer software/programme in respect of the copyright owned. In terms of the DTAA the consideration paid for the use or right to use the said confidential information in the form of computer programme software itself constitutes royalty and attracts tax. It is not necessary that there should be a transfer of exclusive right in the copyright as contended by the assessee. The consideration paid is for rights in respect of the copyright and for the user of the confidential information embedded in the software/computer programme. Therefore, it falls within the mischief of Explanation (2) of clause (vi) of sub-section (1) of section 9 of the Act and there is a liability to pay the tax. 46. If there was any doubt regarding the taxability of this income the parliament by Finance Act, 2010 has substituted the explanation to section 9 which gives a clear intention of the legislature insofar as the liability of tax under this provision is concerned. A perusal of the said explanation makes it clear that as there was a doubt earlier, they want to remove the doubts by introducing this explanation. By the explanation they have declared that for the purpose of section 9 whi....
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....loan, sell or otherwise distribute the software the documentation or any derivative works based upon the software or documentation in whole or in part. Distributor shall not reverse engineer, decompile, or otherwise attempt to derive or modify the source code for the software. The distributor shall have no rights to the software other than the rights expressly set forth in the agreement. The distributor shall not modify or copy any part of the software or documentation. The distributor may not use sub-distributors for further distribution of the software and documentation without the prior consent of Actuate. What is charged is the licence fee to be paid by the distributor of the software as enumerated in exhibit A to the agreement. Further, clause 6.01 of the agreement dealing with title states that the distributor acknowledges that actuate and its suppliers retain all right, title and interest in and to the original, and any copies (by whomever produced), of the software or documentation and ownership of all patent copyright, trade mark, trade secret and other intellectual property rights pertaining thereto, shall be and remain the sole property of Actuate. The distributor shall ....
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....d hardware from Taiwan. The Income-tax Officer initiated proceedings under section 201(1) and 201(1A) of the Income-tax Act, 1961, against the assessee for failure to deduct tax at source in respect of payment made for the software imported from the USA. The case of the assessee was that it had obtained orders from the Department of Telecommunications for manufacture and supply of telecommunications/switching equipment. In order to execute its orders in India it had placed separate orders for software and hardware and integrated them and had executed its commitment to the Telecommunications Department. The Income-tax Officer and as confirmed by the Commissioner (Appeals) proceeded to hold that the software and the hardware had been imported by the assessee, through two separate countries and integrated in India by the assessee. The execution of the contract by the assessee with the Telecommunications Department in India was a separate contract from the import of software from the USA. It was held that the payments were made for supply of software which was utilised by the assessee and, consequently, the provisions of section 9(1)(vi) of the Act read with the Double Taxation Avoidan....
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....of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with 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 or property which are contingent on the productivity, use or disposition thereof; and b. payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of article 8. 2. Israel: Article 12(3) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secr....
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....this article means payments or credits, whether periodical or not, and, however described or computed, to the extent to which they are made as consideration for: a. the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; b. the use of, or the right to use, any industrial, commercial or scientific equipment; c. the supply of scientific, technical, industrial or commercial knowledge or information; d. the rendering of any technical or consultancy services (including those of technical or other personnel) which are ancillary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-paragraph (a), any such equipment as is mentioned in sub-paragraph (b) or any such knowledge or information as is mentioned in sub-paragraph (c); e. the use of, or the right to use: i. motion picture films; ii. films or video tapes for use in connection with television; or iii. tapes for use in connection with radio broadcasting; f. total or partial forbearance in respect of the use or supply of any property or right referred to in sub-paragraphs....
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....nsideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means or reproduction for use in connection with 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; and b. payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 11. Netherlands: Chapter III Article 12(4) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. The words used are similar and the same was considered by honble Karnataka High court in ....
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....received as consideration for the use of, or the right to use, any industrial, commercial or scientific equip-ment, other than payments derived by an enterprise described in paragraph (1) of article 8 (Shipping and Air Transport) from activities described in paragraph (2)(c) or (3) of article 8." In view of the abovesaid definition of "royalty", it is clear that the necessary ingredient to be satisfied to find out as to whether the payment would amount to "royalty" is as follows- -payment of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work. It has been universally accepted that a literary work is entitled to copyright and wherefore, a literary work is entitled to be registered as copyright. In India, the provisions of section 2(o) of the Copyright Act, 1957, defines "lite-rary work" as under : "'literary work' includes computer programmes, tables and compi-lations including computer databases Therefore, "computer software" has been recognized as copyright work in India also. 41. Further, In the case of Citrix Systems Asia Pacific Pte Ltd 343 ITR 001, The AAR on similar facts considered....
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....icle. The words within brackets, "including the granting of a license" indicate an expansive definition. The word "includes" is an inclusive definition and expands the meaning. Therefore, license cannot be restricted to transfer of a right dealt with earlier by the provision and should be understood as taking in the grant of a license simpliciter. Article 12 of the Double Taxation Avoidance Agreement between India and Australia (DTAA) defines "royalties" to mean "payment made as consideration for the use of or the right to use any copyright, patent, design or model, plan, secret formula or process, trade mark or other like property or right". When the DTAA speaks of royalty, and defines it, it must be understood as it is commonly understood. The article speaks of the use of or the right to use any copyright. Use of a copyright takes place when the copyright is used. This is distinct from the right to use a copyright. The two expressions are used disjunctively and the expression used is "or". The context does not warrant the reading of "or" as "and". If so, the consideration received for permitting another to use a copyright is also royalty. A copyrighted article is nothing bu....
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....ustomers, the distributor placed orders of purchase with the applicant and made payments to the applicant. The applicant then directly transmitted a "key" to the end-user customer who, on receipt of the key, downloaded the software from the server of the applicant. In addition, I also facilitated the execution of the Citrix subscription advantage programme between the applicant and its existing customers. The programme was a package of support services during the period of the programme, including product version updates, subscription advantage news and updates and secure portal access. The applicant sought an advance ruling on the taxability in India of payments made by I to it for the software product, Citrix XenApp and the subscription advantage programme. The questions framed by the Authority were whether the payments received by the applicant from the distributor for sale of the software product were in the nature of "royalty" within the meaning of the term in Explanation 2 to clause (vi) of section 9(1) of the Income-tax Act, 1961, or within the meaning of the term in article 12 of the Double Taxation Avoidance Agreement between India and Australia, whether the payments recei....
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.... DTAA. (vii) That the distributor I was required to withhold taxes in India at the time of making payments to the applicant in terms of section 195 of the Income- tax Act at the rate of 10 per cent. of the gross amount of royalty, as provided under article 12(2) of the DTAA. 42. In the case of Microsoft Corporation vs. ADTT/Gracemac Corporation 42 SOT 550, ITAT Delhi Bench has held that payment made for grant of license in respect of copyright by end user is taxable as Royalty as per section 9(i)(vi). 43. In the case of Millennium Software Ltd. 338 ITR 391, it was held by AAR that the consideration received by the applicant, a similar company, from ICEL for giving it the right to use its copyright software and use it for latter's own purposes whenever and whatever needed by it is in India as Royalty under clause V of Explanation 2 of section 9(i(vi) as well as under section 12.2 of India - Sri Lanka DTAA and consequently, provision of withholding tax under section 195 is applicable. 44. In the case of Labs India P. Ltd. 287 ITR 450 (AAR) has held that Article 12 defines Royalty to mean payments of any kind received as consideration for the use of or right to use any ind....
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.... supply of software, without purchase of equipments either from the same party or from any other party. There are certain agreements which are only 'License agreements' and are not seller or vendor agreements as in other cases. The exclusive License agreements are in the following cases. 1. Clarity International Ltd, Australia ( PB 654-682) vide agreement dt 29/03/05 assigned to Reliance Communications by Reliance Industries. ( ITA nos. 5089/M/08). 2. Comverse Ltd, Israel vide agreement dt26/08/02 ( PB 831-866). Amount paid was termed as License fee and License to copy was also granted. ( ITA no. 5470/M/08, 4280/M/08, 4250/ M/ 08, 4253/M/08, 4254/M/08, 4308/M/08,4673/M/08). 3. Legato systems Netherland BV, Netherlands4253/M/08 vide agreement dt.24/02/03 ( PB 742-762) (ITANos 5471/M/08, 4281/M/08, 4902/M/08). 4. 3 Com Asia Pacific RIM Pte Ltd, vide agreement dt.07/01/03 ( PB 1545-1617) where in it was stated that what is sold and Reliance purchased is Software license. The agreement is for purchase of License only. ( ITA No 4875/M/07). 5. Enea Embedded Technology AB, Sweden( PB 290-315) vide agreement dt 01/12/05 for software license and amount paid is classified as L....
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....ate in force unless he is liable to pay income tax thereon as an agent. The assessee did deduct the tax as per the directions of the AO under section 195(2). Since we have come to the conclusion that the amount paid by Reliance is to be treated as Royalty chargeable under the Act of the Income Tax, the order of the AO to that extent are upheld. We have also kept in mind the decision of the Hon'ble Supreme Court in the case of Agagrwal Chamber of Commerce Ltd. vs. Ganapat Rai Hira Lal 33 ITR 245 (SC) wherein it was held that persons who are bound under section 195 to make deduction of income tax at the time of making payments of any income, profits of gains are not concerned with the ultimate results of the assessment of the non-resident persons from whose income they deducted and paid income tax in India. In case of any of the recipients are aggrieved, they can file a return and claim the amount as not taxable as was the case in the appeal of Motorola, Nokia and Erickson (Supra) wherein those assessees contested that the amounts they received are not taxable. As seen from the appeal of M/s Lucent also, they have chosen not to file returns and take credit for the tax deducted at sou....
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....ence of PE makes business profit taxable in India. Therefore, it is necessary to give a finding on the existence of PE to the assessee Lucent. 54. The AO invoking provisions of Article-5 of DTAA, was of the opinion that an agency PE is coming into picture as substantive functions of negotiations, entering into contract, stocking of goods or merchandising is being done by India enterprise i.e., LTHPL. He referred to various terms of agreement entered between the parties particularly the Assignment and Assumption Agreement, including the scope of services for maintenance of software entered by LTHPL. The AO was of the opinion that in this case, not only original agreement has been entered into by the Indian Company but services relating to making software operation or warranties or maintenance were also being done by LTHPL only. In addition to that terms of the agreements , the AO also relied on documents found in the course of survey in the premises of Alcatel Lucent International Ltd. (got merged entity of LTHPL) more particularly with respect to letter of agreement dated 06.09.2008 between group concerns with Reliance Communications regarding restructure of payment mile stone. ....
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....nsidered the facts and held as under :- The agreement entered into between the assessee-company and the Indian Company, Escotel, as also the agreement entered into between Escotel and the Indian subsidiary, LTIL showed that the agreements were for two different purposes. The agreement between Escotel and the assessee was for the supply of the hardware and software; the agreement between Escotel and LTIL was for commissioning, installation and operations. However, both the agreements provided for the turnkey functioning of the project of the GSM network. Therefore, by entering into the contract with both, the assessee and LTIL, Escotel had made both the assessee and LTIL responsible for the turnkey completion of the GSM project, individually and severely. Thus, if either one would break its terms and conditions of the agreement with Escotes, the other would be responsible for its completion. Thus, consortium or partnership had been created between the assessee and its Indian subsidiary, LTIL. With that situation, the next question for consideration arose as to whether either the assessee or its subsidiary, LTIL could complete the contract with Escotel on a turnkey basis without t....
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....xistence, it also includes other personnel. Obviously, the term 'other personnel' has to be read with reference to the earlier words, as provided in the said article 5(2)(1). The other personnel specified would be the persons over whom the enterprise would be having a control. In the instant case, undisputedly, employees of the affiliates of the assessee had been employed through LTIL for providing the services of installation, commissioning, testing and bringing up to operational stage of the hardware and the software sold by the assessee to Escotel through its contract in regard to GSM project which was to be completed on a turnkey basis. Those employees of the affiliates over whom the assessee had a control would fall within the term 'other personnel' and, consequently, it would have to be held that a PE did exist as per the inclusive term as provided in article 5(2)(1) of the DTAA. A copy of the returns of the aforesaid employees also clearly showed that they had been staying in India for more than 90 days within the 12 month period from April, 1996 to March, 1997. Consequently, the requirements of article 5(2)(1) of the DTAA were fulfilled. In such circumstances, it was to be ....
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....e assessee claimed, credit for tax deducted at source. In the meantime, 'R' Ltd. claimed that no taxes were deductible from payment made for supply of copyrighted software and, accordingly, application to Assessing Officer requesting permission to make remittance to assessee without any deduction of tax at source but same was rejected by the Assessing Officer. Subsequently, 'R' Ltd. was refunded the amount which it had deducted at source from the payment made to the assessee. Therefore, assessee's claim of credit for TDS was declined by the Assessing Officer on ground that 'R' company had been refunded the amount of TDS, hence, certificate issued by 'R' Ltd. no longer remained valid. On appeal, the Commissioner (Appeals) upheld said order. 0n second appeal: HELD The short question that was required to be answered in the instant case was as to whether lawful implications of a valid tax deduction certificate can be declined on the ground that the person who has issued tax deduction certificates has been refunded the taxes which he had deposited with the Government. [Para 6] There was no dispute that the taxes had been deducted in accordance with the provisions of section 195....
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....of the above discussions, the Assessing Officer was directed to grant due credit to the assessee, on the basis of original tax deduction at source certificates produced by the assessee, in accordance with the law and as long as taxes so deducted had been paid over to the Government and certificates in respect of the same had been issued by the tax deductor uninfluenced by any refunds subsequently granted to the tax deductor. The refund made to the tax deductor, even if wrongful, had no adverse impact on the rights of the assessee. Therefore, the Assessing Officer was directed to grant credit for tax deducted at source, in accordance with the law." [Para 10] Respectfully following the coordinate bench decision,we direct AO to give credit to the tax deducted at source. Accordingly ground No.13 is allowed. 60. Ground Nos. 14, 15 16 pertain to levy of interest u/s. 234A, 234B and 234D. It was submitted that there was TDS on payment made to assessee Lucent Technologies GRL LLC by Reliance and therefore, there is no liability u/s. 234B. Issue is also covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of DIT (Intl. taxation) vs. NGC Networks A....
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....Communication Ltd. vs. DCIT (251 ITR 053) held that purchase of bandwidth cannot be considered as royalty and is to be considered as business profit. Since M/s. New Skies Satellite does not have a PE in India, its business profits are not taxable in India. Revenue is aggrieved and has raised the following grounds. ITA No.5374/Mum/07 "1. On the facts and in the circumstances of the case and in law, the ld. CIIT(A) erred in deciding that AO was not justified in the case in directing to deduct tax at source u/s. 195 of the IT Act. 2. On the facts and in the circumstances of the case and in law, the ld. CIIT(A) erred in holding that no income accrues to M/s. New Skies Satellites N.V. Rooseveltplantsoen 4, 2517 KR, The Hague, The Netherlands in India against the payment of US$17,00,000/- per annum for the supply of satellite bandwidth for use in the Reliance Telecom Network. 3. On the facts and in the circumstances of the case and in law, the ld. CIIT(A) failed to appreciate that the payment for obtaining computer software is in the nature of royalty which is liable for taxation in India. ITA No.6093/Mum/08 1. On the facts and in the circumstances of the case and in la....
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....ts with these assessees for obtaining transponder's capacity to enable themselves to uplink and downlink the programmes to be telecasted. For obtaining such transponder capacity and agreed amount was to be paid periodically as stated in the respective agreements. These receipts were taxed by the Department as "royalty" either under the provisions of the Income-tax Act, 1961 or under the provisions of the respective Double Taxation Avoidance Agreement. On appeal to the Tribunal. Held, by the Special Bench of the Tribunal, that process was involved in the transponder through which the telecasting companies were able to uplink the desired images/data and downlink it in the desired area which, inter alia, covered Indian territory. For holding that consideration was received in respect of royalty, it was not necessary that the instruments through which the process was carried on should be in the control or possession of the person who is receiving the payment. The context and factual situation had to be kept in mind while finding out whether a process was actually used by the payer. In the case of satellites, physical control and possession of the process could neither be with the....