AI Drafter 
TaxTMI 
TaxTMI 
2014 (4) TMI 369
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....61,58,059/-. Thereafter, the return was revised on 19.02.2010 wherein the assessee declared nil income and claimed a refund of Rs.121,24,329/-. Notice u/s 143(2) along with questionnaire issued was duly served upon the assessee. In response thereto representative of the assessee appeared before the Assessing Officer from time to time, filed requisite details and case was discussed with him by the Assessing Officer. 2.1 Assessing Officer noted in the assessment order that M/s Halliburton Export Inc., (hereinafter referred to as the assessee) is a company incorporated in the USA and is engaged in the business of supplying pre-packaged software and providing maintenance and other support services associated with it. The assessee has entered into agreements with various customers in India for rendering the above services. 2.2 The Assessing Officer further noted that assessee is a tax resident of USA and it has filed a tax return relying on the provisions of DTAA between India and USA. In the return of income, assessee has claimed that it does not have a permanent establishment in India in terms of Article 5 of the India US DTAA and accordingly, the income received from the afores....
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....cluded in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, then, subject to the provisions of sub-sections (1A) and (2), the income-tax payable shall be the aggregate of,- (A) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of thirty per cent if such royalty is received in pursuance of an agreement made on or before the 31st day of May, 1997 and twenty per cent where such royalty is received in pursuance of an agreement made after the 31st day of May, 1997 (but before the 1st day of June, 2005); (AA) the amount of income-tax calculated on the income by way of royalty, if any, included in the total income, at the rate of ten per cent if such royalty is received in pursuance of an agreement made on or after 1st day of June, 2005:) Since the date of the agreements are not verifiable from the agreements, so, in order to safeguard the interest of revenue, the gross amount of Rs. 6,03,54,143/- received by the assessee is held to be taxable as royalty at the....
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....e, has failed to appreciate that the payments received by the appellant constitute business profits and cannot be brought to tax in India, as per provisions of Article 7 (read with Article 5) of the DTAA, in absence of a permanent establishment in India. 3. That the Assessing Officer has erred in charging interest u/s 234B of the Act. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal and/or the relief claimed, at any time before or at the time of hearing of the appeal, so as to enable the Tribunal to decide this appeal according to law." 2.5 As regards ground No.1, 1.1 and 2 are concerned, same relate to sale of software and maintenance services and learned counsel for the assessee while reiterating the submission as made before the Assessing Officer has laid stress on the following, out of earlier submissions and submitted that: "Halliburton Export Inc. (hereinafter referred to as the 'assessee') is engaged in the business of supplying pre-packaged software and providing maintenance/support services associated with it. &n....
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....; Article 12 defines royalty to include consideration received for the use of, or the right to use, any copyright or a literary, artistic, or scientific work. A plain reading of the definition shows that when the assessee transfers the rights over a copyright, the same shall be said to be in the nature of royalty. In case the income of the assessee is not in the nature of royalty, then the same may be taxed under Article 7 as business income if the assessee has a Permanent Establishment (hereinafter referred to as the "PE") in India and the above income is attributable to such PE. The income of the assessee is not in the nature of "Royalty" As submitted above, the requisite condition for any payment in relation to supply of software to be classified a royalty-both in terms of the Act and the DTAA, it is necessary that the right in relation to the 'copyright' and not the 'copyrighted article' must be transferred. Your good self would appreciate that, passing on a right to use and facilitating the use of a product for which the assessee has a copyright is not the same thing as transfer....
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....by various Courts. An illustrative list of such cases is given below: * Motorola Inc. v. Dy. CIT [2005] 95 ITD 269 (Delhi) (SB) * DDIT v. Alcatel USA International Marketing Inc. (2009-+ITOL-733-ITAT-Mum) * Infrasoft Ltd. v. Asstt. DIT [2009] 28 SOT 179 (Delhi) * Lucent Technologies International Inc. v. Dy. CIT [2009] 28 SOT 98 (Delhi) * Rational Software Corpn. (India) Ltd. v. ITO ITA Nos. 608 to 610/Bang/2008 * Sonata Information Technology Ltd. v. Addl. CIT [2006] 103 ITD 324 (Bang.) * Hewlett-Packard (India) (P.) Ltd. v. ITO [2006] 5 SOT 660 (Bang.) * Wipro Ltd. v. Dy. CIT [2006] 5 SOT 805 (Bang.) * FactSet Research Systems Inc. [2009] 317 ITR 169 (AAR)" &....
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....e requisite condition for any payment in relation to supply of software to be classified as royalty-both in terms of the Act and the DTAA, is that the rights in relation to the 'copyright' and not the 'copyrighted article' must be transferred. Rights in relation to a copyright would include right to reproduce work, issue copies to public, etc. In other words, when the assessee transfers only the rights over the use of copyright, the same cannot be said to be in the nature of royalty. Reference in this respect may be drawn form Apex Court decision in the case of Tata Consultancy Services (supra) wherein it has been held that transfer of software license tantamount to sale of 'copyrighted article' which would be subject to Sales Tax. In this landmark judgement, the Court has observed that non-exclusive and non-transferable license enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in a copyright. Hence passing on a right to use and facilitating the use of a product for which the assessee has a copyright is not the same thing as transferring or assignin....
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.... said to be having a PE in India and receipts from sale of software are not taxable as per the provisions of the Act as well as the DTAA." "In the facts of the instant case, the assessee provides maintenance services in relation to the pre-packaged software supplied by it. Provision of these services primarily involves utilization of technical know-how/ skill, etc. during the process of rendering of services and no knowledge or skill for further use of the customer is provided. Therefore it cannot be said that any technical knowhow or skill has been made available to the customer. In view of the above factual and legal position, it can be said that receipts in relation to provision of maintenance and other services in relation to software supplied shall not be in nature FIS in terms of the DTAA. These shall be in nature of business profits, which can be brought to tax in India only in cases where the assessee has a PE in India. As submitted before, the assessee does not have any PE in India and accordingly, the receipts from provision of ancillary services in relation to supply of software are not taxable in India."' 2.....
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....e hardware did not have any independent existence and no separate payment was agreed for it: On these facts it was held by the High Court that the payment for software was not royalty. In the present case the software is not embedded in any hardware. The assessee has supplied the software on standalone basis. Also, as submitted in detail at the time of hearing, there is no sale of software and only license was given to use it. The software had to be returned to the taxpayer after the expiry of the license which was normally for one year. Thus, there was no sale of any copyrighted article. (ii) Nokia Networks: In the aforesaid case the Delhi High Court has given the decision vide order dated 07-09-2012. The issue regarding taxability of payment for software has been discussed in para 23 to 30 (page 26-4;0 36) of the decision. As the facts of the aforesaid case were exactly similar to that of Ericsson's case the High Court has followed the Ericsson's decision. (iii) Infrasoft Ltd. v. Asstt. DIT, (International Taxation) [2009] 28 SOT 179 ITAT, Delhi: The aforesaid decision is primarily based o....
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....nt to royalty unless it is proved that the payment is for the sale of software. In para 23 (page 45) the High Court had referred to the definition of copyright under the Copyright Act, 1957 wherein it is clearly stated that 'literary work' includes computer programmes etc. In para 24 (page 47) the High Court after referring to section 51 and 52 of the Copyright Act has held that licence is granted for taking copy of software and to store it in the hard disk and to take a backup copy and right to make and copy itself is a part of the copyright. The High Court further held that when licence to make use of the software by making copy of the same and to store it to the hard disk is given then what is transferred is right to use the software, an exclusive right, which the owner of copyright owns and what is transferred is only right to use copy of the software. The High Court thus did not accept the taxpayer's contention that there was no transfer of any part of copyright or copyright under the agreements or licences. The High Court held that right to make a copy of the software and use it for internal business itself amounts to copyright work u/s....
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.... discussed the various provisions of the Copyright Act. In para. 18 page 12 the AAR has stated that use of a copyright either by a owner or a licensee would not be an infringement of a copyright. The transfer of ownership can be by an assignment of the copyright either wholly or partially. A licence can be granted by the owner of copyright of any interest in the right. The AAR has held that when a licensee acquires a computer programme he also gets the right to use that programme to a limited extent. He also gets the right, absolute or limited to use the copyright. In para 19 (page 13) the AAR has held that when a software is created by a person who acquires a copyright for it, he becomes the owner of that copyright and he can transfer or licence that right. While selling or licensing the software the owner is also selling or licensing the right to use the copy right embedded therein. It was further held that software is a literary work and copyright of the creator over the software is an important and commercially valuable right and therefore whenever a software is assigned or licensed for use, there is an assignment of the right to use the embedded copyright....
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.... person visited India and reference was made to Paper book Page 156, 157, 181 and 182. It was submitted that only plan was transferred but nobody visited India and assessee has entered into separate agreement. Under the treaty, assessee is liable to be taxed. 2.9 This case was earlier heard and draft order was prepared and discussed by both the members but fresh development after latest decision on the subject has come to the notice of the members of the Bench. So, the case was refixed for clarification and the same was heard again. Ld. Counsel for the assessee submitted that the issue raised in this appeal is now squarely covered by the latest decision of Hon'ble Delhi High Court in the case of DIT v. Infrasoft Ltd. [2014] 220 dated Nov. 22, 2013 and reported in 2013-TII-15-HC -DEL-INTL, i is in favour of the assessee, a copy of which order has been filed and it was pleaded that such issue is no longer res-integra as the same is covered by Jurisdictional High Court decision, therefore, it should be decided in favour of the assessee by accepting its appeal. 3. Ld. D.R. while submitting that similar issue was dealt by ITAT Mumbai Bench 'L', Mumbai in group of cases DDIT (I....