TaxTMI 
TaxTMI 
2014 (4) TMI 569
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....ue compared to a software application as a whole. 4. The ld. CIT(A) has erred in laws treating the transaction as business income, whereas the transaction is actually in the nature of royalties and fees for technical services. 5. The ld. CIT(A) has erred in laws by holding the royalties in Article 12 of DTAA (India and Singapore) or section 9 of IT Act as fees for technical services does not apply." 2. Briefly the facts of the case are that the assessee is a company engaged in the business of providing enterprise solutions based on smart cards, bar coding, biometrics etc. A survey u/s 133A was conducted on 11/02/2009 in the business premises of the assessee by the Department to verify the TDS payments made by the assessee. It was noticed by the Assessing Officer that an amount of USD 2,00,57,969 (INR 97,41,67,421/-) and USD 19,82,454 (INR 9,67,88,361/-) had been accounted as payable/paid to Gamma Machinery and Equipments PTE Ltd., Singapore (GAMMA) and Intra Asia Trading Pte Ltd., Singapure (Intra) for the purpose of complete source code for contact/contact less smart cards operating systems for transport application, conforming ....
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....d with article 5. 3.2 Without prejudice to the above submissions, it was submitted that the rates of tax adopted by the Assessing Officer are not in accordance with the DTAA rates. 3.3 Further, it was submitted that the applications of smart cards in various field such as banks and social segment is universal and software relating to the application are developed by the software developers matching the requirement and made available to the buyers as tailor-made-off shelf products. Thus, the acquisition/purchase of the set is a product along with the attached IP rights distinguished clearly and paid accordingly and accounted accordingly. It was submitted that the assessee is under the impression that the payments made squarely fall under goods. It was finally submitted that as there is no income deemed to be accrued or arise in India out of the above and it is being business profit for the non-resident company and as there is no permanent establishment exist in India, the provisions of section 195 and section 201 of the IT Act are not applicable to the assessee company and tax deduction does not arise. The assessee relied on various case laws before the CIT(A) which were extracted....
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.... appellant company made the outright purchase on their own account and those transactions were supported by proper documents such as invoices, shipping documents etc. Therefore I am of the view that improper analysation of the facts by the ADIT(IT) led him to an improper conclusion that in respect of a package transaction which is now under consideration the entire amount has to be considered either as 'royalty' or 'fees for technical services'. Thus, the ADIT(IT) missed the track from sum and substance of the transaction involving purchase of products under different agreements. In view of that, the supplementary agreement alone will make the foreign companies liable to tax for the purpose of Indian Income Ta Act, 1961 which consequently make the appellant liable u/s 195(1) for the payment made by it towards Intellectual Property Rights Source Code. On the other hand, payments made for purchase of the software itself being covered as the sale of goods and hence the same cannot be subject to tax for the purchase of software which is outside the purview of taxation of withholding tax. 8.2 In earlier part of this order, I have already held th....
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....g state (Singapore), the tax so charged shall not exceed 10 per cent of the gross amount of the royalties. 6.1 The DR submitted that section 195 of the IT Act, 1961 puts responsibility on the person responsible (Batronics or its Principal officer) for paying to a non-resident (Intra/Gamma), to deduct tax on the sum chargeable to tax. Further it was submitted that from the above provisions, it is clear that the deductor-assessee was very much required to make deduction of tax at source while making payment on account of the transactions under consideration. It was contended that since the assessee had not made any such deduction of tax while making the remittance to the non-resident and as such the deductor assessee is liable for the consequences of its failure to deduct tax and, therefore, the Assessing Officer has rightly made the addition u/s 201(1) and 201(1A) of the Action. 7. On the other hand, the learned counsel for the assessee has filed detailed written submissions, which are as under: (a) The provisions of Section 195 of the Income Tax Act, 1961 are not applicable in the respondent's case. As submitted in the foreg....
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....racterised as 'royalties' or 'fees for technical services', as the case may be. In such a situation, where the business income/profit of the non-resident include 'royalties' or 'fees for technical services', the taxability of these items of income shall be governed by the Article 12 of the DTAA with Singapore. This is in sync with the principle 'Generalia specialibus non-derogant' which lays down that 'general provisions' will not override the 'special provision'. In the case of the company, the provisions dealing with 'royalties' or 'fees for technical services' under the Act as well as DTAA are 'special provisions' and should be given effect to the extent of its scope, leaving the general provision to control cases where specific provisions do not apply." While accepting that the impugned payments constitute the "Business income of the non-resident companies, the AO has taken a 'U' turn by observing that same consideration can also be characterised as "Royalties" or "Fees for technical services", as the case may be. This view of the AO is vague and baseless. There is ....
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....sp; The AR submitted that vide Para No. 4.11 at page No. 14 of his order, the AO observed, among other things, that the respondent here in having obtained the "Source Code(s)" from INTRA/GAMMA (the non resident company) a mere trading house, which is neither a developer nor a business house expertised in development of software/computer programme, failed to bring on record the original developer, who developed the 'Source Code' for operating systems and that it was unable to bring on record on what terms and conditions the "Source Code" was produced by INTRA/GAMMA from the original developer /owner of the "Source Code". In this connection, the AR submitted that the assessee here in has no obligation to bring on record either the original owner or the terms and conditions for producing the source code to the non-resident companies. In this regard, the AR relies on the observations of the CIT (Appeals) vide para Nos. 6.9 at pages 28 and 29 of his order. (e) "Software" and "Source code" are two separate items of transaction The AR submitted that the observation of the AO that "Software" a....
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....d on the above mentioned case law. He submitted that the judgment of Karnataka High Court in the above mentioned case cannot be made applicable to the case of the assessee herein since it is distinguishable on facts. The AR relied on the observations of the CIT(Appeals) in Para Nos. 7.0 &7.1 at page Nos. 34 to 37 of his order. (g) Decision of Delhi High Court in the case of DClT vs.Infra Soft Ltd [2013] 39 Taxmann.com 88 (Delhi) is applicable. I. The Delhi High Court upheld the order of the Tribunal that amount received by the assessee under the license agreement for allowing the use of the software would not be royalty under the DTAA. II. It held that what was transferred was neither the copy right in the software nor the use of the copy right in the software, but what was transferred was the right to use the copy righted material or article which was distinguishable from the rights in a copy right. III. It further held that the right that was transferred was not a....
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....nts or copy rights for the products purchased and it clearly indicates that the products are for the business purpose of the assessee and, therefore, would not come into the ambit of section 195(1) of the Act. The AR contended that the transactions effected by the assessee with foreign companies are in the light of various clauses embedded in the general agreement as well as supplementary agreement entered into by the assessee. The amounts paid by the assessee would constitute business income in the hands of foreign companies and, therefore, not liable for tax deduction at source u/s 195 of the IT Act. The CIT(A) after considering the submissions of the assessee and the ADIT thoroughly examined and discussed the issue in dispute with various case laws and gave a categorical finding that "the appellant as well as the foreign companies acted on the agreements entered into by them. The appellant company made the outright purchase on their own account and those transactions were supported by proper documents such as invoices, shipping documents etc. Therefore he was of the view that improper analysation of the facts by the ADIT(IT) led him to an improper conclusion that in respect of a....
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....t permanent establishment. 7(5) For the purpose of this article, the term 'income or profits' means income derived by an enterprise form the conduct of a trade or business; but does not include income derived by an enterprise in the form of rents, royalties, technical, services fee, interest, dividends, capital gains, fees for the management of the business of another enterprise, or remuneration or fee received by an enterprise for the furnishing to another enterprise of the services of its technical, skilled or other personnel except where the property or other right giving rise to any such item of income is effectively connected with the permanent establishment of the enterprise. The term 'income or profits' shall not also include income from the operation of ships or aircraft'. 10. We have also gone through the Article 12 of the DTAA with Singapore stipulates as under: ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. Howeve....
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...., experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or c. consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, "fees for technical services" does not include payments: a. for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); b. for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic;  ....
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....f a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. 10.1 Clause 1 of Article 12 lays down that royalty or fees for included services arising in a contracting State and paid to a residents of the other contracting State may be taxed in that other state. 11. Clause 2 of Article 12 lays down that royalty and fees for included services may also be taxed in a contracting State in which they arise. However, if the beneficial owner of the royalties or fees for included services paid to the residents of the other contracting State then the tax has been limited in percentage depending upon the number of years the convention has effect. 12. Clause 3 of Article 12 lays down that the term royalty means payment of any kind received as c....
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....--------------- It is clear from the above definition that a computer programme mentioned in Clause (b) of the section has all the rights mentioned in Clause (a) and in addition also the right to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme. This additional right was substituted w.e.f. 15.1.2000. The difference between the earlier provision and the present one is not of any relevance. What is to be noted is that the right mentioned in Sub-clause (ii) of Clause (b) of Section 14is available only to the owner of the computer programme. It follows that if any of the cellular operators does not have any of the rights mentioned in Clauses (a) and (b) of Section 14, it would mean that it does not have any right in a copyright. In that case, the payment made by the cellular operator cannot be characterized as royalty either under the Income-tax Act or under the DTAA. The question, therefore, to be answered is whether any of the operators can exercise any of the rights mentioned in the above provisions with reference to the software supplied by the Assessee. 157. We may fi....
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....p; 159. Clause 20.4 of the supply contract with JTM is as under: 20.4 In pursuance of the foregoing JT MOBILES shall: (a) not provide or make the Software or Documentation or any portions or aspects thereof (including any methods or concepts utilized or expressed therein) available to any person except to its employees on a "need to know" basis; (b) not make any copies of Software or Documentation or parts thereof, except for archival backup purposes; (c) when making permitted copies as aforesaid transfer to the copy/copies any copyright or other marking on the Software or Documentation. (d) Not use the Software or Documentation for any other purpose than permitted in this Article 20, Licence or sell or in any manner alienate or part with its possession. (e) Not use or transfer the Software and/or the Documentation outside India without the written consent of the Contractor and after having received necessary export or re-export permits from relevant authorities. This clause places stringent restrictions on the cellular operator....
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.... it has no use or value independent of it. This restriction placed on the cellular operator (not to license or sell the software) runs counter to Section 14(b)(ii) of the Copyright Act which permits a copyright holder to sell or let out on commercial rental the computer programme. For this reason also it cannot be said that JTM or any cellular operator acquired a copyright in the software. 162. A conjoint reading of the terms of the supply contract and the provisions of the Copyright Act, 1957 clearly shows that the cellular operator cannot exploit the computer software commercially which is the very essence of a copyright. In other words a holder of a copyright is permitted to exploit the copyright commercially and if he is not permitted to do so then what he has acquired cannot be considered as a copyright. In that case, it can only be said that he has acquired a copyrighted article. A small example may clarify the position. The purchaser of a book on income-tax acquires only a copyrighted article. On the other hand, a recording company which has recorded a vocalist has acquired the copyright in the music rendered and is, therefore, permitted to exploit ....
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....not apply. Mr. Dastur, however, was fair enough to concede that if the Department is right in saying that if you have the copyrighted article, you also have the copyrighted rights, then Clause (v) of Explanation 2 below Section 9(1) of the Income-tax Act will apply because this clause ropes in "transfer of all or any rights" and is not restricted to "use" or "right to use", the copyright. However, he added that since the basic proposition of the Department has been demonstrated to be wrong, Clause (v) of Explanation 2 below Section 9(1) is not an impediment to accepting the assessee's contention. 165. We may also usefully refer to the Commentary on the OECD Model Convention (dated 28.1.2003) which is of persuasive value and which throws considerable light on the character of the transaction and the treatment to be given to the payments for tax purposes. Paragraph 14 of the Commentary, a copy of which was filed in Paper book No. V is relevant: COMMENTARY ON ARTICLE 12 - PAPER BOOK V "14. In other types of transactions, the rights acquired in relation to the copyright are limited to those necessary to e....
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....s distinguished between transfer of copyright rights and transfer of copyrighted articles based on the type of rights transferred to the transferee. Briefly stated, if the transferee acquires a copy of a computer programme but does not acquire any of the rights identified in certain sections (of the U.S. Regulations), the regulation classified the transaction as the Transfer of a copyrighted article. Paragraph 3 of the Explanatory Note says that if a transfer of a computer programme results in the transferee acquiring any one or more of the listed rights, it is a transfer of a copyright right. 167. Paragraph 4 says that if a person acquires a copy of a computer programme but does not acquire any of the four listed copyright rights, he gets only a copyrighted article but no copyright. 168. The actual regulations bring out the distinction very clearly between the copyright right and a copyrighted article. They also specify the four rights which, if acquired by the transferee, constitute him the owner of a copyright right. They are: (a) The right to make copies of the computer programme for purposes of distr....
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....hin the meaning of Explanation 2 below Section 9(1) of the Income-tax Act or Article Article of the DTAA with Sweden. ------------- 184. In view of the foregoing discussion, we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the Assessee in respect of the software cannot be considered as royalty either under the Income-tax Act or the DTAA.' 17. Referring to the Commentary on the OECD Model Convention (dated 28.1.2003), which was considered to be of persuasive value, the Tribunal noticed that the rights acquired in relation to the copyright are limited to those necessary to enable the user to operate the program, for example, where the transferee is granted limited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user's computer hard drive or for archival purposes. Copying the program onto the computer's hard drive or random access memo....
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.... computer or in any other medium. 20. The Tribunal has held rightly so that the question whether there was a transfer of a copyright right or only of a copyrighted article must be determined taking into account all the facts and circumstances of the case and the benefits and burden of ownership which have been transferred. 21. The appeal filed by the Revenue against the Judgment of the Special Bench of the ITAT was dismissed by the High Court of Delhi in the case of DIT v. Nokia Networks Oy (2012) 253 CTR (DEL) 417 The Bench approved the findings of the Special Bench of the Tribunal in the Motorola Inc. case (supra) that Copyright is distinct from the material object, copyrighted. It is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. He has an individual right of exclusive enjoyment. The transfer of the manuscript does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of a physical thing in which copyright exists gives to the purchaser the right to do with it (the physical thing) whatever he pleases, except the right to make copies and issue them to the public. Ju....
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....rce in the submission of Mr. Dastur that even assuming the payment made by the cellular operator is regarded as a payment by way of royalty as defined in Explanation 2 below Section 9 (1) (vi), nevertheless, it can never be regarded as royalty within the meaning of the said term in article 13, para 3 of the DTAA. This is so because the definition in the DTAA is narrower than the definition in the Act. Article 13(3) brings within the ambit of the definition of royalty a payment made for the use of or the right to use a copyright of a literary work. Therefore, what is contemplated is a payment that is dependent upon user of the copyright and not a lump sum payment as is the position in the present case. We thus hold that payment received by the assessee was towards the title and GSM system of which software was an inseparable parts incapable of independent use and it was a contract for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty." 23. The Delhi High Court in Ericsson A.B. (supra) further held that once it is held that payment in question is not royalty which would come within the mischief of clause (vi), the Explanation w....
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....ise if the grant is non-exclusive that too confined to the user purely for in-house or internal purpose. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. That is what, in our view, follows from the language employed in the definition of "royalty" read with the provisions of the Copyright Act, viz., section 14 and other complementary provisions. We may refer to one more aspect here. In the definition of royalty under the Act, the phrase "including the granting of a licence" is found. That does not mean that even a non-exclusive licence permitting user for in house purpose would be covered by that expression. Any and every licence is not what is contemplated. It should take colour from the preceding expression "transfer of rights in respect of copyright". Apparently, grant of "licence" has been referred to in the definition to dispel the possible controversy a licence whatever be its nature, can be characterized as transfer.' 25. The Authority on A....
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....ay in this context refer to section 52(aa) of the Copyright Act (extracted supra) which makes it clear that "the making of copies or adaptation" of a computer programme by the lawful possessor of a copy of such programme, from such copy (i) in order to utilize the computer program, for the purpose for which it was supplied or (ii) to make back up copies purely as a temporary protection against loss, destruction, or damage in order to utilize the computer programme for the purpose of which it was supplied" will not constitute infringement of copyright. Consequently, customization or adaptation, irrespective of the degree, will not constitute "infringement" as long as it is to ensure the utilization of the computer programme for the purpose for which it was supplied. Once there is no infringement, it is not possible to hold that there is transfer or licensing of "copyright" as defined in the Copyright Act and as understood in common law. This is because, as pointed out earlier, copyright is a negative right in the sense that it is a right prohibiting someone else to do an act, without authorization of the same, by the owner. It seems to us that reproduction and adaptation envisaged b....
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.... grant of licence) in respect of the computer software by a non-resident manufacturer along with a computer based equipment under a scheme approved as per the 1986 Policy on computer software export, software development and training, is excluded from the purview of 'royalty' clause. It does not, however, mean that wherever computer software is transferred on outright sale basis or is leased or licensed, it would become royalty income. Whether or not the income is in the nature of royalty has to be judged with reference to the exhaustive definition in Explanation 2. In this context, sub-clause (v) of Explanation 2 which has been referred to by both sides become relevant. It is in the light of the language of that clause one has to see whether the income in question ought to be treated as 'royalty'. The transfer of rights envisaged by sub-clause (v) should be in respect of the 'copyright' among others. Mere transfer of computer software dehors any copyright associated with it does not fall within the ambit of the said clause (v). That is what has been held in the two rulings referred to earlier." 28. The Supreme Court of India in Tata Consultancy Services ca....
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.... when computer software is purchased or leased. It has been held that what is created and sold is information and the magnetic tapes or the discs are only the means of transmitting these intellectual creations from the originator to the user. It has been held that the same information could have been transmitted from the originator to the user by way of telephone lines or fed directly into the user's computer by the originator of the programme and that as there would be no tax in those cases merely because the method of transmission is by means of a tape or a disc, it does not constitute purchase of tangible personal property and the same remains intangible personal property. It has been held that what the customer paid for is the intangible knowledge which cannot be subjected to the personal property tax. In these cases, difference is sought to be made between purchase of a book, music cassette/video or film and purchase of software on the following lines: "When one buys a video cassette recording, a book, sheet music or a musical recording, one acquires a limited right to use and enjoy the material's content. One does not acquire, however, all that the owner has to sell. ....
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....corporeal body. It has been held that a software recorded in physical form becomes inextricably intertwined with, or part and parcel of the corporeal object upon which it is recorded, be that a disk, tape, hard drive, or other device. It has been held that the fact that the information can be transferred and then physically recorded on another medium does not make computer software any different from any other type of recorded information that can be transferred to another medium such as film, video tape, audio tape or books. It has been held that by sale of the software programme the incorporeal right to the software is not transferred. It is held that the incorporeal right to software is the copyright which remains with the originator. What is sold is a copy of the software. It is held that the original copyright version is not the one which operates the computer of the customer but the physical copy of that software which has been transferred to the buyer. It has been held that when one buys a copy of a copyrighted novel in a bookstore or recording of a copyrighted song in a record store, one only acquires ownership of that particular copy of the novel or song but not the intell....
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....nterpretation of Section 14 read with the Rules, duty was payable on the transaction value determined therein, and as per Rule 9 in determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly, as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. This clearly goes to show that when technical material is supplied whether in the form of drawings or manuals the same are goods liable to customs duty on the transaction value in respect thereof. 44. It is a misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with the Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. The final product at the time of import is either the magazine or the encyclopaedia or the engineering drawings as the case may be. There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual ....
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....ods" in the Customs Act is not as wide or exhaustive as the definition of the term "goods" in the said Act, it has still been held that the intellectual property when it is put on a media becomes goods. ----------- 27. In our view, the term "goods" as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). 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 o....
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....n be transferred over the telephone lines, does not take away from the fact that the software was ultimately recorded and stored in physical form upon a physical object. See Crockett, supra, at 872-74; Shontz, at 168-70; Cowdrey, supra, at 188-90. As the court of appeal explained, and as Bell readily admits, the programs cannot be utilized by Bell until they have been recorded into the memory of the electronic telephone switch. 93-1072, at p. 6, 631 So.2d at 1342. The essence of the transaction was not merely to obtain the intangible "knowledge" or "information", but rather, was to obtain recorded knowledge stored in some sort of physical form that Bell's computers could use. Recorded as such, the software is not merely an incorporeal idea to be comprehended, and would be of no use if it were. Rather, the software is given physical existence to make certain desired physical things happen. One cannot escape the fact that software, recorded in physical form, becomes inextricably intertwined with, or part and parcel of the corporeal object upon which it is recorded , be that a disc, tape, hard drive, or other device. Crockett, supra, at 871072; Cowdrey, Supre, at 188-90. That the ....
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....d down that Computer programs are the product of an intellectual process, but once implanted in a medium they are widely distributed to computer owners. That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the marketplace. 33. The Supreme Court has further held that 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". There is 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 on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which....
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.... be recorded into the permanent memory of the computer. That the information, knowledge, story, or idea, physically manifested in recorded form, can be transferred from one medium to another does not affect the nature of that physical manifestation as corporeal, or tangible. Likewise, that the software can be transferred from one type of physical recordation, e.g., tape, to another type, e.g., disk or hard drive, does not alter the nature of the software, it still has corporeal qualities and is inextricably intertwined with a corporeal object. The software must be stored in physical form on some tangible object somewhere. In sum, once the "information" or "knowledge" is transformed into physical existence and recorded in physical form, it is corporeal property. The physical recordation of this software is not an incorporeal right to be comprehended. 35. To further elucidate the nature of the transaction in the case of the Assessee it is necessary to examine some of the clauses of the Licensing software agreement entered into by the Assessee with its customers: 36. Clause No. 2 of the Agreement for sale and Assignment of Intellectual Property Technology Transfer is mentioned below....
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....the within transactions except as specifically permitted hereunder; (d) The intellectual Property does not infringe the rights of any person or entity; (e) There are not claims, pending or threatened, with respect of Seller's right in the intellectual Property; (f) This Agreement is valid, binding and enforceable in accordance with its terms of this agreement. 1. Seller is not subject to any agreement, judgment or order inconsistent with the terms of this Agreement. 2. The Seller is not restrained from Selling and/assigning the intellectual property rights by any statutory authority in the country of its incorporation. As per Clause 4 of the supplementary agreement Further assurances, Moral rights, Competition, Marketing: Seller agrees to assist the Buyer in every legal way to evidence, record and perfect the section 1 assignment and to apply for and obtain recordation of and from time to time enforce, maintain, and defend the assigned rights. If the B....
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....nd, therefore, consideration cannot be treated as royalty. In other words, assessee is permitted to make only copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include copyright and other proprietary notices. Copies of the Software are the exclusive property of Intra Asia Trading (P) Ltd. The Software includes a licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensees own business as defined within the Intra Asia Trading (P) Ltd. Without the consent of the Seller the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the Software without Intra Asia Trading (P) Ltd.'s written consent. The Software contains a mechanism which Intra Asia Trading (P) Ltd. may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intelle....
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....poses. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 41. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Tr....
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....has been prohibited from copying, de-compiling, de-assembling, or reverse engineering the software without the written consent of Intra Asia Trading (P) Ltd. The licence agreement between the Assessee company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Intra Asia Trading (P) Ltd. and only Intra Asia Trading (P) Ltd. has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to Intra Asia Trading (P) Ltd.. 46. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy....