TaxTMI 
TaxTMI 
2015 (8) TMI 48
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....ct tax at source therefrom. Since no such tax at source was deducted by the assessee company, it was called upon by the A.O. to show cause as to why order under section 201(1) should not be passed treating it as the assessee in default for this failure. In reply, the following explanation was offered by the assessee in writing vide its letter dated 23.03.2010. "2. The company has purchased certain software licenses of the following types: (a) SDS/2 detailing software licenses from Design Data corporation USA. (b) SDS/2drafting software licenses from Design Data corporation USA. (c) SDS/2 detailing review software licenses from Design Data corporation USA. (d) Steel Detailing software user licenses from Tekla corporation, Finland. (e) Steel detailing software user licenses from Tekla corporation, Finland. For your further information, SDS/2 is a software utilized mainly for structural engineering in civil or mechanical works, and as per the national building code of the USA, whereas Tekla specializes in steel structural engineering applications such as steel framed structures, pipelines, trusses etc. not connected with cement and bricks or other building materials. 3.....
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....copyright and the consideration for the right to sell/distribute/use was paid by Mold-Tek to Data Design on the basis of the number of copies of the computer software/program or number of such licenses or the duration of such licenses. The Hon'ble ITAT, Hyderabad in the case of Frontline Soft Ltd Vs. DCIT(ITA No.1080&10811Hyd/03) (2008-TIOL-422- ITAT-HYD) has held that the assessee acquired the right to use 'True Dial Software' and payment made in this regard was not for transfer of absolute assignment and ownership of 'True Dial Software'. The Hon'ble ITAT held the payment falls under the definition of 'Royalty' and payment to non-resident is deemed to accrue and arise in India and liable for TDS. In one of the recent rulings by the Authority for Advance Rulings (AAR) in the case of Airports Authority of India (2008-TIOL-IO-ARA-IT) it was held that consideration paid by an Indian company for the use of a computer program amounts to royalty. Moreover, in a very recent judgment by the Hon'ble Special Bench of the ITAT, New Delhi in the case of New Skies Satellite NV & Others 2009-(126)-TTJ 0001-TDELS], it was held that the term 'secret' ap....
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....ty for which suitable payments were made and a bill of entry made by the customs authorities on import to India. In the case of Design Data Corporation. software CD's were air freighted to India along with necessary hardware dongles. which were routed through customs and no import duties were paid due to low value of the CD's imported. The said confirmations for the air freighting from Design Data and the customs bill of entries etc in the case of Tekla Corporation were submitted to the Addl Director of Income Tax ( International tax), along with Xerox copies of the CD's in which the software arrived. 2. The assessee is a company engaged in the business of KPO, wherein it provides services of steel detailing and other mechanical diagrams for the use of its clients abroad through the STPI scheme. The Assessee has practically entirely export business only, and the said softwares are utilized for the purpose of earning foreign currency revenue from its exports. The assessee is recipient of Section 10B exemptions in respect of its incomes generated. It has negligible or nil incomes in respect of its domestic business, if any. 3. The assessee merely purchased a software ....
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....id not acquire the source code of the said software/s, and could only use the same as a user in its own export business, and contrary to the findings of the assessing officer, did not acquire any rights to reproduce or sell or distribute the same or otherwise modify or copy or amend the same in any manner. It is precluded from these activities by the nature of the single user/computer installation per user. 7. It therefore is submitted that the payments were for a copyrighted article and not in the nature of royalties or technical know how, and no copyrights or other rights have been transmitted to the assessee. 8. To buttress its action, the assessee also obtained suitable certificates from an accountant/counsel in the prescribed forms prior to making any remittance against the said purchases. 9. It is submitted once again that the entire business of the assessee is that of export in the form of a KPO business model, and it is engaged in this business as an STPI registered organization. Section 9(1 )(vi), which specifies income deemed to accrue or arise in India is reproduced below for ready reference: "income by way of royalty payable by (sub section) (b): a person....
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....nd M/s. DDC under the relevant license agreements was for a copy right or a copy righted article and this distinction is material because as held in the various judicial pronouncements cited by the Ld. Counsel for the assessee, if it is for a copy right, the same should be classified as 'Royalty' both under the Income Tax Act and under the DTAA. On the other hand, if the payment is actually for a copy righted article, then it only represents the purchase price of the article and the same cannot be considered as 'Royalty'. It is, therefore, relevant to ascertain as to whether there was transfer of any rights including the granting of a license in respect of copy right to the assessee in the present case under the license agreements and this exercise is required to be done by examining and analysing the terms and conditions of the relevant license agreements entered into by the assessee company with M/s. Tekla and M/s. DDC. A perusal of the impugned orders passed by the Ld. CIT(A), however, shows that although he has passed a very detailed order, he has neither considered nor analysed the terms and conditions of the relevant license agreements so as to ascertain the exact nature of r....