TaxTMI 
TaxTMI 
2015 (11) TMI 923
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.... the view that the said payment for purchase of software would not qualify as 'Royalty' under the India-Ireland DTAA. The Assessing Officer was, however, of the view that as per the provisions of section 195 of the Income Tax Act, 1961 (herein after referred to as 'the Act'), the assessee was liable to deduct tax at source on the payment to 'Cadence' for purchase of the Shrink Wrapped Software as the payments made amounted to 'Royalty' under the Act as well as the India-Ireland DTAA. The Assessing Officer accordingly held as under at paras 21 & 22 of the order passed under Section 201(1) and 201(1A) of the Act dt.14.3.2013. " 21. Conclusion : From the above discussion, it is proved that the payments made by the assessee to Cadence, Ireland during the F.Y. 08-09 & 09-10 & 10-11 in terms of a license, constitute Royalty, both under section 9(1)(vi) of the Income Tax Act, 1961 and under the DTAA between India and Ireland, and is chargeable to tax in India. As per section 195 of the Income Tax Act, the assessee was liable to deduct tax at source on the royalty payments to Cadence, Ireland. 21.1 But no tax has been deducted by the assessee thereon either at the ti....
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....or consideration for use of copyright and such payments qualify as royalty. 1.2 The learned CIT (Appeals) erred in not appreciating the fact that the payments made to Cadence were towards purchase of copyrighted software and not for purchase of a copyright. 1.3 The learned CIT (Appeals) erred in not considering the fact that the consideration is being paid for the use of the product and not for any right in respect of the coyright, or in the patent, invention, model, design, secret formula or process or trademark or similar property. 1.4 The learned CIT (Appeals) erred in contending that the right to use the copyrighted software has been transferred to the appellant. 1.5 The learned CIT (Appeals) erred in contending that the payments for purchase of software is taxable as "royalty" under Section 9(1)(vi) of the Act and under Article 12 of the India-Ireland Double Taxation Avoidance Agreement. 2. Interest under Section 201(1A). The learned CIT (Appeals) erred in upholding interest under Section 201(1A) of the Act." 4. Ground No.1 (1.1 to 1.5) - Payments towards purchase of Shrink Wrapped Software / copy righted item. 4.1 In the grounds, the assessee,....
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....een recognized as copyright work in India also. Having regard to the above said definition of "royalty", we have to consider the contents of software licence agreement entered into by the nonresident with Samsung Electronics and also the respondents in the case represented by Sri Ganesh, learned senior counsel and Sri Aravind Dattar, wherein it is a case of purchase, sale or distribution or otherwise of the off-the-shelf software. It is described as a "software licence agreement", wherein it is averred that customer accepts an individual, non-transferable and non-exclusive licence to use the licensed software program(s) on the terms and conditions enumerated in the agreement. It is further averred that the customer-Samsung Electronics-shall protect confidential information and shall not remove any copyright, confidentiality or other proprietary rights provided by the non-resident. However, what is granted under the said licence is only a licence to use the software for internal business without having any right for making any alteration or reverse engineering or creating sub-licences. What is transferred under the said licence is the licence to use the software and the copyright....
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....s referred to above, and the nonresident supplier continues to be the owner of the copyright and all other intellectual property rights. It is well settled that copyright is a negative right. It is an umbrella of many rights and licence is granted for making use of the copyright in respect of shrink wrapped software/off-the-shelf software under the respective agreement, which authorizes the end user, i.e., the customer to make use of the copyright software contained in the said software, which is purchased off the shelf or imported as shrink wrapped software and the same would amount to transfer of part of the copyright and transfer of right to use the copyright for internal business as per the terms and conditions of the agreement. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of copyright or any part thereof under the agreements entered into by the respondent with the non-resident supplier of software cannot be accepted. .It is well settled that in the absence of any definition of "copyright" in the Income-tax Act or the DTAA with the respective countries, in view of article 3 of the DTAA, reference is to be mad....
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....p;(iii) to issue copies of the work to the public not being copies already in circulation ; (iv) to include the work in any cinematograph film ; (v) to make any adaptation of the work ; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv) ; (d) in the case of a cinematograph film, (i) to make a copy of the film, including a photograph of any image forming part thereof ; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions ; (iii) to communicate the film to the public ; (e) in the case of a sound recording, (i) to make any other sound recording embodying it ; (ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions ; (iii) to communicate the sound recording to the public. Explanation.-For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulat....
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....opyright, i.e., the respondent-supplier owns and what is transferred is only right to use copy of the software for the internal business as per the terms and conditions of the agreement. The decision of the Delhi High Court in CIT v. Dynamic Vertical Software India P. Ltd. [2011] 332 ITR 222 (Delhi) relied upon by Sri Aravind Dattar, learned senior counsel appearing for the respondents in some of the cases in support of his contention that by no stretch of imagination, payment made by the respondents to the non-resident suppliers can be treated as "royalty" is not helpful to the respondents in the present cases as in the said case, the Delhi High Court was considering the provisions of section 40(a)(i) of the Act and the order of the High Court reads as follows (page 223) : "What is found, as a matter of fact, is that the assessee has been purchasing the software from Microsoft and sold it further in Indian market by no stretch of imagination, it would be termed as royalty." Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright under the impugned agreements or licences cannot be ac....
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....gement of copyright, which is exclusively owned by non-resident suppliers, who would continue to be the proprietor of copyright. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C. D. or the C. D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles separately from "computer" software within the meaning of the "copyright" as referred to above under section 14 of the Copyright Act. It is also clear from the abovesaid analysis of the DTAA, the Income-tax Act, the Copyright Act that the payment would constitute "royalty" within the meaning of article 12(3) of the DTAA and even as per the provisions of section 9(1)(vi) of the Act as the definition of "royalty" under clause 9(1)(vi) of the Act is broader than the definition of "royalty" under the DTAA as the right that is transferred in the present case is 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 kn....
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....ee, the software sold in India were shrink-wrapped software and were like any other goods. The sale of such goods will give rise to income from business. Since the assessee did not have a Permanent Establishment ("PE") in India, such business income will not be taxable. 5. According to the revenue, the consideration received by the assessee on sale of shrink-wrapped software in India was not akin to sale of goods, but was only a right to use computer software and the consideration received for giving such a right to use partakes the character of 'royalty' within the meaning of section 9(1)(v)(a) of the Act as well as Article 12 of the DTAA between India & Ireland. 6. It is not in dispute before us that an identical issue has been considered by the Hon'ble Karnataka High Court in the case of CIT Vs. Samsung Electronics co. Ltd. & others 245 CTR (Kar) 481 has held that Payment to non-resident foreign software suppliers for purchase ITA No.550/Bang/2011 of shrink wrapped software was in the nature of royalty. The Hon'ble Court held that what is granted under the licence is only a licence to use the software for internal business without having any right for makin....