TaxTMI 
TaxTMI 
2015 (11) TMI 992
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....t the assessee is an Indian Company who is engaged in developing telecommunication equipment. During the relevant asst. year, the assessee has purchased shrink-wrap Software from Cadence Designs Ireland amounting to Rs. 5,946,245/- and Rs. 4,015,887/- respectively. The AO noticed that the assessee has remitted the above amounts to Cadence Designs Systems Ireland without deducting tax at source u/s 195 of the Income-tax Act 1961. The AO initiated proceedings u/s 201(1) and issued show cause notice dated 25/12/2011 why the assessee should not be considered 'assessee in default' for not deducting tax at source u/s 195 in respect of payment in question. In response to notice, the assessee's authorized representative Shri Puneeth, C.A appeared and submitted that the payment made to the non-resident Indian was made for the use of software under non exclusive and non transferable and licensed to use the software. Accordingly, the payments in question are not chargeable to tax in India and, therefore, no liability to deduct tax at source in respect of such payment. The AO however did not convinced with the explanation furnished by the assessee and was of the view that as per the provision ....
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.... 594,625 249,818 The tax liability for the asst. year 2011-12 (FY 2010-11) is determined as under: Month Amount in Rs. Tax deductible u/s 201(1) Rs Interest u/s 201(1A) Rs. 13.08.2010 2,046,494 204,649 65,488 31.01.2011 1,969,393 196,939 5 3,174 Total 4,015,887 401,588 118,662 4. Aggrieved by the order u/s 201 and 201(1A) of the Act, the assessee preferred on appeal before the learned CIT(A) by declaring the assessment and contended before the learned CIT(A) that the payment made in question were not royalty with the meaning of sec. 9(1) of Indo- Ireland DTAA. The learned CIT(A) dismissed the assessee's appeal vide order dated 5/11/20114 by following the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd., . 245 ITR 181 "Thereafter, it is very clear from the express terms of the agreement that the right to use copy righted software has been transferred to the assessee. Keeping in view the fact that the judgment of the Hon'ble High Court of Karnataka takes the nature of binding precedent the amounts in question paid....
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....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 "literary work" as under : "'literary work' includes computer programmes, tables and compilations including computer databases ;" Therefore, "computer software" has been 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, nontransferable 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 provide....
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....dentiality is protected. Therefore, on reading the contents of the respective agreement entered into by the respondents with the non-resident, it is clear that under the agreement, what is transferred is only a licence to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement, as 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 ....
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.... computer programmes where the programme itself is not the essential object of the rental. (c) in the case of an artistic work, (i) to reproduce the work in any material form including depiction in three dimensions of a two-dimensional work or in two dimensions of a three-dimensional work ; (ii) to communicate the work to the public ; (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 ....
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....py itself is a part of the copyright. Therefore, when licence to make use of the software by making copy of the same and to store it in the hard disk of the designated computer and to take back-up copy of the software, it is clear that what is transferred is right to use the software, an exclusive right, which the owner of the copyright, 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 purchasin....
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....ed, the transfer of dumb C. D. by itself would not confer any right upon the end user and the purpose of the C. D. is only to enable the end user to take a copy of the software and to store it in the hard disk of the designated computer if licence is granted in that behalf and in the absence of licence, the same would amount to infringement 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 defini....