AI Drafter 
TaxTMI 
TaxTMI 
2016 (5) TMI 955
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....umstances of the case & in law, the Ld. AO erred in assessing the income of the appellant at Rs, 292,124,834/- as against the nil income declared by the appellant. 2. That on the facts and circumstances of the case & in law, the Ld. AO/DRP erred in holding that the receipts in the hands of the appellant from sale of "standard software" are in thenature of royalty and hence is taxable under section 9(1) (vi) of the Act and as well as under Act 13(3) of the Double Taxation Avoidance Agreement (DTAA) between the India and Finland, while doing so, the Ld. AO/DRP held; 2.1 That the appellant is receiving the payment for conferment of a right allowing the use of a copyright; 2.2 That in the software a process is made available to the customer whouses the process while carrying out their business; 2.3 That consideration received by the appellant from the sale of standard software is for the use of commercial cum scientific equipment. 3. That on the facts and circumstances of the case & in law, the Ld. AO erred in holding that the ancillary services provided by the appellant along with the sale of software comes within the purview of fees for technical services under Art 13(....
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....t allowing the use of a copyright; 2.2 That on the facts and in law, the Ld. AO/DRP erred in holding that the appellant made available the process to the customer who uses such process while carrying out their business; 2.3 That on the facts and in law, the Ld. AO/DRP erred in holding that consideration received by the appellant from the sale of standard software is for the use of commercial cum scientific equipment 3. That on the facts and circumstances of the case & in law, the Ld. AO erred in holding that the ancillary services provided by the appellant along with the sale of software comes within the purview of fees for technical services under Art 13(4) (a)/ (b) of DTAA. 3.1 That the Ld. AO failed to appreciate that the services provided by the appellant are ancillary and subsidiary as well as inextricably and essentially linked to the sale of software and therefore comes within the purview of exclusion clause as per Art 13(5) (a) of DTAA. 4. That on the facts and circumstances of the case & in law, the Ld. AO/ DRP erred in not allowing the TDS credit of Rs. 3,28,06,026/- in spite of submitting the TDS certificates before the AO/DRP. 5. That on the facts and ....
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....ant is royalty for the use of invention/scientific work. 3. THAT on the facts and in the circumstances of the case & in law, the Ld. AO/DRP erred in holding that the consideration for supply of software shall qualify as 'Royalty' by virtue of retrospective amendment introduced by the Finance Act, 2012 in the definition of Royalty under section 9(1) (vi) of the Act, without appreciating that there is no corresponding amendment introduced in the definition of royalty under the DTAA. 3.1 Without prejudice, the Ld. DRP has further erred in holding that the aforesaid amendment in the Act have also to be read into the DTAA based on authority drawn from the section 90(3) of the Act read with Explanation 3 thereunder along with Article 3 of DTAA. 4. THAT on the facts and circumstances of the case & in law, the Ld. AO/ DRP erred in not allowing the TDS credit of Rs. 4,16,79,774/- despite of submitting the TDS certificates before the AO/DRP. 4.1 THAT on the facts and circumstances of the case & in law, the Ld. AO erred in applying the tax rate of 15% on all the receipts without appreciating that the agreements entered with Vodafone Essar and Idea Cellular were post June, ....
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....ergent mediation software solutions. Comptel solutions support the core business processes of operators and service providers by generating concrete savings that allow for new business models and sustained consumer loyalty. The Comptel Link product portfolio includes Comptel Event Link for event mediation and usage data management, Comptel Instant Link for automated user provisioning and service activation and Comptel OnlineUnk for online and pre-delivery charging for non-voice services. Regarding its business activity in India, it has entered into a framework agreement with IBM United Kingdom Ltd, which is the Channel Partner of Comptel for the purpose of Sale and delivery of the mediation software. The above frame agreement is also applicable between IBM India Ltd and the Appellant. 9. For AY 2007-08, assessee filed its return of income on 27.03.2009 declaring Nil Income. Assessing officer passed Draft Assessment order on 30.12.2009and subsequently assessee field an application before DRP on 11.02.2010, which was decided by DRP on 26.08.2010. Consequently, assessing officer passed final assessment order on 16.09.2010. 10. Ground No 1 of the appeal covers the main controvers....
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....elligence on their business model and automates critical aspects of interconnect billings; • allow the mobile service provider to use intelligent charging models, including rating and discounting capabilities, for the usage of its network; • enable the mobile service providers to launch new and existing services faster to the market with the assurance of accurate charging". No descriptions of charging and fulfillment software are filed. The assesses has also provided brief catalogue providing a glimpse of the products/solutions. As submitted to this office, the assessee develops mediation, charging and fulfillment solutions and software. During the year under consideration, the assessee granted license of mediation software in India namely Comptel Event Link and Comptel Instant Link. 3.2 The nature of these software is found out from the website of the assessee and are given below: Comptel Event Link enables operators to make their business operations more effective and cost-efficient, it collects subscriber usage data (for instance on transferred data packages and sent MMS messages) from the network, checks and converts it, and delivers it ....
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....small package, being scalable from 50 000 subscribers up to 500 million with just one physical single server deployment As a highly productized platform with full support for multi-host architecture or cluster environments, it is easily configurable while centralised management ensures easy geographical distribution. With its Convergent Mediation solution, Comptel draws upon more than two decades of experience in the mediation business to deliver a single solution that is fast to deploy, as well as providing the platform to launch new services with speed and ease 2 Comptel Charging Unbeatable flexibility in one package Comptel Charging is Comptel's response to communications service providers' growing need to reduce operational costs and improve customer satisfaction and loyally in an increasingly competitive market The modular and fully configurable solution offers advanced rating and balance management functionality while enabling online and real-time charging of all services in fixed, satellite and mobile networks. It offers service providers the capability to create more advanced and flexible charging models that combine the strengths of both data and ....
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.... documentation required to install, support, use and maintain it. It means that by virtue of this agreement the assessee i.e. Supplier would provide the IBM i.e. Buyer the commercially available softwares for the use of the customer of buyers Article 7 of the base agreement provides that the deliverables or services will be delivered as specified in the relevant SOW and/or, when activating a project under a SOW for customer, Master Statement of Work dated February 1,2003 The assessee, for selling its program products, has entered in1o a Master Statement of Work ('MSOW') with ]j3M_Unjled Kingdom Ltd which specifies the terms agreed between the parties regarding marketing, licensing and supply of Supplier's Program Products and Services by Buyer to the Customers. Article 3 of the MSOW defines the program products as identified in Attachment 2 which in turn provides for Compiel Event Link and Comptel Instant link as program products. Article 6 of the MSOW defines license grants, which provides licenses for Program Products as hereunder: Quote 6.7 Program Products The parties hereby agree that all title to, o....
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....ight and license (hereinafter the "License") to End User to use the agreed number of machine readable copies of the Standard Software for the agreed Newark that Is being used only by (he End User, and a copy of the Documentation. The right and license to use the Standard Sofftware granted in the previous sentence shall be limited to use by End User only (a) to process data originating from its own business operations and (b) for End User's own internal operations, in each case for up to the Licensed Amount End User shall have the right to use the Standard Software only in the hardware and operating system environment defined in the Contact. Unquote As per the definition of grant of license, customer has received a right to use the software in accordance with the Exhibit A, which defines the terms of use of standard software as hereunder: Quote 1. The License The license granted to the Customer shall be non-exclusive, non transferable, non assignable , non-sub licensable, revocable, and personal, and be limited to use by the Customer of a reasonable number of machine readable copies of Comptel's Standard Software in the agreed network, and of one copy of....
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....agreements / statements of work are reproduced hereunder: Software and Services Engagement .Agreement Agreement # 4903UK.0184 This Base Agreement ("Base Agreement") dated as of 1stFebruary, 2003 ("Effective Date) between IBM United Kingdom Limited ("Buyer") and Comptel Corporation (Supplier"), establishes the basis for a multinational procurement relationship under which 'Supplier will provide Buyer the Deliverables and Services described in the relevant SOWs issued under this Base Agreement. Deliverables and Services acquired by customer on or after the effective Dale will be covered by this Base Agreement to the extent reference are made hereto by the panics in a W A.This Base Agreement will remain in effect until terminated. 1.0 Definitions: "Deliverables" means items that Supplier pi spares for or provides to Buyer or Customer as described in a SOW for Customer, Deliverables way include Program Products, Developed Works, Pre-existing Materials and/or Tools. "Developed Works" means such work product (including software and its Externals) developed in the performance of this Agreement, defined as such in a SOW for Customer and as described in such SOW....
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....e parties 2.0 Statement of Work Supplier will provide Deliverables and Services as specified in the relevant SOWs only when ordered by means of a WA. Supplier will begin work only after receiving a WA from Buyer. Buyer may propose changes to a SOW and Supplier will submit to buyer the impact of such changes as described in the SOW attached hereto (herein after referred to as the :MSOW") Changes accepted by the Buyer will be in an amended SOW for customer or changes order signed by both parties. 0.8. Intellectual Property 8.1 Work made for hire AIl Developed Works, if any, belong exclusively to Buyer or Customer and are works made for hire. If any Developed Works are not considered works made for hire owned by operation of law, supplier assigns the ownership of copyrights in such works to buyer or customer. 8.2 Preexisting materials Supplier will not include any Preexisting Materials in any Deliverable unless they are listed in the relevant SOW. For the sole purpose of supporting the Customer as expressly specified in the relevant SOW, Supplier grants Buyer a nonexclusive, worldwide, perpetual, irrevocable, paid-up, license to prepare and have prepared derivativ....
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.... 8.7 Perfection of Invention Rights Supplier will identify all countries in which it which it will seek patent protection for each Invention. Supplier authorizes Buyer to act as its agent in obtaining in supplier's name patent protection for the inventions in countries where supplier does not seek patent protection. Buyer will pay all expenses in relation to these patent applications and the maintenance of the relevant patents. Supplier will, at Buyer's expense, assist in the filling of patent application on Inventions and have required documents signed. 8.8 Trademarks This agreement does not grant either party the right to use the other party's or their Affiliates' trademarks, trade names or service marks. 8,9 Patents Supplier owns or may own patents. For the sole purpose of supporting the Customer as expressly specified In the relevant SOW, supplier grants to buyer a nonexclusive, worldwide, paid-up license under any patents and patent applications licensable by supplier to make have made, use have used import, export, sell and otherwise transfer the deliverable and use the services to the extent authorized in this agreement and as is necessary to suppo....
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....mitted by applicable law maintain a current and complete list of the persons' names and social security numbers; 3. obtain for each person a valid identification badge from Buyer and ensure that it is displayed to gain access to and while on Buyer's premises (it is Buyer's policy to deactivate any such badge if not used for one month); 4. maintain a signed acknowledgment that each person will comply with Buyer's Safety & Security Guidelines; 5. ensure that each person with regular access to Buyer's and Buyer's Customer's premises complies with all parking restrictions and with registration requirements if any; 6. inform Buyer if a former employee of Buyer will be assigned work under this Agreement, such assignment subject to Buyer approval, which approval shall not be unreasonably withheld; 7 . at Buyer's request, remove a person from Buyer's or Buyer's Customer's premises and not reassign such person to work on Buyer's or Buyer's Customer's Premises; and 8. notify Buyer immediately upon completion or termination of any assignment and return Buyer's identification badge. Upon Bu....
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....temporaneously herewith by and between IBM United Kingdom Limited and Comptel Corporation. This SOW is effective beginning on 1 February, 2003 and will remain in effect until the Base Agreement terminates Transactions performed under this SOW will be conducted in accordance with and be subject to the terms and conditions of this SOW, the Base Agreement and any Work Authorizations ("WAs") and SOWs for customers (defined below), 1. SCOPE OF WORK This SOW specifies the terms agreed to by the parties with regard to the marketing, licensing and supply of supplier's program products and services by buyer to customers. This sow establishes the basis for the SOW's for customer under which supplier will provide buyer the program products and services pursuant to the terms outlined in this SOW and the Base Agreement hereinto incorporated, The Parties do not foresee marketing, licensing or supplying any other Deliverables than Supplier's Program Products under the Agreement and, therefore, recognize and agree that notwithstanding any use in a SOW for Customer of the term "Developed Works11 for software and/or documentation that are in fact Program Products such Program Product....
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....mer of ordinary skill, excluding Object Code ("Source Code"). "CORE PROGRAM PRODUCTS" means the Program Products listed in Attachment 2, as varied from time to time "CUSTOMER'S SYSTEMS" shall mean the data connections, hardware and software of the Customer on or in relation to which Program Products will operate. "ENHANCEMENTS" means changes or additions to the Program Products: a) "Major Enhancements" means Enhancements which provide substantial additional value and are normally offered to customers for an additional charge (e.g.,, upgrades) "Basic Enhancements" means ail Enhancements, other than Major Enhancements, including those that support new releases of operating systems and devices, and correct Errors. "End User License Agreement (EULA)" means the Supplier's end user License agreement for Program Products, appended hereto as Attachment 1- Supplier reserves the right to update the conditions therein from time to time. "Interface and Additional Software Development Work of Program Products" means the activity for which Supplier grants to Buyer a non-exclusive, non-transferable, non-assignable, revocable and personal right and license, subject to execut....
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....sed Functional Specifications not accepted and of the reason for the rejection, the Buyer makes no such notification of rejection to Supplier within relevant period and Supplier has notified Buyer of Such occurrence, then the Functional Specifications are deemed to be accepted by Buyer 4.5 Description of Services required for Customer Supplier will provide the Services specified in the relevant SOW for Customer or STOW that may cover inter alia: 4.5.1 Where appropriate, all Deliverables (or identical Deliverables) will have been tested prior to delivery If requested by Buyer, Supplier will provide evidence of such testing to Buyer, Any minor defects outstanding in the Deliverables shall be notified lo Buyer at time of delivery, with appropriate plan for timely resolution of such defects. 4.5.2 Adequate resources to correct defects that may arise during installation and implementation stages of Program Products, provision of technical support to enable Buyer's integration of such items into me solution package by Buyer or Customer. 4.5-3 Provision of training to Buyer or Customer for installation, configuration, implementation and end user administration/maintenance ....
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....Acceptance" of a Deliverable and the correlative "Accepted" means the first to occur oft a) The substantial satisfaction of ail Acceptance Criteria in an acceptance Test; b) The Deliverables, or any portion thereof, having been put into productive Use by Customer; c) The expiry of the period of thirty (30) days commencing on the date of the relevant RFA, provided that Buyer has not issued any written notice listing the relevant Error in reasonable detail. In addition, Acceptance will occur if the relevant Acceptance Test is not passed due to any deficiency which: • Is not primarily caused by supplier; or • Will not adversely affect the intended use of the Deliverables . In case of supply of Deliverables that is conducted in phases, each phase shall be accepted in accordance with the foregoing Upon Acceptance, Supplier shall be deemed to have fulfilled all of its obligations hereunder and under the relevant SOW for Customer, save for the remaining obligations of Warranty (Section 6) and Intellectual Property Indemnification (Section 9.2), subject to the "Exceptions to Indemnification" provision (Section 9.3), of the Base Agr....
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....operty, and Buyer is under no obligation to provide such results to Supplier. If such results are provided to Supplier, they were provided "ASIS" . In addition, Supplier may giant to Buyer a non-exclusive and non-transferable, Object Code License to use, Execute, reproduce, transmit, display and perform Program Products (including use, have used, reproduce and distribute its associated Marketing Materials) to the extent necessary lo publicly demonstrate the functions and features of the Program Products alone or in conjunction with or integrated into Buyer's hardware, services or software offerings, Development License for Program Products Supplier will, subject to execution of a Partner Developer's License Agreement and payment of the relevant license fee by Buyer, grant to Buyer a non-exclusive and non- transferable license to configure certain Program Products for a specific Customer. Buyer has all right, little and interest (including ownership of copyright) in such Interface and Additional Software Development Work of Program Products prepared by or on behalf of Buyer, subject to terms and conditions of the Partner Developer's License Agreement (including ....
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.... licenses of Program Products, wilt not, unless otherwise agreed, owe Supplier a fee for access to or assignment of a license to Program Products. In addition, Buyer will not, unless otherwise agreed, owe Supplier a fee to transfer the applicable Program Products to a Buyer computer system which is of like configuration as Customer's Systems for which the Program Products were licensed The Program Products will only be used on behalf of the- license. Upon expiration or termination of the agreement to provide outsourcing services to the license, Buyer's light to use the Products will terminate For the avoidance of any doubt, under no circumstances shall any such outsourcing reduce the obligation of the relevant license (or Buyer, if such obligation is transferred to it in connection with the relevant outsourcing) to pay any upgrade license fees, Buyer may perform any of its obligations under this SOW through its Affiliates, subcontractors, and other companies affiliated with Buyer, such as Buyer's business partners. 'The use of such entities by Buyer does not relieve h of its obligations under this SOW, the relevant WA or SOW for customer and Buyer shall ensure that ....
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....ustomer requests for solutions Supplier shall Endeavour to propose Program Products that support Buyer's hardware and software platforms in its primary proposal when no specific third party platforms have been requested. Supplier shall not be obliged to provide proposals when no specific platforms where such proposals are not technically viable. Delivery' of Deliverable Supplier agrees to deliver the Services and Deliverables specified in the relevant SOW for Customer, and will use its commercially reasonable efforts to meet the agreed delivery dates and quantities 12.PAYMENTS Except as otherwise expressly agreed by the parties in a SOW for Customer, the following shall apply: 11-1 Prices far Program Products A) Prices Tor Program Products with published or established license fees For Program Products that Supplier has a published or established license fee amounts as specified in Attachment 2 ("Hereinafter in this Item A referred to as "License Fees") The above Prices for Program Products apply only upon Buyer's issuance of Work Authorizations for supply of the relevant Program Products to Buyer for Custom....
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....xes m accordance with the laws of the country destination. 11.2 Prices for Supplier Maintenance Support Prices for Supplier Maintenance Support for Program Products will be Supplier's applicable standard maintenance and support services charges and per quotations to Buyer However, in the event that Buyer provides support services to Customer, i.e., first line support end helpdesk services, the Prices for Supplier Maintenance Support for Program Products shall be based on Supplier's applicable standard maintenance and support services charges less the discounts as outlined below: Supplier Maintenance Discount of supplier's standard charges Support Category Standard Cover Time (8 hrsx 5days/week) 13.33% Extended Cover Time (8 hrs X7days/week 16.67% Full Cover Time (24 hrs x 7 days/week) 16.00% The above discounts shall apply only when Buyer is providing support services to Customers at equivalent support periods as provided by Supplier 31.3 Prices for Services Prices for Services shall be as defined in the specifi....
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.... "Customer" means IBM Global Services India Pvt Ltd- (for Bharti Tele Ventures Ltd account) "Project Site" the project locations at Delhi, Murobni, Kolkala and Bangalore in India, Work Authorization" or "WA" means Buyer's authorization in either electronic or tangible form for Supplier to conduct transactions under this Agreement (i.e., a purchase order or other appropriate Buyer designated document) A SOW is a WA only of designated as such in writing by Buyer. 2.2 SCOPE OF WORK The solution to be provided by Comptel is described in the Technical Scope of Work and 'Solution Delivery Documents (V2.0) which are part of this Statement of Work. Items included within Comptel's scope are: » Comptel Online Link Software - core software, no customizations » Comptel Lookup server - provides with memory based lookups for rating purposes o Comptel Online Link Business Logic - GUI based configuration performed by Compte! o Comptel Online Link interface to Volo Bill D2CP ~ Volu Bill proprietary TCP/IP socket interface (implemented by Comptel using Volu BiU development kit: SCDK). » Coraptel Online Link in....
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....o the Supplier's obligations under this SOW 4.4 The Supplier will only use individuals in the provision of the Services if they are suitable, competent and capable for the tasks which they are to undertake 4.5 Prompt notification of problems and issues that will impact conformance to the Supplier's obligations stated in this SOW. 4.6 Provide Buyer with Supplier Maintenance Support (in accordance with Attachment of the Master Statement of Work), Provided that such Supplier Maintenance Support shall . limited to provision of 2nd and 3rt line support services to Buyer. The division of 1- responsibilities in respect of such support services between Supplier and Buyer are defined in 5.0 QUALITY MEASURMENTS 5-1 Supplier has and will maintain during the term of this Agreement a product and service quality program that includes the assessment of software engineering, development, test, configuration and change management process, assessment of the quality of Deliverables, Products and Services, and Supplier will document non-conformances, and performance targets. Supplier also has and can demonstrate the use of processes to correct error....
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....l be as is act forth in this Agreement, In the event Supplier has not received payment as agreed, Supplier will notify Buyer and Buyer will make prompt payment The payment shall be made net 60 days instead of net 45 days from date of receipt of invoice by buyer based on Milestone completion. Payments will be according to the following payment milestones: *'« 20% of total Prices upon receipt of W A.; ;>. 10% of total Prices upon delivery of associated Functional Specification; <** 30% of tola] Prices upon Delivery of the System « 20% of total Prices upon Acceptance of Delhi o 20% of total Prices upon Acceptance of all four sites Once Acceptance and a 3 month Warmth period have passed, Support and Maintenance will be provided based on a percentage of the software license value Pricing for this Support and Maintenance given in Exhibit C, is based on the assumption that Acceptance and Warranty will have finished by the end of May, so payable for 7 months only in calendar year 2005. If this assumption is not correct, the Support and Maintenance price may be adjusted accordingly The given Support and Maintenan....
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....by the assessee embodies the process which is required to control and manage the specific set of activities involved in the business of telecom user plans, quantification of use, failing etc. Therefore, thissoftwaremakes available a "process" to the customers who "use" the process while carrying out their business. It is, therefore, this specialized software also represent a "process" which can be used in a particular industry specific core activity. c. According to him, it is not a sale of copyrighted product but it is copyright. 13. He therefore held that Rs. 12, 03, 75,730/- shown as software consideration is held to be royalty and applied rate of tax @ 10%. Further, the other gross receipt of USD 3362355/- from direct customer where the tax is borne by the assessee Grossed up amount of USD 3955712/- is further taxed @ 15 % as per DTAA. 14. Against the draft order assessee preferred application beforeLD. DRP who did not find any infirmity in the order of ld. AO and hence the AO passed final order. 15. Before us the LD AR contended that :- a) The Appellant at the request has developed no software or requirement of its customer and it is only the programme products ....
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....m of a mediation software and they are a copy righted article ii. all the intellectual property rights in the form of patent, copyright, trademark etc. are the property of the Appellant only and at no point of time same has been transferred to either the buyer or the customer; iii. the buyer i.e. IBM has got only a right to transfer the EULA in favour of a particular customer; iv. According to EULA, the end customer does not get any right to the intellectual property in the standard software; v. Further restrictions has also been put on the end customer to use the standard software to use for only its business operations; d) He further stated that what was transferred was neither the copyright in the software nor the use of the copyright in the software, but what was transferred was the right to use the copyrighted material, which was clearly distinct from the rights in a copyright. Hence, where the payment made is in connection with transfer of a copyrighted article then it represents the purchase price of an article and cannot be considered as royalty either under the Act or under the Treaty; rather it is business income of the appellant. ....
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....in respect of the computer software are taxable as Royalty. He submitted that the Court could not read anything into a statutory provision, which is plain and unambiguous. He submitted that Explanation 4, 5, and 6 inserted under section 9(1) by the Finance Act, 2012 w.r.e.f. 01.06.1976 clearly covers the issue in favour of revenue. For this, that corresponding amendment to the DTAA is not required for the assessee's receipts in respect of computer software to be taxed as 'royalty'. For this, he vehemently relied on the terms "right" and / or "rights" and / or "information" are not defined in DTAA. Therefore, the meaning of such terms under the Act shall apply by virtue of Article 3(2) of India - Finland DTAA. For this argument, he relied on two decisions of coordinate benches i.e. Viacom 18 Media (P.) Ltd. [2014] 44 taxmann.com 1 (Mumbai - Trib.) and Vodafone South Ltd. [2015] 53 taxmann.com 441 (Bangalore - Trib.). 17. In rejoinder ld., AR submitted that amendment to the law could not amend the definition in DTAA. He relied up on the Decision of Honorable Delhi high court in case of 25 taxmann.com 225 (Delhi) Director of Income tax v. Nokia Networks OY where honorab....
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....structure and huge investments. Similarly, the software can also be considered as a scientific work. Therefore, the software can also be said to be information developed out of scientific experience. (iii) The payment is also qualified for the use of secret formula or process. The software developed by Infrasoft when installed in a computer responds to every instruction in a specific way. It recognizes the command and as per its programming yields the desired result and reflects the same on the output devices. This argument is further strengthen from the fact that cost of the medium viz. computer discs, floppy etc., on which the program is written is negligible as compared to the overall price of software. Had it not been a secret programming, anybody could have written these types of programs and sold it at a very low price as compared to the price of the original software. (iv) The software developed by infrasoft is customizing software which are used for specific purposes like design of highways, railways, airport, port, mines etc. This software are purchased by private consultant or end users and they further exploits for commercial purposes. This clearly fall....
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....or the purpose of achieving interoperability with other software and in addition thereto Infrasoft undertakes to make information relating to interoperability available to Licensee subject to such reasonable conditions as Infrasoft may from time to time impose including a reasonable fee for doing so. To ensure Licensee receives the appropriate information, Licensee must first give Infrasoft sufficient details of its objectives and the other software concerned. Requests for the appropriate information should be directed to the Vice President Technical of Infrasoft. 3. LICENCE FEES, PAYMENT AND TAXES Licensee shall pay Infrasoft a license fee for the use of the Software as agreed in the order. Infrasoft confirms that where the Licensee has purchased the Software through an authorised reseller of the Software the Licensee shall owe no license fees to Infrasoft where the Licensee has made payment of the license fees to the authorised reseller. All license fees are exclusive of and net of any taxes, duties or other such additional sums including, but without prejudice to the foregoing generality, value added/purchase tax, excise tax (tax on sales, property or use), ....
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....tware has to be uses in accordance with the agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one 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 Infrasoft's copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a license authorisation device, which restricts the use of the Software. The software is to be used only for Licensee's own business as defined within the Infrasoft License Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sub-licensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the Software without Infrasoft's written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is i....
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....has, is necessary to invoke the royalty definition. Viewed from this angle, a 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 Article 12 of DTAA. Where the purpose of the license 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 Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. 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/tr....
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.... the licencee shall return the software including supporting information and license authorization device to Infrasoft. 94. The incorporeal right to the software i.e. copyrighter mains 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 cassette or a CD which may be 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 of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty." 20. We have noted the terms and conditions of software license in the decision before honorableDelhi high court and in the impugned case before us. We found them similar to the issue decided by honourabel Delhi High court. They are similar as ....
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....ights in respect of software. Therefore,according to ld. DR despite there being no amendment in DTAA, if there is any amendment in the Domestic tax law, there is no need of any amendment in the DTAA to characterizethe receipts of the assessee as "royalty"regarding granting of license of software. To examine this argumentdefinition of Royalty, as per DTAA and as per Domestic tax laws are pari materia same and they are reproduced as under:- As per India Finland DTAA (Article 12) 3. (a) The term "royalties", as used in this article, means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, and films or tapes for television or radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. As Per Income Tax Act 1961 Explanation 2.- For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration ....
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.... that State." 23. According to the plain reading of this article, it is clear that Unless the context otherwise requires, a) This article is sought help of at any time only for application of this agreement. b) The term, which is subject matter of reference, is not defined in the treaty. c) Then it shall have meaning as per the laws of for taxation of that state at that time when the treaty is applied. Therefore, in this background we are of the viewthat the"context" is determined by the intent of the contracting states at the time of entering in to the convention. It is apparent from the definition of royalty in DTAA as well as in the Income tax Act prevailing at the time of entering in to DTAA did not provide for what is now inserted vide explanation 4 to section 9 (1) (vi) of the Act. Therefore, a definition or interpretation / meaning of the word may not be applied if its application results inconsequences not intended by the treaty negotiators. Simple submission is that retrospective amendment made in the act shall be applied for the interpretation of treaty. 24. Honourable Delhi high court has already answered this controversy in 25 taxmann.com 225 (Delhi) D....
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....l or possession of it has to be with the payer. Similarly, doubts have been raised regarding the meaning of the term processed. Considering the conflicting decisions of various courts in respect of income in nature of royalty and to restate the legislative intent, it is further proposed to amend the Income Tax Act in following manner:- (i) To amend Section 9(1)(vi) to clarify that the consideration for use or right to use of computer software is royalty by clarifying that transfer of all or any rights in respect of any right, property or information as mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. (ii) To amend section 9(1)(vi) to clarify that royalty includes and has always included consideration in respect of any right, property or information, whether or not (a) The possession or control of such right, property or information is with the payer; (b) Such right, property or information is used directly by the payer; (c) The location of such right,....
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....gainst the Revenue." 25. Further now Honourable Delhi high court has held in case of DIT V New Skies Settliete BV ITA No 473/2012 dated 8/2/2016 "59. On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State's discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this Court to hold that such amendments are applicable to the DTAAs. 60. Consequently, since we have he....
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....low ground no 1 to 3 of the appeal of the assessee holding that sale of software by the assessee is a standard software which is chargeable to tax under article 7 of DTAA as business income of the assessee and not under article 12 as „ Royalty‟. 28. Ground No 4 of the appeal of the assessee is not allowing credit for TDS though income is charged after grossing up of this TDS. Ld. AR and ld. DR both agreed that this issue may be set aside to the file of AO and to grant credit of TDS, if found in accordance with the law. Therefore we set aside this ground of appeal to the file of AO with a direction to grant credit of TDS to the assessee, if found in accordance with the law. In the result ground no 4 of the appeal is allowed. 29. Ground No 5 to 7 are consequential in nature therefore they are dismissed. 30. Now coming to the appeal of the assesse for AY 2008-09, ground no 1 to 3 of the appeal are against consideration of sale of software as Royalty by ld. AO and are covered by our decision in appeal of assessee for AY 2007-08. Hence, we allow ground no 1 to 3 of the appeal. 31. Ground No 4 of the appeal is against not granting credit for TDS, we have already d....