TaxTMI 
TaxTMI 
2016 (5) TMI 955
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....ed 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(4) (a)/ (b) of DTAA. 3.1 That the Ld. AO failed t....
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....n 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 circumstances of the case & in law, the Ld. AO erred in applying the t....
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....d 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, 2005 and accordingly receipts, even if treating the same as royalty thereof ought to b....
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....rators 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 controversy in the appeal is whether receipts from transfer of shrink wrapped software amount to business incom....
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....ating 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 further to the operator's OSS/BSS (operations support system/business support system). As a tool for network monitoring and traffic engineering, Event Link enables capacity optimization by giving instant....
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....figurable 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 voice charging, while supporting both postpaid and prepaid payment options This vendor-, network- and service-independent system solution provides connectivity to any telecom billing system, offering easy-to-use pricing and high-performance rating a....
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....es 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, ownership of and interest in all or any portion or component of the Program Products (whether deliverables or not and including all updates, upgrades, modifications and enhancements thereto, and related documentation thereof, if any, whether licensed hereunder or provided in connection with the provision of any Services hereunder) as well as rights ....
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....(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 the documentation, only (a) to process data originating from Customer's own business operations; (b) for the Customer's own internal operations, in each case for up to the Licensed Amount; and (c) in the hardware and operating system environment defined in the contract. Therefore, what the customer is getting is a machine readable copies of a s....
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....he 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 and does not include Pre-existing Materials, Tools, Program Products, or items specifically excluded in such SOW. ............................ .................................. "End User License Agreement" shall have the meaning as defined in the SOW attached hereto. "Inventions" means ideas, designs, concepts, techniques, inventions, discoveries or improvements, whether or not patentable, conceived or reduced to pr....
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....mended 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 derivative works of such Preexisting Materials as have been prepared by it and to use, have used, execute, reproduce, transmit, display, perform, transfer, distribute, and sublicense such Preexisting Materials or their derivative works and to grant others the rights in this sublicense all to the extent as is necessary to support the relevant customer as aforesaid. 8.3 Tools Supplier will not include Tools in Deliverables unless they are listed in ....
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....er'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 support the relevant customer as aforesaid. 10 Program Products Customer will receive an End User License Agreement from Buyer or Supplier for perform products, to which buyer is neither a party nor liable for violations. Buyer may install and test Program Products for Customer without additional license charge. For recurring charge licenses, Buyer will notify Supplier when to begin invoicing Customer, if applicable AH title to, ownership of and interests i....
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....o 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 Buyer's request, Supplier will provide documentation to verify compliance with this Subsection, 12.4 Asset Control In the event Supplier Personnel has access to information, information assets, supplies or other property, including property owned by third parties but provided to Supplier Personnel by Buyer ("Buyer Assets"), Supplier Personnel: 1. will not remove Buyer Assets only from Buyer's or Buyer's Customer's premises without Buyer's authorizations; 2. will use Buyer Assets only for purpose of this Agreement an....
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....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 Products such Program Products shall remain Program Products as defined in the Base Agreement and nothing else. Buyer will issue a WA for each specific customer in accordance with this SOW and the relevant SOW for customer (referred to generally in this SOW as "SOW for customer"), detailing the specific Deliverables and Services and other terms as may apply for the specific Customer that have been identified in the relevant SOW for Customer. A SOW for Customer will always include as an integral part the Supplier's Standard Statement of Work ("STOW"), a template of which is attached....
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....cements, 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 execution of a partner Developer's License Agreement between the Parties "Marketing Materials" means Program brochures, manuals, technical specification sheets, ^ ^demonstration presentations, and other marketing sales literature provided by Supplier to Buyer for Buyer's use in performance of marketing activities. Buyer's use of Marketing Materials may include transmission of them through electronic marketing services. "Productive Use" means use of the deliverables in Customer's ordinary operating environment (other than in connection with an Acceptance Test). "Ready For Acceptan....
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....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 of the Deliverables. 4.5.4 Technical support services for installation, configuration, problem determination, implementation and other project support tasks to ensure the successful and timely deployment of Program Products for testing by Buyer and/or Customer 4.6 Training Services lo Buyer Upon Buyer's request. Supplier will provide training in Helsinki, Finland or oilier locations as may be agreed by the parties, to Buyer and such Buyer Personnel that the parties agree as having a need support the basic sales, implementation and support of program products, at no additional charge. a) At lea....
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.... 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 Agreement and the Warranty Period set out in Section 7.3 hereof or , in the SOW for Customer. Buyer shall prepare the Acceptance Test Specification in conformity with the Functional Specification for a Deliverable or sets of Deliverables, and submit for Supplier's preview and acceptance within (unless otherwise specified in the relevant SOW for Customer) a period not less than six (6) weeks prior to the date of issue of the RFA in respect of a Deliverable or sets of Deliverables agreed in the relevant SOW for Customer Supplier shall notify Buyer in writing of its acceptance (or rejection) of Acceptance Test Specification no later than five (5) business days thereof....
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....loper'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 without limitation a grant-back to Supplier of a license thereto). The parties may agree upon the establishment of a Comptel Competence Center with Buyer for the purposes of providing the Buyer's relevant personnel with the requisite skills so as to enable the Buyer to supply certain Program Products to Customers designated by the parties. Program Product Evaluation License for Customers Supplier shall upon Buyer's reasonable request and subject to a relevant SOW for Customer, grant Buyer the right to offer a non-charge and limited period evaluation license to potential Customers, subject to the terms and conditions of the then current Supplier software evaluation license agreement End Us....
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....r 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 such entities comply with the obligations of this SOW. This SOW does not grant Buyer or any such entities any ownership of copyright in Program Products 01 Preexisting Materials Restrictions Buyer shall not and shall not permit others to, save as expressly set out in this Section 6, (i) reproduce, copy, publish, display, disclose, rent, lease, sub-license, modify, loan, distribute or create derivative works based on Program Products, or any part thereof; (Si) translate, reverse engineer, decompile, disassemble, re-engineer or otherwise attempt to discover the Source Code or the structural framework of Program Products, or any portion thereof. Buyer shall reproduce all copyright, trademark and other proprietary notices affixed to....
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....oducts 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 Customers within the d agreed by the as may by defined in the Supplier's relevant quotations for supply of the GBP relevant Program Products to Buyer for each Customer requirement or project Prices for Program products without published or established license fees For Program Products in respect of which Supplier has no published or established license fee Program Products for new implementations, new offerings and certain licensing configurations as may be determined by Supplier, Supplier shall provide Prices for such Program Products in its response to Buyer's request for proposals and quotations to support specific Customer bids. Supplier agrees that the Prices for such Program Products shall in any event not be less favourable than the rate that it offers to other similar companies with simil....
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.... 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 specific SOW for Customer, consistent with quotations submitted by Supplier or as may be subsequently agreed by the parties. Where Services relate to provision of STOW, the Price for such Services shall be charged on a time and material basis. In the event that Buyer requires significant Services for a Customer engagement and where use of Supplier's standard services rates substantially limits Buyer's ability to be cost competitive in Buyer's pricing proposals to Customer, Supplier agrees to review Prices offered for such Services and consider providing discounts off its standard professional service rates, provided, however, that the Supplier is not obliged to provide any discounts that it does not see as commercially viable. 11-4 Buyers Terms of Payment Except as otherwise stated in a SOW for Customer, Buyer's payment shall be made net forty-five (45) days from date of r....
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....ne 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 interface to Ericsson IN - Ericsson implementation of DIAMETER charging interface (implemented by Cornprel according to Ericsson Diameter Specifications) o Comptel Online Link provides Usage Detail Records (UDRs) to HSS/BMS. The UDRs are generated by OL according to default foimat, Further mediation is a responsibility of receiving system. * Coraptel Online Link "NS Lookup interface - this does not include configuration of DNS Server and MS Lookup utility and DNS data population. * Configuration of tables for the Lookup Server - this does not include population Ihese tables. *> Any other items that Comptel may require to provide this that are not included ID IBM's responsibilities, 3.0 DESCRIPTION OF DELIVERABLES AND SERVICES The following Deliverables shall be supplied by the Supplier lo the Buyer: Comptel Licenses, as detailed in Exhibit C: *> Coinptel Online Link Basic License o Lookup Server License » Comptel Online Link NE Interface to D2CP Volu BiU e Comptel O....
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.... to correct errors or other non-conformances. 6.0 BUYER'S RESPONSIBILITIES 6.1 The Buyer agrees lo enable access to the appropriate business and technical resources within Buyer and Customer organizations in a timely fashion. 6.2 The Buyer agrees lo provide timely review and approval of project deliverables, and to facilitate timely review and approval of project deliverables by the Customer. 6.3 Prompt notification of problems and issues that will impact conformance to the Buyer's obligations stated in this SOW or in the Agreement. 6.4 Provide the end customer (Bharti Tele Ventures Ltd) with the 1° line support services, as further defined in Exhibit D. 7,0 MUTUAL RESPONSIBILITIES No changes can be made lo this SOW without the prior written agreement of both parties. The detailed responsibilities are illustrated in Exhibit A 8.0 DELIVERY SCHEDULE/PROJECT PLAN This is attached in Exhibit A, 9.0 PRICE AND PAYMENT SCHEDULE The Bill Material and indicative Pricing, based on projected growth over the Gamine 10 years, is attached as Exhibit C Please note that the years given in Exhibit C are calendar years, with year 1 being 2004. The Compte....
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....ES, DUTIES AND FEES As per the Agreement, The milestone payment above are exclusive of VAT which is payable at the rate ruling on the day of invoice, The applicable withholding tax will be deducted from the amount payable to Comptel And TDS certificate will be released on regular frequency. 11.0 TRAVEL EXPENSE GUIDELINES As per the Agreement 12,0 OTHER CLAUSES Outsourcing License Subject to the due payment by buyer of all agreed consideration defined in this SOW, Supplier grants to Buyer a non-exclusive, non-transferable (except as defined herein below), non-sub licensable and personal right and license to use the Program Products for the performance of outsourcing services for the exclusive benefit of Bharti Tele Ventures Ltd.(outsourcing services) Subject to the preceding sentence the terms and conditions of the supplier's EULA (attachment to the Master Statement of Work) shall be applicable to buyer (as if buyer were the customers) Buyer shall have the right to assign the license to use the program products to its customer at no additional cost, provided that buyer gives supplier thirty (30) days prior written notice of its intent to assign such rights....
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....frasoft Ltd [264 CTR 329] wherein it was held that the receipts from transfer of shrink wrapped software is not taxable in India by stating that the licensing of computer software involves limited right to use 'copyrighted' material & does not give rise to any royalty income. For this, he submitted a chart demonstrating the facts before the Honourable Delhi high court are on identical issue. Therefore he submitted that Accordingly, in all circumstances, the case of the Appellant is covered by the judgment of Hon‟ble Jurisdictional High Court wherein the Hon‟ble High Court on similar facts held that receipts are not in the nature of royalty and not taxable in India. S.No. Facts Comptel OYJ Infrasoft Ltd. 1. Subject matter of transfer is a standard software used for a particular industry Used for Telecom industry Used for civil engineering work 2. Licensing Agreement shows that the license is non-exclusive, non-transferable and the software has to be used in accordance with the Agreement   3. As per the Agreement, all the intellectual property rights in the form of patent, copyright, trademark etc. are the property of the selle....
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....mula or process, scientific work. Accordingly, unless the payment is made for acquisition of a right to use a "copyright", the payment cannot be regarded as royalty under Explanation 2 to section 9(1) (vi) of the Act. According to him, the payment received by the Appellant is not for acquisition of a right to use a "copyright", but is for acquisition of a "copyrighted article" and, therefore, the consideration cannot be assessed as royalty. f) On the aspect of definition of Royalty as per Indo FINLAND DTAA he submitted that definition of royalty as per article 13(3) of the Treaty is narrower than the definition contained under section 9(1) (vi) of the Act. According to him under the Treaty the income of the Appellant should have been generated by the "use of or the right to use of" any copyright to be taxable as royalty income. g) He further submitted that it is the settled proposition that in case of the assessee who is a non-resident and having tax residency certificate then the provision of DTAA will prevail over Domestic tax laws. Therefore, his contention was that it is the sale of standard software cannot be royalty in terms of Domestic tax Laws as well as per Indo Finland....
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....tor of Income taxv. Infrasoft Ltd. In that decision, also the assessee was developing customized software to be used for designing highways, railways, airports, ports, mines, etc. The software so customized was licensed to an Indian customer and the branch office of the assessee in India performed services involving interface to peripheral installation and training etc. On the sale of software revenue raised similar objection which are as under :- "11. With regard to the definition of royalty as given in Section 9 (1) (vi) of the Act as well as Article 12 of the DTAA, the AO came to the conclusion that the amount received by the Assessee company from sales/licensing of the software was royalty in terms of the said definition. The reasoning of the AO to arrive at this conclusion is as under:- (i). The software is licensed not sold. The copyright of the software remains with the Assessee however it allows the use of copyright to the person making payment to it. As per the Indian Copyright Act, 1957 as amended in 1994 software are entitled to copyright protection. The Assessee possesses Copyright in the software, which it can enforce in India if any violation of such right is notic....
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....he Assessee with its customers: INFRASOFT LICENCE AGREEMENT. 2. GRANT, SUPPLY AND USE OF LICENSE Infrasoft grants Licensee a non-exclusive, non-transferable license to use the software in accordance with this Agreement and the Infrasoft License Schedule. The license is perpetual unless identified as being for a specified term in the Infrasoft License Schedule. Any third party software incorporated in the software is licensed only for use with the software. Infrasoft will supply one copy of the software for each site and, when applicable, one set of support information to the Licensee. Licensee shall pay Infrasoft a fee for additional copies of any printed support information supplied by Infrasoft. Licensee may make one copy of the software and associated support information for backup purposes, provided that the copy shall include Infrasoft's copyright and other proprietary notices. All copies of the Software shall be the exclusive property of Infrasoft. The Software includes a license authorisation device, which restricts the use of the Software as specified in the Infrasoft License Schedule. The Software shall be used only for Licensee's own business as de....
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....f this Agreement. 4. ** ** ** 5. OWNERSHIP, INTELLECTUAL PROPERTY AND INDEMNITY All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. Infrasoft warrants that it has the power to grant the license rights contained in this Agreement. 85. The Licensing Agreement shows that the license is non-exclusive, non-transferable and the software 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 u....
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....consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including license in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for "copyrighted" article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing t....
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.... right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income-tax Act or under the DTAA. 92. The licensees are not allowed to exploit the computer software commercially, they have acquired under license agreement, only the copyrighted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensee was allowed to use the softw....
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....le, where the transferee is granted limited rights to reproduce the program. The Agreement categorically restricts the user to copy, publish, display, disclose, modify, merge etc. the software except for archival purposes and not allowed to exploit the computer software commercially. On identical facts and circumstances, honourable Delhi high court has held that what is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article, which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be chargeable to tax as business income. Therefore respectfully following the decision of Honourable Delhi high court we hold that that consideration received by the assessee on sale of software is not chargeable to tax as royalty such as equipment royalty, process royalty etc.Under Article 12 of DTAA but as business income under article 7 of the INDO Finland DTAA. 21. Before us an argument....
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.... invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB ; (v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). 22. It was further argued that terms „right‟, „rights‟ or „information‟ [ which are mentioned in explanation 4 inserted in IT Act wef 1-4-1976] is not defined under the DTAA therefore with the aid of Article 3 (2) of the India Finland DTAA , the meaning of these words contextually defined in the Income ....
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....ly or information 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. Explanation 5- For the removal of doubts, it is hereby clarified that the 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, property or information is in India. Explanation 6- For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;" The above Explanations have been inserted with retrospective effect from 1.6.1976. The Memorandum explaining the Provisions in the Finance Bill, 2012, in the context of the above provisions ....
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....m 1.6.1976, Mr. Parasaran argued that the above amendments are only clarificatory in nature depicting the Parliament intention viz; (i) the medium through which the software is transferred itself will not affect the taxability of the royalty payments made for the transfer of right to use or actual use of the software in India by a non-resident. (ii) It is not necessary that the actual software be transferred to an Indian user or in fact used in India so long as the right to use has been transferred to a resident taxpayer for valuable consideration. He, thus submitted that the question of "copyrighted article" or actual copyright docs not arise in the context of software both in the DTAA and in the Income Tax Act since the right to use simpliciter of a software program itself is a part of the copyright in the software irrespective of whether or not a further right to make copies is granted. The decision of the Delhi Bench of the ITAT has dealt with this aspect in its judgment in Gracemac Corpn. v. Asstt. DIT [2010] 42 SOT 550 (Delhi) pointing out that even software bought off the shelf, does not constitute a "copyrighted article" as sought to be made out by the Special Bench of t....
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....ition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement." 26. In the above decision of Honourable High court decision of Honorable Madras High court in case of Verizone Communication Singapore Pte 361 ITR 575 was considered and not followed holding that:- "31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. V. The Income Tax Officer, International Taxation, the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. While TV Todayrecognizes that the question will have to be decided and the submission argued, Verizon cites no reason for the extension ....