AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2010 (11) TMI 1023
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.... assessee was granted non-exclusive , perpetual, irrevocable, royalty free, worldwide license to use the number of copies of the software enumerated in the agreement solely for internal operation, including use of software for ASP Services and web housing services. The parties from whom the assessee acquired the software do not have a "PERMANENT ESTABLISHMENT" in India. 3. The assessee purchased the software for Seismic Data Processing/Interpretation Software for O&G Division from M/s Paradigim Geophysical Pty Ltd., Australia. 4. The learned CIT(Appeals) in order dated 30-10-2007, has considered an agreement for purchase with M/s Paradigm Geophysical Pty Ltd. The facts are brought out at para 1.1 to 1.5 of her order which are extracted below for ready reference : "1.1 M/s Reliance Industries Limited (appellant), is a public limited company. The appellant has entered into an agreement with M/s Paragidm Geophysical Pty. Ltd., Austrelia (hereinafter Paradigm) for purchase of certain Geological and Seismic Data Interpretation Software for the purposes of the appellant's Oil & Gas Exploration Project. The AR has submitted that in terms of the agreement a Purchase Order wa....
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....purchase of software is not 'royalty' but only business income and is accordingly taxable in India, only if M/s Paradigm, has a PE. 5. The special conditions of purchase are brought out at para 1.6 of the order of the CIT(Appeals) which are extracted below for ready reference : "1.6. On the other hand, the AO has examined the issue. He has referred to Para 1 of the 'Special terms of purchase' order and has held that the appellant has only got a license and has not purchased the software and thus the transaction does not amount to sale. I find that the AO has taken the same arguments as taken by him in respect of appeal No.CIT(A)XXXI/DDIT(IT)2(1)(IT-303/02/03, dated 29/10/2007 in the appellant's own case. I have also examined the Special Conditions of Purchase between the appellant and M/s Paradigm. The appellant has entered into Special Conditions of Purchase for sale and purchase of software with M/s Paradigm. General terms and conditions of purchase are prescribed in the agreement. Clause 1 of the special terms of purchase order provide for the Software License. The same read as under : "1.1 Softwares / hardware LICENSOR shall supply license(s)....
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....ee is not entitled to use the software for ASP Services on behalf of third party. ii) The assessee has no right to use, copy, duplicate or display the software except as specifically provided in the agreement. iii) The assessee cannot make more copies of the software than what is specified in the agreement. iv) The assessee cannot provide access to the software to any one, other than assessee's employees, contractors or consultants under a written contract by which all of them would be bound by the terms and conditions as are applicable to the assessee on purchase of software. v) The assessee cannot sell license, distribute, pledge, lease, rent or commercially share (including timeshare) the above software or any rights therein. vi) The assessee cannot use the software for purposes of providing a service bureau, including without limitation, for providing third party hosting or third party application, integration or application service provider or any other similar service. vii) The assessee cannot modify, translate, reverse, engineer, decrypt, decompile, disassemble, create directive works based on, or otherwise attempt to dis....
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....Samsung Electronic Company Ltd. vs. ITO reported in 276 ITR (AT) 1 held as follows : " Held, allowing the appeals, that the provisions of the Income-tax Act would be applicable to the extent they were more beneficial to the assessee. Otherwise, the provisions of the Double Taxation Avoidance Agreement had to be followed. Therefore, the provisions of the Double Taxation Avoidance Agreement had to be followed for the purpose of deciding the issue whether payments made by the assessee was royalty or not. The primary condition for bringing within the definition of "royalty" in the Double Taxation Avoidance Agreement is payments of any kind received as consideration for the use of or right to use any copyright of a literary, artistic or scientific work, etc. The right to use a copyright is totally different from the right to use the programme embedded in a cassette or CD or it may be a software. In this case, what the assessee had acquired was only a copy of the copyrighted articles, that is software, whereas the copyright remained with the owner, that is the foreign parties. No right was granted to the assessee to utilize the copyright of the computer programme. The assessee h....
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....ommercial rental any copy of the computer programme; Provided that such commercial rental does not apply in respect of 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-clause (i) to (iv); (d) in the case of 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 fil....
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....h has recorded a vocalist has acquired the copyright in the music rendered and is, therefore, permitted to exploit the recording commercially. In this case the music recording company has not merely acquired a copyrighted article in the form of a recording, but has actually acquired a copyright to reproduce the music and exploit the same commercially. In the present case what JTM or any other cellular operator has acquired under the supply contract is only the copyrighted software, which is an article by itself and not any copyright therein. 168. The actual regulations bring out the distinction very clearly between the copyright right and a copyrighted article. They also specify the four rights which, if acquired by the transferee, constitute him the owner of a copyright right. They are: (a) The right to make copies of the computer programme for purposes of distribution to the public by sale or other transfer of ownership, or by rental, lease, or lending. (ii) The right to prepare derivative computer programmes based upon the copyrighted computer programme (iii) The right to make a public performance of the computer programme. (iv) The r....
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....would represent a royalty where the consideration is for the right to use the programmes in a manner that would, without such license, constitute an infringement of the copyright. In other words, the payment can constitute royalty only if the transferor grants to the transferee the right to use the copyright of the product. If, on the other hand, the use of the programmes by the transferee (by acquiring a copy of such programme) is in a manner which does not constitute infringement of the copyright, the payment therefor would not amount to royalty. Therefore, under the OECD model commentary also payments for acquiring a copy of a computer programme would not be treated as payments for right to use the copyright in the computer programmes. Accordingly such payments are to be considered s commercial income under article 7 and not as royalty under article 12 of the India-USA DTAA [paras 6.2 and 6.3]. Further, the computer programme may be copyright as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the programme is tangible, movable and available in the market place. The fact that some programmes may be tailored f....
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....yalties. (4) The term 'royalties' in this article means payments or credits, whether periodical or not, and, however described or computed, to the extent to which they are made as consideration for: (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right: (b) the use of, or the right to use, any industrial, commercial or scientific equipment: (c) the supply of scientific, technical, industrial or commercial knowledge of information; (d) the rendering of any technical or consultancy services (including those of technical or other personnel) which are ancillary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-paragraph (a), any such equipment as is mentioned in sub-paragraph (b) or any such knowledge or information as is mentioned in sub-paragraph (c); (e) the use of, or the right to use: (i) motion picture films; (ii) films or video tapes for use in connection with television; or (iii) tapes for use in connection with radio broadcasting; (f) ....