TaxTMI 
TaxTMI 
TaxTMI 
2010 (11) TMI 1024
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....se/use of software from parties who are resident of U.K.. The software in question are undisputedly operational softwares, purchased for the internal use of the assessee. The 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. We list out herein appeal-wise, the party from whom the assessee has purchased the software and the nature of software. Sr. No. ITA No. Name of the Party Name of the Country Brief description of software supplied 1 1133/Mum/2008 M/s Petroleum Experts Ltd.. UK Supply of proprietary software which can be used to accurately perform Material Baalance analysis related to.. 2. 1186/Mum/2008 M/s Independent Technology Systems Ltd. UK Acquisition of Inter Connect V6.06, intermediate 3.3.7 and maxi-route E v1.2 software which can be used in interconnection and mediation in the system. 3. 1189/Mum/2009 M/s Petrel Software Ltd. UK ....
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....ed that for the reasons given by him in the order that the payment made by the appellant to M/s. PEL is 'royalty' within the meaning of Article 13 of the DTAA and also u/s.9(1)(vi) of the I.T. Act, 1961. 1.5 The AR has also submitted that the same has been examined by me in my order No. CIT(A)XXXI/DDIT(IT)2(1)/IT-303/02-03/06-07, dated 29/10/2007 in the appellant's own case. The AR has submitted his written submissions dt.23/10/2007 and has reiterated all the argument taken by him in that appeal which have been considered in my above stated order. The AR has submitted in conclusion that the above payment made for purchase of software is no 'royalty' but only business income and is accordingly taxable in India, only if M/s. PEL, has a PE. 5. The terms and 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 2 of the 'Special Terms of Purchase" 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 argume....
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....ronic media. The documentation will be in a readable format. The LICENSEE and Authorised User are entitled to make electronic or printed copies (hard copies) of the documentation as is reasonably required for the internal use of the LICENSE. 2.2.2. OWNERSHIP OF THE SOFTWARE The Licensor retains title and ownership of the software recorded on the original disk copy(ies) and all subsequent copies of the software, regardless of the form or media in or on which the original or the other copies may exist. This License is not a sale of the original software or any copy. 2.2.3. LIABILITY The Licensor will at its sole expense defend and hold the Licensee and Authorized User harmless from any claims including legal fees which may be made against the Licensee. Authorized User and/or the Licensor by any third party claiming infringement of a patent or any other proprietary rights to the Licensed software. 2.2.4 USE RESTRICTION The Licensor grants the Licensee a perpetual, non-exclusive, nontransferable right and License to use the object version of the software listed solely for the benefit of the Licensee and affiliates in which the Licensee participates with use limited to (i) the lic....
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.... 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 discover the above mentioned software source code or underlying ideas or algorithms. 7. Another important fact is that the software has been supplied to the assessee on a computer disk, from a place outside Ind....
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.... the case of 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 asse....
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....l 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 film to the public; (e) in the case of a sound recording,- (i) to make any other sound recording embodying it; (ii) to sell or give on hire, or offer for sale or hire, an....
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....d 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 right to publically display the computer programme. 169. A copyrighted article has been defined in the regulation (page 147 of the paper book) as including a copy of a computer programme from which the work can be perceived, reproduced or otherwise commu....
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....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 for specific purposes need not alter their status as 'goods' because the code definition included 'specially manufactured goods''. In the case of Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 / 141 Taxman 132 the Apex Court after citing several decisions of the Courts of the USA has noted th....