TaxTMI 
TaxTMI 
2018 (11) TMI 863
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....wers Ltd ("Indus" )/("ITL"). The assessee has released invoices amounting to USD 75,000(1NR 40, 02,000). The assessee has also provided IT Support Services and Annual Maintenance Services(AMC). These services inter-alia includes operations support, remote operations support services, routine maintenance etc. These services are provided by Indian subsidiary (i.e. TTI Team Telecom Software Private Limited) of the assessee. The assessee has released invoices totalling to USD 10,85,275 on Indus and received USD 808,200 (INR 4,42,13,556) during the year under consideration. Since the assessee follows cash basis of accounting, it has offered to tax USD 808,200 (INR 4,42,13,556). AO treated the receipt as royalty liable to tax @10% under Article 12 of India- Isreal DTAA. 4. By the impugned order DRP confirmed the action of TPO / AO against which assessee is in further appeal before us. 5. At the outset, learned AR placed on record the order of the Tribunal in assessee's own case for the A.Y.2008-09, 2009-10, 2010-11 and 2012-13 wherein exactly similar issue was dealt by the Tribunal and held that amount so received is not in the nature of royalty and not liable to tax. The precise o....
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....ocable, nonexclusive, royalty free, worldwide license to install, use and operate and copy the software and the documentation licensed under any approved Purchase order in accordance with the terms and conditions contained in Wireless Reliance network within India. Agreement solely for the implementation operation, management and maintenance of the license does not give Reliance title to the software, or to any trademark or copyright in them (TTI will be the owner or the license of the intellectual property Rights in the Software). Reliance may only use the software in machine readable form. Reliance shall not (i) reverse engineer, decompile or disassemble any part of the Software without the express prior written consent of TTI; (ii) Reliance shall not remover, obscure or deface any proprietary legend relating to the software without TTIs prior written consent, and further, shall not delete any and all such proprietary legends for such copies as are made. The software is to be locate and used at the designated site/s specified in the purchase order only. (b) The aforementioned licenses set forth above are hereinafter be referred to as the ―Software Licenses....
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....losure agreement by such Authorized Subcontractor.‖ 4.14. Perusal of the aforesaid clauses clearly reveals that the assessee would continue to remain owner of the intellectual property rights embedded in the software and Reliance would be able to use software only in machine readable form. Reliance was not permitted to reverse engineer, alter, software programme or tinker with proprietary legends of the said software. The software was permitted to be located and used only at the sites designated in the purchase order issued by Reliance. Further, such software was not permitted to be freely sold by Reliance except for strict usages for Wireless Reliance Network only, as permitted in the agreement. The AO noted that in the said agreement, there were certain clauses with regard to transfer of source code by the assessee to Reliance. It is noted by us that section 11 of the said agreement deals with escrow of source code which is reproduced hereunder for ready reference and further discussion: ―Section 11: Escrow of Source Code 11.1. Escrow, concurrent with the execution or this Agreement, the parties will duly execute and deliver the Escrow Agreement, and TTI, upo....
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....tware by the assessee to Reliance. It has been further brought to our notice that in any case, no Escrow Agreement has been entered into between the assessee and Reliance and therefore there was no question of providing the source code by the assessee to Reliance. It was further submitted that in any case, aforesaid agreement has been discussed and analysed in detail by the Tribunal in the order passed for A.Y. 2003-04 and 2006-07 and thereafter only decision has been taken which should be followed by us. We agree with the argument of Ld. Counsel that as far as this agreement is concerned, we are bound to respectfully follow the order of the Tribunal on this issue. 4.16. With regard to supplementary amendment agreement dated 17th September 2007, it is noted by us with the assistance of the parties that this agreement was entered into by the parties mainly for the purpose of widening the scope of Wireless Reliance Network for which software was provided by the assessee to Reliance. The original agreement permitted usages of software for the Wireless Reliance network for the mobiles phones using CDMA technology. But, subsequently mobile phones based on GSM technology were al....
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....rce code becomes academic. Under these circumstances, we find that there is no change in facts which could have permitted or compelled us to deviate from decision of the Tribunal rendered in earlier years. Thus, under these circumstances, we are bound to respectfully follow orders of the Tribunal passed in earlier years. It is noted by us that the Tribunal has in its order for A.Y. 2006-07 in assessee's own case vide order dated 26.08.2011 in ITA No.3939/Mum/2010 analysed all the facts in detail and decided this issue in favour of the assessee, after analyzing provisions of the Act as well as provisions of Treaty at great length. Relevant part of the order is reproduced hereunder: ―13. In view of the above discussions, as long as the assessee cannot be subjected to tax on the impugned receipts in terms of the provisions of Indo-Israel tax treaty, the assessee will not have tax liability in India. The provisions of the IT Act, 1961, cannot be put into service in such a situation, because, as we have noticed earlier, these provisions can apply only when they are more beneficial to the assessee vis-a-vis the provisions of the applicable tax treaty. 14. It i....
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....the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention." 15. In terms of the provisions of art. 12(3) of the Indo-Israel tax treaty, royalty is defined, for the purposes of this tax treaty, as "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, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience". The question then arises whether a payment for computer software cannot be a payment for use of or right to use of 'a copyright of literary, artistic or scientific work, in....
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....literary, artistic or scientific work", and the connotations of "use of copyright" of a work are distinct from the use of a copyrighted article. The meaning of "use of copyright of a work" cannot be treated as extending to "use of a copyrighted work" as well, as it would amount to doing clear violence to the words employed by the treaty. Copyright is one thing, and copyrighted article is quite another thing. To give a simple example, when a person is using a music compact disc, that person is using the copyrighted article, i.e. the product itself, and not the copyright in that product. As held by the Special Bench in Motorola's case (supra), the four rights which, if acquired by the transferee, constitute him the owner of a copyright right, and these rights are : (i) 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 publicly display the ....
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....icle, and the question could be as to what does he pay for--for the use of the technical know-how on the basis of which vehicle operates, or for the use of a product which carries passengers or goods from one place to another. The answer is obvious. When you pay for use of vehicle, you actually pay for a product which carries the passengers or goods from one place to another and not the technical know-how on the basis of which such a product operates. Same is the case with the software, when someone pays for the software, he actually pays for a product which gives certain results, and not the process of execution of instructions embedded therein. As a matter of fact, under standard terms and conditions for sale of software, the buyer of software is not even allowed to tinker with the process on the basis of which such software runs or to even work around the technical limitations of the software. In Asia Satellite Telecommunications Co. Ltd. vs. Dy. CIT (2003) 78 TTJ (Del) 489, a Co-ordinate Bench of this Tribunal did take the view that when an assessee pays for transponder hire, he actually pays for the process inasmuch as transponder amplifies and shifts the frequency of each sig....
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....e in the terms 'anything else she needs' a new car or an item of jewellery. The dictum of ejusdem generis refers to similar situation. It means of the same kind, class or nature. The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of same kind as specified. Noscitur a sociis is a broader version of the maxim ejusdem generis. A man may be known by the company he keeps and a word may be interpreted with reference to the accompanying words. Words derive colour from the surrounding words." 18. Viewed in this perspective, and taking note of lowest common factors in all the items covered by definition of the expression 'royalty' in art. 12(3), the 'process' has to be in the nature of know-how and not a product. In this view of the matter, and in view of Hon'ble Delhi High Court's declining to uphold the Co- ordinate Bench's decision in the case of Asia Satellite Telecommunication Co Ltd. (supra), we are of the considered view that the payment for software, by no stretch of logic, can be treated as a payment for "a process" liable to be taxed as royalty. This is preci....
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....#39;s own case for one of the preceding assessment years, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 21. In the result, the appeal is dismissed.‖ 4.19. Thus, in view of the judgment of Hon'ble Supreme Court in the case of Radhasoami Satsang (supra), we respectfully follow the order of the Tribunal for A.Ys. 2003-04 & 2006-07 and hold that the payment received by the assessee on account of supply of software by the assessee to Reliance in pursuance to agreements made between both the parties dated 27th September, 2002 read with supplementary agreement 17 th September, 2007 is not in the nature of 'Royalty' within the meaning of Article 12 of DTAA between India and Israel and therefore not liable to tax as such, but assessable as business income of the assessee subject to other provisions of the Act and DTAA. Thus, Ground No. 1.1 is decided in favour of the assessee. xxxxxx 8. With respect to appeal for A.Yrs. 2009-10 and A.Y. 2010-11, it was jointly stated by both the parties that grounds raised therein are identical and facts and circumstances of the case as well as legal position remains the ....