TaxTMI 
TaxTMI 
2018 (12) TMI 112
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....ervices" from its Indian Distributors. It is undisputed that the amount received by the assessee from "Provision of Support Services" was been offered to tax on gross basis as per Article 12 of India-Ireland Double Taxation Avoidance Agreement (DTAA). It is also not in dispute that there is no Permanent Establishment (PE) of the assessee in terms of Article 5 of DTAA in India. In the present appeal, the dispute pertains to the taxability of amount received by the assessee from "Sale of Software". During the course of assessment, the AO directed the assessee to submit as to why the receipts on account of "Sale of Software" may not be taxed as income from Royalty as per the provisions of section 9(1)(vi) of the Act and Article 12 of the Agreement for Avoidance of Double Taxation between India and Ireland. In response, the assessee submitted copies of Distributor Agreements executed by it with its Indian distributor and copies of End User Licence Agreements. The assessee also submitted copies of invoices raised by it on its Indian Distributors. Before the AO, it was submitted by the Assessee that neither the Distributor nor the End User had a right to reverse engineer, reverse-comp....
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....that transfer of all or any rights for use or right to use a computer software. The assessee being a resident of Ireland is eligible to claim taxation under the DTAA if provisions of DTAA are not beneficial to assessee. The relevant DTAA in this case is India-Ireland DTAA. As per Article 12 of the DTAA, royalties 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 or films or tapes for radio or television 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, other than an aircraft or for information concerning industrial commercial or scientific experience. According to the submissions made by the assessee the payments received for sale of software, without allowing any right to use the copyright in the software, would not be covered within the scope of 'royalty' under the DTAA. The assessee also submitted that the parting of intellectual property rights inherent in and attached to the software product in favor of the distri....
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.... software payments held as under:- "It is no doubt true the provisions of the DTAA overrides the provisions of the Income-tax Act. In the DTAA the term 'royalty' means payments of any kind received as a consideration for the use or the right to use any copyright of literary, artistic or scientific work whereas in the Income-tax Act, royalty means consideration for the transfer of all or any rights including the granting of a license. Therefore, under the DTAA to constitute royalty there need not be any transfer of or any rights in respect of any copyright. It is sufficient if consideration is received for use of or the right to use any copyright. Therefore, if the definition of royalty in the DTAA is taken into consideration it is not necessary there should be a transfer of any exclusive right. A mere right to use or the use of a copyright falls within the mischief of Explanation (2) to clause (vi) of sub-section (1) of section 9 and is liable to tax. Therefore, there is no substance in the said contention." Similar view was also upheld by jurisdictional Delhi Tribunal in the case of Microsoft Corporation vs. ADIT (8 ITR 522) wherein the payments for soft....
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....the assessee before reaching its conclusions. The assessee cannot now claim to non-availability of opportunity of being heard. This objection is hence dismissed. The AO has also recorded that "The reliance placed by the assessee on the judgements of Delhi High Court in the case of Infrasoft Ltd., Dynamic Vertical Software India (P) Ltd. and M. Tech India P. Ltd. cannot be relied upon since the issue has not attained finality and the department has filed SLP in few cases and the decision of the Hon'ble Supreme Court is still pending". The departmental position is clear in this regard and the panel is part of assessment process. Therefore the issues in challenge before Hon'ble Apex Court need to be kept alive. The objection of the assessee are dismissed in view of the foregoing. In view of above discussion on each of the grounds of objection, the Assessing Officer is directed to complete the assessment as per the directions of the DRP as above." 2.3 The Assessee is now in appeal before us. Following grounds of appeal have been raised:- "1. On the facts and in the circumstances of the case and in law, the learned DRP/AO have erred in holding that....
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....her submitted that the reliance placed by the AO on the decision of Delhi Tribunal in the case of Microsoft Corporation (supra) is also not relevant as the said decision has been held to be bad in law by the Hon'ble Jurisdictional High Court in the case of Nokia Network Oy (supra). In this regard, the Ld. AR invited our attention to Para 23 of the decision in the case of Nokia Network (supra). 4.0 The Ld. CIT (DR), on the other hand, did not dispute the contentions raised by the Ld. AR. By placing reliance on the order passed by the lower authorities it was submitted by him that the view expressed by them does not require any interference by this Court. 5.0 We have carefully considered the facts of the case and the material available on record. There is no dispute as regards the facts of the case. After considering the facts of the case and the arguments of both the sides, we are of the opinion that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court. In the case of Ericsson A.B., (supra), the Hon'ble Jurisdictional High Court has held as under:- "Once one proceeds on the basis of aforesaid factual find....
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....established. It is not even the case of the revenue that any right contemplated under section 14 of the Copyright Act, 1957 stood vested in this cellular operator as a consequence of the supply contract. Distinction has to be made between the acquisition of a 'copyright right' and a 'copyrighted article'." 5.1 Similar view is expressed by the Hon'ble Jurisdictional High Court in the case of Infrasoft Ltd. (supra), wherein their Lordships held as under:- "86. The Licensing Agreement shows that the license is nonexclusive, 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 licence authorisation device, which restricts the use of the Software. The software is to be used only for Licensee's own business as defined within t....
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....ram by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and nontransferable licence 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 licence 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 an....