TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1742
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....9 issued vide notification dt.20.11.2009 by C.B.D.T before DRP. DRP thereafter passed order u/s 144C(5) of the Act on 20.05.2011. Consequent upon the D.R.P's order giving directions u/s 144C(5) of the Act, order u/s 143(3) r.w.s. 144C(13) was passed by the AO on 28.10.2011 and the total taxable income was assessed at Rs. 5,42,070/-. Aggrieved by the order of AO, assessee is now in appeal before us and has raised the following grounds: "The Ld Assessing Officer and Ld Dispute Resolution Panel have erred in holding that the fee of INR 542,070 received by the company for providing limited user access to a database to store and manage customer and sales related data and providing Information Technology support is taxable in India as 'Royalty' within the meaning of Article 12 of the India- Sweden Double Taxation Avoidance Agreement ('DTAA' or 'the treaty')" 3. AO in the assessment order has noted that assessee is a nonresident company incorporated in Sweden and is tax resident of Sweden under the Double Taxation Avoidance Agreement between India and Sweden. It is a developer and producer of advanced stainless steels, special alloys, titanium and other high-performance materials. Asse....
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....ng of a "secret" database which allowed the group companies to devise their marketing strategies. Nobody in the group had any access to the data. They however had the right to use the data and for that reason were paying the assessee. Such business arrangement suggests that the assessee had some important data which was available only for use. Such arrangement would basically be termed as "working" of the intellectual property. "Working" Of an intellectual property means commercial exploitation of the intellectual property. In this case, the assessee commercially exploited the data base, the intellectual property in this case used for devising appropriate marketing strategies by analyzing the market position of the group, devising strategies to develop new customers, making plans to retain the old customers, developing an overall market strategy and to handle customer relations more effectively. The database was thus an intellectual property or secret formula, as stated by the Assessing Officer in Para 6.5 of her order. Any payment received for its use would always be royalty. The case laws provided by the assessee do not have the same facts of the case, and hence are not applicabl....
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.... that there is no commercial exploitation of the property but its use for internal usage and the access is only to the relevant date and the user does not have access to the data to the group of other companies. He further submitted that on the identical facts in the case of sister concern of the assessee, the Co-ordinate Bench of the Tribunal vide order dt.31.01.2013 had held that the amount to be not taxable in India. He placed on record the copy of the aforesaid order. He further placed reliance on the decision of Authority for Advance Ruling in the case of Bharati Axa General Insurance Company Limited reported in (2010) 326 ITR 4727. He further submitted that assessee put its own data in the system and has exclusive right to update the same and then there is no question of copy rights involved. Therefore he submitted that the payment is neither royalty nor FTS and therefore, the amount is not taxable. Ld. D.R. on the other hand supported the order of AO and further placed reliance on the decision in the case of CIT(IT) Vs. Wipro Ltd., reported in (2013) 355 ITR 284 (Kar). Ld. AR in the rejoinder submitted that Hon'ble Karnataka High Court while deciding the case in Wipro Ltd. (....
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....Version and SSCS/SSSS (Sandvik Steel Customer and Supplier System) ABSS is providing services for 400-Sopic Steel version and SSCS/SSSS AS A Sandvik/ABSS specific standard system. The services include application development, maintenance and trouble shooting interfaces to other systems and help desk for user handling matters, project management, project participation and planning, system analysis, testing and user documentation. The 400-Sopic Steel System is owned by ABSS for usage by the different Sandvik subsidiaries. The Customer has the right to acquire 400-Sopic Steel Version services. Responsibilities as described above for application development are also valid for these services. The services are charged as a fixed yearly charge (400-Sopic license fee respectively SSCS/SSSS license fee) depending on size of the implementation. The 400-Sopc respectively the SSCS/SSSS license fee covers the ABSS costs for the ABSS IT Services as described above 7. From the perusal of nature of services provided by assessee, it is seen that the assessee is providing IT support and advisory services for solving IT related problems by its users and various application softwares.....
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.... 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 non-transferable 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 and attached to the software product in favour....
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.... consent of Infrasoft. 93. The licensee has been prohibited from copying, decompiling, de-assembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licensee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to Infrasoft. 94. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licensee has acquired is only a c....