TaxTMI 
TaxTMI 
2019 (3) TMI 458
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....the sake of convenience. However, in order to adjudicate the issues, reference is being made to the facts in ITA No.905/PUN/2015, relating to assessment year 2007-08. 3. The assessee in ITA No.905/PUN/2015 relating to assessment year 2007-08 has raised the following grounds of appeal:- 1] The learned CIT(A) erred in holding that the assessee company should have deducted TDS on the payments made to Deere & Co. USA of Rs. 51,928,969/- on account of for software license fees and IT support services on the ground that the same was taxable under the Income Tax Act as well as under the DTAA as Royalty. 2] The learned CIT(A) erred in not appreciating that the amount of Rs. 51,928,969/- was not covered under Royalties and or fees for technical services of the DTAA between India and USA as well as under the Income Tax Act and therefore, the Appellant Company was not required to withhold tax u/s. 195 on above amounts and accordingly, the demands raised of tax and interest u/s 201(1) and 201(1A) may kindly be deleted. 3] The learned CIT(A) ought to have appreciated that the payments made to Deere & Co. USA was on account of reimbursement of software license fees ....
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....58,66,353/- on the ground that the said payment constituted fees for technical services and hence, the appellant company was required to deduct TDS on the said payments. 10] The learned CIT(A) erred in holding that Deere & Co. by deputing its employees to the appellant company was providing technical services to the appellant company and accordingly, the TDS was required to be deducted on such payments. 11] The learned CIT(A) failed to appreciate that as per the secondment agreement between the appellant company and Deere & Co., all the expat employees are on the roll of the appellant company and TDS u/s 192 is deducted in respect of the salary paid to them and hence, there is no question of holding that the services rendered by these employees constituted fees for technical services under the Income Tax Act as well as under the DTAA between India and USA. 12] The learned CIT(A) erred in not appreciating that Deere & Co. was not providing any fees for technical services to the appellant company by deputing its employees to the appellant company and therefore, there was no question of deducting any TDS on the reimbursement of the salaries of the expat empl....
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....eduction of tax at source under section 195 of the Act in the case of such payments debited during the year along with copies of all documentary evidence in support thereof. The main plea of assessee before the Assessing Officer was that the above said payments made to Deere & Co., USA and associated enterprise of assessee, were not taxable in India and the assessee was not liable to deduct tax at source under section 195 of the Act. This plea of assessee was not accepted by the Assessing Officer. The Assessing Officer at page 5 of assessment order has summarized services provided by Deere & Co., USA to the assessee. The Assessing Officer was of the view that the consideration received by Deere & Co. was on account of various IT support services, use or right to use softwares, access to server (scientific equipment) and leased line charges. The Assessing Officer observed that the assessee had not contested the chargeability of above payments under the provisions of the Act. The Assessing Officer thus, held that the assessee agreed that the above payments were taxable as fees for technical services under section 9(1)(vii) of the Act. The main contention of assessee that payments ....
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.... Deere & Co., USA were in the nature of fees for technical fees and taxable under Article 12(4)(b) of DTAA as well as under section 9(1)(vii) of the Act. 7. The next aspect taken up by Assessing Officer was the consideration paid for use or right to use software and he was of the view that the same was chargeable as 'Royalty' as per section 9(1)(vi) of the Act and Article 12(3) of DTAA. The Assessing Officer noted the provisions of section 9(1)(vi) of the Act i.e. income by way of royalty and observed that the assessee had not provided end-user license agreements with the software suppliers; hence exact nature of software provided and the terms and conditions were not named. However, he was of the view that in case of payments for license, non-resident receives consideration for transfer of all or any right for use or right to use computer software and owned all right, title and interest in the softwares. Therefore, what the supplier parts with to the end user was only right to use software for its application and one of the rights embedded was the right to copy and use, which was transferred by supplier to the assessee, therefore what was being transferred was right to use s....
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....o another meaning to a licensed software that is of a secret formula or process. He was of the view that in such scenario, where the source code was to be kept confidential, then software invariably be included under the category of secret formula or process. He further observed that since the source code or the object code of software had been protected and was not available freely, these software could even qualify as secret formula or process, therefore, payments received were 'royalty' as per clause (i) and (iii) of Explanation 2 of section 9(1)(vi) of the Act i.e. payment received as consideration for the use or right to use secret formula or process. The Assessing Officer also observed that the assessee was getting access to the knowledge database/servers of Deere & Co., which access was maintained by service provider online and such right to access would amount to transfer of copyright to use the copyright held by foreign company and payment received by foreign company on this behalf was license to use the said database and such payment was to be treated as 'royalty'. He placed reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Wipro Ltd. ....
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.... 9. The next issue decided by the Assessing Officer was the taxability of payments for lease line charges and he was of the view that the same was taxable as 'royalty'. He pointed out that for providing these services, the service provider uses complex and highly sophisticated industrial, commercial or scientific equipment and charges for the same; therefore receipts on account of leased line charges could be termed as for the use of various industrial, commercial or scientific equipment used for WAN, data connectivity, internet services. Therefore, as per the Assessing Officer, it was 'royalty' as per Explanation (iva) of section 9(1)(vi) of the Act i.e. payment received as consideration for the use or right to use any industrial, commercial or scientific equipment. It was also 'royalty' under the Article 12(3)(b) of DTAA as payment received was consideration for the use or right to use industrial, commercial or scientific equipments. The Assessing Officer was of the view that payment was for transmission of data or cable / optic fibre; was payment for process as defined in Explanation 6 to section 9(i)(vii) of the Act, hence it was also 'royalty' as payment was received as cons....
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....by the retrospective amendment to the Act on the provision of royalty under section 9 of the Act. Accordingly, he held the payments were taxable under 'royalty' under the Act. As far as its taxability under DTAA was concerned, he referred to the decision of Pune Bench of Tribunal in the case of Cummins Inc for assessment years 2004-05 and 2006-07 in ITA Nos.73 & 74/PN/2011, order dated 08.08.2013, wherein also the right to use software was held to be taxable as 'royalty' under DTAA. Accordingly, he held that payments made to above company were to be taxed as 'royalty'. He further placed reliance on the ratio laid down by Mumbai Bench of Tribunal in the case of DDIT Vs. Reliance Infocom/Luscent Technologies [(TS-433-ITAT-2013(Mum)], in which also the payments made for acquiring right to use software was treated as 'royalty'. The plea of assessee that between conflicting decisions of CIT Vs. Samsung Electronics Co. Ltd. (2009) 185 taxmann.com 313 (Kar) and DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com 88 (Del), the decision in Infrasoft (supra) being later decision rendered after discussing Samsung (supra), should be followed, was not accepted being decisions of non jurisdictional Hig....
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.... was decided by CIT(A). The first issue was training of employees, wherein the assessee claimed that it was web based training and there was no scope for asking questions and training module proceeded according to the said pattern, hence web based training programme could not be satisfaction of 'make available' condition which was provided in DTAA. The CIT(A) was of the view that the said payments were taxable as FTS, since the training imparted to employees was technical in nature and the payments made for the same were held to be taxable under section 9(1)(vi) of the Act. The plea of assessee that payments could not be covered as FTS as no technical knowledge was imparted, was not accepted in the absence of necessary details and evidences. He further referred to MOU between India and USA, DTAA, which shows that technical training was considered to be taxable under clause (iv)(b) of DTAA. Further example 6 and 9 given in the MOU, training imparted to staff was considered to satisfy 'make available' condition. Accordingly, he held that payments made towards training programmme were liable to be taxed under Income Tax Act and DTAA and he placed reliance on various decisions. In v....
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.... pointed out that the assessee was part of US based Deere & Co. The said company purchases software worldwide which were off shelf software and were acquired by US company and were allocated to worldwide entity software groups. The Assessing Officer was of the view that use of software license is copyright and hence TDS had to be deducted. He further pointed out that the CIT(A) vide para 2.7 at page 10 relied on the decision of Pune Bench of Tribunal in Cummins Inc. Vs. DDIT (2013) 38 taxmann.com 286 (Pune - Trib.) and also decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Samsung Electronics Co. Ltd. (2009) 185 taxmann.com 313 (Kar); but the CIT(A) does not rely on the decision of Pune Bench of Tribunal in Allianz SE Vs. ADIT (IT) (2012) 21 taxmann.com 62 (Pune) and judgment of the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com 88 (Del). The learned Authorized Representative for the assessee then referred to DTAA between India and USA and referred to Article 12(3), which defined 'royalty' and pointed out that it deals with payment of any kind received for the use of or right to use any copyright of literary, artistic or scientific ....
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....iques, ideas, etc. were sole property of licensor. Similar are the terms of agreement with Parametric Technology Corporation (in short 'PTC') and Deere & Co., copy of which is placed at pages 177 to 187 of additional Paper Book, wherein also PTC remains the owner of all software that it develops. 17. The learned Authorized Representative for the assessee pointed out that the issue of withholding tax on the payments made to Deere & Co. against purchase of software license and IT support services has been decided in turn, relying on the ratio laid down by the Pune Bench of Tribunal in Cummins Inc. Vs. DDIT (supra). He however, pointed out that the said order of Tribunal has been recalled in MA Nos.28 & 29/PUN/2017, copy of which is placed at pages 308 to 316 of legal compilation. He then referred to the decision of Tribunal in Allianz SE Vs. ADIT (supra) and pointed out that factual aspects were same, in that case the issue which was decided was in respect of license to use software and it was held that the same was not copyright and did not amount to 'royalty'. Our attention was drawn to para 10 of the said decision, wherein reference was made to the decision of the Hon'ble Hi....
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....nted out that second part of grounds of appeal No.1 to 3 is with regard to provision of IT support charges, wherein the assessee was paying for internet charges; use of e-mail facility; DP charges and backup support, etc. The learned Authorized Representative for the assessee pointed out that the CIT(A) had combined the same with royalty, in view of the ratio laid down by the Tribunal in Cummins Inc. Vs. DDIT (supra). However, IT support charges paid were not in 'royalty' as there was no use of copyrights or copyrighted articles. He stressed that at most, it may be considered as fees for included services under DTAA. However, fees for technical services talks of 'make available' of technology but there is no technical knowledge made available. This is only backup service provided. He stressed that there is no requirement for withholding tax out of such payments. In this regard, he relied on the ratio laid down by Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (2013) 31 taxmann.com 256 (Pune - Trib.), wherein the issue was pursuant to DTAA between India and Australia. However, the terms of two DTAA i.e. DTAA between India and USA and DTAA between Indian and Australia....
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....IT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (2016) 382 ITR 114 (Del) and also Hon'ble High Court of Madras in Verizon Communications Singapore Pte. Ltd. Vs. ITO (supra) and decided the issue in favour of assessee. The learned Authorized Representative for the assessee thus, pointed out that there was no requirement to deduct TDS on leased line charges. 22. Coming to ground of appeal No.6, the learned Authorized Representative for the assessee refers to enhancement made by CIT(A), wherein it holds that reimbursement of salary and payments for web based training were both in the nature of fees for technical services and hence, were liable for tax deduction at source. 23. The grounds of appeal No.7 and 8, under which the issue was raised against what was training charges. The learned Authorized Representative for the assessee pointed out that training which was taken by the employees of assessee from associated enterprise was web based training, under which person read material on various facets of working on websites. Our attention was drawn to screen shots of training procedure, copies of which is placed at pages 56 to 58 of Paper Book and pointed out ....
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....yment of whose salary was the responsibility of Deere & Co. However, during the term of their deployment in India, the said personnel were under exclusive and total control of assessee and had to act solely on behalf and for the benefit of assessee on assignment defined by it. This agreement was executed on 01.05.2005 effective from 01.09.2005. He pointed out that the factory of assessee was established in 1999. He then referred to the factual aspects of the case relied upon by the CIT(A) i.e. Centrica India Offshore (P.) Ltd. Vs. CIT (supra) and strongly pointed out that the facts were completely different, where a offshore entity had deputed technical personnel to train Indian employees and this was case where the operations in India required expats, hence there was 'make available' of skill behind services, to other party. He stressed that it was newly formed company which did not have necessary human resources and the associated enterprise deputed employees to train Indian employees; whereas this was not the case of assessee whose factory was established in 1999 and for specific purpose, certain personnel were deputed by Deere & Co. to perform activities in India. He pointed....
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....ut that even Pune Bench of Tribunal in M/s. Tata Technologies Ltd. Vs. DDIT (IT) in ITA No.1433/PUN/2014, relating to assessment year 2007-08, order dated 05.04.2018 has laid down similar proposition and the said ratio is fully applicable to the facts of present case, wherein the Tribunal had relied on the decision of Allianz SE Vs. ADIT (IT) (supra) and the the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra). He further referred to the decision of the Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. New Delhi (2011) 16 taxmann.com 371 (Delhi) and decision of the Hon'ble High Court of Andhra Pradesh in CIT Vs. Sundwiger EMFG & Co. (2003) 262 ITR 110 (AP) and pointed out that even if Pune Bench of Tribunal in Allianz SE Vs. ADIT (IT) (supra) had relied on the said decision. 26. The learned Authorized Representative for the assessee stressed that amended provisions of section 9(1)(vi) of the Act were not applicable since there is no amendment to definition of 'royalty' under DTAA and only the beneficial provisions are to be applied when both the provisions of the Act and all DTAA are attracted. He stressed that before amendment to section 9(1)(vi) of the Act, pay....
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....and it was sufficient if there was transfer of any interest in the right and also license and consideration paid for grant of license constitute 'royalty'. The Hon'ble High Court further observed that in this background, the discussion whether payment was for copyright or copyrighted article would be totally irrelevant. He further referred to the said decision, which is dated 03.08.2010, under which the Hon'ble High Court has also interpreted what is license and pointed out that the same may be exclusive or non-exclusive and it has been held that even non exclusive license was granted by an authority to do a present thing, but it never conveyed by itself an interest in the property. However, it enabled a person to do that which he could not otherwise do except unlawfully. He then referred to the conclusion of the said decision, wherein the Hon'ble High Court had held that where there is transfer of certain rights which the owner of copyright possessed with the said computer software, then it is case of 'royalty' being paid and was within mischief of Explanation (2) of clause (vi) of section 9(1) of the Act and there was liability to pay tax. 28. Coming to the next contenti....
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....n the case of CIT Vs. Synopsis International Old Ltd. (supra) and also AAR in the case of EY Global Services Ltd. in AAR No.1043 of 2011, dated 10.08.2016. The learned Departmental Representative for the Revenue drew our attention to section 14 of the Copy Right Act with special emphasis on clause (b) sub-clause (2), wherein the term 'computer programme' includes to sell or give on commercial rental, offer for sale or for commercial rental any copy of computer programme. 30. He then again referred to the contention of learned Authorized Representative for the assessee that the assessee was getting right to use software product which is copyrighted article. In case such a right is bestowed upon the assessee, then it is case covered under the definition of 'royalty'. The learned Departmental Representative for the Revenue again strongly placed reliance on the ratio in the case of Gracemac Corporation Vs. ADIT (supra), wherein it has been held that though there is no definition of copyrighted article in the Copy Right Act, but the same is defined in OECD guidelines. The learned Departmental Representative for the Revenue placed on record the definition of copyrighted article in OEC....
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.... facts are not similar as it was engaged in resale of software. However, payment made for use of software would amount to 'royalty'. In respect of ADIT (IT) Vs. TII Team Telecom International (P) Ltd. (supra), the learned Departmental Representative for the Revenue distinguished the said facts and pointed out that the said decision talks of process royalty, whereas the assessee's case was not process royalty. He admitted that Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra) had relied on DIT Vs. Infrasoft Ltd. (supra) and held that it was not case of 'royalty'. The learned Departmental Representative for the Revenue strongly placed reliance on the decision of AAR in the case of EY Global Services Ltd. (supra), wherein the difference between copyright or copyrighted articles has been elaborated upon and then again placed reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Synopsis International Old Ltd. (supra) and decision of AAR in the case of SkillSoft Ireland Ltd., In re_* (supra). The learned Departmental Representative for the Revenue pointed out that where the assessee had entered into an agreement with Dakota Softwa....
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....yalty. He stressed that the Hon'ble High Court of Madras in Verizone Communications Singapore Pte Ltd. Vs. DDIT (supra) has decided the issue of equipment royalty and the same was applicable. 36. Coming to grounds of appeal No.6 to 8, the learned Departmental Representative for the Revenue placed reliance on the observations of CIT(A) at page 23 and pointed out that the assessee had not supplied information and even the nature of services were not clear, so the question was of make available. He strongly relied on para 3.6.1.2 to 3.6.1.4 of CIT(A)'s order and pointed out that the reliance of learned Authorized Representative for the assessee on Sandvik Australia Pty. Ltd. Vs. DDIT (supra) was not correct as the issue before the Tribunal supports services rendered and not training services. 37. Coming to the next decision of Ahmedabad Bench of Tribunal in ITO Vs. Veeda Clinical Research (P) Ltd. (supra), he admitted that it clearly decides the issue. In this regard, he again pointed out that the issue has been considered and decided by AAR in Intertek Testing Services India (P.) Ltd., In re_* (2008) 307 ITR 418 (AAR), which has considered the issue of group services and in Mer....
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....ered into by the assessee, whereas in the facts of the case, highly qualified personnel of the company were deputed to India. He admitted that the assessee had established its factory in 1999 but the assessee was in expansion mode and hence the services of overseas expats were availed but he countered the contention of learned Authorized Representative for the assessee that the TDS deducted out of salaries paid to such expats under section 192 of the Act; but he questioned that once they were not on payroll of assessee company, where was the question of such deduction of tax. 39. Then coming to the last aspect i.e. reimbursement of expenses, the learned Departmental Representative for the Revenue has filed written submissions in this regard and placed reliance on various case laws and filed copies of relevant case laws, which we shall refer while deciding the said issue. 40. The learned Authorized Representative for the assessee then took up his rejoinder and pointed out that there were four issues arising in the present appeal (a) royalty on software and IT support services, (b) payment of leased line charges, (c) training charges and (d) reimbursement of salaries of expa....
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....iture or it was fees for technical services as per provisions of DTAA. The Hon'ble High Court held that since the payment to employees was already subject to tax in India, therefore, there was no question of treating the assessee in default for non deduction of tax at source. The learned Authorized Representative for the assessee stressed that no adverse comments have been made by the learned Departmental Representative for the Revenue on the said decision of the Hon'ble Bombay High Court in DIT Vs. M/s. Mark & Spencer Reliance India P. Ltd. (supra). 41. Coming to next issue of training charges, the learned Authorized Representative for the assessee pointed out that there were various modules available on web; training was given on the web and there was no interactive session, in case there was any query to be answered, but no person was available to answer the same. This was like reading a book. However, the learned Departmental Representative for the Revenue on the other hand, had relied on the decisions where interactive training was given, so it was held to be a case of fees for technical services. However, the facts of present case were different. He then gave an example of....
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.... was still in favour of assessee and not against the assessee as contended by learned Departmental Representative for the Revenue. He further pointed out that the assessee was basically relying on the definition of 'royalty' in DTAA, wherein in Article 12(3), expression used is 'use or right to use any copyright'. Referring to the decision of the Hon'ble High Court of Karnataka which observed that when you purchase CD, then purchased copyright. However, as per section 14 of the Copy Right Act, when you made re-engineered copy sale, then it is copyright and not otherwise. He referred to the decision of the Kolkata Bench of Tribunal in ITC Ltd. Vs. ADIT (2017) 79 taxman.com 206, wherein section 14 of the Copy Right Act has been referred to, which explains the meaning of copyright and vide paras 20 and 21, the issue has been explained and decided in favour of assessee and it has been held that the issue has to be decided in the light of definition of 'royalty', as contained in DTAA read with relevant provisions of the Copy Right Act. The Tribunal in ultimate has decided that the assessee is not in default under section 201(1) of the Act. 44. The learned Authorized Representative fo....
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.... of royalty on IT support services being provided as it did not make available any technology. He further pointed out that the first thing to be decided is whether 'royalty' is on software and if not royalty, then clause 4(a) of Article 12 of DTAA was not applicable, as propounded by the learned Departmental Representative for the Revenue. 45. We have heard the rival contentions and perused the record. At the outset, we must complement both the learned Authorized Representatives in elaborately bringing to our attention different case laws on the issues and making submissions on each aspect of the issue arising in the present set of appeals. We have gone through the Paper Book filed by them and even case laws relied upon by them individually and have heard at length on different dates and now we proceed to decide the issues raised in the present appeals. 46. The issue which arises in the present case is in relation to payments made by assessee to its associated enterprise in respect of various aspects. The case of Revenue Department is that for all such payments as referred in orders of authorities below, were liable for tax deduction and since the assessee has failed to deduc....
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....hether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. (ii) income which falls under the head "Salaries", if it is earned in India. (iii) income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India; (iv) a dividend paid by an Indian company outside India; (v) income by way of interest payable by- (a) the Government ; or (b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India; (vi) income by way of royalty payable by- ....
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....; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in subclauses (i) to (iv), (iva) and (v)." 52. The Assessing Officer observed that in the facts of the present case, the payment made by assessee would fall under any of the clauses (i) to (iii) under Explanation 2 to section 9(1)(vi) of the Act. 53. Explanation 3 reads as under:- "Explanation 3.-For the purposes of this clause, "computer soft....
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.... various reasons which have been raised by him. He has referred to various facets of the said clause and the amendments made by way of insertion of Explanations and even the definition covered by existing definition and pointed out that what has been paid by assessee cannot be termed as 'royalty' and hence, there was no liability under the tax deduction provisions. The learned Authorized Representative for the assessee has also stressed that in any case the terms of DTAA have not been rectified or amended and in the absence of the same, since under the earlier provisions, the payment made by assessee did not akin to payment of 'royalty' and applying the provisions of DTAA which are more beneficial to the assessee, the assessee could not be held to be in default. 57. Before proceeding further, we may also refer to Article 12 of DTAA between India and USA, which has been reproduced under paras 6 to 8 of the order of Assessing Officer. The assessee has filed on record the copies of agreement, under which it has purchased software from different entities and the learned Authorized Representative for the assessee has exhaustively taken us through various terms and conditions of said ....
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....se of copyrighted article or thing or for purchase of copyright. The case of assessee before us has been that it had purchased copyrighted software from third parties, hence the payment made by it does not fall within ambit of 'royalty'. In order to adjudicate the said issue, we shall refer to the terms of Software License Agreement entered into by Deere & Co. with different concerns, pursuant to which the said software was purchased and was being used by assessee. The first agreement which has been relied upon by the learned Authorized Representative is between Dakota Software Corporation and Deere & Co. Under clause (1), it is recognized that Dakota Software Corporation was the owner of certain software and was provider of services. The assessee wanted to access and use the software and services. Clause (2) provided that the said software and any user manuals or online help functions relating to software may be used only by authorized user i.e. a person to whom Deere & Co. provides user ID and password; and representation in this regard had to be made by Deere & Co. to Dakota Software Corporation. In clause (2) itself it is provided that Deere & Co. was responsi....
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....formation and copies thereof. On the other hand, as per clause 4.3, Deere & Co. shall retain all right, title and interest in the Client Content. It is specifically agreed that Deere & Co. understood that some Client Content may be translated into certain formats to be processed by the software. So, Dakota Software Corporation granted a non-exclusive, non-transferrable, royalty-free right and license to store, create derivative works from and otherwise process Client Content as required in the performance of Dakota Software Corporation. In case of any unauthorized use or access to the software, it was incumbent upon Deere & Co. to notify Dakota Software Corporation immediately and to cooperate in any litigation proceedings, etc. to protect the rights of Dakota Software Corporation. Thereafter, other terms of said agreement and terms of warranty and limitation, assignments, dispute resolution and miscellaneous provisions are provided. 61. Exhibit-A to the said agreement is Dakota End User License. Under the said agreement, it is provided that End User License was legal agreement between Deere & Co. and Dakota Software Corporation granting certain rights to access and use....
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....ation and any copies thereof. 62. Now, coming to the second agreement which has been referred to by both the learned authorized representatives, which is placed at pages 14 to 17 of Paper Book, which is between Altair Engineering, Inc. and Deere & Co. Under the said agreement also, Altair Engineering, Inc. grants and licensee accepts a limited, non exclusive, non-transferrable license to install the products on the License (Network) Server(s) for use. It is further provided that same would be used solely by the employees of licensee or its permitted users who agreed to the terms of agreement. It was understood that the users would make backup copies of products, provided that Altair's Proprietary Rights notices were reproduced on each such backup copy. It is also provided that licensee would freely modify and use Templates, and create interfaces to Licensee's proprietary software for internal use only. However, such modification shall not be subject to Altair's warranties, indemnities, support or other obligations, etc. It is further agreed that licensee shall indemnify, defend and hold harmless Altair for the actions of its permitted users. As per clause (3), there are re....
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....ded in section 9(1)(vi) of the Act or Article 12 of the DTAA. Article 12 of DTAA with USA stipulates and defines what is royalty and fees for technical services. The term 'royalty' as per clause 3 of Article 12 means payment of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including gains derived from the alienation of any such right or property which are contingent on the productivity, use of deposition thereof. The term 'royalty' has been defined by clause 3 of Article 12 as payment received for the use of, or the right to use any copyright. Section 9(1)(vi) of the Act defines 'royalty' and we have already reproduced relevant portion of the said section in the paras hereinabove. The authorities below were of the view that because of insertion of Explanation 5 to section 9(1)(vi) of the Act with retrospective effect from 01.06.1976, where the meaning of term 'royalty' has been extended to include use of copyright or copyrighted article is to be applied and on such application, the assessee was held to be in default. The case of learned Departmental Representative for the Revenue is that even under....
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....ration for software was royalty came up for consideration before the Special Bench of the Tribunal in Delhi in the case of MOTOROLA INC VS DEPUTY CIT (2005) 147 TAXMAN 39 (DELHI). The Tribunal has held as under: 155. It appears to us from a close examination of the manner in which the case has proceeded before the Income-tax authorities and the arguments addressed before us that the crux of the issue is whether the payment is for a copyright or for a copyrighted article. If it is for copyright, it should be classified as royalty both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the Assessee on that basis. If the payment is really for a copyrighted article, then it only represents the purchase price of the article and, therefore, cannot be considered as royalty either under the Act or under the DTAA. This issue really is the key to the entire controversy and we may now proceed to address this issue. 156. We must look into the meaning of the word "copyright" as given in the Copyright Act, 1957. Section 14 of this Act defines "Copyright" as "the exclusive right subject to the provisions of this Act, to do or authorize the doing ....
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....xclusive right granted to the holder thereof. This condition is not satisfied in the case of JTM because the license granted to it by the Assessee is expressly stated in Clause 20.1 as a "non exclusive restricted license". This means that the supplier of the software, namely, the Assessee, can supply similar software to any number of cellular operators to which JTM can have no objection and further all the cellular operators can use the software only for the purpose of their own operation and maintenance of the system and not for any other purpose. The user of the software by the cellular operators in the public domain is totally prohibited, which is evident from the use of the words in Article 20.1 of the agreement, "restricted" and "not otherwise". Thus JTM has a very limited right so far as the use of software is concerned. It needs no repetition to clarify that JTM has not been given any of the seven rights mentioned in Clause (a) of Section 14 or the additional right mentioned in Sub-clause (ii) of Clause (b) of the section which relates to a computer programme and, therefore, what JTM or any other cellular operator has acquired under the agreement is not a copyright but is on....
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....ose for which it was supplied or to make backup copies purely as a temporary protection against loss, destruction or damage. Therefore, merely because the cellular operator has been permitted to take copies just for backup purposes, it cannot be said that it has acquired a copyright in the software. 160. Clause 20.4(c) makes it mandatory for the cellular operator, while making copies of the software for backup purposes, to also mark the copied software with copyright or other marking to show that the rights of the Assessee are reserved. This is one more indication that what the cellular operator acquired is not a copyright. 161. Clause 20.4(d) says that the cellular operator cannot use the software for any other purpose than what is permitted and shall not also license or sell or in any manner alienate or part with its possession. This has to be read with Clause 20.5 which says that the license can be transferred, but only when the GSM system itself is sold by the cellular operator to a third party. This in a way shows that the software is actually part of the hardware and it has no use or value independent of it. This restriction placed on the cellular operator (....
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....r the copyright therein. The transfer of the ownership of a physical thing in which copyright exists gives to the purchaser the right to do with it (the physical thing) whatever he pleases, except the right to make copies and issue them to the public" (underline is ours). The above observations of the author show that one cannot have the copyright right without the copyrighted article but at the same time just because one has the copyrighted article, it does not follow that one has also the copyright in it. Mr. Sharma's objection cannot be accepted. 164. It is not necessary, therefore, to consider the alternative argument of Mr. Dastur, namely, that even assuming that the Department is right in saying that if you have the copyrighted article, you also have the copyright right therein, still it would mean that the copyright rights are transferred (acquired by JTM) and it would not be a case of merely giving the right to use and consequently Article 13 of the DTAA would not apply. Mr. Dastur, however, was fair enough to concede that if the Department is right in saying that if you have the copyrighted article, you also have the copyrighted rights, then Clause (v....
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.... as commercial income in accordance with Article 7." 166. We may also usefully refer to the proposed amendments to the regulations of the Internal Revenue Service (IRS) in the USA. Again these regulations may not be binding on us but they have a persuasive value and throw light on the question before us, namely the difference between a copyright right an d a copyrighted article. These regulations have been placed at pages 136 to 157 of Paper book No. II. The actual regulations as well as the explanatory Note explaining the object and the purpose of the proposed regulations have also been given. In paragraph 1 of the Note titled "Background", it has been stated that the proposed regulations require that a transaction involving a computer programme may be treated as being one of the four possible categories. Two such categories are the transfer of copyright rights and the transfer of a copyrighted article. The U.S. regulations distinguished between transfer of copyright rights and transfer of copyrighted articles based on the type of rights transferred to the transferee. Briefly stated, if the transferee acquires a copy of a computer programme but does not ....
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.... No. II. The Commentary is titled "Beneficial ownership of royalties in Bilateral Tax Treaties." He has opined that articles such as Books and Records are copyrighted articles and if they are sold, the user does not obtain the right to use any significant rights in the underlying copyright itself, which is what should determine the characterization of the revenue as sale proceeds rather than royalties. He has further opined that consideration relating to sale of software can amount to royalty only in limited circumstances. 172. For the above reasons, we are of the view that the payment by the cellular operator is not for any copyright in the software but is only for the software as such as a copy righted article. It follows that the payment cannot be considered as royalty within the meaning of Explanation 2 below Section 9(1) of the Income-tax Act or Article Article of the DTAA with Sweden. -------- 184. In view of the foregoing discussion, we hold that the software supplied was a copyrighted article and not a copyright right, and the payment received by the Assessee in respect of the software cannot be considered as royalty either under the Income-tax Ac....
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....ifferent terms of Licensing Software Agreement, the Hon'ble High Court observed as under:- "85. The Licensing Agreement shows that the license is non-exclusive, nontransferable 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 the Infrasoft Licence Schedule. Without the consent of the Assessee the software cannot be loaned, rented, sold, sublicensed or transferred to any third party or used by any parent, subsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the S....
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....nsideration 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 of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of....
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....rovision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DIT v. M/s Nokia Networks OY (Supra) as not amounting to acquiring a copyright in the software." 73. Further, both the learned Authorized Representatives had relied on the decision of the Hon'ble High Court of Delhi in Pr.CIT Vs. M.Tech India (P) Ltd. (supra). The question which was raised before the Hon'ble High Court was whether where the assessee acquires right to use software, the payments so made would amount to 'royalty'. The learned Departmental Representative for the Revenue had pointed out that the Hon'ble High Court had held that where the assessee acquires right to use software, the payments so made would amount to 'royalty'; but the learned Authorized Representative for the assessee has strongly pointed out that para 12 of the said decision has to be read in whole, which reads as under:- "12. In the cases where an Assessee acquires the right to use a software, the payment so made would amount to royalty. However in cases where the payments are made....
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....he Revenue i.e. on the decision of the Hon'ble High Court of Karnataka in CIT Vs. Synopsis International Old Ltd. (supra). The said decision is dated 03.08.2010 and the Hon'ble High Court had held that in case exclusive or non-exclusive license and even where there is transfer of certain rights, then it was case of royalty being paid and was thus, within mischief of Explanation 2 to section 9(1)(vi) of the Act and there was liability to pay tax. 76. The proposition laid down by the Hon'ble High Court of Delhi in DIT Vs. Infrasoft (supra) as pointed out is with regard to the definition of 'royalty' on the basis of Explanation 2 to section 9(1)(vi) of the Act, which talks of transfer of some rights including the granting of license in respect of copyright and the Hon'ble High Court has settled the issue in favour of assessee. The said decision is dated 26.11.2013 and has decided the issue. 77. Here, reference may also be made to earlier decision of the Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. (supra). Relying on the ratio laid down by the Hon'ble Supreme Court in Tata Consultancy Services Vs. State of Andhra Pradesh (2004) 271 ITR 401 (SC), the Hon'ble High Cour....
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....eived by the assessee was towards the title and GSM system of which software was an inseparable parts incapable of independent use and it was a contract for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty." 78. The Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra) has taken note of the said decision of DIT Vs. Ericsson A.B. (supra) in para 71 and in para 72 held as under:- "72. The Delhi High Court further in ERICSSON CASE (SUPRA) further held that once it is held that payment in question is not royalty which would come within the mischief of clause (vi), the Explanation will have no application and that the question of applicability of the Explanation would arise only when payment is to be treated as "royalty" within the meaning of clause (vi) or "fee for technical services" as provided in clause (vii) of the Act." 79. Further, the learned Departmental Representative for the Revenue before us has stressed that the issue stands covered by the decision of Authority for Advance Rulings (Income Tax), New Delhi in the case of SkillSoft Ireland Ltd., In re_* (supra) and had strongly pointed out that the....
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....DIT Vs. Infrasoft Ltd. (supra). 83. Before AAR in the case of EY Global Services Ltd. (supra), though the reliance was placed in the case of Allianz SE (supra) and judgment of the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra), but the AAR has not dealt with said ratio laid down and has decided the issue otherwise. In such scenario, submissions of learned Departmental Representative for the Revenue that the facts in the case of EY Global Services Ltd. (supra) were similar would not stand since AAR has failed to consider the settled decision as laid down by the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra). It may be put on record that the issue has been decided by the Pune Bench of Tribunal in the case of Allianz SE (supra), in turn, relying on the ratio laid down in DIT Vs. Ericsson A.B. (supra) and the said ratio is squarely applicable to the facts of the present case. Similarly, reliance placed upon by the learned Departmental Representative for the Revenue on Gracemac Corporation Vs. ADIT (supra), which is Tribunal's decision of Delhi Bench is misplaced, since the Hon'ble High Court of Delhi in DIT Vs. Infrasoft Ltd. (supra), in later decision ....
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....rm 'literary work' and observed that it includes computer programmes, tables and compilations including computer data base. It further held that therefore, the computer software has been recognized as literary work in India, if they are original intellectual creations. Then, reference was made to section 14 of the Copyright Act, which explained the meaning of copyright and it was observed as under:- "19. What is the right that was given to the Appellate by NPL under the agreement dated 15.12.2008 and whether the said right can be said to right to use copyright in computer software. Section 14 of the Copyright Act, 1957 explains the meaning of ―Copyright" as under: "14. Meaning of copyright - For the purposes of this Act, 'copyright' means the exclusive right subject to the provisions of this Act, to do or authorize the doing of ay of the following acts in respect of a work or any substantial part thereof, namely: (a) in the case of a literary, dramatic or musical work, not being a computer programme, - (i) to reproduce the work in any material from including the storing of it in any medium by electronic means; (ii) to issue copies ....
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....right Act, then the ―computer software" will have to be included in the term ―literary work" but to constitute ―royalty" under the DTAA, the consideration should have been paid for the use of or the right to use the copyright in the ―literary work" and not the right to use ―literary work" itself." 86. Now, coming to another issue of grant of exclusive or non-exclusive rights, wherein the case of Revenue was that even if non-exclusive rights were given, then it is to be considered as payment for 'royalty'. We find that Mumbai Bench of Tribunal in ADIT (IT) Vs. TII Team Telecom International (P) Ltd. (supra) had pointed out that by grant of non-exclusive license, no exclusive rights over the product were given to the assessee and held as under:- "17. It is not even Revenue's case that any of these rights have been transferred by the assessee, on the facts of this case, and, for this reason, the payment for software cannot be treated as payment for use of copyright in the software. As we hold so, we may mention that in the case of Gracemac (supra), a contrary view has been taken but that conclusion is arrived at in the light of the provisions ....
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.... 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 signal, and, therefore, payment for use of transponder is in fact a payment for process liable to be treated as 'royalty' within meaning of that expression under Expln. 2 to s. 9(1)(vi) of the IT Act. However, when this decision came up for scrutiny of Hon'ble Delhi High Court, in the case reported as Asia Satellite Telecommunications Co. Ltd. vs. Director of IT (2011) 238 CTR (Del) 233 : (2011) 51 DTR (Del) 1 : (2011) 332 ITR 340 (Del), their Lordships,....
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.... interpreted with reference to the accompanying words. Words derive colour from the surrounding words." 87. Now, we have to look into the effect of insertion of Explanation 5 to the definition of 'royalty' under section 9(1)(vi) of the Act by Finance Act, 2012 with retrospective effect from 01.06.1976. In such scenario, the question which needs adjudication is whether the definition of 'royalty' as provided under the Income Tax Act is to be taken or that which has been provided in DTAA between India and USA. As far as definition of 'royalty' as provided under Explanation 2 to section 9(1)(vi) of the Act is concerned, we have already adjudicated the issue in the paras hereinabove and referred to various judicial propositions on the point. Applying the ratio laid down primarily by the Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. New Delhi (supra), DIT Vs. Infrasoft Ltd. (supra) and Pr.CIT Vs. M. Tech India (P.) Ltd. (supra), we hold that payment made by the assessee for purchase of software is for purchase of copyrighted article and is not for the purchase of copyright in the said article and hence, provisions of section 9(1)(vi) of the Act are not attracted. 88. The Ho....
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....satellite operator and the customers were only given access to transponder capacity and hence, the payment could not be termed as royalty for the use of a process or equipment. The said decision was in the context of section 9(1)(vi) of the Act and the provisions of DTAA were not considered therein. The Hon'ble High Court in the case of New Skies then took note of the amendment by the Finance Act, 2012, which inserted Explanations 4, 5 and 6 under section 9(1)(vi) of the Act. The Revenue before the Hon'ble High Court claimed that the said Explanations were clarificatory and it had settled the matter i.e. reasoning in Asia Satellite Telecommunications Co. Ltd. Vs. DIT (supra) could not stand because the basis of that ruling had been undone. The second proposition which was raised was whether DTAA applied and resulted rendering activity non taxable was also argued by the Revenue would not arise, since the DTAA predated the amendment. The Counsel for the assessee therein however, contended that the matter was no longer res integra. It was argued that the Revenue could not contend that any change in the substantive law would automatically result any like change in respect of taxability....
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...."41. This court is of the view that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument effected between two sovereign states prior to such amendment. In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, it is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this court, indefensible." 18. Referring to the decision of Apex Court in Union of India Vs. Azadi Bachao Andolan & Arn. (2003) 263 ITR 706 (SC) and The Vienna Convention on the Law of Treaties, 1969, the Hon'ble High Court held the amendments to a treaty must be brought about by an agre....
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.... "24. The next aspect of the issue raised before us is whether where transactions between the assessee and Non-resident was governed by DTAA between the two countries and where there was no amendment to the definition of 'royalty' in the said DTAA, then can the assessee be held to be in default for not withholding tax out of payments made to the Non-resident entities. Before the Assessing Officer, the assessee had made elaborate submissions in this regard. The Assessing Officer vide para 5.1 has observed that Non-resident licensor i.e. suppliers of software were taxed residents of USA, Greece and Singapore. He further observed that definition of 'royalty' was common in DTAA with these countries. The Assessing Officer also held that literary or scientific work has referred to in the definition of 'royalty' under DTAA, obviously includes software and he further observed that there was no requirement of transfer of copyright for treating the payment as 'royalty' under DTAA. The Assessing Officer further observed that the payment received for supply of software was taxable as 'royalty' and in turn, relied on different decisions including the decision of the Hon'ble High Court of K....
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.... source within the meaning of DTAA with USA read with provisions of the Income-tax Act. 17. The Hon'ble High Court of Delhi in DIT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (2016) 382 ITR 114 (Del) has elaborated on the general principles relating to international transactions of DTAA vis-à-vis royalty and also the amendment in the Income-tax Act widening the scope of royalty. In the facts before the Hon'ble High Court, the assessee was a company incorporated in Thailand, which was engaged in the business of providing digital broadcasting services as well as consultancy services to its customers, who consist of both Residents and Non-residents. The services were provided through satellites and the assessee had derived income from lease of transponders of its satellites. The assessee therein was the service provider and the receipts were sought to be taxed under section 9(1)(vi) of the Act. The Hon'ble High Court considered the pre-amended and post-amended provisions of the said section and observed that though the Revenue authorities considered the income from data transmission services as taxable as royalty under section 9(1)(vi) of....
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....he Act vis-à-vis DTAA. The Hon'ble High Court had rejected that any amendment could change the situation and render the service or activity taxable. The Hon'ble High Court thereafter took note of various decisions on the issue including that of Hon'ble High Court of Madras in Verizon Communications Singapore Pte. Ltd. Vs. ITO (supra) and disclined to conclusively determine or record a finding as to whether amendment to section 9(1)(vi) of the Act indeed was clarificatory as the Revenue suggested or prospective, give what its nature may truly be. The Hon'ble High Court further commented that the issue of taxability of income of assessee may be resolved without redressal of above question purely because the assessee did not press the said line of argument and had instead stated that ultimate taxability of income shall rest on the interpretation of terms of DTAA. The Hon'ble High Court vide para 39 onwards then took note of Article 12 of the DTAA, under which the State of Residence had the primary right to tax royalty; the Source State shall concurrently have the right to tax the income, to the extent of 15% of total income. The Hon'ble High Court also observed that be....
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....ght about in the agreement as well and hence, the amendments were not applicable to DTAA. The finding of the Hon'ble High Court was thus, as under:- "60. Consequently, since we have held that the Finance Act, 2012 will not affect article 12 of the double taxation avoidance agreement, it would follow that the first determinative interpretation given to the word "royalty" in Asia Satellite, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a double taxation avoidance agreement, unless the said double taxation avoidance agreement are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no double taxation avoidance agreement." 19. The above judgment was de....
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....oyalty' under the Act stands amended but the assessee was not liable to withhold tax on the payments made to Non-resident entities on account of purchase of software. We have already in paras above decided the applicability of provision brought in 2012, with retrospective effect, being not applicable to instant assessment year. 28. We are not going into different decisions of the Tribunal on this aspect, in view of the ratio laid down by the Hon'ble High Court of Delhi in DIT Vs. New Skies Satellite BV (supra), which though is not jurisdictional High Court but the issue decided in the said appeal is similar to the issue raised before us in the present appeal. We may also point out that the Hon'ble High Court of Delhi had also taken note of the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (supra), which in turn, has applied the ratio of the Hon'ble Supreme Court of Canada in R Vs. Melford Developments Inc., 82 DTC 6281 (1982) and observed as under:- "The ratio of the judgment, in our opinion, would mean that by a unilateral amendment it is not possible for one nation which is party to an agreement to tax income which ot....
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....A, where the term 'royalty' had been defined originally and not amended. As per the definition of 'royalty' under the DTAA, purchase of software does not fall in realm of 'royalty'. Accordingly, there was no liability on the assessee to withhold tax and the assessee cannot be held to be in default. The demand created under section 201(1) and interest under section 201(1A) of the Act is thus, cancelled. The grounds of appeal No.1 to 6 are thus, partly allowed." 90. In conclusion, we hold that purchase of software by the assessee being copyrighted article is not covered by the term 'royalty' under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) of the Act. We further hold that amended definition of 'royalty' under the domestic law cannot be extended to the definition of 'royalty' under DTAA, where the term 'royalty' originally defined has not been amended. As per definition of 'royalty' under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in real....
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....services rendered by Non-resident company to its Indian group company were held to be not covered under para 3(g) of Article 12 of India-Australia Treaty and hence, was not taxable in India. The Tribunal had clearly elaborated upon the term 'make available' and held as under:- "13. We are concerned with para No.3 of Article 12, which defines the term Royalty. Under the IT Act, the term royalty and expression FTS are classified as two different connotations, i.e. 9(1)(vi) and 9(1)(vii). So far as Article 12 is concerned, FTS is included in the term ―royalty" for the purpose of deciding in which contracting state the income from the same is to be taxed. Clause (g) in Article 12(3) goes to the roots of the issue. Main thrust of the argument of the Ld. Counsel is that it is not only sufficient to render the services but the same should be made available to the recipient and this particular important aspect is missed by the DRP/TPO. We find that the expression ―making available" is very much important to decide in which contracting state the amount received for rendering the services relating to the technical know-how is to be taxed. The expression ―make avail....
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....on and there is no basis for such reliance. Accordingly, grounds of appeal No.1 to 3 are allowed in favour of assessee. 95. The next issue raised vide grounds of appeal No.4 and 5 is against payment on account of lease line charges and non deduction of tax at source. The perusal of assessment order in para 16 reflects the deliberations of taxability of payment for lease line charges. In first paragraph, the Assessing Officer points out that receipts on account of lease line could be termed as for use of various industrial, commercial or scientific equipment used for WAN, data connectivity, internet services. He thus, points out that it is 'royalty' as per Explanation 2 (iva) under section 9(1)(vi) of the Act. Further, vide para 6.2, the Assessing Officer talks about payment being for transmission of data by cable/optic fibre i.e. payment for process as defined in Explanation 6 to section 9(1)(vi) [though mentioned by Assessing Officer as 9(1)(vii)] of the Act and hence, also 'royalty' for the use or right to use process. Then, he goes on to refer to the contention of assessee that expenses charged by Deere & Co. were in the nature of reimbursement and such reimbursement of expen....
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.... not amended, then the assessee was not liable to withhold tax on payments made to its associated enterprises on account of lease line charges and in turn, relying on the decision of Hon'ble Bombay High Court in the Hon'ble High Court in DIT Vs. WNS UK Ltd. (2013) 214 taxman 317 (Bom), held as under:- "21. In the present case also, though definition of 'Royalty' under the Act had been amended, but the term 'Royalty' under the DTAA between India and USA is not amended. In the absence of the same, we hold that in view of the definition of 'royalty' under DTAA, the assessee is not liable to withhold tax on the payments made to its associated enterprise on account of lease line charges. We are not going into different decisions of the Tribunal on this aspect, in view of the ratio laid down by the Hon'ble High Court of Delhi, which though is not jurisdictional High Court but the issue raised in the said appeal is similar to the issue raised before us in the present appeal. We may also point out that the Hon'ble High Court of Delhi had also taken note of the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (supra), which in turn, has applied....
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....applied in view of the issue being settled by the Hon'ble High Court of Delhi. 23. The assessee on the other hand, has relied on the decision in WNS North America Inc. Vs. ADIT (supra) i.e. decision of Mumbai Bench of Tribunal, which has been approved by the Hon'ble High Court in DIT Vs. WNS UK Ltd. (2013) 214 taxman 317 (Bom). The issue before the Hon'ble High Court of Delhi was in the hands of recipient of lease line charges. The assessee therein had recovered internal telecommunication charges from WNS charges and the Tribunal held the amount in question was received by the said assessee as reimbursement of lease line charges and would not qualify either as 'royalty' or as income attributable to PE in India and hence, it was held that there was no income earned by the assessee. The question before the Hon'ble High Court was whether the amount received on account of reimbursement of lease line charges would qualify as 'royalty' under Article 12 of India - UK Treaty and the second question was in respect of charges being attributable to PE in India. The Hon'ble High Court vide para 5 had noted the decision of Tribunal but had held that since the decision of Tribu....
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....ent, there is no liability to deduct tax at source. Hence, the assessee cannot be held to be in default. 26. The Assessing Officer had also raised the issue of payment being in the nature of fees for technical services. However, in the final analysis disallowance has been made in the hands of assessee for non deduction of tax at source on the payments being made in the nature of royalty i.e. amended provisions of the Income-tax Act. We have already decided the said issue in the paras hereinabove and accordingly, we hold that there is no merit in invoking the provisions of section 40(a)(i) of the Act for non withholding of tax on the amount of charges paid for reimbursing associated enterprise for lease line charges." 100. As far as case of equipment royalty is concerned, the issue stands covered against the assessee by the decision of the Hon'ble High Court of Delhi in Asia Satellite Telecommunications Co. Ltd. vs. Director of IT (2011) 332 ITR 340 (Del), wherein the case of Revenue was that Non-resident was providing equipment for use of Transponder facility of Satellite to television companies outside India. However, the Hon'ble High Court held that there was no le....
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....rom grounds of appeal No.6 to 12 is that the payments made by assessee were fees for technical services and hence, it was the obligation of assessee to deduct tax at source. It may be pointed out herein itself that the fees for technical would arose in cases where the technical services are provided by provider to the recipient. In the absence of providing any technical services, it cannot be held to be case of fees for technical services and the assessee is not liable to deduct tax at source. 104. Now, first coming to training fees paid by the assessee, wherein various modules were available on web and training could be obtained by the personnel of assessee on web itself. It was not case of interactive session and it was akin to reading an article or book and even if the person availing services had a query, there was no facility to answer the same on web. The question which arises in such circumstances, is whether there was any liability to deduct tax at source. 105. In this regard, we find support from the ratio laid down by the Ahmedabad Bench of Tribunal in ITO Vs. Veeda Clinical Research (P) Ltd. (supra), wherein identical issue arose before the Tribunal and it was held....
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....ome Tax Act", that ―the AO has finally held that the service provider has provided or made accessible the services of its technical knowledge and experience to the assessee company and, therefore, the payment was covered by the definition of 'fess for technical services' as per Article 13 of tax treaty between India and United Kingdom", and that, therefore, ―the aforesaid payments were held taxable by virtue of both the provisions of the Income Tax Act and (the applicable) tax treaty...........". These submissions overlook the fundamental position that the provisions of the Income Tax Act apply in a treaty situation only to the extent they are more favourable, vis-à-vis the provisions of tax treaties, to the assessee. Accordingly, when case of the revenue authorities fails on the tests of the treaty provisions, there is no occasion at all for their leaning upon the provisions of the Income Tax Act. The case of the revenue authorities, as discussed above, does not succeed on the provisions of the tax treaty as there is nothing to establish, or even indicate, that there is any transfer of technology in the present case. In view of these discussions as also bearing ....
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....nd this agreement was entered into between the parties in the year under consideration. 108. The learned Authorized Representative for the assessee has relied on the ratio laid down by the Hon'ble Bombay High Court in DIT Vs. M/s. Marks & Spencer Reliance India Pvt. Ltd. in Income Tax Appeal No.893 of 2014, judgment dated 03.05.2017, wherein in similar case of reimbursement of salary, the Hon'ble High Court has held that where the payment to employees was already subject to tax in India, therefore there was no question of treating assessee in default for non deduction of tax at source. In the facts of said case, there was agreement drawn up for providing assistance between the two companies and the Tribunal had given a finding that there was no rendering of services within meaning of DTAA and it was clear case of deputing the officials / employees for promotion of business of assessee. The Hon'ble High Court took note of the fact that the assessee in India had already deducted tax at source out of payments made to employees and held that there was no default for non deduction of tax at source. In the present set of facts before us also, the assessee had deducted tax at source ou....