TaxTMI 
TaxTMI 
2019 (2) TMI 1656
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....sidiaries. QTI is engaged in the business of design, development and marketing of digital wireless telecommunications products and services based on Code Division Multiple Access ('CDMA'), Orthogonal Frequency Division Multiple Access ('OFDMA') and other technologies. It filed its return of income on 30th September, 2014 declaring nil income and claiming a refund of Rs. 27,57,260/-. The Assessing Officer, during the course of assessment proceedings, observed that the assessee has provided services and received revenues from the following customers:- S. No. Customer Nature of Services Amount Received 01 Sistema Shyam Teleservices Ltd. BREW 1,79,27,054/- 02. Tata Teleservices Limited BREW 1,76,74,580/- 03. Tata Teleservices(Maharashtra) Ltd. BREW 49,23,473/- TOTAL 4,05,25,107/- 04. Sohamsaa Systems Private Limited Software License fee - Royalty 14,43,952/- 05 Real Image Media Technologies Pvt. Ltd. Software License fee - Royalty 55,61,980/- 06. AllGo Embedded Systems Pvt. Ltd. Software License fee - Royalty 6,11,000/- 07 Smartplay Technologies(India) Pvt. Ltd. ....
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....up. The assessee filed detailed reply. However, the Assessing Officer was not satisfied with the explanation given by the assessee. The Assessing Officer followed the reasoning given in the earlier years' orders in the case of M/s Qualcomm, which were confirmed by the CIT(A) and DRP, for the current year also and brought to tax an amount of Rs. 4,05,25,107/- being royalty from Tata Teleservices Limited, Systema and Tata Teleservices (Maharashtra) Limited under BREW agreement taxable @ 10.56% as per IT Act 1961 and Rs. 69,43,355/- being Royalty from M/s Alcatel Lucent Technologies India Pvt. Ltd., Aricent Technologies, TTSL, Tech Mahindra and Wipro Limited as test tools taxable @ 10.56%. The observations of the Assessing Officer at para 10 of the assessment order is relevant which is being reproduced as under:- (a) "The payment received by the assessee under the BREW Operator Software agreements qualifies as royalty as per Indian Income Tax Act as well as India- US DTAA. The reasons have been mentioned in detail in the assessment orders for AY 2008-09 and 2011-12. (b) The income of the assessee from licensing of BREW software Indian operators is t....
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....s of the case, the Learned Commissioner of Income Tax (Appeals), 23, Delhi ('Ld. CIT (A)') Ground No. 1 - Revenue received by the Appellant under the BREW agreements is towards sale of a copyrighted article and not for light to use copyright 1. Erred in upholding the application of provisions of section 9(l)(vi)(b) of the Income-tax Act, 1961 (the 'Act') and Article 12 of lndia-US tax treaty (Tax treaty') for taxing the income of the Appellant earned towards sale of copyrighted article i.e. BREW software to telecom operators in India. 2. Erred in principle in holding that the sale of a copyrighted article shall be governed by the Sale of Goods Act, 1930 and the Indian Customs Act in case of import of an article and considering the transaction under BREW Operator agreement is not subject to Indian Customs Act, the sale of BREW software is not a copyrighted article. 3. Erred in comparing the transaction of sale of BREW software by QTI with grant of right by an author to a publisher for printing and making of copies, without appreciating the fact that there is no grant of right to use copyright by QTI to the ....
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....e appeal." 6. The ld. counsel for the assessee, at the outset, did not press ground of appeal No.3 for which the ld. DR has no objection. Accordingly, ground No.3 is dismissed as not pressed. Ground No.4 being premature at this juncture is not being adjudicated and is being dismissed. 7. So far as Ground No.1 and 2 are concerned, the ld. counsel for the assessee, referring to the order of the Tribunal for assessment year 2005-06 to 2008-09 vide ITA No.3701 & 3702/Del/2009, 5343/Del/2010 and 4608/Del/2011, order dated 20th February, 2015, submitted that the Tribunal in the consolidated order has held that royalty from Brew Operators Agreement is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) of the Act as well as Article 12 of the Indo-US Treaty. He submitted that following the above decision the Tribunal, again, in assessee's own case in ITA Nos.5353/Del/2012, 1241/Del/2014, 7064/Del/2014 & 189/Del/2016 from assessment year 2009-10 to 2012-13 vide consolidated order dated 16th April, 2018 has followed the same and held that royalty from BREW Operators Agreement is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) ....
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....cture Limited results in sale of 'Copyrighted Article' and not licensing of a 'Copyright'. 103.So far as this grievance of the assessee is concerned, only a few facts are required to be taken note of. During the course of the assessment proceedings, the Assessing Officer noted that the assessee has invoiced an amount of Rs. 2,52,70.569 to Tata Teleservices Limited under BREW (Binary Runtime Environment forWireless) agreement. It was noted that it is an application development platform, developed by Qualcomm, for mobile phones that enables users to download and run applications for playing games, sending messages and sharing photos etc. It was also noted that this platform runs between the application and wireless device's chip operating system so that programmers can develop applications for wireless device without the code for system interface or understanding operating systems. It was also noted that end users of BREW customers are the carriers who pay an enablement fees based on device sales or a revenue share for application software that are downloaded. On these facts, the Assessing Officer proceeded to bring the same to tax by observing as ....
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....untry, if the software owned by the assessee is used without licenses, it becomes infringement of the copyright. Therefore arguments of the assessee regarding applicability of OECD commentary fail on this count as well. 104.The assessee did raise a grievance before the DRP but without any success. The assessee is not satisfied and is in appeal before us. 105.We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 106. We find that the payment in question is admittedly the payment is for a software which is for a copyrighted article and not the copyright itself. There is nothing on record to suggest that the payment is for the copyright itself. In this view of the matter, the issue is clearly covered, in favour of the assessee, by Hon'ble Delhi High Court's judgment in the case of DIT v.Infrasoft Ltd. [2014] 220 Taxman 273/[2013] 39 taxmann.com 88wherein Their Lordships have, inter alia, observed as follows: '85. The Licensing Agreement shows that the license is nonexclusive, non-transferable and the software has....
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.... for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the Software without Infrasoft's written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a pr....
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.... them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a ....
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....n their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 95. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof f or the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97.What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Andhra Pradesh High Court in ....