TaxTMI 
TaxTMI 
2019 (7) TMI 291
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....#39;) for taxing the income of the Appellant earned towards sale of copyrighted article i.e. BREW 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 telecom operators. Whereas in the case of a publisher, the right to use copyright is granted by the author for printing and making copies in exchange of royalty. 4. Grossly erred in concluding that QTI grants a right to use copyright to the telecom operators under the BREW Operator agreement and by disregarding the fact that the telecom operators are not permitted to make copies under the BREW agreement except for the purposes of back-up and archival. 5. Erred....
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....on is now part of QTI. As a part of this transfer, QIS sent notice of assignment letters to its BREW customers, including Sistema Shyam Teleservices Limited and TATA Tele Services Limited. As a result of this assignment, we confirm, for the period of October 01, 2012 to March 31, 2013 (the applicable part for A.Y 2013-14) that: * The BREW agreement is being operated with the telecom operators (e.g, Sistema Shyam Teleservices Limited and Tata Teleservices Limited) under the same terms and conditions as were existent with Qualcomm. * Ail risks, rewards, rights and obligation under the BREW agreements are vested with QTI on the same terms and conditions as were existent with Qualcomm. " 4. The assessee company further explained that it does not constitute the permanent Establishment (PE) as per article 5(1) and 5(2) of the tax treaty between India and USA. 5. Functions of the assessee (QTI): i. QTI grants licenses to manufacturers of wireless products for the right to Use portions of QTS's intellectual property portfolio, which includes certain software rights essential to and/or useful in the manufacture and sale of certain wireless products. ....
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....dance Agreement ('treaty') and hence the same is not liable to tax in India 5. The Assessing Officer during the course of assessment proceedings asked the assessee to explain as : a) Why the revenue received from Sistema Shyam ('Sistema Shyam') should not be taxed in India? b) Why the revenue received from M/s Tata Teleservices Limited ('Tata') under the BREW Operator Agreement ('BREW Agreement') should not be taxed in India? c) Why the revenue received from Virgin Mobiles India Pvt. Ltd. (Virgin Mobile) under the BREW license of BREW software (BREW Agreement) should not be taxed in India. d) Why the assessment may not be completed on the basis of assessment for A Y 2012-13 in case of Qualcomm incorporated as the assessee company is providing the services on the basis of same agreement after reorganization of the group. 6. Rejecting the various explanation given by the assessee the Assessing Officer held that the income of the assessee from licensing of BREW software to Tata Teleservices, Sistems Shyam and Virgin Mobile India Pvt. Ltd. is taxable under section 9 (1) (vi) of the I. T. Act and under article 12 of Indo - US-DTAA. The Assessing....
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.... The relevant observations of the tribunal from para 46 onwards read as under:- "46. Now we come to ground No. 3 of the appeal of the assessee with respect to revenue received by appellant under BREW operator agreement and BREW carrier agreement what is taxed as ıRoyalty' income in India u/s 9(1)(vi)(c) of the Act and article 12 of the India- US Treaty. This issue has been dealt with extensively by the coordinate bench in second order for Assessment Year 2005-6 to 2008-09 dated 20thFebruary 2015 in paragraph No. 102 to 108 as under:- "102.That takes us to ground no. 4, as raised by the assessee, against holding that the revenues received by the Appellant under the BREW Operator Agreement and BREW Carrier Agreement is taxable as royalty income in India under section 9(1)(vi) of the Act and Article 12 of the India-USA tax treaty. The assessee contends that in doing so, the AO has failed to appreciate that the provision of BREW software to Tata and Tata Teleservices (Maharashtra) Limited and Reliance Communications Infrastructure Limited results in sale of 'Copyrighted Article' and not licensing of a 'Copyright'. 103.So far as this griev....
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....d out transfer, whereas in license there is only right to use. Some of these decision are at 69 ITR 692 (SC), 236 ITR 314 (ASC), 811 ITR 243, 671 ITR227. Thus this reasoning of the assessee has no legal or factual basis. In this case, the user only has a right and gets a license to use the software. Even in the OECD commentary it is mentioned that the character of payments received in transactions involving the transfer of computer software depends upon the nature of rights that the transferee acquires under the particular arrangement, regarding the use and exploitation of the program. The rights in computer programme are in the form of intellectual property. It has further mentioned "payments made for the acquisition of partial right inthe copyright (without the transferor fully alienating the copyrights) will represent a royalty, where the consideration is for granting of rights to use the program in a manner, that would without such licenses constitute the infringement of copyrights."Under the laws of the country, if the software owned by the assessee is used without licenses, it becomes infringement of the copyright. Therefore arguments of the assessee regardi....
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....sed to Infrasoft. 86. The Licensing Agreement shows that the license is non-exclusive, non-transferable and the software has to be uses in accordance with the agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and associated support information and that also for backup purposes. It is also stipulated that the copy so made shall include Infrasoft's copyright and other proprietary notices. All copies of the Software are the exclusive property of Infrasoft. The Software includes a licence authorisat ion 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 servicebureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse-engineer the Software without Infrasoft's written consent. ....
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.... 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 rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyr....
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....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 copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in 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 ex....