TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 858
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....has erred in holding that receipts of the assessee from sale of software are not taxable as Royalty even when explanation 4 to section 9(1)(vi) of the Act clearly states that consideration in respect of transfer of all or any right for use or right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred is taxable as Royalty. (iii) Whether on the facts and in circumstances of the case, the ld. CIT (A) has erred in holding that receipts of the assessee from sale of software are not taxable as Royalty relying upon the decision of Hon'ble Delhi High Court in the case of DIT Vs M/s Infrasoft (264 CTR 329) even when the department has not accepted the said order and has filed an SLP before the Apex Court. (iv) Whether on the facts and in circumstances of the case, the ld. CIT (A) has erred in holding that the effect of amendment in section 9(1)(vi) brought about by the Finance Act 2012 cannot be read into a treaty relying upon the decision of Hon'ble Delhi High Court in the case of DIT Vs M/s Nokia Networks (358 ITR 259) even when the department has not accepted the said order and has filed an SLP before the Ape....
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....for in the domestic law or the DTAA. It was further held that what has been transferred by the assessee is neither the copyright in the software nor the use of the copyright in the software, but the right to use copyrighted material or article which is clearly distinct from the rights in the copyright. 6. In this background the points to be adjudicated would be a) Whether the receipts from sale of software be treated as royalty or not. b) Whether the effect of amendment in Section 9(1)(vi) brought about by the Finance Act, 2012 can be read into the treaty or not. 7. We have heard the arguments of both the parties and perused the material on record. 8. We find from the judgment of the Jurisdictional High Court, in the case of DCIT Vs Infrasoft Ltd. 264 CTR 329 has elaborately explained as to what constitutes licensing agreement, its exclusivity, non-transferability, as to what constitutes a copyright and how the amounts paid for transfer of copyright and amounts paid for royalty defer in connection with the Article 7 and Article 12 of the DTAA. The judgments also dealt with the licenses, copyrights, loan rent sale, sublicense, transfer of copy of software as well as royalties....
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.... 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 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....
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....g 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 copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially coextensive 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....
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....thin 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 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 for 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 copyrig....
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....) brought out by Finance Act, 2012, we find that this issue of applicability has been examined in the case of DIT Vs New Skies Satellite BV by the Hon'ble Delhi High Court in ITA 473/2012. The Hon'ble Court observed that the only manner in which change in position of the provisions of the treaty can be relevant only if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. The Hon'ble High Court's observation is relevant to the instant case with regard to the amendment to the Act even though the judgment was given in the case of determination of royalty of payment of transponder fee, it adequately dealt with the issue of Section 9(1)(vi). The relevant extract of the said order read as under: "74. Eve....