AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2019 (12) TMI 1207
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal") read as under:- "1. The order of the Ld. CIT(A) is contrary to the law and facts of the case. 2. The Ld. CIT(A) erred in deleting the disallowance of deduction u/s 40(a)(i) of the Act of Rs. 5.59 crores by relying on the decision of the Hon'ble Tribunal vide ITA No.1862 to 1868/Mds/2017 dated 23-10-2017 for AYs 2009-10 to 2015-16 in the assessee's own case, decided in favour of the assessee. 2.1. The Ld. CIT(A) ought to have appreciated that payment towards software was for the purpose of obtaining licence and would therefore constitute royalty. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored." 3. The brief facts of the case are that the assessee is engaged in business of engineering and procurement assistance services, design and execution of large scale oil & gas onshore and offshore projects, cryogenic tanks, etc. The assessee had purchased certain software licenses from M/s.Saipem SPA, Italy, which were used by assessee for providing services to customers for various support functions in accounti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iness profits of the nonresident seller are also not chargeable to tax in India. Therefore the obligation to deduct taxes under section 195 of the Act does not rise." In this connection, it is felt that the assessee's stand is inconsistent as when it comes to the purchase of software from its parent company, the assessee claims that no TDS is warranted and on the other hand when it is purchased from overseas non AE vendors the assessee has deducted tax at source. 3.2 It is also a point to be noted in this case that vide order u/s.201(1)(1A) of the Act, passed by the DCIT (Intl. Taxation)-1(1), Chennai, it is held that the payments for software and licensing fees are taxable as royalty as per section 9(1)(vi) of the Act and as per Article 12(3) of DTAA, Italy. In this regard, a show cause notice dated 02.11.2017 was given to the assesses which is reproduced 1. It is seen from the financial statements for the AY 2014-15, you have claimed a Rs. 18,63,35,391/- as software supporting charges. But the software expenses of Rs. 20,45,26,180/- claimed by the assessee is treated as Royalty vide order u/s.201(1)(1A) of the income tax Act 1961 dated 31.1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ht to the Intellectual Property Rights though it is styled as 'cost sharing agreement'. Since assessee was making payment to use the said facility and without entering the agreement, it was not permitted or allowed to use the facility which exclusively belongs to the Canadian company. Hon'ble High Court held that merely because the agreement provides that the term 'cost' does not include any mark-up and is limited to the actual cost, makes no difference in the eyes of law. Since the ultimate transaction is obtaining license to get the right to use the software though it is styled as 'cost sharing agreement', it is payment towards royalty both as per the provisions of I.T. Act as well as DTAA. Similar view was held in AMD Research & Development Centre India (P) Ltd. Vs DCIT (ITAT, Hyd) 115 DTR 273 and ITO Vs F.L Smidth Ltd. (ITAT, Chennai) 51 taxmann.com 90. Considering the above judicial pronouncements, claim of the assessee is rejected on this ground also. 3.5 Therefore, for the elaborate reasons mentioned above it is held that disallowance u/s.40(a)(i) is called for on the payment made to M/s.Saipem, Italy under the head 'software support ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "Provisions of DTAA being more beneficial to the assesse. Assessee was in our opinion justified in relying on DTAA and taking a view that payments effected by it did not warrant deduction of tax at source u/s 195 of the Act. In our opinion, assesse was justified in harbouring a view that payments made by it did not fall within the meaning of the term "Royalty" as used in the DTAA. this being so, assesse could not be saddled with a liability for failure to deduct tax at source. Orders of the lower authorities for all the years are set aside. In the result, the appeals of the assesse are allowed." 4.3.3 Respectfully following the decision of Hon'ble ITAT, Chennai in the appellant's case in A.Y. 2014-15, the AO's disallowance is deleted and the appellant's ground is allowed. Thus, as could be seen that while allowing appeal of the assessee, the learned CIT(A) followed the decision of Chennai-tribunal in assessee's own case for impugned ay 2014-15,dated 23.10.2017 , wherein in context of orders passed by AO u/s 201(1) / (1A) of the 1961 Act, the tribunal had held that no income-tax was required to be deducted at source u/s 195 of the 1961 Act by a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oftware for resale purposes . Our attention was also brought by learned counsel for the assessee to decision of Hon'ble Madras High Court in the case of CIT v. Vinzas Solutions India (P) Ltd., in TCA No.861 of 2016 , judgment dated 04.01.2017 reported in (2017) 392 ITR 155 (Madras), wherein, it has been held that when payments were made for purchase of copyrighted article, there is no royalty payment and it is only when the copyright itself is acquired, then payment is to be held to be royalty . Thus, it is submitted that assessee has only purchased software, which is a copyrighted article there is no right to reproduce or copy the said software for commercial purposes although the said software can be reproduced and copies made but to be used only for internal usage/purposes. Thus, it is claimed that the same cannot be treated as Royalty payments. The assessee referred to Article 13(3) of the India-Italy DTAA and submitted that beneficial provision will be applicable and as per Article 13(3) of DTAA , the said payment will not constitute to be Royalty payment and hence no liability can be fastened on assessee u/s 195 read with Section 40(a)(i) and Section 9(1)(vi) of the 1961 Act.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is reproduced hereunder:- "12. We have considered the rival contentions and perused the orders of the authorities below. While upholding the order of the ld. Assessing Officer, the ld. Commissioner of Income Tax (Appeals) had mainly relied on the judgment of Hon'ble Karnataka High Court in the case of Synopsis International Old Ltd. (supra). Ld. Assessing Officer, apart from the case of Synopsis International Old Ltd (supra) has also relied on the judgment of the very same court in the case of CGI Information Systems & Management Consultants (P) Ltd (supra). Ld. Assessing Officer also considered a Co-ordinate Bench decision in the case of F.L. Smidth Ltd (supra). There can be no quarrel that Hon'ble Karnataka High Court in the case of Synopsis International Old Ltd (supra) after analyzing the DTAA held that even grant of a licence for non-exclusive, non-transferable use, without right of sub licencing would fall within the meaning of Royalty. As per this judgment, in order to constitute 'Royalty' transfer of an exclusive right in the copyright was not necessary. Transfer of the right to use confidential information in the form of computer programme itself constituted Roya....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter COs and Saipem, and the Affiliates shall have the right to make unlimited copies of the Licensed Software and Third Party Software. Saipem acknowledges and agrees that it is responsible to ensure that any personnel of Saipem, the Affiliates, allowed access to the Licensed Software, Third Party Software, Documentation, or Third Party Software documentation shall be made aware of all appropriate provisions of this Agreement and software license contained herein. Saipem agrees to commit its best efforts to prevent any violation by Saipem's, the Affiliates' personnel of either the licensed rights granted herein or PP&M's applicable copyrights or trade secrets and to ensure compliance with the provisions of the this Agreement. Saipem further acknowledges and agrees that Saipem takes liability for any such violation by Saipem, the Affiliates' personnel as if such violation resulted directly from the action, negligence or misconduct of Saipem. This license cannot be sublicensed, assigned, or transferred. It is agreed between the parties that Saipem S.p.A ICT Department will be the only Saipem Division entitled to cut software keys as provided for by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssary to invoke the royalty definition. The parting of intellectual property rights inherent in and attached to the software product in favour of the customer triggers royalty characterization under 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. 14. Now the question is whether the payments effected by the assessee for the right to use the copyrighted software for a limited term could be considered as income accruing or arising in India to its foreign principal, considering Explanations 4 to 6 added to Section 9(1) (vi) of the Act with retrospective effect from 01.06.1976. No doubt these explanations do widen the ambit of the term Royalty to include therein transfer of all right or any right for use or right to use a computer software including granting of a licence. However, admittedly, there has been no amendment whatsoever in India's DTAA with Italy in so far as definition of the term Royalty is concerned. Co-ordinate Bench of this Tribunal in the case of Dasault Systemes Simulia Cor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pyright' and 'literary, artistic or scientific work" is also missing in the statutory provision. The treaty provision that we are dealing with are thus certainly not in pari materia with this statutory provision, and, by the virtue of Section 90(2) of the Act, the provisions of India Israel tax treaty clearly override this statutory provision. In Gracemac decision (supra), the coordinate bench was of the view that the provisions of the applicable tax treaty and the Income Tax Act are "identical" - a position which does not prevail in the situation before us. We, therefore, see no reasons to be guided by Gracemac decision (supra). The next issue that we need to consider is whether a payment for software can be said to be a payment for "process" as a computer program is a nothing but a set of instruction lying in the passive state and this execution of instructions is' a process' or' a series of processes'. No doubt, in terms of the provisions of Section 2 (ffc) of the Indian Copyright Act, 1957, a computer program, i.e. software, has been defined as "a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for process. That is a hyper technical approach totally divorced from the ground business realities. It is also important to bear in mind the fact that the expression 'process' appears immediately after, and in the company of, expressions "any patent, trade mark, design or model, plan, secret formula or process". We find that these expressions are used together in the treaty and as it is well settled, as noted by Maxwell in Interpretation of Statutes and while elaborating on the principle of noscitur a sociis, that when two or more words which are susceptible to analogous meaning are used together they are deemed to be used in their cognate sense. They take, as it were, their colours from each other, the meaning of more general being restricted to a sense analogous to that of less general. This principle of interpretation of statutes, in our considered view, holds equally good for interpretation of a treaty provision. Explaining this principle in more general terms, a very distinguished former colleague of ours Hon'ble Shri M.K. Chaturvedi, had, in an article 'Interpretation of Taxing Statutes' (AIFTP Journal: Vol. 4 No.7, July, 2002, at p. 7), put it in his ini....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y right whether it was through a copy righted software, or a copy right in software. In other words, as per ld. Departmental Representative Royalty would be payable irrespective of whether the item sold was shrink wrapped software or not. However, we find that Co-ordinate Bench had in its orders for the earlier years relied on the DTAA between India and USA for construing the meaning of the term Royalty which was available in Article 12(3). It is not disputed that the said definition had not undergone any change despite the amendment to Sec. 9(1)(vi) brought in through Finance Act, 2012. It is trite law that an assessee can fall back on the DTA when it is more advantageous to it. Hon'ble Delhi High Court in the case of Infrasoft Ltd (supra) had clearly held that subsequent amendment to Sec. 9(1)(vi) of the Act in so far as it relates to definition of Royalty was not relevant when an assessee relied on DTAA provisions which were more beneficial to it. In the circumstances, following decisions of Co-ordinate Bench of earlier years, we are of the opinion that the receipts of the assessee from DSSPL could not have been considered as Royalty in the hands of the assessee liable for taxat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alties and fees for technical services arising in a Contracting State and paid to a resident of the other contracting state may be taxed in that other state. 2. However, such royalties and fees for technical services may also be taxed in the contracting state in which they arise and according to the laws of that Sate, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax so charged shall not exceed 20 percent of the gross amount of the royalties of fees for technical services. 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience''. Term 'Royalty'' has been defined in the same language in both DTAAs. Therefore in our opinion, the judgment of Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....horisat 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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly 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 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 examined the effect of the subsequent amendment to s. 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''. Provisions of DTAA being more beneficial to the assessee. Assessee was in our opinion justified in relying on DTAA and taking a view that payments effects by it did not warrant deduction of ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r impugned of the learned Income Tax Appellate Tribunal, we agree with the view taken by the Karnataka High Court on the issue that the payments made by the Assessee Company to the US Company for user of its Software, Logo and Trade Marks were in the nature of Royalty covered under Article 12 of the Double Tax Avoidance Agreement (DTAA) between India and USA and therefore, the Assessee, Indian Company was liable to deduct tax at source and pay the same to the State. On account of its failure to do so, it was also liable to pay interest thereon under Section 201(IA) of the Act. 9. Thus, we do not find any merit in the present Appeals filed by the Assessee and the same are liable to be dismissed and accordingly, the same are dismissed. The questions framed, as quoted above, are http://www.judis.nic.in Judgt. dt. 23.4.19 in T.C.2184/2006 M/s.Zylog Systems Limited v. ITO answered against the Assessee and in favour of the Revenue. No order as to costs." It is pertinent to mention that definition of Royalty under Article 13(3) of India-Italy DTAA is parametria with definition of Royalty in Article 12(3) of India-Ireland DTAA except exclusion of applicability to aircraft in In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he aforesaid facts and the rival contentions, the point that arises for consideration in this appeals are: "Whether the consideration paid by the Indian customers or end-users, to the assessee for transfer of the right to use the software/computer programme is in respect of the copyright and falls within the mischief of 'Royalty' as defined under Sub-clause (v) to Explanation 2 to Clause (vi) of section 9(1) of the Act?" 10. It is not in dispute that the Synopsys Inc. has entered into the design, manufacture, distribution and marketing of certain 'EDA' tools and software and to provide all services related thereto. The said company holds all right, title and interest, as a licensee to the intellectual property including the copyrights. The assessee is a subsidiary of the aforesaid company. Synopsys Corporation has granted a non exclusive license in the territory which is geographical, as described in the said agreement to use and commercially exploit the intellectual property, manufacture, market, distribute, sub-license and maintain the products and provide ail services to customers during the term of 'TLA' under an agreement dated 31/10/1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issue. After noticing the definition of copyright as given in the copyright Act, 1957 in section 14 of the said Act and referring to the various clauses in the agreement entered into between the parties and after referring to the various judgments relied on, on behalf of the parties, it was held 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 copyrighted article. It follows that the payment cannot be considered as royalty within the meaning of Explanation 2 below section 9(1) of the Act. Further, they held that the software supplied was a copyrighted article and not a copyright and the payment received by the assessee in respect of the software cannot be considered as 'Royalty' either under the Act or DTAA. 12. Similar question arose for consideration before the Authority for Advance Rulings in case of Dassault Systems K.K., (supra) in Para.8 of the said order, the question for consideration is formulated in the following manner:- "The first and foremost question is whether the payments received by the applicant from the VARs represent consideration for the use of, or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... highly specialized one. The parting of intellectual property rights inherent in and attached to the software product in favour of the licencee/customer is what is contemplated by the definition clause in the Act as well as the treaty. As observed earlier, those rights are incorporated in s.14. 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, in our view, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. However, where, for example, the owner of copyright over a literary work grants an exclusive license to make out copies and distribute them within a specified territory, the grantee will practically step into the shoes of the owner/grantor and he enjoys the copyright to the extent of its grant to the exclusion of others. As the right attached to copyright is conveyed to such licencee, he has the authority to commercially deal with it. In case of infringement of copyright, he can maintain a suit to prevent it. Different considerations will arise if the grant is non-exclusive that too confined to the user pur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t does not have permanent establishment (PE) in India, the subscription fees cannot be taxed as business income in view of Article 7 of India-USA Treaty". 18. After referring to the various clauses in the agreement between the parties it was held as under : - "9. Now, coming to the grips of the first question bearing on the definition of 'royalty', as noticed earlier, the applicant's database is a source of information on various commercial and financial matters of Companies and similar entries. What the appellant does is to collect and collate the said information/data which is available in public domain and put them all in one place in a proper format so that the customer (licensee) can have easy and quick access to this publicly available information. The applicant has to bestow its effort, experience and expertise to present the information/data in a focused manner so as facilitate easy and convenient reference to the user. For this purpose, the applicant is called upon to do collation, analysis, indexing and noting wherever necessary. These value additions are the product of the applicant's efforts and skills and they are outside the public do....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applicant is not conferred with the exclusive right to reproduce the work (including the storing of it in electronic medium), as contemplated by sub-clause (i) of section 14(a). The exclusive right remains with the applicant being the owner of the copyright and by permitting the customer to store and use the data in the computer for its internal business purpose, nothing is done to confer the exclusive right to the customer. Such access is provided to any person who subscribes, subject to limitations. The copyright of the applicant has not been assigned or otherwise transferred so as to enable the subscriber to have certain exclusive rights over the applicant's work In SBI v. Collector of Customs, Bombay", the Supreme Court held that "Countrywide use of the software and reproduction of software are two different things and licence fee for countrywide use cannot be considered as the charges for the right to reproduce the imported goods." That was also a case in which the property in the software remained with the supplier-a foreign company and the licence fee was payable by SBI for using the software in a limited way at its own centers for a limited period. 19....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ms; or (vi) the rendering of any services in connection with the activities referred to in sub-clause (i) to (iv), (iva) and (v) [Explanation 3. For the purposes of this clause, 'computer software' means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data] .................................. [Explanation - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India: or (ii) the non-resident has rendered services in India." 20. Income by way of 'Royalty' is liable to tax. The second proviso to Clause (vi) makes it clear that any lump sum payment made by a resident for the transfer of all or any lights including granting of a licence in respect of computer softwar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assumes importance for the proper understanding of what the legislature meant in defining 'Royalty' as they have done in Explanation 2. The argument is that it is only the consideration paid for transfer of a right in the copyright, which would constitute 'Royalty' and any consideration paid for the transfer of a copyrighted article do not involve any transfer or right and therefore, it is outside the scope of 'Royalty' as appeared in Explanation 2. The said argument is based on the aforesaid two decisions referred to supra. In the entire discussions in the aforesaid two cases, the words used in Clause 5 namely, "in respect or, is not noticed and not discussed. It is well settled law that the legislature is deemed not to waste its words or to say anything in vain. A construction which attributes redundancy to the legislature is not acceptable except for compelling reasons. The Courts always presume that the legislature inserted every word thereof for a purpose and the legislative intention in that every word of the statute should have effect. The intention of the legislature is primarily to be gathered from the words used. The words of a statute ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as terminals so long as any of these things, viz., stations, sidings, wharves, depots warehouses, cranes and other similar matters have been provided and are being maintained. The question is whether the import of this generality of language should be cut down for any reason. It is well settled that a limited interpretation has to be made on words used by the legislature in spite of the generality of the languages used where the literal interpretation in the general sense would be so unreasonable or absurd that the legislature should be presumed not to have intended the same. Is there any such reason for cutting down the result of the generality of the language used present here? The answer in our opinion must be in the negative. It is true that in many cases stations, sidings, wharves, depots warehouses, cranes and other similar things will be used and it is arguable that in using the words "in respect of" the legislature had such user in mind. It is well to notice however that the legislature must have been equally aware that whereas in some cases accommodation provided by stations will he used, in, some cases sidings will be used, in other wharves, in others warehouses and in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder Payment of Wages Act AIR 1960 Bom. 201 held as under : "4. Another requirement of a payment to fall within the term "wages" is that it must be "in "respect of employment or work done in such employment." The expression "in respect of" means "attributable to" [see Asher v. Seoford Court Estates Ltd. [1950 A.C. 508, 5261 or, if it is given a wider meaning, "relating to or with reference to" [see Tolaram Relumal v. State of Bombay [1955] 1 SCR 158 at P. 165: (AIR 1954 466 at p.499). The payment must, therefore, be attributable to employment, that is, engagement in work, or to work done. During the period of lay-off, the employer is not in a position to provide work and the employee cannot insist on work being provided or wages being paid to him. The employee is also not wider any duty to work for his master or even to present himself for work. He has to present himself for work if he desires to claim compensation (see S. 25E of the Industrial Disputes Act). But he has an option in the matter. If he remains absent, he will not be entitled to compensation, but he will not lose the right, which he possesses under the standing orders, of reinstatement when the normal working....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d or silver, or goods or any other money or property "in respect of which" the contravention has taken place is liable to be confiscated to the Central Government. The currency confiscated this case was Indian currency. The question is whether the Indian currency constituting the sale proceeds of foreign exchange seized from the respondent was currency in respect of which the contravention had taken place. The words "in respect of" admit of a wide connotation; Lord Greene M.R. in Cunard's Trustees v. Inland Revenue Commissioners [1946] 174 LT 133 calls them colourless words. This Court in S.S. Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. [1960] 2 SCR 926 AIR 1960 SC 695 construing these words in section 3(14) of the Indian Railways Act, 1890 has held that they are very wide. It seems to us that in the context of section 23(1B) "in respect of" has been used in the sense of being 'connected with' and we have no difficulty in holding that the currency in respect of which there has been contravention covers the sale proceeds of foreign currency, sale of which is prohibited under section 4(1). The intention of the legislature is clear from the explanation t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rictly there being no apriori liability to pay a tax and the purpose of charging section being only to levy a charge on persons and activities brought within its clear terms. Therefore, the specific words used in a taxing statute, charging tax cannot be ignored. It is not the consideration for transfer of all or any of the rights in the copyright. Without transferring a right in the copyright it is possible to receive consideration for the use of the intellectual property for which the owner possess a copyright. Ultimately, the consideration paid is for the usefulness of the material object in respect of which there exists a copyright. Therefore, the intention was not to exclude the consideration paid for the use of such material object which is popularly called as copyrighted article. Even in respect of a copyrighted article the same is transferred, no doubt the right in the copyright is not transferred, but a right in respect of a copyright contained in the copyrighted article is transferred. Therefore, the Parliament thought it fit to use the phrase 'in respect of' as contra distinct from the word 'in' copyright. The meaning is clear, intention is clear, there is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or any substantial part thereof namely: (a) in the case of literary, dramatic or musical work, not being a computer programme - (i) to reproduce the work in any material form including the storing of it in any medium by electronics means, (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public. (iv) to make any cinematograph film or sound recording in respect of work; (v) to make any translation of the work;' (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clause (i) to (vi)." 30. The object of a definition is to avoid the necessity of frequent repetitions in describing all the subject-matter to which the word or expression so defined is intended to apply. The Legislature has power to define a word even artificially. So the definition of a word in the definition section may either be restrictive of its ordinary meaning or it may be extensive of the same. When a word is defined to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to a particular section to show that the context in fact so requires. 32. In this background it is pertinent to note the opening words of section 14. It expressly state that "for the purposes of this Act". The intention of the parliament in expressing the meaning of the word in that manner and not defining the said term in the definition section cannot be lost sight of. Further, the legislature has chosen to employ the word 'means' in defining the meaning of the word 'copyright' which again makes the intention very clear that the said meaning to the word "copyright" is restrictive and exhaustive. Then the further words, 'exclusive right subject to the provisions of this Act' further imposes a rider on the meaning of the word 'copyright'. Though the word used is "exclusive right", in section 30 of the Act, the Parliament has provided what are the rights which the owners of a copyright may part with. It expressly states the owner of the copyright in any existing work may grant any interest in the right by licence in writing signed by him or by his duly authorised agent. Therefore, when if comes to the question of granting licence it need not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with the ordinary meaning of the word 'copyright' which includes the right to use the work. It is a negative right. If is not a right to do something but rather a right to restrict others from doing certain acts. It is in this context the word 'exclusive' has to be understood. When in the Act itself after using the word exclusive right in section 14, when it comes to the question of licence of a copyright, if need not necessarily be an exclusive right, but any interest in the right, the word exclusive has to be restricted firstly to the Act itself and secondly to situations which fall outside the scope of section 30 of the Act. Therefore, the expression 'copyright' used in the Act cannot be the same as used in the Income-tax Act. In the Income-tax Act, when the legislature advisedly used the word 'in respect of a copyright' it cannot be construed as a right in the copyright and assign the meaning assigned in the Copyright Act to the second explanation, line language in Explanation (2) explicitly makes it clear for the purpose of clause (vi) of sub-section (1) of section 9 royalty means consideration for transfer of all or any rights including the gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f computer software is no different. Computer programme as such is not defined under the I.T. Act. However, Computer programme is defined in the Copyright Act as follows: "Computer programme means a set of instructions expressed in words, codes, schemes or in any other form including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result." 34. It is also worth mentioning that some routines may be written in assembly code, essentially a set of memories for object code which another program translates directly into that code. This is normally done when the programmer needs to drive the hardware directly, or where speed is required, as it gives very precise control over the program's operation. Once all sections are complete, they are fitted together to produce a complete version in source code, i.e., in human-readable form that gives the user as little information as possible about the details of the program (thus reducing the danger of copying), the source code is used as input for another program, the compiler. This compiles the program into object code, a machine-readable form which will have linke....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the consideration requires is, the benefit of the user of the intellectual property, whether for his personal use or for commercial use. Merely because the end-user is not permitted to make commercial use of a copyrighted article by means of re-production of copyrighted article, it would not take the case out of the provision. The user may be for personal use or for commercial use. The essence of the copyright is the usefulness of intellectual property embedded in such copyright. One of the ways of exploiting a copyright is by re-production for commercial use. But that is not the only use to which a copyright could be made use of. It could be used for their personal use and that is the reason why consideration is stipulated even for such personal use. Though the rights that are transferred in such a transaction may be limited as compared to transfer of a copyright for commercial use. In particular, a software or a computer programme is such a sophisticated goods that it may be sold of the shelf, it may be sold looking into the needs of the customer, it may be even prepared keeping the requirement of end-user in mind. In all these cases copyright as such is not transferred.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he other Contracting State may be taxed in that other State. (2) However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. (3) (a) The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft, or for information, concerning industrial, commercial or scientific experience; (b) The term "fees for technical services" means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of servi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee do not fall within the term "royalty" as per the definition under Article 12 of the agreement. As the agreement is superceding the definition of term "royalty" under the Act, the consideration paid to him is not liable to be taxed in India. It is submitted that as the Article which is licenced in this case and the consideration paid to the same does not fall within the definition of royalty, under Article 12 the assessee is not liable to pay tax. 39. It is no doubt true the provisions of the DTAA overrides the provisions of the Incometax Act. In the DTAA the term 'royalty' means payments of any kind received as a consideration for the use or the right to use any copyright of literary, artistic or scientific work whereas in the Income-tax Act, royalty means consideration for the transfer of all or any rights including the granting of a licence. Therefore, under the DTAA to constitute royalty there need not be any transfer of or any rights in respect of any copyright. It is sufficient if consideration is received for use of or the right to use any copyright. Therefore, if the definition of royalty in the DTAA is taken into consideration it is not nece....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ignable without the grantor's consent. An exclusive licence is a leave to do a thing, and a contract not to give leave to anybody else to do the same thing, ft confers no interest, or property in the thing but only makes an action lawful, which, without it, would have been unlawful. 43. A licence is a permission to do something that would otherwise be unlawful. The question arises, therefore, as to what legal permission is granted by a software licence. The answer is, briefly, that in some cases the licence will be a permission to use confidential information, and in virtually in all cases it will be a permission to copy a copyright work. If the software has been kept secret by the producer, or only supplied on conditions of confidentiality and has not been published too widely, then the software licence will be akin to a licence of confidential information or know-how. The owner or licensor of a copyright, has a right to grant permission to use the software or a computer programme, in respect of which they have a copyright, without transferring the right in copyright. It is one of the right of a copyright. owner or licensor. Without such right being transferred, the e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovided, however the "Confidential Information" will not include information that; (a) is or becomes generally known or available by publication, commercial use or otherwise through no fault to the receiving party; (b) is known and has been reduced to tangible form by the receiving party at the time of disclosure and is not subject to restriction; (c) is independently developed by the receiving party without use of the disclosing party's Confidential Information; (d) is lawfully obtained from a third party who has the right to make such disclosure or; (e) is released for publication by the disclosing party in writing 1.4 "Design" means the representation of an electronic circuit or device(s), derived or created by License through the use of the Licensed Product in their various formats including, but not limited to, equations, truth tables, schematic diagrams, textual descriptions, hardware description languages and netlists. 1.5 "Design Techniques" means the Synopsys-supplied data circuit and logic elements, libraries, algorithms, search strategies, rule based and technical information incorporated in the Licensed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hout right of sub-license, of use the Licensed Software and Design Techniques only: (i) in the quantity authorized by a License Key; (ii) in accordance with the Documentation; and (iii) in the Use area. Licensee may make a reasonable number of copies of the licensed Software for backup and/or archival purposes only. 2.1.1 Term of License The term of the license granted herein shall be continuous until nonrenewal of the Support Agreement, (unless the license is sooner terminated in accordance with section 8 of this Agreement), whereupon Licensee shall be granted a twenty-(20) year key to use the Licensed Software at the last supported level, provided that if Licensee and Synopsys have agreed that Licensee may obtain time-based licenses for the Licensed Products, as indicated in the applicable quote, purchase order and/or License Key, the term of the license shall be as set forth in the applicable Licensee key. 2.2 Design Ware License If Licensee has purchased a license to Design Ware, Syncpsys hereby grants Licensee the following non-exclusive, non-transferable rights to Design Ware, with no right to sub-license (except as provided below)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ideas, underlying user interface techniques or algorithms of the Licensed product by any means whatever, or disclose any of the foregoing; (ii) distribute, lease, lend, use for timesharing, service bureau, and/or application service provider purposes the Licensed Product; (iii) use the Licensed Product for the benefit of third parties, or allow third parties to use the Licensed Product; (iv) modify, incorporate into or with other software, or create a derivative work of any part of the Licensed Product; (v) disclose the results of any benchmarking of the Licensed Product (whether or not obtained with Synopsys' assistance) to third parties; (vi) use the Licensed Product to develop or enhance any product that competes with a Licensed product; or (vii) employ the Licensed product in, or in the development of, life critical applications or in any other application where failure of the Licensed Product or any results from the use thereof can reasonably be expected to result in personal injury. 3. Ownership 3.1 Synopsys Ownership. Synopsys and/or its licensors own and shall retain all rights, title and interest i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able Synopsys quotation and/or invoice. 5.3 Delivery. Upon the acceptance of an order by Synopsys and the satisfaction of all Synopsys prerequisites prior to delivery, Synopsys shall deliver to Licensee, at Synopsys expense, the Licensed Product, License Key and/or Documentation, as appropriate. 6. Support Services Support services shall be provided by Synopsys under the terms and conditions set forth herein and of the Support Agreement. 7. Confidentiality Each party will protect the other's Confidential Information from unauthorised dissemination and use with the same degree of care that each such party uses to protect its own like information. Neither party will use the other's Confidential Information for purposes other than those necessary to directly further the purposes of this Agreement. Neither party will disclose to third parties the other's Confidential Information without the prior written consent of the other party. 8. Termination of License 8.1 Termination. Either party has the right to terminate this Agreement if the other party breaches or is in default of any obligation hereunder, wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... control and authority over the defense or settlement thereof; and (iii) all available information, assistance and authority to settle and/or defend any such claim or action. 13.3 Assignment. This Agreement may not be assigned by Licensee without the prior written consent of Synopsys. 13.6 Independent Contractors. The relationship of Synopsys and licensee established by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed (i) to give either party the power to direct or control the day-to-day activities of the other or (ii) to constitute the parties as partners, joint ventures, co-owners or otherwise as participants in a joint a common undertaking. 13.9. Injunctive relief. The parties agree that a material breach of this Agreement adversely affecting Synopsys' Intellectual Property Rights in the Licensed Product, Design Techniques or Documentation would cause irreparable injury to Synopsys for which monetary damages would not be an adequate remedy and Synopsys shall be entitled to equitable relief in addition to any remedies it may have hereunder or at law." 45. As is clear from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rue or arise in India, under clauses (v), (vi) and (vii) of subsection (1), such income shall be included in the total income of the non-resident, whether or not (i) the non-resident has a residence or place of business or business connection in India, (ii) the non-resident has rendered services in India. Therefore, the object is to levy tax on the income of a non-resident, if it has accrued or arisen in India and one such income is the income from royalty. In the result, we pass the following :- ORDER (a) All the appeals are allowed. (b) Impugned orders passed by the Income Tax Appellate Tribunal, Bangalore Bench, is hereby set aside. (c) The order passed by the Commissioner of Income Tax (Appeals) affirming the order passed by the Assistant Commissioner of Income tax, Circle 19(1), Bangalore, with modification is restored. (d) No costs." Thus, as could be seen from aforesaid decision of Hon'ble Karnataka High Court in the case of CiT v. Synopsis International Old Limited(supra) which decision was rendered in context of Royalty as defined in India-Ireland DTAA wherein definition of Royalty is paramateria to definition of Roy....