TaxTMI 
TaxTMI 
2016 (9) TMI 1566
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....' or "Ld. AO'] passed under section 143 (3) read with section 147 of the Income Tax Act [hereinafter referred to as' The Act'] pursuant to direction dated 24/09/2012 under section 144C (13) of the Ld. Dispute Resolution Panel [hereinafter referred to as "DRP'] raising following grounds of appeal in ITA No. 6089/Del/2012 which are as under:- "1. That on facts and in law, while passing the assessment order, the Additional Director of Income Tax, Range - 3, International Taxation, New Delhi ('Learned AO') has erred in computing the total income of the Appellant at INR 7,999,960,616 as against 'Nil' income returned by the Appellant and therefore, the order of the Learned AO is bad in law and needs to be annulled; 2. Without prejudice to the below mentioned grounds of appeal, the Hon'ble Dispute Resolution Panel {'DRP') and Learned AO erred on the facts of the case and in law, in determining the income of the Appellant for the subject Assessment Year at INR 7,999,960,616, thereby completely ignoring the fact that the payments received by the Appellant from licensing of manufacturing and distribution rights to Microsoft Operations Pte Ltd. ('MO')....
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....he Hon'ble Income-tax Appellate Tribunal (ITAT) in case of Gracemac Corporation (now MOLC) for Assessment Years 1999-00 to 2004-05. 3.7 That on the facts and in law the Learned AO has erred in observing that: 3.7.1 the copyright has been commercially exploited in India, as the licences were sent to India in hard discs in large volumes; 3.7.2 the agreement between MO and MRSC clearly establishes that the Appellant is getting royalty out of licensing of software carried out in India; 3.7.3 the Appellant has given the license to end users in India to use the software which is sort of a lease of a software and the payments received against the same would constitute lease rentals and hence taxable as Royalty: 3.7.4 the consideration received by the Appellant is payment for a 'process' and is thus covered under section 9(1)(vi) of the Act; 3.7.5 the consideration received for use of software is towards consideration for use of patented article and inventions; 3.7.6 as per the provisions of section 9 of the Act, the payments made for import of software are royalty payments and the only exception provided is for computer software supplied by a non-resident ....
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....t impact the treaty interpretation of the term royalty. 4.3 That on facts and in law, the DRP and the Learned AO erred in placing reliance on the decision in case Gramophone Company of India (AIR 1984 SC 667) to hold that domestic tax legislation of later date can over-ride treaty provisions if there is an irreconcilable conflict. 4.4 That on facts and in law, the Hon'ble DRP and Learned AO failed to appreciate that the sale of software is a sale of 'Copyrighted Article' and not 'Copyright' and accordingly, the revenue from sale of software is in the nature of business income not taxable under Article 7 of India US tax treaty in the absence of the PE of the Appellant in India. 4.5 That on facts and in law, the Hon'ble DRP and Learned AO erred in disregarding OECD commentaries, US IPS regulations, International tax commentaries, UN model convention, International court rulings on classification of transactions involving computer software while interpreting tax treaties. 4.6 That on facts and in law, the Learned AO has erred in interpreting the ratio laid down in the decision of P.V.A.L. Kulandagan Chettiar in an incorrect manner on relevance of OE....
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....ppellant is from licensing of software and utilisation/ exploitation of the license granted to the users in India; 4.13.4 that the Appellant received amount on account of lease of software / software renting. 4.14 The Learned AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act against the Appellant. 4.15 Without prejudice to the above grounds, the Learned AO has erred in levying interest under section 234B of the Act while completely disregarding the provisions of the Act and the various judicial precedents decided in favour of taxpayers on this issue." 3. Brief facts of the case are that appellant is a company incorporated in the United States of America having its registered office at USA. Microsoft Corporation, USA is the ultimate parent entity of appellant. Appellant is a tax resident of USA and therefore it is entitled to claim applicability of provisions of the Double Taxation Avoidance Agreement[ hereinafter referred to as the DTAA] entered into between India and USA, if more beneficial than provision of the Indian Income Tax Act 1961. 4. On amalgamation of GraceMac corporations, a company incorporated in the United States of America and whol....
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....ssing officer issued notice under section 148 of the Income Tax Act dated 25th of November 2010 requiring assesses to file a return of income under section 148 of the act. In response to the said notice, the assessee filed return of income declaring nil income on 21/12/2010 and submitting a copy of return vide letter dated 23/12/2010 requesting him to provide the copy of reasons recorded for initiating reassessment proceedings. Consequently, reasons recorded for reopening were provided to the assessee. The main reason for reopening of the case is that:- "1. Microsoft Corporation is a company incorporated in 1981 as a tax resident of USA. It is world's leading software developer. Microsoft Corporation has granted Gracemac an exclusive right to manufacture and distribute Microsoft software in Asia. GraceMac had granted Microsoft operations (Singapore) PTE Ltd (MO) a company incorporated in Singapore the nonexclusive right to manufacture and distribute software in Asia including India. Now Gracemac has amalgamated with MO and the new company formed is MOL Corporation, which came in place as a result of amalgamation on 14/04/2005. 2. The Hon'ble ITAT vide an order dated 26/10/201....
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.... assessment order under section 143 (3) on 28/12/2011 wherein he proposed to tax the above amount received by Microsoft regional sales Corporation from various distributors outside India of Rs. 7999960616/- in India as 'royalty' in the hands of the assessee. Against the draft order appellant preferred objections before the Dispute Resolution Panel. In the objection appellant challenged the reassessment proceedings stating that they are bad in law and also on merits of the case contesting that above income shall not be chargeable to tax in India as royalty. LD DRP vide its direction dated 24/09/2012 disposed of the objection of the appellant. Regarding the reopening of the assessment, relying upon the decision of the Hon'ble Supreme Court in ACIT versus Rajesh Jhaveri stockbrokers private limited ( 291 ITR 500) (SC), objection was dismissed as assessee has not filed any return of income. Objection against the order of the Ld. assessing officer in holding that the payments received by the assessee are from a source in India and hence taxable under section 9 (1) (vi) read with article 12 of the Double Taxation Avoidance Agreement, held that in view of the amendment to the provisions o....
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....beneficial. Therefore he submitted that according to the provisions of the DTAA the licensed software is not subject to taxation as "royalty'. He further referred to the decision of the coordinate bench in ITA No. 5651/del/2010 for assessment year 2007-08 in case of Datamine International Ltd versus ADIT dated 14/03/2016 referred to para No. 3 of that decision and para No. 8.1 of that decision wherein the retrospective amendment to the provisions of the act was considered by the coordinate bench. His argument was that that any amendment carried out to the provisions of the act with retrospective effect shall no doubt have the effect of altering the provisions of the Income tax Act but cannot per se have the effect of automatically altering the analogous provisions of the DTAA. Therefore he submitted that the subsequent provisions which have been amended by retrospective effect by the Finance Act 2012 will not have any impact on the issue of taxability of the income of appellant as royalty. He further referred to the decision of the Hon'ble Delhi high court dated 08/02/2016 in DIT V New Skies Satellite BV to support his argument. He further submitted that the decision of the Hon'ble....
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....ered the rival contentions. In the present appeal as noted by the coordinate bench is whether the sale of off-the-shelf software product by a US based non-resident companies to independent Indian distributors is taxable in the hands of such non-resident companies as royalty within the meaning of explanation 2 to section 9 (1) (vi) of the act as well as under article 12 of DTAA between India and USA. We also perused the decision of the Hon'ble Delhi high court wherein the facts are that assessee is an international software marketing and development company of an international group and the holding company is based in the United States being Infrasoft Corporation. That company was primarily engaged in the business of developing and manufacturing civil engineering software and one such software which was subject matter of the controversy before Hon'ble Delhi high court was called MX. Therefore the issue before the Hon'ble Delhi High Court was whether the income tax appellate tribunal was right in holding that the consideration received by the respondent assessee on grant of license for use of software is not royalty within the meaning of article 12 (3) to the DTAA between India and t....
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....lso held that per Explanation inserted by the Finance Act, 2010 w.r.e.f. 1.4.1976 the income by way of royalty of a non-resident shall be deemed to accrue or arise in India under clause (vi) irrespective of the fact whether the non-resident has a residence or a place of business or business connection in India. Hon'ble Supreme Court in P.V.A.L. Kulandagan Chettiar (supra) has held that the provisions of agreement cannot fasten a tax liability where the liability is not imposed by a local Act. Where tax liability is imposed by the Act, the agreement may be resorted to either for reducing the tax liability or altogether avoiding the tax liability. In case of any conflict between the provisions of the agreement and the Act, the provisions of the agreement would prevail over the provisions of the Act, as is clear from the provisions of section 90(2). Section 90(2) makes it clear that the Act gets modified in regard to the assessee in so far as the agreement is concerned if it falls within the category stated therein. No such case conflict between income tax Act and the treaty has been made out by the ld. counsel for the assessee. Therefore, in our considered opinion there is no merit i....
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....pped software is not a Royalty:- "10. We have heard the rival submissions, perused the relevant finding given in the impugned order and also the various decisions, cited before us. The sole issue involved before us is, whether the payment received by the assessee on sale of computer software product is to be treated as income by way of "royalty" or business income. In case, if it is a 'business' income, then admittedly, assessee being a non-resident company with no permanent establishment in India, the same will not be taxable in India and if it is a "royalty", then it has to be taxed at the rate of 15% as provide under the treaty. Thus, the only issue for consideration is, whether the said payment falls within the terms of "royalty" under Article 12(4) of India-Netherland DTAA or under 9(1)(vi) of Income Tax Act. Here again, it is an undisputed fact that, assessee being a tax resident of Netherland has sought benefit under Indo-Netherland DTAA, therefore, the payment received by the assessee from its Indian Subsidiary, INFOR India has to be examined under the treaty provisions. Briefly recapitulating the relevant facts for the purpose of our adjudication emanating from ....
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....ry, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience'. From the plain reading of the article it can be inferred that, it refers to 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, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Thus, in order to tax the payment in question as "royalty", it is sine qua non that the said payment must fall within the ambit and scope of Para 4 of Article 12. The main emphasis on the payment constituting 'royalty' in Para 4 are for a consideration for the 'use of' or the 'right to use' any copyright. . . . . . . .The key phrases "for the use" or "the right to use any copyright of"; "any patent. . . . . .; "or process", "or for information. . . . . . . . .,"; "or scientific experience", etc., are important parameter for treating a t....
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....ental or offer for sale or for commercial rental any copy of the computer programme : Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv); (d) In the case of cinematograph film, - (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public; (e) In the case o....
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....eaty has not been correspondingly amended in line with new enlarged definition of 'royalty'. The alteration in the provisions of the Act cannot be per se read into the treaty unless there is a corresponding negotiation between the two sovereign nations to amend the specific provision of "royalty" in the same line. The limitation clause cannot be read into the treaty for applying the provisions of domestic law like in Article 7 in some of the treaties, where domestic laws are made applicable. Here in this case, the 'royalty' has been specifically defined in the treaty and amendment to the definition of such term under the Act would not have any bearing on the definition of such term in the context of DTAA. A treaty which has entered between the two sovereign nations, then one country cannot unilaterally alter its provision. Thus, we do not find any merit in the contention of the Ld. DR that the amended and enlarged definition should be read into the Treaty. 13. Now, we come to the various decisions relied upon by the parties. Before us, the Ld DR has heavily relied upon the two decisions of Karnataka High Court, one in the case of Synopsis International Old Ltd. (s....
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....tion 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 nontransferable 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 ....
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....ts and intellectual property rights in the software and copies 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 paymen....
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....herein Hon'ble Delhi High Court relying upon its earlier two decisions in the case of DIT v. Erisson [2012] 343 ITR 470/204 Taxman 192/[2011] 16 taxmann.com 371 (Delhi) and DIT v. Nokia Networks OY [2013] 358 ITR 259/212 Taxman 68/25 taxmann.com 225 (Delhi) concluded that, when assessee supplies the software which is incorporated on CD, it has applied only a tangible property and payment made for acquiring such a property cannot be regarded as payment by way of royalty. The relevant observation of the High Court in Alcatel Lucent (supra) in this regard reads as under: 'We have noticed, at the outset, that the ITAT had relied upon the ruling of this Court in Director of Income Tax V. Ericsson A.B. (2012) 343 ITR 470 wherein identical argument with respect to whether consideration paid towards supply of software along with hardware rather software embedded in the hardware amounted to royalty. After noticing several contentions of the revenue, this Court held in Ericsson A.B. (supra) as follows: "54. It is difficult to accept the aforesaid submissions in the facts of the present case. We have already held above that the assessee did not have any business connection in In....
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....edia, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. TAXPUNDIT.ORG Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. . . . . ....
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....refore, same cannot be taxed as business income under Article 7. Accordingly, ground raised by the revenue stands dismissed." [extracted from taxmann.com] 15. Furthermore the coordinate bench has also rejected the contention of the appellant that the computer programs embedded in compact disc are not "copyrighted articles" as according to the bench there is no ambiguity in the definition of the term royalty and there is no need for importing the expression "copyrighted article" from OECD commentary or US guidelines for the purpose of interpretation of the term royalty. However honorable High court has held that sale of software is a sale of "copyrighted article and ultimately held that the payment for the same is not in the nature of "royalty". The Hon'ble high court has held as under :- "89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration 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....
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....ticle and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sublicence or transfer the copy of software to any third party without the consent of Infrasoft. 93. The licensee has been prohibited from copying, decompiling, deassembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee company and its customers stipulates that all copyrights and intellectual property rights in the software and copies 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 licen....
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....f 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 Tax Avoidance Agreement." Therefore, the retrospective amendment made to the Income tax Act will not apply in deciding the issue of taxability of income of the assessee in present case. 17. Furthermore Hon'ble Delhi high court has examined this issue in CIT versus Halliburton export incorporation (ITA No. 363 and 365 of 2016 dated 11/07/2016 wherein, after considering the decision of the DIT versus Infrasoft Ltd, has held that at the consideration received by appellant on sale of prepackaged software in terms of article 12 (3) would not be chargeable to tax as "royalty" or "fees or technical services" or "business income". The Hon'ble high court made it clear that according to section 90 (3) of the act it is clear that in context of Double Taxation Avoidance Agreement that it is only when the provisions of the Income Tax Act are more beneficial to the assessee , The ACT will prevail over t....
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....he income tax act. In ground, No. 4.15 of the appeal is against the charging of the interest under section 234B of the income tax act. As both these grounds will depend on the ultimate assessment of the assessee therefore at present there are premature, hence they are dismissed. 20. In the result, appeal of the assessee is partly allowed. ITA No 6090/Del/2012 A Y 2008-09 21. The grounds of appeal raised by the assessee in ITA No.6090/Del/2012 as under:- "1. That on facts and in law, while passing the assessment order, the Additional Director of Income Tax, Range - 3, International Taxation, New Delhi ('Learned AO') has erred in computing the total income of the Appellant at INR 18,496,742,612 as against 'Nil' income returned by the Appellant and therefore, the order of the Learned AO is bad in law and needs to be annulled; 2. Without prejudice to the below mentioned grounds of appeal, the Hon'ble Dispute Resolution Panel ('DRP') and Learned AO erred on the facts of the case and in law, in determining the income of the Appellant for the subject Assessment Year at INR 18,496,742,612 thereby completely ignoring the fact that the payments received ....
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....ble DRP has erred in confirming the conclusion drawn by Learned AO by placing reliance on the order passed by the Hon'ble Income-tax Appellate Tribunal (ITAT) in case of Gracemac Corporation (now MOLC) for Assessment Years 1999-00 to 2004-05. 3.7 That on the facts and in law the Learned AO has erred in observing that: 3.7.1 the copyright has been commercially exploited in India, as the licences were sent to India in hard discs in large volumes; 3.7.2 the agreement between MO and MRSC clearly establishes that the Appellant is getting royalty out of licensing of software carried out in India; 3.7.3 the Appellant has given the license to end users in India to use the software which is sort of a lease of a software and the payments received against the same would constitute lease rentals and hence taxable as Royalty: 3.7.4 the consideration received by the Appellant is payment for a 'process' and is thus covered under section 9(1)(vi) of the Act; 3.7.5 the consideration received for use of software is towards consideration for use of patented article and inventions; 3.7.6 as per the provisions of section 9 of the Act, the payments made for import of sof....
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....e India US tax treaty would still be available to the Appellant as the amendments in the Finance Act 2012 would not impact the treaty interpretation of the term royalty. 4.3 That on facts and in law, the DRP and the Learned AO erred in placing reliance on the decision in case Gramophone Company of India (AIR 1984 SC 667) to hold that domestic tax legislation of later date can over-ride treaty provisions if there is an irreconcilable conflict. 4.4 That on facts and in law, the Hon'ble DRP and Learned AO failed to appreciate that the sale of software is a sale of 'Copyrighted Article' and not 'Copyright' and accordingly, the revenue from sale of software is in the nature of business income not taxable under Article 7 of India US tax treaty in the absence of the PE of the Appellant in India. 4.5 That on facts and in law, the Hon'ble DRP and Learned AO erred in disregarding OECD commentaries, US IPS regulations, International tax commentaries, UN model convention, International court rulings on classification of transactions involving computer software while interpreting tax treaties. 4.6 That on facts and in law, the Learned AO has erred in inter....
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....d to the source in India and, therefore it is taxable in India; 4.13.3 that the source of revenue derived by the Appellant is from licensing of software and utilisation/ exploitation of the license granted to the users in India; 4.13.4 that the Appellant received amount on account of lease of software / software renting. 4.14 The Learned AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act against the Appellant. 4.15 Without prejudice to the above grounds, the Learned AO has erred in levying interest under section 234B of the Act while completely disregarding the provisions of the Act and the various judicial precedents decided in favour of taxpayers on this issue." 22. It was submitted before us that the issue involved in the present appeal are identical to the appeal of the assessee for assessment year 2007 - 08. The mainly ground No. 3 and ground No. 4 of the above appeal are against the action of the Ld. Assessing officer in charging the income of the appellant as "Royalty". It was further submitted that argument of the parties remains the same as arguments advanced by them for assessment year 2007-08. 23. We've carefully considered the rival ....
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....ftware by a group company of the Appellant -Microsoft Regional Sales Corporation (MRSC'), a distributor of Microsoft Software Products, to Indian distributors is taxable in India in the hands of the Appellant under the provisions of the section 9(1)(vi) of the Act. 3.3 That on facts and in law, the Hon'ble DRP has erred in confirming the conclusion of the Learned AO in the Draft assessment order that the reassessment proceedings initiated against the Appellant were valid without appreciating that: 3.3.1 the reasons to believe recorded by the Learned AO were palpably perverse as the same were based on the existing material available with the office of the Learned AO and no new material had come to his notice for initiation of such proceedings; 3.3.2 All the material facts and legal position in relation to the transactions undertaken by the Appellant were on record with the office of Director of Income-tax, International Taxation, New Delhi which is evident from the letter dated 4 November 2008 received from the Authority of Advance Rulings (AAR). 3.4 That on facts and in law, the Learned AO in the Draft assessment order has erred in observing that amount paid by ....
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....nature of the transaction from the sale of a copyrighted article to transfer of a copyright; 3.7.8 the provisions of section 115A of the Act characterizes the income from sale of software as 'Royalty' under the Act in case of Non-residents, without appreciating that section 115A does not enlarge the scope of the term "Royalty as defined in section 9(1)(vi) of the Ac. Accordingly, the order passed by the Learned AO on the basis of DRP's directions is erroneous both in taw and on facts. Therefore, the additions made by the Learned AO are liable to be deleted. 4 Tax on revenue alleged as 'Royalty' under the Double Taxation Avoidance Agreement between India and US ('India US tax treaty') and the recent jurisprudence 4.1 That on facts and in law, the Hon'ble DRP has erred in confirming the variations proposed by the Learned AO in the Draft assessment order by holding that: 4.1.1 payments received by the Appellant are deemed to arise in India under Article 12(7) of the India US tax treaty, disregarding the fact that 'royalty' paid by MO is not for earning income from a source in India: 4.1.2 revenue earned and received from sale o....
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....R 401) (SC), Ericsson A. B. and Metapath (ITA 504/2007) (Del HC), Nokia Networks OY (ITA 512 / 2007) (Del HC) and various other Tribunal / AAR rulings relied on by the Appellant. 4.9 That on facts and in law, the Learned AO has erred in observing that even grant of one right in respect of a copyright or work would amount to transfer of the use of copyright. 4.10 That on facts and in law, the Learned AO has erred in observing that the Appellant has not received royalty in respect of any manufacturing rights. 4.11 That on facts and in law, the Hon'ble DRP has erred in confirming the conclusion drawn by Learned AO in the Draft assessment order and observing that only two types of transactions in respect of computer software i.e. sale and licence (letting) are recognized by the Indian laws and India - US tax treaty and no further dissection of licensing (on the lines of OECD commentary) is permitted under the Indian Copyright Act, Income-tax Act and Indian tax treaties. 4.12 That on facts and in law, the Learned AO has erred in observing that the consideration received by the Appellant has arisen in India, as MO has been granted retail distribution rights in India. F....
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....ITA No.1696/Del/2014 as under:- 1. That on facts and in law, the Dy. Director of Income Tax, Circle - 3(2), International Taxation, New Delhi ('Learned AO') has erred in computing the total income of the Appellant at INR 23,452,242,102 as against'Nil' income returned by the Appellant. 2. Without prejudice to the below mentioned grounds of appeal, the Hon'ble Dispute Resolution Panel ('DRP') and Learned AO erred on the facts of the case and in law, in determining the income of the Appellant for the subject Assessment Year at INR 23,452,242,102 thereby completely ignoring the fact that the payments received by the Appellant from licensing of manufacturing and distribution rights to Microsoft Operations Pte Ltd. ('MO') pertaining to India was INR 14,071,345,261. 3. Tax on revenue alleged 'as royalty' under the Income-tax Act, 1961 ('the Act'): 3.1 That on facts and in law, the Hon'ble DRP has erred in confirming the variations proposed by the Learned AO in the Draft assessment order by holding that payments received by the Appellant from MO is taxable as 'Royalty' under the provisions of section 9(1)(vi) of th....
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....nsideration received by the Appellant is payment for a 'process' and is thus covered under section 9(1)(vi) of the Act; 3.7.5 the consideration received for use of software is towards consideration for use of patented article and inventions; 3.7.6 as per the provisions of section 9 of the Act, the payments made for import of software are royalty payments and the only exception provided is for computer software supplied by a non-resident manufacturer along with computer or computer based equipment under any scheme approved under policy of Computer Software Export, Software Development and Training, 1986 of the Government of India; 3.7.7 the Appellant possesses right in copyright, which it can enforce in India, if any violation of such right is noticed by it without appreciating the fact that: 3.7.7.1 the owner of copyright in Microsoft Software Products is Microsoft Corporation {'MS Corp') and legal action against the violation of copyright can be undertaken only by owner of copyright; 3.7.7.2 without prejudice to the above, the right of the owner of the copyright to take legal action, would not alter the nature of the transaction from the sale of a co....
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....the Hon'ble DRP and Learned AO erred in disregarding OECD commentaries, US IPS regulations, International tax commentaries, UN model convention, International court rulings on classification of transactions involving computer software while interpreting tax treaties. 4.6 That on facts and in law, the Learned AO has erred in interpreting the ratio laid down in the decision of P.V.A.L. Kulandagan Chettiar in an incorrect manner on relevance of OECD commentaries / US IRS regulations / International tax commentaries for interpretation of treaties. 4.7 That on facts and in law, the Hon'ble DRP has erred in confirming the conclusion drawn by Learned AO in the Draft assessment order by relying on the decisions pronounced in cases of Samsung Electronics (203 taxman 477) (Kar HC), Millenium IT Software {338 ITR 391) (AAR), ING Vysya Bank Ltd. (61 DTR 401)(ITAT), Citrix Systems (343 ITR 1 (AAR No. 822 of 2009). 4.8 That on facts and in law, the Hon'ble DRP has erred in confirming the conclusion drawn by Learned AO in the Draft assessment order by distinguishing from the decisions in cases of Tata Consultancy Services (271 ITR 401) (SC), Ericsson A. B. and Metapath (ITA 5....
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....e mainly ground No. 3 and ground No. 4 of the above appeal are against the action of the Ld. Assessing officer in charging the income of the appellant as "Royalty". It was further submitted that argument of the parties remains the same as arguments advanced by them for assessment year 2007-08. 31. We've carefully considered the rival contentions. The only issue involved in the appeal of the assessee is that that whether the income received by it is chargeable to tax as royalty. We have decided this issue in the appeal of the assessee for assessment year 2007 - 08 wherein we set aside the whole issue to the file of the assessing officer to decide it afresh in accordance with the decision of the Hon'ble Delhi High Court in case of DIT V Infrasoft Limited ( supra). Similarly in this year also we set aside the whole issue to the file of the assessing officer with similar direction as contained in ITA number 6089/Del/2012. 32. In the result appeal of the assessee for the assessment year 2010-11 in ITA No. 1969/Del/2014 is allowed with above direction. ITA No.1615/Del/2015 AY 2011-12 33. The grounds of appeal raised by the assessee in ITA No.1615/Del/2015 as under:- "1. That on....
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....he Hon'ble DRP and Learned AO erred in placing reliance of Samsung Electronics Co. Ltd (245 CTR 481) (Kar HC). 3. Tax on revenue alleged 'as royalty' under the Income-tax Act. 1961 ('the Act'): 3.1 That on facts and in law, the Hon'ble Dispute Resolution Panel (Hon'ble DRP) erred in confirming the variations proposed by the Learned AO in the draft assessment order as against the returned income by holding that the revenue earned by the Appellant from the Indian distributors is taxable in the hands of the Appellant as royalty under the provisions of section 9(1)(vi) of the Act. 3.2 That on facts and in law, the Hon'ble DRP and the Learned AO erred in observing that the payment made by the Indian distributors to the Appellant is towards the use of copyright and not for the purchase of copyrighted article and therefore, the same is royalty under section 9(1)(vi) of the Act. 3.3 That on facts and in law, the Learned AO erred in observing that: 3.3.1 the consideration received by the Appellant was on account of licensing of software and not on sales of software; 3.3.2 that the use of computer programme is a use of process; 3.3.3 that ....
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....t. 8 Without prejudice to the above grounds, the Learned AO erred in levying interest under section 234B of the Act which is not maintainable in law in view of the decisions of jurisdictional High Court and various other judicial precedents decided in favor of taxpayers on this issue. 34. It was submitted before us that the issue involved in the present appeal are identical to the appeal of the assessee for assessment year 2007 - 08. The mainly ground No. 3 and ground No. 4 of the above appeal are against the action of the Ld. Assessing officer in charging the income of the appellant as "Royalty". It was further submitted that argument of the parties remains the same as arguments advanced by them for assessment year 2007-08. 35. We've carefully considered the rival contentions. The only issue involved in the appeal of the assessee is that that whether the income received by it is chargeable to tax as royalty. We have decided this issue in the appeal of the assessee for assessment year 2007 - 08 wherein we set aside the whole issue to the file of the assessing officer to decide it afresh in accordance with the decision of the Hon'ble Delhi High Court in case of DIT V Infrasof....
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....ors / resellers outside India and no right has been passed by the Appellant to distributors in the entire transaction; 2.3.8 the provisions of section 115A of the Act characterizes the income from sale of software as 'Royalty' under the Act in case of Non-residents, without appreciating that section 115A does not enlarge the scope of the term "Royalty" as defined in section 9(1)(vi) of the Act. 2.4 That on the facts and in law, the Learned AO has erred in placing reliance on the Explanations 4, 5 and 6 inserted by Finance Act 2012 completely disregarding the detailed submission filed by the Appellant that the said explanations did not have any bearing on the position of non-taxability of revenue earned by Appellant in the Act as well as the Double Taxation Avoidance Agreement between India and US ('India US tax treaty1). 2.5 That on the facts and in law, the Learned AO has erred in placing reliance on the judgment of Hon'bie Supreme Court in the case of Swadeshi R Anjan Sinha vs. Hardev Banerjee (AIR 1992SC 1590). 2.6 That on facts and in law, the Learned AO has grossly erred in not transferring the TDS credit claimed by MRSC to MOL Corporation in view o....