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2020 (10) TMI 936
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....stomers in India as per the distribution / license agreement. As per the said agreement Qlik India will promote and resell QlikTech products to the end users within the prescribed territory in accordance with the terms and conditions set forth in the agreement. 2.1 The assessee filed its return of income on March 30, 2016 declaring NIL income. The AO in the draft assessment order passed on 15th December 2016 held that the entire receipts amounting to Rs. 7,01,62,491/- from sale of software products is taxable as royalty under Article 12 of the India-Sweden Double Taxation Avoidance Agreement and u/s 9(1)(vi) of the Act. The assessee did not file any objection before the DRP but communicated that it would prefer an appeal before the Ld. CIT(A). The AO accordingly passed the draft assessment order on 27th January 2017 computing the tax @ 10% on gross receipts amounting to Rs. 7,01,62,491/- as per the DTAA. 3. In appeal, the Ld. CIT(A) upheld the action of the AO holding the receipts of royalty income being in nature of payment for use of copyright in a process and transfer of information of commercial or industrial nature. 4. Aggrieved with such order of the Ld. CIT(A) th....
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.... the CIT(A) have erred in law and on facts in failing to appreciate that the sale of software is in nature of sale of "copyrighted article" and not in nature of transfer of "copyright" and therefore mere transfer of a copyrighted article, without transferring the right in the copyright, shall not be held as payment towards "royalty" and consequently, cannot be taxed in the hands of the Appellant. 9. The learned AO and the CIT(A) have erred in law and on facts in failing to appreciate that only payments made to use/acquire a right to use a copyright of a literary, artistic, or scientific work is covered within the definition of royalty and that payments made for acquiring the right to use the product itself without allowing any right to use the copyright in the product, patent, secret formula or process, is not covered within the scope of "royalty" 10. The learned AO and the CIT(A) have erred in law and on facts by not following the various rulings of jurisdictional Delhi High Court ("DHC") by stating that the same do not apply to the Appellant. 11. The learned AO and the CIT(A) have erred in law and on facts in failing to appreciate the fact that the amen....
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....her submitted that the sale of software in the instant case cannot be held to be "use of process" or "information concerning Industrial, commercial or scientific experience" because the end users do not have any access to the source code and what is available merely for their use is software product as such and not the process embedded in it and all intellectual property rights and other rights relating to the QlikTech products at all times is the exclusive property of the assessee. 6. Referring to the decision of the Delhi Bench of the Tribunal in the case of Datemine International Ltd. Vs. ADIT reported in 48 ITR 229 he submitted that the Tribunal in the said decision has held that computer software cannot be taxed as royalty under the DTAA by treating it either as a "process" or as "information concerning commercial experience". Referring to various other decisions he submitted that computer software cannot be taxed as royalty by treating it as a consideration for use of "process". He accordingly submitted that sale of software in the instant case cannot be taxed as "Royalty" in view of Article 12 of DTAA. 7. So far as ground No. 7 to 12 are concerned he submitted that the....
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....t a case of sale of simplicitor software. He submitted that Ld. CIT(A) using the information available in public domain found that the assessee has effectively delivered technology driven process to the end user which was secret process for the user. However, in the cited case by the Ld. Counsel for the assessee, no such distinction was highlighted. He submitted that there are two different level of processes involved in technology driven business solution. At one level, the process is in the context of the manner of writing a computer program. In simpliciter sale of software, the process is used to define the computer program and the same has been dealt with by Tribunal. However, the term "process" at other level is the technology driven process which is available for use by the end user. . The instance of supply of software is distinguishable from the delivery of complete solution where the solution is confirmed as per the specific requirements of the clients. He accordingly submitted that the order of Ld. CIT(A) being in consonance with law should be upheld and the grounds raised by the assessee should be dismissed. 9. We have heard the rival submissions made by both the side....
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....be a) Whether the receipts from sale of software be treated as royalty or not. b) Whether the effect of amendment in Section 9(1)(vi) brought about by the Finance Act, 2012 can be read into the treaty or not. 7. We have heard the arguments of both the parties and perused the material on record. 8. We find from the judgment of the Jurisdictional High Court, in the case of DCIT Vs Infrasoft Ltd. 264 CTR 329 has elaborately explained as to what constitutes licensing agreement, its exclusivity, non-transferability, as to what constitutes a copyright and how the amounts paid for transfer of copyright and amounts paid for royalty defer in connection with the Article 7 and Article 12 of the DTAA. The judgments also dealt with the licenses, copyrights, loan rent sale, sublicense,transfer of copy of software as well as royalties. The judgments also considered the decision of the Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd. with regard to copyright and royalty. The operative portion of the said judgment of the Hon'ble High Court of Delhi is as under: "85. The Licensing Agreement shows that the license is non-exclusive, ....
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....on of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverse engineer the Software without Infrasoft's written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition ofa "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right....
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....hout any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially coextensive with the owner/transferor who divests himself of the rights he possesses pro tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 91. There is no transfer of any right in respect of copyright by the Assessee and ....
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....me for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 95. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Andhra Pradesh High Court in the case ....
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....t in ITA 473/2012. The Hon'ble Court observed that the only manner in which change in position of the provisions of the treaty can be relevant only if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. The Hon'ble High Court's observation is relevant to the instant case with regard to the amendment to the Act even though the judgment was given in the case of determination of royalty of payment of transponder fee, it adequately dealt with the issue of Section 9(1)(vi). The relevant extract of the said order read as under: "74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. ....