TaxTMI 
TaxTMI 
2021 (2) TMI 508
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....ses in India including certification and software for authentication business which was claimed as not chargeable to tax in the absence of it having any Permanent Establishment (PE) in India. The AO show caused the assessee as to why the receipts from sale of software licenses should not be taxed as Royalty. The assessee tendered explanation elaborating that the software licenses sold by it were meant for internal business purpose of the users and not for commercial exploitation. It was further stated that the assessee did not transfer any right in respect of the copyright in the said software and only right to use the software was transferred. That was how, the assessee claimed that the consideration for the sale of software licenses was not chargeable as Royalty under the India and USA Double Taxation Avoidance Agreement (hereinafter also called 'the DTAA'). Relying on certain decisions including the judgment of Hon'ble Karnataka High court in CIT Vs. Samsung Electronics Co. Ltd. (2012) 345 ITR 494 (Kar.), the AO came to hold that the receipts derived by the assessee from sale of software licenses were taxable under Article 12 of the DTAA. He fortified his conclusion by relying o....
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....s. iv. The amendment to the definition of the term Royalty u/s 9(1)(vi) of the Act does not per se alter the meaning of the term `Royalties' under the respective DTAAs. 6. As the Tribunal has decided the issue in the assessee's favour for the preceding year, which formed the bedrock of the A.O.'s view for the year under consideration, we respectfully follow the precedent to the extent the issue is covered. 7. The ld. DR, however, sounded a contrary note by highlighting the assessee's reply dated 7.12.2016 furnished to the AO, copy placed at page 41 onwards of the paper book, accepting that the assessee not only made direct sale of software licenses to its end user customers in India, but also licensed to the Distributors and the Resellers. It was put forth that insofar as direct sale to the end-customers in India is concerned, that may not amount to Royalty in the light of the decision of the Tribunal for earlier year, but, he submitted licensing of the software to the Distributors and the Resellers will certainly amount to receipt of consideration as Royalties within the meaning of Article 12 of the DTAA. It was further explained that the Tribunal in earlier year's order has d....
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.... Agreement, which is quite material from our angle, states that: `You shall pay Symantec the applicable fees as set forth in the Reseller Console for the Products purchased.' Para 5.4 discusses the `Re-sale price' by providing that: "You shall be solely responsible for determining the fees you charge your customers, invoicing your customers and collecting such fees". Clause 8 deals with `Licenses to Materials' by providing that: `Symantec grants you a non-exclusive, non-transferable, nonsub- licensable right and license to (a) use Symantec material during the term of this Agreement solely in conjunction with the marketing, promotion and resale of the Products'. Clause 9 of the Agreement in no uncertain terms states that the assessee shall retain all intellectual property rights and title in and to all of their confidential information or other proprietary information, products and services etc. 10. On going through the Certificate Reseller Agreement, it is manifested that the assessee has entered into agreements with Resellers for establishing contact with the end customers and make sales. Resellers are obliged to purchase the Symantec Products from the assessee for resale. A Rese....
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....py the work or the intellectual property so acquired on the goods sold or services rendered by him during the course of his business. But where the intellectual property or work is simply used by the licensee for his internal use and not for exploiting it commercially for earning income directly, the consideration paid by him ceases to be a royalty income in the hands of the licensor. Simply allowing one-to-one user of the intellectual property or a product using intellectual property is not the same thing as the other person commercially exploiting such a right in his business for selling the work as it is or selling products or services using the intellectual property. It is only when the licensee gets a right to copy the intellectual property either on the goods/services sold by him to customers or to sub-license the same to third persons for commercial exploitation, that the consideration amounts to royalty in the hands of the licensor. 13. Reverting to the factual panorama, it is seen that Resellers have not been conferred with any right to copy the software for further sale by them. They just purchase the Symantec Products as such for resale to the end customers in India. Ea....
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....f inventory of such Appliance(s)'. Clause 8 of the Agreement, which is relevant for our purpose, deals with `Trademarks, Trade Names and Copyrights'. Para 8(a) states that: `During the term of this Agreement, Distributor is authorized by Symantec to use the trademark "Symantec", the Symantec logos for Symantec Products and the designation "Authorized Symantec Distributor" in connection with Distributor's advertisement, promotion and distribution of Symantec Products. Distributor's use of such trademark, logos and designation will be in accordance with Symantec's policies in effect from time to time.' Para 8(b) states that: `Distributor agrees not to alter, erase, deface or overprint any notice on anything provided by Symantec'. Clause (c) of para 8 has caption - `No Distributor Rights in Trademarks or Copyrights'. Clause (e) or para 8 states that: `Distributor will not alter, reverse engineer, decompile, disassemble, rent, electronically distribute or market by interactive cable, remote processing services Symantec Products.' 15. On going through the above clauses of the Distributor Agreement, it becomes immensely clear that the Distributors have been appointed by the assessee in ....