TaxTMI 
TaxTMI 
2021 (3) TMI 687
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....ivate limited company. It provides contract software development and support services and information technology (IT) enabled services including data analysis, compilation and transmission of customized software to overseas affiliates. The assessments were completed by making disallowance of software expenses paid to nonresidents by invoking the provisions of section 40(a)(ia) of the I.T.Act. 3. Based on the disallowance u/s 40(a)(ia) of the I.T.Act, in assessments completed, proceedings u/s 201(1) of the I.T.Act was initiated. The assessee was show caused why it should not be treated as an assessee in default for non-deduction of tax at source u/s 195 of the I.T.Act. The assessee filed detailed response to the above said show cause notice....
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....relevant DTAA if more beneficial to the assessee). 3. As per the provisions of section 5 of the Act, in case of non-residents, amounts includible in their total income i.e. taxable income would be all income from whatever sources derived which- a. is received or is deemed to be received in India in such year by or on behalf of such person, or b. accrues or arises or deemed to accrue or arise to him in India during such year. 4. As per section 9(1)(vi) of the Act, income deemed to accrue or arise in India includes income by way of royalty payable by a person who is a resident in India. 5. As per Explanation 2 to section 9(1)(vi) of Act, the term 'royalties' means "consideration (including any lump sum consideration but ....
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....ears in the royalty definition. It should take colour from the preceding expression 'transfer of rights in respect of copyright'. 9. In the instant case, we submit that Appellant has been granted the user licence to use the software (and not the copyright in the software) for its internal business purposes. The Appellant has got the license to use. the software and such license does not grant the Company right to make copies of such software even for its internal purposes. Thus, we submit that what is transferred is a copyrighted article and not a copyright itself. Hence, consideration paid is not taxable as royalty under the provisions of the Act 10. The Appellant submits that the software purchased are only a copyrighted art....
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....d in Article 12 of the DTAAs, the distribution agreements/ End-User License Agreements do not create any interest or right in such distributors /end users, which would amount to the use of or right to use any copyright. The Apex Court also noted that the definition under the Act is wider as compared to the definition in DTAA in at least the following three aspects: - Consideration includes lumpsum consideration which would not amount to income of the recipient chargeable under the head 'capital gains'; - Transfer of 'all or any rights' expressly includes the granting of licence in respect thereof; and - Such transfer must be 'in respect of any copyright of any literary work. Accordingly, the Apex Court has held....
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.... the DTAAs, the distribution agreements/ End-User License Agreements do not create any interest or right in such distributors/end users, which would amount to the use of or right to use any copyright. The Hon'ble Apex Court also noted that the definition under the Act is wider as compared to the definition in DTAA in at least the following three aspects: - Consideration includes lumpsum consideration which would not amount to income of the recipient chargeable under the head 'capital gains'; - Transfer of 'all or any rights' expressly includes the granting of licence in respect thereof; and - Such transfer must be 'in respect of any copyright of any literary work. Accordingly, the Hon'ble Apex Court has held that....