TaxTMI 
TaxTMI 
2021 (8) TMI 858
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....peal for Assessment Year 2014-15. As far this appeal by the assessee is concerned, the only issue that arises for consideration is as to whether the Revenue authorities were justified in disallowing sum paid by the assessee as software maintenance charges to its overseas group companies by invoking section 40a(ia) of the Income Tax Act, 1961 ('the Act'). 3. The assessee is a company. It is a wholly owned subsidiary of World Courier (Group) Inc, USA. The assessee provides specialized courier services and supply chain services to domestic and overseas customers. For Assessment Year 2014-15, the assessee filed the return of income declaring total income of Rs. 5,93,68,070/-. In the course of assessment proceedings, the AO noticed th....
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.... of actual user. 5. Under the Software Maintenance Agreement, World Courier Inc. is required to provide inter alia the following services: a. Remedial maintenance consisting of diagnosis and corrective action for problems in the operation of the software b. Supply of all product upgrades and new releases and installation of such upgrades and new releases c. Provide such software and or system enhancements as may from time to time be requested by the Customer, at extra cost d. Provide consultancy services in connection with the purchase and operation of computer hardware and software (other than the software to be maintained), including installation and training, as fees to be agreed in advance 6. Th....
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....n the case of DIT vs. Ericsson AB (343 ITR 470) (Delhi). Further, the proposition that the definition of the term 'royalty' under the Act will not have any overriding impact on the definition of the term 'royalty' as provided under Article 12(3)(a) of the Treaty. 8. The AO did not agree with the submissions made by the assessee and following the decision of the Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd., 345 ITR 495 (Karn), he held that the payment in question was in the nature of royalty as it is a payment for a right to use the software and he accordingly disallowed the claim of the assessee for deduction of a sum of Rs. 1,28,84,818/-. He, however, allowed depreciation on computer softw....
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....sion of Hon'ble Karnataka High Court in the case of CIT vs. Samsung Electronics Ltd. 345 ITR 494 on the basis of which the revenue authorities concluded that the payment in question is in the nature of royalty, now stand overruled by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (2021) 125 Taxmann.com 42 (SC). The Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (2021) 125 Taxmann.com 42 (SC) held that A copyright is an exclusive right that restricts others from doing certain acts. A copyright is an intangible right, in the nature of a privilege, entirely independent of any material substance. Owning copyright in a work is differ....
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....ranslation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (1) to (6). The court held that a licence from a copyright owner, conferring no proprietary interest on the licensee, does not involve parting with any copyright. It said this is different from a licence issued under section 30 of the Copyright Act, which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. What is 'licensed' by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly supplied to the resident end-user, is the sale of a physical object which contains an embedded computer program. Therefore, it was a case of sale o....
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....rstood in the context of the Copyright Act. The court said that by virtue of Article 12(3) of the DTAA, royalties are payments of any kind received as a consideration for "the use of, or the right to use, any copyright "of a literary work includes a computer program or software. It was held that regarding the expression "use of or the right to use", the position would be the same under explanation 2(v) of section 9(1)(vi) because there must be, under the licence granted or sales made, a transfer of any rights contained in sections 14(a) or 14(b) of the Copyright Act. Since the end-user only gets the right to use computer software under a non-exclusive licence, ensuring the owner continues to retain ownership under section 14(b) of the Copyr....