TaxTMI 
TaxTMI 
2021 (9) TMI 15
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....ndian customers towards sale of shrink wrapped and off-the shelf software as 'royalty' under Section 9(1)(vi) of the Income-tax Act, 1961 ("the Act") and also under Article 12 of the India-Ireland Double Taxation Avoidance Agreement ("India-Ireland DTAA"). b. The AO and DRP erred in holding that granting of license to use the software amounts to transfer of rights in the copyright and consequently the provisions of Section 9(1)(vi) of the Act are attracted. c. The AO and DRP erred in holding that the income from the sale of shrink wrapped and off the shelf software products accrued or arose in India as per Section 5(2) of the Act, merely because the payers are situated in India. d. The AO and DRP erred in holding that there is a transfer of the underlying copyright in the software, between the Appellant and its customers, in spite of the fact that the Appellant has sold shrink wrapped computer software, being a copyrighted article and not the copy right itself. e. The AO and DRP have erred in holding that the subject transaction cannot be regarded as sale as there no transfer of all the rights, title and interest in the copyright, without....
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....ble Tribunal for the assessment year 2012-13 and the same is admitted. o. That without prejudice, the AO and DRP ought to have appreciated that notwithstanding the retrospective amendment made to Section 9(1)(vi) of the Act vide the Finance Act, 2012, the definition of 'royalty' under the India-Ireland DTAA has not undergone any change and that, therefore, the beneficial provisions of the DTAA would continue to apply in the Appellant's case. 3. Initiation of penalty proceedings That the AO erred in initiating penalty proceedings under Section 270A of the Act. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, the above grounds of appeal, at any time before or during the hearing of the appeal. 4. Relief a. The Appellant prays that the appeal may be allowed and the impugned final assessment order be set aside, in the interests of justice and equity." 2. The assessee company Quest Software International Limited (QSIL) [formerly known as Dell Software International Ltd.] is a foreign company incorporated under the laws of Ireland and a tax resident of Ireland. The ultimate holding c....
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....rt the submissions made by the learned Counsel for the assessee. In view of the judgment of the Hon'ble Apex Court, which is identical to the facts of this case, we hold that the payment of Rs. 42,96,49,035 received by the assessee-company would not constitute royalty and cannot be brought to tax. It is ordered accordingly." 4. Thus, the ld. AR submitted that the above precedents are binding which shall be followed. 5. The ld. DR submitted that in this case the assessment year is 2017-18 and the issue may be remitted to the AO to examine the relevant agreements so as to decide the issue in the light of the Supreme Court judgment in Engineering Analysis Centre of Excellence P. Ltd. (supra). 6. We have heard both the parties and perused the material on record. The assessee relied on the order of the Tribunal in its own case for the AY 2016-17 (supra). The ld. AR also relied on the judgment of Hon'ble Supreme Court in the case of the case of Engineering Analysis Centre of Excellence Private Limited v. CIT, 432 ITR 471 (SC). The Hon'ble Supreme Court in this case has examined the question whether the payments made to non-resident software suppliers is "royalty" and....
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....tly, the distributor does not get the right to use the product at all. 46. When it comes to an end-user who is directly sold the computer programme, such end-user can only use it by installing it in the computer hardware owned by the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. 47. In all these cases, the "licence" that is granted vide the EULA, is not a licence in terms of section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in sections 14(a) and 14(b) of the Copyright Act, but is a "licence" which imposes restrictions or conditions for the use of computer software. Thus, it cannot be said that any of the EULAs that we are concerned with are referable to section 30 of the Copyright Act, inasmuch as section 30 of the Copyright Act speaks of granting an interest in any of the rights mentioned in sections 14(a) and 14(b) of the Copyright Act. The EULAs in all the appeals before us do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted....
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....e of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment." 9. It is pertinent to note that the Hon'ble Supreme Court has reversed the decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Co Ltd. (supra). 10. A perusal of the decision rendered by Hon'ble Supreme Court would bring out following principles:- (a) Relevant DTAA provisions are required to be considered for determining the question whether the payments made by the assessee to non-resident companies for purchase of software are in the nature of Royalty or not. (b) Where ever India has entered Double Taxation Avoidance Agreement with the country of non-resident supplier, there is no necessity to refer to the provisions of sec. 9(....