TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 21
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....Act, 1961 (Act), the Assessee as a person responsible for paying to a non-resident, any sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. In terms of Sec.195A of the Act, where under an agreement or other arrangement, the tax chargeable on any income is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. 3. There is no dispute in these appeals that the Assessee deducted tax at source on the payment for the services referred to above to non-residents. There is also no dispute that as per the agreement with the non-resident, the Assessee was to bear the taxes payable by the non-resident a....
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....is exercise has been carried out by the CIT(A) in paragraphs 7 to 44 of the impugned common order and in paragraph-45 of the impugned order, the CIT(A) has summarized the nature of payments to the non-residents as follows: "In the payments listed above, the majority of the payments are consideration paid for purchase of software, subscription, access to various databases and e-commerce platform, access of hardware overseas through software, access to online software training, training etc. The argument of the appellant is that these payments are not in the nature of royalty. The grounds in this respect are therefore considered as under: Analysis of payments for software, subscriptions, access portals, access to online databases, etc." 7. In paragraph 46 to 48, the CIT(A) has discussed the decision of the Hon'ble Karnataka High Court in the case of Samsung Electronics Co.Ltd. (2012) 16 taxmann.com 141(Karn.) and has concluded in paragraph 49 that in terms of the said decision payment made by Indian residents to the non-resident for supply of software and access to database is royalty. 8. Thereafter the CIT(A) dealt with and rejected the claim of the Assessee that the definitio....
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.... recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a computer programme,- to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme" Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. 52. I find that the Appellant has not evaluated the grant of any right in terms of section 14(a)(iii) and 14(b)(ii) of the Copyright Act. I find that the grant of the license for the right to use or right to limited distribution is copyright in terms of section 14(a)(iii) and 14(b)(ii) of the Copyright Act. The claim: The use of software is not royalty within the I T Act 53. I find that the decision of Hon'ble Karnataka High Court in the case of Samsung (Supra) is applicable in the facts of the case. Accordingly, the claim that use of soft....
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....y of the equipment which are actually lying in the ocean. It is the constructive possession which is material here. 99. Further, this is a transaction in the nature of right to use of a part of the capacity as dedicated capacity for the customer. If the payee owns or has a right over a part of the equipment and process, it is giving to the appellant [payer] a right to use a part of that part owned or leased by it for one year or more depending on the agreement. 100. Thus, the appellant is making payments as a consideration for the use of equipment as well as several processes (many of which are secret and patented). These payments are for commercial utilisation of such equipment and such processes while transferring the data. Such use is squarely covered by definition of Royalty in the tax treaty. 101. Thus, I hold that the amount paid by the appellant is taxable as Royalty in the hands of payee in India under the various treaties also and the claim that there is no use of or right to use of equipment and/ or processes is rejected." 11. The final conclusion of the CIT(A) on the payments towards Data Connectivity charges was as follows: 117. "Thus, the payments made by Appe....
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....a tax resident. He submitted that the definition in the Act and the amendment to those provisions will have no impact on the tax liability of the non-resident. He drew our attention to the provisions of Sec.9(1)(vi) (b) read with Expln.-2 of the Act reads thus: Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India :- (vi) income by way of royalty payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : ........ Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideratio....
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....r information is in India. Explanation 6.-For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret; 16. The Ld. Counsel for the assessee submitted that payees are tax residents of various countries with whom India has a DTAA and therefore in view of Section 90(2) of the Act the provisions of the Act or the DTAA whichever is more beneficial to the assessee shall apply. He submitted that since the definition of royalty provided under the relevant Article of DTAA of whom the payees are tax residents provides for a much restricted definition of "Royalty", the said definition provided under the DTAA is more beneficial as compared to the provisions of Section 9(1)(vi) of the Act, therefore, the provisions of DTAA shall apply. He pointed out that the CIT(A) in the impugned order has come to a conclusion that the payments in question are in the nature of royalty and hence taxable in the hands of the nonresident in ....
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....e eighth act of selling or giving of commercial rental or offering for sale or commercial rental any copy of the computer program. The seven acts as enumerated in section 14(a) of the Copyright Act, in respect of literary works are: 1. To reproduce the work in any material form, including the storing of it in any medium electronically; 2. To issue copies of the work to the public, provided they are not copies already in circulation; 3. To perform the work in public, or communicate it to the public; 4. To make any cinematographic film or sound recording in respect of the work; 5. To make any translation of the work; 6. To make any adaptation of the work; and 7. To do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (1) to (6). 18. The court held that a license 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 license 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' ....
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....i) because there must be, under the license 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 license, ensuring the owner continues to retain ownership under section 14(b) of the Copyright Act read with sub-section 14(a) (i)-(vii), payments for computer software sold/licensed on a CD/other physical media cannot be classed as a royalty. 20. The learned counsel for the Assessee cited the terms of the End user's Licence Agreement (EULA) with some of the non-residents and submitted that as per the terms of the EULA, no right in copyright is given to the Assessee so as to characterize the payment to the non-resident as in the nature of royalty under the DTAA. We observe that the CIT(A) has not examined the issue from an analysis of the EULA and therefore these arguments and reference to the terms of the EULA which have not been considered at all, may not be appropriate before the tribunal. 21. With regard to the payments towards webhosting charges and cloud computing/cloud hosing charges, the learned counsel for the Assessee submitted that thos....
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....on has been explained in the case of New Skies Satellite BV (supra) by the Hon'ble Delhi High Court which has since been approved by the Hon'ble Supreme Court in the case of Engineering Analysis (supra) and therefore the decision in the case of Verizon (supra) no longer holds the field. 23. With regard to payments towards consulting fees, legal fees, professional fees, training fees, certification fees and sub-contracting charges, the learned counsel submitted that the payments were treated as royalty because they were related to purchase of software, training, online subscription etc. and therefore would also be in the nature of 'royalty'. He submitted that once the payment for use of software, access to online etc., is regarded as not in the nature of royalty, these payments should also be regarded not in the nature of royalty and hence not liable to TDS. Alternatively, it was submitted that the conclusion that the payments were in the nature of Fees for Technical Services (FTS) cannot be sustained because the applicable DTAA regarding taxation of FTS need to be considered. According to him therefore the issue needs re-examination by the income tax authorities in the light of th....
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....P., 2005 (1) SCC 308. In this regard, Court held that: - "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 enduser, is, in fact, the sale of a physical object which contains an embedded computer program, and is, therefore, a sale of goods, which, as has been correctly pointed out by the learned counsel for the assessees, is the law declared by this Court in the context of a sales tax statute in "Tata Consultancy Services v. the State of A.P., 2005 (1) SCC 308" 27. The Court noted that the terms of the Double Taxation Avoidance Agreement (DTAA) with foreign companies will have application in the case. The definition of 'royalty' in DTAAs will have application. Once a DTAA applies, the provisions of the Income Tax Act can only apply to the extent that they are more beneficial to the assessee and not otherwise. Where any term is defined in a DTAA, the definition contained in the DTAA is to be looked at. It is only where there is no such definition that the definition in the Income Tax Act can then be applied. The provisions contained in the Income Tax Act (section 9(1)(vi), along wi....
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.... question were on account of use of scientific equipment, and, for that reason, giving rise to an income taxable under section 9(l)(vi] of the Act as also article 13[1)(» of the Indo US tax treaty. This finding, however, proceeds on the fallacy that when a scientific equipment is used by the assessee for rendering a service, the receipt will be construed as a receipt for use of scientific equipment. Undoubtedly, when the assessee receives an income on account of allowing a customer to use a scientific equipment, it does become taxable for the reason of its being characterized as such, but the use of a scientific equipment by the assessee, in the course of giving a service to the customer, is something very distinct from allowing the customer to use a scientific equipment. The true test is in finding out the answer to the fundamental question- is it the consideration for rendition of services, even though involving the use of scientific equipment, or is it the consideration for use of equipment simpUctor by the assessee? In the case of former, the consideration is not taxable, in the case of the latter, the consideration is taxable. In the case of Kotak Mahindra Primus Ltd Vs ....
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.... Tribunal held that the cloud hosting company creates / maintains information online and grants access to the journals, the assessee neither shares its experiences, techniques or methodology employed in evolving databases with the users, nor imparts any information relating to them. The terms of the agreement between the cloud host and the customer proider that the customer gets right to search, view and display the articles (whether online or by taking a print) and reproducing or exploiting the same in any manner for personal use. The customers do not get any rights to the journal or articles therein. It was held that there was No 'use or right to use' in any copyright or any other intellectual property of any kind is provided by the assessee to its customers. Furthermore, the information resides on servers outside India, to which the customers have no right or access, nor do they possess control or dominion over the servers in any way.Therefore, the question of such payments qualifying as consideration for use or right to use any equipment, whether industrial, commercial or scientific, does not arise. The tribunal thereafter applied the ratio to the case of the Assessee R....
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....High Court in the case of Verizon (India) (supra) is not proper because the said decision has been explained in the case of New Skies Satellite BV (supra) by the Hon'ble Delhi High Court which has since been approved by the Hon'ble Supreme Court in the case of Engineering Analysis (supra) and therefore the decision in the case of Verizon (supra) no longer holds the field. The Hon'ble Karnataka High Court in the case of CIT Vs. Infosys Technologies Ltd. (2014) 51 taxmann.com 417 (Karn.) has also taken similar view on taxability of Data connectivity charges (Down linking charges). The conclusions with regard to payment for right to use software will equally apply to these payments also and the AO will examine the issue afresh as directed while remanding the issue with regard to payments for right to use software in the light of the agreement between the parties. 33. With regard to payments towards transponder capacity, bandwidth, the concept has been explained by the Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co Ltd. Vs. DIT (2011) 197 Taxman 263 (Delhi) The assessee in that case viz., Asia Satellite Telecommunications Co. Ltd., was a company incorpora....
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....rol of the satellite. This is carried out from a control centre at Hong Kong. The Assessee claimed no part of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax in India. The Hon'ble Delhi High Court held that In order for income to be taxable u/s 9(1)(i), the carrying on of operations in India is a sine qua non. The assessee had no presence in India. The signals were uploaded and downloaded outside India. Merely because the footprint area included India and programmes were watched by Indian viewers did not mean that the assessee was carrying out business operations in India. The Court held that the assessee was the operator of the satellites and continued to be in control of the satellite and had not "leased" the satellite to its customers. The satellite was used by the assessee for providing services to its customers. There is a wellknown distinction between "lease of equipment" and "use of equipment". The Court held that there was no use of a "process" by the TV channels when no such purported use has taken place in India as the assessee and its customers are situated outside India. The agreements were executed abroad.....