TaxTMI 
TaxTMI 
2021 (9) TMI 21
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....ts. In terms of Sec.195(1) of the Income Tax 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 ....
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....onth for the aforesaid period and for identical services. This 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 t....
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....lready in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound 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 ....
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....llant. Although the issue of physical possession of the equipment has been raised by the appellant, it is seen that physical possession of the equipment is not possible either by payee or by the payer i.e. the appellant. In fact, the payee also does not have the possession of many 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....
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....ore the Tribunal. 15. The learned counsel for the Assessee on the issue of payment for software license fees submitted that the question whether a payment to a non-resident is in the nature of royalty or not has to be tested in the light of the relevant provisions of DTAA between India and the country of which the non-resident payee is 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 t....
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.... of the medium through which such right is transferred. Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or 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 pr....
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....states that a copyright is an exclusive right to do or authorise the doing of certain acts in respect of a work, including literary work. The Hon'ble Court took the view that a transfer of copyright would occur only when the owner of the copyright parts with the right to do any of the acts mentioned in section 14 of the Copyright Act, 1957(Copyright Act). In the case of a computer program, section 14(b) of the Copyright Act, speaks explicitly of two sets of acts: 1. The seven acts enumerated in sub-clause (a); and 2. The 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....
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....nd therefore the definition of 'royalties' will have the meaning assigned to it by the DTAA which was more beneficial. It was held that the term 'copyright' has to be understood 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 the 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 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 n....
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....sion services by lease of transponders would not be regarded as "royalty" under the DTAA. It was also held that the retrospective amendments by way of introduction of Expln. 4 to 6 to Sec.9(1)(vi) of the Act by the Finance Act, 2012 would not be relevant under the DTAA. He submitted that the ratio laid down as above by the Hon'ble Delhi High Court has been approved by the Hon'ble Supreme Court in the case of Engineering Analysis (supra). He submitted that the reliance by the CIT(A) on the decision of the Hon'ble Madras High Court in the case of Verizon (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. 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. ....
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....7(Copyright Act). The Court noted that the End User License Agreements (EULA) of the software do not transfer or assign the copyright over the software. The "license" that is granted vide the EULA, is not a license 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 "license" which imposes restrictions or conditions for the use of computer software. The Court held that the transaction is similar to 'a sale of goods' as held by the SC in the case Tata Consultancy Services v. the State of A.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 Co....
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....m 8 (del), which decision has been approved by the Hon'ble Supreme Court in the case of Engineering Analysis (supra), to a come to a conclusion that web hosing charges are not in the nature of royalty. The learned counsel also relied on the decision of the Mumbai Bench of ITAT in the case of DIT Vs.Savvis Communication Corporation (2016) 69 taxmann.com 106 (Mum-Trib). The Mumbai Bench explained the concept of use of scientific equipment whether would amount to royalty or not by observing as follows: "9. We have noted that the very basis of the impugned addition is Assessing Officer's finding that the receipts in 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....
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....te database and retrieve them on demand. Traditionally we store our data in our computer and can access the data only if the computer is available. In cloud computing the data is store in a server and can be accessed through any system. The Mumbai Tribunal in the case of Rackspace, US Inc. ITA No.1634/Mum/2016 and ITA Nos. 3507 & 1075/Mum/2017 order dated 29.5.2019 followed the earlier decision rendered in the case of American Chemical Society vs. DCIT in ITA No. 6811/Mum/2017 for the AY 2014-15 vide order dated 30.04.2019, wherein identical issue was decided in the context of right to use material in the form of journal,. The 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....
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.... High Court in the case of New Skies Satellite BV (2016) 68 taxmann.com 8 (Delhi) has held that income from providing data transmission services by lease of transponders would not be regarded as "royalty" under the DTAA. It was also held that the retrospective amendments by way of introduction of Expln. 4 to 6 to Sec.9(1)(vi) of the Act by the Finance Act, 2012 would not be relevant under the DTAA. He submitted that the ratio laid down as above by the Hon'ble Delhi High Court has been approved by the Hon'ble Supreme Court in the case of Engineering Analysis (supra). The reliance by the CIT(A) on the decision of the Hon'ble Madras 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 ....
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....nals whatsoever that is carried out by the assessee in the transponder. Thereafter, the signals leave the transponder and are relayed over the entire footprint area where they can be received by the facilities of the appellant's customers or their customers. It was the case of the assessee that it has no role whatsoever to play either in the uplinking activity or in the receiving activity. Its role is confined in space where the transponder which it makes available to its customers performs a function which it is designed to perform. The only activity that is performed by the assessee on earth is the telemetry, tracking and control 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 vi....