TaxTMI 
TaxTMI 
2021 (10) TMI 857
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Grievances raised by the assessee in ITA No. 630/DEL/2017 read as under: "1. That the assessing officer ("AO") and Dispute Resolution Panel ("DRP") erred on facts and in law in computing the income of the Appellant for the relevant assessment year at Rs. 18,15,86,344/- as against 'NIL' income returned by the Appellant. 2. That the AO and DRP erred on facts and in law in assessing the revenues of the Appellant from offshore supply of standardized/shrink wrapped software as income in the nature of royalty and taxing the same under the provisions of Section 9( 1 )(vi) of the Income-tax Act, 1961 ("the Act") read with Article 12 of the India Singapore DTAA ("the Treaty"). 3. That the Assessing Officer and DRP erred on facts and in law in ailing to appreciate that pursuant to Section 90(2) of the Act, the Appellant has opted to be governed by the more beneficial provisions of the Treaty, and, accordingly, the provisions of Section 9(l)(vi) of the Act are not applicable in the present case. 4. That the AOand DRP have erred on facts and in law in failing to appreciate that the Appellant's revenues are derived from the sale of a copyrighted article, namely a computer program, and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eof acquired hereunder shall be ordered in "a<xor35nce with the procedures hereof for acquiring ad PRODUCTS" whether hardware or software," 7. The DRP followed the decision of the Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd 345 ITR 494 and further observed that the Special Bench decision and TCS decision were largely rendered in the context of pre-amended law with respect to amendments brought by the Finance Act, 2012. This means that the DRP has based its findings on the amendment brought in the relevant provisions of the Act. 8. The DRP further based its findings observing that the Government of India is consistent on its stand that wherever a position has been expressed by India on the OECD Model Convention, and India does not agree with the views of OECD it would interpret provisions of DTAAs according to its position. 9. After considering several judicial decisions, the DRP finally concluded as under: "Where the software is an integral part of the supply of equipment, the consideration for that is not assessable as royalty but where the software is sold separately, the consideration is assessable as "royalty". On facts, the assessee had acq....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r manufacturers and then reselling the same to resident Indian endusers. iii) The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.5 iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users.6 " 13. The Hon'ble Supreme Court at paras 100 and 101 observed as under: "100. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income Tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income Tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA. Further, the expression "copyright" has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement and that makes, the difference between the computer software and copyright, in respect of books or prerecorded music [C.D.], as book and prerecorded music C.D. can be used once they are purchased, but so far as software stored in dumb C.D. is concerned, the transfer of dumb C.D. by itself would not confer any, right, upon the end user and the purpose of the C.D. is only to enable the end user to take a copy of the software and to store it in the hard disk of the designated computer if licence is granted in that behalf and in the absence of licence, the same would amount to infringement of copyright, which is exclusively owned by nonresident suppliers, who would continue to be the proprietor of copyright. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C.D. or the C.D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles separately from "computer" software within the meaning of the "copyright" as referred to above under section 14 of the Copyright Act. It is also clear from the abovesaid analysis of the DTAA, the Income-tax Act, the Copyri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s was made by the AAR in Citrix Systems (AAR) (supra), was made in this judgment, i.e., no distinction was made between computer software that was sold/licensed on a CD/other physical medium and the parting of copyright in respect of any of the rights or interest in any of the rights mentioned in sections 14(a) and 14(b) of the Copyright Act. This being the case, the reasoning of this judgment suffers from the same fundamental defect that the ruling in Citrix Systems (AAR) (supra) suffers from. By no stretch of imagination, can the payment for such computer software amount to royalty within the meaning of Article 12 of the DTAA or section 9(1)(vi) of the Income Tax Act. 15. Further, at para 105, the Hon'ble Supreme Court considered the judgment of the Hon'ble High Court of Karnataka in the case of Synopsis International as under: 105. The reasoning of the High Court of Karnataka in Synopsis Intl. (supra) does not commend itself to us. First and foremost, as held in State of Madras v. Swastik Tobacco Factory, (1966) 3 SCR 79, the expression "in respect of", when used in a taxation statute, is only synonymous with the words "on" or "attributable to". Such meaning accords w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the position as of 01.06.1976, but in fact, expands that position to include what is stated therein, vide the Finance Act 2012. 79. The learned Additional Solicitor General then relied upon the Finance Minister's statement made before the Lok Sabha on 07.09.1990, which allowed lump sum payments to be made without the deduction of tax at source under section 195(1) of the Income Tax Act and did away with the dual levy, both by way of customs duty and income tax, on royalty payments for the licensing of software. This statement, again, in no manner furthers the case of the Revenue that explanation 4 is merely clarificatory of the legal position as it always stood. Likewise, Notification No. 21/2012 dated 13.06.2012, which deals with section 194J of the Income Tax Act, does no more than providing that a transferee is exempt from deducting TDS under section 194J when TDS has already been deducted under section 195 on the payment made in the previous transfer of the same software which the transferee acquires without any modification. In any case, this notification being issued on 13.06.2012, i.e., after explanation 4 was inserted vide the Finance Act 2012, it would not assist the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e mark, design or model, plan, computer software programme, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment" 19. At para 117 of its order, the Hon'ble sc summarized as under: "117. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. iii) Parting with copyright entails parting with the right to do any of the ac....