AI Drafter 
TaxTMI 
TaxTMI 
2021 (12) TMI 571
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....were filed by M/s EYME Technologies Private Limited and EYGBS (India) Private Limited, respectively. As recorded in the Impugned Ruling dated 10.08.2016, M/s EYME Technologies Private Limited has been amalgamated with EYGBS (India) Private Limited with effect from 01.04.2016 and therefore, at the request of EYGBS (India) Private Limited, a common order was passed in the two references. The same has been challenged by EYGBS (India) Private Limited before us by way of W.P. (C) 12003 of 2016. 3. In the Application(s), being AAR No. 1408 of 2012 and AAR No. 1409 of 2012, the learned AAR has followed its Ruling in AAR No. 1403 of 2011 and therefore, reference in the present judgment will be made to the facts from the writ petition, being W.P.(C) 11957 of 2016, which arises out of the said Impugned Ruling. 4. The learned AAR in its Impugned Ruling dated 10.08.2016 records that the EY Global Services Ltd. (EYGSL) UK [hereinafter referred to as the "EYGSL (UK)"] is a limited liability company engaged in providing technology and other support services and software licences to member firms of the EY network in various countries all over the world. All member firms, including EYGSL (UK)....
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....tranet), establishing projects to capture and disseminate global knowledge and developing or facilitating the development of methodology and techniques which further enhance the knowledge sharing capacity of Member Firms. The following services, mentioned in the MOU, have not been rendered: 4. Global Industry Centres 4.1 Providing the Members Firms with business support in relation to specific industry sectors through the operation of Global Industry Centres, thereby expanding Member Firms capacity to deploy relevant knowledge, learning and resources on client engagements. 5. Global Procurement Services 5.1 Providing the Member Firms with sourcing and demand management services for the globalized categories of spend including technology, travel, real estate and content. Additionally, for other subcategories (for example, professional services), global procurement services will facilitate (a) efforts to put in place master services agreements; and (b) contract negotiations, where appropriate. Finally, Global Procurement Services will develop strategies and drive transition plans to standardize tools to support category operations (for exa....
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....stions raised:- Q.1 Consideration received on account of provision of services/deliverables is not FTS. Q.2 Consideration received amounts to service fees and it does not amount to reimbursement of expenses. Q.3 Consideration received from giving right to benefit from the computer software procured from several third party vendors (deliverables) is in the nature of royalty under Article 13 of India -UK DTAA as well as section 9(1)(vi) of the Act whereas consideration received for giving right to benefit from services is not in the nature of royalty under Article 13 of India-UK DTAA. Q.4 In respect of Q.No.3, we have ruled that consideration for computer software is taxable as royalty. This is irrespective of the fact whether the applicant has a PE in India or not. Q.5 Consideration received in respect of giving right to benefit from computer software (deliverables) by the applicant would suffer withholding of tax under section 195 of the IT Act." 8. The Impugned Ruling also answered the question as to whether the consideration received in respect of the computer software (deliverables) by EYGSL (UK) is "royalty". As submissions have b....
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....PS) Agreement, which came into effect on 1 January 1995 contains an interpretive provision stating that computer programs, whether in source or object code, shall be protected as literary works under the Berne Convention (1971). This provision confirms that computer programs must be protected under copyright and that those provisions of the Berne Convention that apply to literary works shall be applied also to them. Article 4 of the 1996 WIPO Copyright Treaty (WCT) includes the same clarification in very similar terms. Article 4 of the WCT states that computer programs (software) are protected as literary works within the meaning of Article 2 of the Berne Conventions. Such protection applies to computer programs, whatever may be the mode or form of their expression. We also see that similar provisions exist in various countries around the world. Almost all developed countries give the same meaning to computer programme as literary work. As per the Indian Copyright Act, 1957, Section 2(o) defines literary works as "literary work" includes computer programmes, tables and compilations including computer "literary data base". This discussion clearly establishes that computer software i....
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....e the Service Agreement and the MOU, the EYGSL (UK) provides to EYGBS (India) a non-exclusive non-assignable sub-licence (with no right to grant further sub-licences) to use the deliverables and/or services. The EYGSL (UK) purchases the software from third-party vendors by way of a licence for the use of the same by member EY firms. The payment received by EYGSL (UK) from its members is for the use of computer software loaded on its server by the creation of a standard facility for which access is granted to all the EY member firms. He submits that in terms of the judgment of the Supreme Court in Engineering Analysis Centre (supra), there is no transfer of copyright in favour of the member firms, including EYGBS (India), and therefore, the payment received from EYGBS (India) by EYGSL (UK) does not amount to royalty under Article 13 of the Double Taxation Avoidance Agreement between India and the United Kingdom (hereinafter referred to as the "India-UK DTAA"). 10. On the other hand, the learned counsel for the Revenue submits that the judgment of the Supreme Court in Engineering Analysis Centre (supra) has no application to the facts of the present case. He submits that the said ....
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...., nonresident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.^3 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.^4 xxxxx 42. The subject matter of each of the DTAAs with which we are concerned is income tax payable in India and a foreign country. Importantly, as is now reflected by explanation 4 to section 90 of the Income Tax Act and under Article 3(2) of the DTAA, the definition of the term "royalties" shall have the meaning assigned to it by the DTAA, meaning thereby that the expression "royalty", when occurring in section 9 of the Income Tax Act, has to be construed with reference to Article 12 of the DTAA. This position is also clarified by CBDT Circular No. 333 dated 02.04.1982,^5 which states as follows: xxxxx 43. Thus, by virtue of Article 12(3) of the DTAA, royalties are payments of any kind received as consideration for "the use of, or the right to use, any copyright" of a li....
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....ansferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid position will suffice. If an English publisher sells 2000 copies of a particular book to an Indian distributor, who then resells the same at a profit, no copyright in the aforesaid book is transferred to the Indian distributor, either by way of licence or otherwise, inasmuch as the Indian distributor only makes a profit on the sale of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way of licence or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterised as royalty for the exclusive right to reproduce the book in the territory mentioned by the licence. xxxxx 72. The transfer of "all or any rights (including the granting of a licence) in respect o....
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....g 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 acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of the physical substance, in which copyright subsists, gives the purchaser the right to do with it whatever he pleases, except the right to reproduce the same and issue it to the public, unless such copies are already in circulation, and the other acts mentioned in section 14 of the Copyright Act. iv) A licence from a copyright owner, conferring no proprietary interest on the licensee,....
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.... Section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as "royalty". 14. In the present case, the EYGBS (India), in terms of the Service Agreement and the MOU, merely receives the right to use the software procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). 15. We may also note that th....