TaxTMI 
TaxTMI 
2022 (3) TMI 372
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....of article of India-US DTAA. (2) Treating revenue received by the assessee under the test tool agreements as income of the assessee." 4. At the very outset the counsel for the assessee stated that both the issues have been considered and decided by this Tribunal in earlier assessment years in favour of the assessee and against the Revenue. 5. The Departmental representative strongly objected to this submission of the counsel. It is say of the Departmental representative that the Commissioner of Income-tax (Appeals) has elaborately discussed the facts of the case in hand and distinguish the judgment of Infrasoft which has been relied upon by the Tribunal in earlier assessment years. 6. We have given a thoughtful consideration to the rival contentions and have carefully perused the orders of the authorities below. We find force in the contention of the counsel. The Assessing Officer himself has discussed the assessment proceedings of earlier assessment years. The relevant query raised during the assessment proceedings read as under : "6. During the assessment proceedings, the assessee was required to explain : (a) Why the revenue received by QTI un....
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....icensing of BREW Software Indian Operators is taxable under section 9(1)(vi) of the Income-tax Act and under article 12 of Ind-US DTAA. (c)(i) Section 9(1)(vi) of the Income-tax Act is a deeming provision seeking to tax royalty payable by one non-resident to another non-resident in relation to income earned from a source in India. Under the provisions of section 9(1)(vi)(c) of the Income-tax Act, it is not mandatory to bring the payer to tax before initiating the proceedings against the person receiving royalty income. (ii) In terms of article 12(7)(b) of the DTAA between India and USA, the royalty arising to QTI is clearly taxable in India. The relevant article is reproduced as under (see [1991] 187 ITR (St.) 102, 117) : "Where under sub-paragraph (a), royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State.' In view of the above, the hon&....
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....ised by the assessee, against holding that the revenues received by the appellant under the BREW Operator Agreement and BREW Carrier Agreement is taxable as royalty income in India under section 9(1)(vi) of the Act and article 12 of the India-USA tax treaty. The assessee contends that in doing so, the Assessing Officer has failed to appreciate that the provision of BREW software to Tata and Tata Teleservices (Maharashtra) Ltd. and Reliance Communications Infrastructure Ltd. results in sale of 'Copyrighted Article' and not licensing of a 'Copyright'. 103. So far as this grievance of the assessee is concerned, only a few facts are required to be taken note of. During the course of the assessment proceedings, the Assessing Officer noted that the asses see has invoiced an amount of Rs. 2,52,70,569 to Tata Teleservices Ltd. under BREW (Binary Runtime Environment for Wireless) agreement. It was noted that it is an application development platform, developed by Qualcomm, for mobile phones that enables users to download and run applications for playing games, sending messages and sharing photos, etc. It was also noted that this platform runs between the application....
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....upon the nature of rights that the transferee acquires under the particular arrangement, regarding the use and exploitation of the program. The rights in computer programme are in the form of intellectual property. It has further mentioned "payments made for the acquisition of partial right in the copyright (without the transferor fully alienating the copyrights) will represent a royalty, where the consideration is for granting of rights to use the program in a manner, that would without such licences constitute the infringement of copyrights". Under the laws of the country, if the software owned by the assessee is used without licences, it becomes infringement of the copyright. Therefore arguments of the assessee regarding applicability of OECD commentary fail on this count as well.' 104. The assessee did raise a grievance before the Dispute Resolution Panel but without any success. The assessee is not satisfied and is in appeal before us. 105. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 106. We find that the payment in question is admittedly ....
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....ns all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article". Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copy righted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for "copyrighted" article. This sale consideration is for purchase of goods and is not royalty. 87. The licence granted by the assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effe....
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....ghted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. 90. There is no transfer of any right in respect of copyright by the assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income-tax Act or under the DTAA. 91. The licensees are not allowed to exploit the computer software commercially they have acquired under licence agreement, only the copyrighted software which by itself is an article and they have not acquired any copyright in the software. In the case of the assessee-company, the licensee to whom the assessee-company has sold/ licensed the software were allowed to make only one copy of the soft ware and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensee was allowed to use the software only for its own business as specifically identified and was not permi....
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.... but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 97. We are not in agreement with the decision in the case of CIT v. Samsung Electronics Co. Ltd. [2012] 345 ITR 494 (Karn) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The licence granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by ....
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....006-07 116. That leaves us with the I. T. A. Nos. 3701 and 3702/Delhi/ 2009, i. e., appeals filed by the assessee for the assessment years 2005-06 and 2006-07 against the consolidated order dated June 26, 2009 passed by the Commissioner of Income-tax (Appeals) in the matter of assessment under section 143(3) of the Income-tax Act, 1961, which was a consolidated order for the assessment years 2000-01 to 2006-07. 117. Vide order dated January 31, 2013, a co-ordinate Bench of this Tribunal has already adjudicated upon this Commissioner of Income-tax (Appeals)'s order, though only for the purposes of assessment years 2000-01 to 2004-05, so far as the addition in respect of royalty income in respect of the CDMA handsets and equipment is concerned and right now the matter is pending for adjudication before their Lordships of the hon'ble High Court. One of the arguments raised by the learned Departmental representative before us is that the order of the Commissioner of Income-tax (Appeals) has, for all practical purposes, merged in the order passed by the co-ordinate Bench, and, therefore, it is no longer open to us to adjudicate on the same. It is thus suggested....