TaxTMI 
TaxTMI 
2023 (2) TMI 1108
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....re as well as provision of support services in India. In the return of income filed for the assessment year under dispute, assessee offered the Revenue earned from provision of support services to tax by treating it as fee for technical services under Article 12 of India-Ireland tax treaty. Whereas, the amount received towards supply of software was treated as business income and not offered to tax by taking shelter under Article 7 of India - Ireland tax treaty, in absence of a Permanent Establishment (PE) in India. In course of assessment proceedings, the Assessing Officer, while examining the assessee's claim of exemption under Article 12 of the tax treaty in respect of income earned from sale of software was of the view that the revenue received is in the nature of Royalty, hence, taxable in India. While coming to such conclusion, he relied upon the decision of the Hon'ble Karnataka High Court in case of Samsung Electronics Co. Ltd. (345 ITR 494). Accordingly, he brought to tax the receipts from sale of software by applying the rate of 10% on gross receipts. Against the draft assessment order so framed assessee raised objections before learned Dispute Resolution Panel (DRP). How....
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....t by way of royalty. It is also to be borne in mind that the supply contract cannot be separated into two viz., hardware and software. No doubt, in an annexure to the supply contract the lump sum price is bifurcated in two components, viz., the consideration for the supply of the equipment and for the supply of the software. However, it was argued by the assessee that this separate specification of the hardware/software supply was necessary because of the differential customs duty payable. Be as it may, in order to qualify as royalty payment, within the meaning of section 9(l)(vi) and particularly clause (v) of Explanation - II thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, artistic or scientific work. Section 2(o) of the Copyright Act makes it clear that a computer programme is to be regarded as a literary work. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the presence case, thi....
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....ight 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 copyrighted 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. 88. The license 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 effective operation of the program by ....
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....copyrighted product and not for the transfer of copyrights in the computer software programme. The distinction between the transfer of a copyright and the transfer of a copyrighted product is prominent. The sole contention of the AO and the Ld DRP is that the department is in appeal against the decision s of the Jurisdictional High Court before the Hon hie Apex Court. The AO has relied upon the decision of the Hon'ble Karnataka High Court in case of Samsung Electronics (supra) and GracemacCorpn (supra). These decisions are not being considered as the issue is extensively dealt with by the Hon'ble Jurisdictional High Court in the cases of Ericsson A.B. and Infrasoft Ltd (supra) which are binding on this Tribunal. Once it is not in dispute that there is no transfer of any copyright in the computer software by the assessee to its customers, we observe that all the arguments put forth by the AO and the assessee are considered and answered by the Jurisdictional High Court in these decisions. Further, the Delhi High Court in Infra soft (supra) has specifically expressed its disagreement with the view taken by the Hon'ble Karnataka High Court in the case of Samsung Electronics Co Ltd.....