TaxTMI 
TaxTMI 
2023 (10) TMI 28
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....d is a tax resident of Netherlands. Juniper Netherland is in the business of selling networking equipments and providing maintenance service (AMS). The networking equipments are sold through the third party distributors or value added resellers (collectively referred to as channel partners. The assessee is a licensed resale distributor for Juniper Networks equipments in 130 countries in Europe, the Middle East, African Region, Asia Pacific and Japan Region. The assessee is also engaged in providing Juniper Services with respect to Juniper Network equipments. The assessee enters into contract with Juniper Network third party contract, manufacturers based in Mexico, Malysia, Taiwan, China and USA for manufacturing of Juniper Network equipments which are distributed across various regions. The assessee renders Juniper Services in relation to the Juniper Network equipments sold to support service specialists (SSS) in Africa and Asia Pacific Region under the Support Service Specialists Agreement (SSSA). Juniper Services are provided to the SSS as per the terms and conditions mentioned in the Juniper Service Contract. Under the SSSA, SSS procures Juniper Services from the Assessee and pr....
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....es are in the nature of royalty as per clause 12(5) of India Netherlands DTAA and thus, the clause with respective services being ancillary and subsidiary to the application or enjoyment of the right, property or information which is in the nature of royalty is applicable in the current case and accordingly, the same is taxable in India. The Assessing Officer also contended that the nature of services rendered by the assessee are covered by the definition of 'royalty' under section 9(1)(vii) of the Income-tax Act ('the Act') and liable to be taxed as per the provisions of the Act. The Assessing Officer further analysed the nature of services in the light of taxability under India Netherlands DTAA and held that - - There is no material difference between the provisions of the Act and the India- Netherlands DTAA with respect to definition of the term 'Royalty'. - The retrospective amendment made in the Act vide Finance Act 2012 are required to be considered while interpreting the meaning of the term 'Royalty' as per the provisions of the India-Netherlands DTAA. - The Assessee has given SSS (i) access and user rights in the software embedded ....
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.... with the vendor, therefore the condition of "make available" as per DTAA is rot satisfied. The assessee's case is almost identical to the above example. Considering the above, I am of the opinion that payment received by the assessee from SSS is neither Royalty nor FTS as per the DTAA provisions between India and Netherland. This ground of appeal is allowed." 7. Aggrieved, the Revenue is in appeal before the Tribunal. The Ld.DR submitted that it is the channel partners, who render the services to the end-users based on the knowledge made available to them by assessee. The Ld.DR drew our attention to para 5.2 of AOs order in which the AO has given a detailed finding by analyzing the various clauses of the agreement entered into by the assessee with SSS. The Ld.DR submitted that the solutions to the problems that may arise in the Juniper Network Equipments are available to SSS through customer Service Centre (CSC) and the payments are made towards the use of this software programmes and, therefore, should be treated as royalty or FTS payments. These software applications that is, operating manuals / technical literature which is made available to SS....
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....d.AR also drew our attention to clause in the agreement which states that each issue will be assigned a ticket, which will be approved by SSS and the Juniper Engineers would periodically update the status of resolution to SSS. The Ld.AR submitted that as per the agreement, it is the Juniper Engineers, who ultimately resolve the issue and the SSS co-ordinates the problem solving process between the end-user and the Juniper Engineers. The Ld.AR submitted that the AMC is taken by SSS year on year basis, which goes to prove the fact that no technical knowledge is made available to SSS and that such reason why the maintenance contracts are renewed year after year. 9. The Ld.AR also drew our attention to the finding of the CIT(A) where it is held that the amount received by the assessee for access to the on-line support for trouble shooting cannot be regarded as consideration for the transfer of any copyright. The Ld.AR further submitted that what SSS received is only the right to use the copyrighted process which does not fall within the definition of 'Royalty' as per DTAA. The Ld.AR also drew our attention to the decision of the co-ordinate bench in assessee's own case for A.Y. 2014....
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....ssing Officer is that the services rendered by the assessee are in the nature of "Royalty" since the assessee has allowed SSS to use the software embedded in the network equipment and also the access to troubleshooting software to the SSS which assists the SSS in resolving problems faced by the end users related to Juniper Networks equipments. According to the Assessing Officer, software program is a "literary work" or alternatively software "is a property similar to', 'patent', 'invention',, design', 'process', 'trademark', 'secret formula'. While holding so the Assessing Officer stated that there is no material difference between the Act and DTAA when it comes to the definition of the term "Royalty" and accordingly the service fees received by the assessee is taxable in India as Royalty. 12 The CIT(A) held that the services rendered by the assessee are covered by the definition of "Royalty" under section 9(1)(vi) of the Act, and accordingly is liable to be taxed in India as per the provisions of the Act. However, the CIT(A) held that payments made for the services rendered does not fall within the definition of "Royalty" as per t....
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....the Juniper Networks equipments sold to the SSS in the EMEA and APAC region under the SSSA. Juniper Services are provided to the SSS as per the terms and conditions mentioned in the Juniper Services Contract. Under the SSSA, SSS procures Juniper Services from the Assessee and provides Service Offerings to its customers (i.e. the end users of Juniper Networks equipments) in India. Under the SSS, the Assessee may also provide software update releases. The software update is governed by the End User License Agreement (EULA'). As per the EULA, there is no sale or transfer or conveyance of any right, title, or interest in the software to the SSS. The key Juniper Services provided by the assessee to the SSS under the SSSA include the following; - Juniper Networks Technical Assistance Centre ('JTAC') - Online support [i.e. through Customer Services Centre ('CSC')] Juniper Networks Technical Assistance Centre ('JTAC') JTAC is the focal point of contact for post sales technical and network-related questions with respect to Juniper Networks' equipments. JTAC provides support to the SSS to enable them to reserve critical/priority/tim....
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....lution. The contention of the Assessing Officer is that the assessee allows SSS to use the software embedded in the networking equipment and the software tool used for trouble shooting and therefore the fees received is towards royalty. It is important to note here that the software embedded in the Juniper Networking Equipment which is allowed to be used is governed by the End User License Agreement (EULA) and during the course of hearing the ld AR drew our attention to the relevant clauses in EULA wherein it has been stated that nothing in the agreement constitutes a sale or transfer or conveyance of any right, title or interest in the software. "2. License Grant. a. Subject to the terms and conditions of this Agreement, including, without limitation, this EULA, Juniper grants You a non-exclusive and non-transferable license, with no right to grant any sublicense. to use, solely during the License Term, (i) the Software, and (ii) each Update made available as part of Maintenance Service contracted for such Software license or Juniper Platform (for Embedded Software Licenses and its associated Feature Set Licenses), for up to the Licensed Units. Each Update, if an....
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....licensed Software includes source code, such source code is provided for reference purposes only unless expressly licensed otherwise by Juniper, or its/to 9. Ownership. Juniper and Juniper's licensors, respectively, retain exclusive ownership of all right, title, and interest of all intellectual property and any and all other legal rights in and to the Software. Nothing in this Agreement constitutes a sale or other transfer or conveyance of any right, title, or interest in the Software. For the sake of clarity, the Software is licensed pursuant to the terms and conditions of this Agreement, including, without limitation, this EULA, and not sold. 18. From the perusal of the above it is clear that the assessee retains exclusive ownership of all right, title, and interest of all intellectual property and all other legal rights in the software and that nothing in EULA constitutes a sale or other transfer or conveyance of any right, title, or interest in the software. Therefore we see merit in the contention that except the right to use the Software embedded on the hardware, there is no other rights being transferred to the SSS. 19. Next we will look at the i....
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....f the computer programme: Provided that such commercial rental does not apply in respect of compute programmes where the programme itself is not the essential object of the rental. ........................" 20. In the light of the above definition, when look at the SSSA, we notice that the SSSA entered into by the assessee with SSS provides that the software provided as part of Juniper Services is governed by the EULA (relevant extract reproduced in the earlier part of this order) wherein it has been stated that nothing in the agreement constitutes a sale or transfer or conveyance of any right, title or interest in the software. This would mean that there is no transfer of legal title in the copyrighted article and that all rights, title and interest in the online support (i.e. through the CSC) for troubleshooting / licensed software, are the exclusive property of the assessee. Further SSS does not have the authority to reproduce the software in any material form, to make any translation in the software or to make any adaptation in the software. In this regard we notice that the Hon'ble Delhi High Court in the case of DIT v Infrasoft Ltd [2013] 264 CTR 329 has consi....
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....r all the rights which the copyright owner has, is necessary to invoke the Royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies (hat the transferee/licensee should acquire rights either in entirety ....
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.... v Reliance Industries Limited [2016] 69 taxmann.com 311] (Mumbai Tribunal) has considered the issue of whether software / computer program is a literary work. The relevant observations of the Hon'ble Tribunal are extracted below - 36. A perusal of the above provisions of the Copyright Act reveals that the computer software is included in the definition of literary work and is covered under the purview and scope of copyright. The exclusive rights to do or authorize the doing of certain acts as mentioned in clause (a) and clause (b) of section 14 vests in the owner of the work such as to reproduce the work, to issue copies, to make translation or adaptation, to sell or give on commercial rental in respect of a work. The internal use of the work for the purpose it has been purchased does not constitute right to use the copy right in work. 37. to 40.***** 41. It is also pertinent to mention here that the Income Tax Act does not specifically include the 'computer software' in the term 'literary work' and under such circumstances, if we apply the provisions of Income Tax to define the scope of 'Literary Work', then perhaps the '....
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....ding the payments received by the assessee are in the nature of "Royalty" also held that the same would otherwise should be treated as Fees for Technical Services (FTS) and taxed in India accordingly. The main reason as quoted by the Assessing Officer is - • The nature of services rendered are in the nature of 'consultancy services' and there is no technology or technical expertise available or transferred by the Appellant Thus, the principles of make available arc not applicable; • Without prejudice to the above, it is stated that knowledge is being made available to the SSS under the SSSA which enables them to solve the problem on their own account. 27. The CIT(A) in the order has given a specific finding that the Juniper Services would fall within the definition of FTS under the Act and the ld DR during the course of hearing before us presented arguments stating that the nature of services are technical where the knowledge is made available by the assessee to SSS. Therefore we will not go into analysing whether the nature of services rendered are consultancy or technical since it is not the fact in dispute here. 28. Article 12(5) of the India-....
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....se of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to that performer of the services in future. The technical knowledge, experience, skill etc, mast remain with the person utilisins thu services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills etc, from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilising the services. The fruits of the services should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc. 93. In the present case, as Mr. Dastur pertinently pointed out, after the services of the managers (Merrill Lynch and other co-managers) came to an end, the assessee-company is left with no technical knowledge, experience, skill etc. and still continues to manufacture cement, suitings etc. 94. The Memorandum of Understanding appended to the DTA with USA and the Sin....
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....r resolving the issues of various priority level is mentioned. As per the said clause we notice that even for low priority issues, the technical experts of the assessee are involved. Similarly from the perusal of the other clauses such as problem report tracking system (clause 5.6.1), Support procedure (clause 5.6.2) also it becomes clear that the Juniper engineers are involved in resolving the issues with the Juniper Equipments installed in the end user sites. The contention of the ld DR was that in the Online support (i.e. through the CSC) through which issues are resolved the software gets updated once the problem is resolved thereby the knowledge regarding that problem gets imparted to SSS. However we notice that the Online support provides access to product specifications, FAQs, status of service requests raised oh JTAC, operating manuals, software updates, blogs, discussion forums, troubleshoot tools for resolving general error messages, etc., but does not in anyway enable SSS to independently apply any knowledge without assessee's support or resolve or diagnose the issues / errors / bugs / problems on their own in future. The SSS engineers continue to approach JTAC in ca....