AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 974
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....ed during the relevant previous year from Volvo Group entities in India towards providing standard facilities or services, access to business application software, e.g. SAP, ERP and other ERP solutions, Probuilder, CATIA V5 (VCE), RFSMART, KABA for SAP HR, etc., (ii) Volvo Corporate Network and (iii) facility for end user services, such as, emails, personal computer environment, etc. holding the same as royalty and therefore, liable to tax @ 10% in India in terms of section 9(1)(vi) of the Income-tax Act. 1961 as well as under the Double Taxation Avoidance Agreement (DTAA). 3. That the assessing officer / DRP erred on facts and in law in holding that consideration received from the Volvo Group entity was (i) towards right to use of the copyright and (ii) for use of processes and therefore, the same is to be characterized as a royalty. 4. That DRP erred on facts and in law in arbitrarily proceeding on the basis as if the aforesaid amount was a payment of royalty and the appellant failed to establish / justify the ALP of the same." 3. Facts, in brief, are that the assessee company filed its return of income on 29.11.2014 declaring total income of Rs. 77,72,01,480/- under the hea....
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....e can be characterized as royalty. He took us through the Master Service Agreement executed by the assessee and the relevant provisions of India-Sweden DTAA to buttress the contention that the authorities below have erred in characterizing the payment as royalty. 6. On the other hand, learned CIT(DR) opposed the submissions of the learned counsel for the assessee and supported the orders of lower authorities. He submitted that the learned DRP has elaborately examined the findings of the assessing authority and under the facts of the present case the learned DRP was justified in upholding the finding of the AO. 7. We have heard rival submissions and perused the material available on record. We find that the learned DRP upheld the finding of the AO by observing as under: "2.1.6 Having considered the above arguments, the Pane is of the view that some of the general aspects, which are indicative and by no means exhaustive, for determining the arm's length nature of royalty payment needs to be considered to establish the benefit fest, a key test for royalty payment, such as, i. the nature and complete description of the techrology/intangible transferred or licensed to the taxp....
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....d by the assessee in its server in Sweden, and the Volvo Indian entities do not have the right of commercial exploitation of the intellectual property contained as well, and therefore there is no relevance of the 'right to use copyright' and such provision of standard facilities cannot be classified as royalty. However, it can be seen that the assessee is receiving separate payments as under: Payment by Volvo India Pvt. Ltd: Rs. 6648,83 563/- Payment by Volvo Buses India Pvt. Ltd: Rs. 2,66,74. 70/- Payment by Volvo Eicher Commercial Vehicles Ltd: Rs. 8.41.67,458/- It is unlikely that any independent enterprise would have agreed to make such a payment of royalty. During the TP audit, the assessee has failed to furnish information as to how the rate of royalty was determined along with the basis thereof and what was the prevailing rate in the market. The assessee has failed to clarify whether the assessee has carried out any cost benefit analysis in respect to the payment of royalty. The assessee did not clarify regarding the cost that has been incurred by the AE on the development of these softwares. A perusal of the TPO's order shows that he has examined the ....
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.... AO. The objections of the assessee relating to the order of the AO whereby he has held the above payments as royalty are thus rejected. The objections of the assessee are decided as above. The assessing officer is directed to incorporate the findings of the DRP in respect of various objections suitably in the final order. AO shall also place a copy of the DRP Directions as Annexure to the final order." 7.1 Learned DR during the course of hearing submitted that the point of objection is that the payments have been received from the Indian entities. 7.2. On the other hand, submissions of the assessee is that amount is received by the assessee towards providing facilities to Volvo Indian entities and by such arrangement they (Indian entities) do not use or obtain a right to use the copy right in any of the software/business software/ application owned and executed by the assessee. 7.3 Under this backdrop learned CIT(DR) was asked to point out any terms of agreement or any other material that empowered assessee or confer such right on the assessee. He submitted that there is no such term, however, from the surrounding facts it can be construed that the assessee has such right and l....
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....to the facts of the present case. He submits that the said judgment is confined only to the four categories of cases as mentioned in the judgment itself in paragraph 4 thereof. The EYGSL (UK) and the EYGBS (India) do not fall in any of the said four categories. He submits that in the present case, the EYGSL (UK) procures the computer software from different vendors and provides the same to its member firms. The purpose is to obtain a licence from the third-party vendors for all its entities under common control and create a standard facility to be accessed and used by all entities and in lieu of that, it receives consideration based on certain parameters. This is nothing but commercial exploitation of standard facilities created. He submits that the licence fee paid by the EYGSL (UK) for the software is with respect to the number of users. The computer programme is a „literary work‟ under the terms of Article 13(3) of the India-UK DTAA and payments for the use or right to use such copyright of the literary work would constitute „royalty‟. Through the licence, the owner of the computer programme lawfully enables a person to use the confidential information co....
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....payments of any kind received as consideration for "the use of, or the right to use, any copyright" of a literary work, which includes a computer programme or software. xxxxx 45. A reading of the aforesaid distribution agreement would show that what is granted to the distributor is only a non- exclusive, non-transferable licence to resell computer software, it being expressly stipulated that no copyright in the computer programme is transferred either to the distributor or to the ultimate end-user. This is further amplified by stating that apart from a right to use the computer programme by the end-user himself, there is no further right to sublicense or transfer, nor is there any right to reverse-engineer, modify, reproduce in any manner otherwise than permitted by the licence to the end-user. What is paid by way of consideration, therefore, by the distributor in India to the foreign, non-resident manufacturer or supplier, is the price of the computer programme as goods, either in a medium which stores the software or in a medium by which software is embedded in hardware, which may be then further resold by the distributor to the end-user in India, the distributor making a pro....
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.... 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 of any copyright", in the context of computer software, is referable to sections 14(a), 14(b) and 30 of the Copyright Act. As has been held hereinabove, the expression "in respect of" is equivalent to "in" or "attributable to". Thus, explanation 2(v) to section 9 (1)(vi) of the Income Tax Act, when it speaks of "all of any rights...in respect of copyright" is certainly more expansive than the DTAA provision, which speaks of the "use of, or the right to use" any copyright. This has been recognised by the High Court of Delhi in CIT v. DCM Limited, ITA Nos. 87-89/1992 in its judgment dated 10.03.2011, as follows: xxxxx 73. However, when it comes to the expression "use of, or the right to use", the same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income Tax Act, inasmuch as, there must, under the licence granted or sale made, be a transfer of any of the rights contained in sections 14(a) or 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent, there will be no difference in the position be....
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....t Verified Digitally Signed Signing Date:10.12.2021 18:30:13 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, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14 (b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the "licensed" computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by section 52(1)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customised to its specifications or otherwise. v) A non-exclusive, non-transferable licence, merely enabling the use of a copyrighted product, is in the nature of restrictive conditions which are ancillary to such use, and cannot be construed as a licence to enjoy all or any of the enumerated rights menti....
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....n 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 the learned AAR in its Impugned Order has relied upon its earlier view in Citrix Systems Asia Pacific Pty Ltd., In Re., (2012) 343 ITR 1 (AAR), which has been expressly stated to be bad law in Engineering Analysis Centre (supra). 16. The submission of the learned counsel for the Revenue that the judgment of the Supreme Court in Engineering Analysis Centre (supra) cannot be applied because it confines itself only to the four categories mentioned in paragraph 4, also cannot be accepted. Though the Supreme Court was on facts considering the four categories of cases that arose in the appeals before it, it has laid down the law for general application. The law, as laid down by the Supreme Court, when applied to facts of the present case, squarely covers the same in favour of the petitioners. 17. The submission made by the learned counsel for the revenue relying upon the amendment to Section 9(1)(vi) of the ....
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.... the Act and Article 12(3) of the India Sweden Double tax Avoidance Treaty (Tax Treaty). 2.1. That the CIT(A) erred in holding that the appellant could not justify its claim with documentary evidence without considering the voluminous documents including agreements, emails, invoices, details of request made, etc., submitted during the course of appellate proceedings. 2.2. That the CIT(A) erred in not appreciating that the payment was received from Volvo Group Indian entities for (1) allowing access to Business Application software, (ii) providing end user services and shared infrastructure, (iii) allowing access to Volvo Corporate Network, (iv) providing business consultancy services, and (v) providing support to IT division for local services, which do not constitute royalty in terms of Article 12(3) of the Tax Treaty with Sweden. 2.3. That the CIT(A) erred in not appreciating that the payment received towards sale of standardized software licenses, is in nature of transfer of copyrighted article and not for use or right to use any copyright, and therefore, does not constitute royalty as per Article 12(3) of the Tax Treaty and is not subject to tax in India. 2.4. That the ....