AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 158
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....e AO, contrary to the facts of the case and material on record, erred in assessing the income of the Appellant at Rs. 23,21,52,964/-, by treating the receipts to be in the nature of 'royalty' under Section 9(1) (vi) of the Act as well as Article 12(3) of the DAA. 3. That the AO erred on facts and in law in treating the receipts from sale/distribution of software in the hands of the Appellant as 'royalty' without appreciating the settled principles laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT and another, (2021) 125 taxmann.com 42 (SC), which is squarely applicable to the present case 4. That the AO failed to appreciate that the Appellant is a mere distributor of the software and that ownership of the copyright continues to remain with the original owner of the software, throughout the term of the agreement. Therefore, the Appellant grants only the use of the software with limited, non-exclusive and non-transferable right to third party and thus, involves only the sale of the copyrighted article. 5. That the AO, contrary to the facts of the case and material on re....
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....lation, reverse engineering, and derivation of the source code of the software as per Article 6 of the Council Derivative 91/250/EEC, without appreciating that such rights of the users, in terms of Article 5 of the above Council, are restricted to only correct errors that affects the operation of the software, and does not grant rights to modify the source code. 14. That the AO failed to appreciate that the permission granted to the affiliates of the sub-licensee to use the software does not result in the receipts being in the nature of "royalty". 15. That the AO failed to appreciate that the modifications as specified in the agreements with third parties merely pertains to modifications to suit the third party's business operations and does not involve/permit modifications to the source code. 16. That the AO ought to have appreciated that the copies of the software as stated in the agreements with third parties refers to creation of duplicates for the purpose of back up and not for commercial use. 17. That the Dispute Resolution Panel, contrary to the provisions of Section 144C of the Act, grossly erred in remanding the matter to the AO for ....
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....g all reasonable endeavor, [..." thereby allowing development on the software for further sale, excluding it from the definition of shrink-wrapped software. b. Clause 6(a) and 6(b) also include components of reverse-training (sub-licensee training the personnel of the licensor) and associated services for the end user to be provided by the AE. c. Clause 12 itself mentions the copies of the software made by the AB for onward sale d. As per Schedule 2 of the contract with the AE, the actual software being talked about is: The Kondor software suite, including Kondor Global Risk which includes the following components: Core Components: Real Time Date Aggregation Platform Asset Class Agnostic Date Model Integration Api Distributed Architecture Credit Risk And Limit Management Components Credit Risk Analysis Engine Limits Rules Engine API For Real Time Limit Management In The From Office Collateral Management Credit Line Management Advanced Simulation Credit Risk Management Credit Value at Risk Market Risk Management Components ....
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.... either for their own business or for onward selling and in the entire chain of event there is no transfer of copyright, rather only copyrighted article is getting transferred. It was accordingly submitted that the ruling in the aforementioned Supreme Court judgment is squarely applicable in its case. 8. With reference to the AO's observations on the various clauses of the agreement between the assessee and Indian AEs, the assessee has submitted before the DRP the following rebuttal. This submission as extracted from the order of the ld. DRP. "(A). Agreement between the Assessee and MTRM 1. W.r.t. clause 5 of the agreement: It is stated that the learned AO has grossly misinterpreted clause 5 of the agreement by concluding that the subsidiary i.e., MTRM is the sub-licensor, whereas the agreement clearly defines that the assessee company is the sub-licensor. Further, the Assessee states that there are no development/ update rights passed on to MTRM by is the Assessee who shall undertake to develop or procure development to software including update to MTRM. 2. W.r.t clause 1 of the agreement: With respect to clause 1 of the agreemen....
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....ile the software but only within the statutory guidelines and hence, if can be said that there is no transfer of source code by the Assessee so as to make it vulnerable to any copyright Infringements. The assessee has place reliance on the extracts of clauses 16.4, 1.9, 1.33 and 21.5 of the agreement. 2. W.r.t clause 16.1 of the agreement: Assessee disagrees with learned AO's understanding and submits that as per clause 16.1.8, the term "named affiliate" is defined under clause 1.24 and under clause 1.3 of the agreement wherein it states that name affiliate would include holding/subsidiary company of the sub-licensee. Hence, it is only for internal use (by the group companies of Indusind Bank) against the contention of the Learned AO that the sub-licensee can allow use by any third party. The assessee has also made reference to clauses 17.1 and 17.4 in this regard. 3. W.r.t clause 7 of the agreement: The Assessee submits that the term Modification used in the above mentioned clause of the agreement merely means that Indusind Bank Limited can modify the configurations implemented through use of Finastra application toolkit or approved toolkit,....