TaxTMI 
TaxTMI 
2024 (7) TMI 1480
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....2013, the AO found that assessee had made remittances amounting to Rs 6,05,56,914/- to MYCOM (UK) Ltd. on account of software licenses. It was also found that TDS u/s 195(1) of the Act was not deducted on these foreign remittances. 2.1. The AO, on perusal of details (agreements, etc.) submitted by the assessee during the course of verification of the said payments, found that these payments on account of software licenses to Mycom (UK) Ltd. were in the nature of royalty payments and are chargeable to tax as royalty u/s. 9(1)(vi) read with corresponding Articles of relevant DTAA. 2.1 2.2. The AO concluded that tax was required to be withheld as the payments are chargeable to tax u/s.9(1) (vi) r.w.s. 195 of the Act read with corresponding Articles of relevant DAA. 2.3. Therefore, the AO issued show-cause notice to the assessee as to why the assessee should not be treated as assessee in default for failure to deduct tax before making these payments to Mycom (UK). The details of payments are:- Sl. No(s). Financial Year Nature of remittance Amount (in Rs.) 1. 2012-13 Software license 3,00,65,010/- 2. 2012-13 Software license 3,04,91,904/- ....
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....ty, the term 'royalty' has been defined as under: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 2.8. The term "use or the right to use any copyright" has also been explained by international commentaries for the purpose of classification of royalty as under: * Payment made for acquiring rights to commercially exploit a copyright like right to reproduce the copyright, right to give copyright on commercial rental would be considered as payment for the use or right to use a copyright; ....
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....f royalties from clause 13 of the DTAA concluded that the payment is relating to royalty as it includes payment for the use of copyright of literary work. He adopted definition of "literary work" from section 2(o) of the Copyright Act,1957. The AO also referred the agreement entered into by Mycom with the assessee and reproduced the releant clauses of the agreement. 2.14. The AO also placed reliance on the judgement of Hon'ble Karnataka High Court in case of Samsung Electronics Co.Ltd. and others, 345 ITR 494(Kar.) wherein it was held that a right to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back-up copy would itself amount to copyright work u/s 14(1) of the Copyright Act,1957. 2.15. He concluded that since the assessee is given license which falls in the category of copyright, payment fall in the category of royalty as per DTAA and therefore would be taxable. 2.16. The AO passed order u/s 201(1) of the Act and determined liability of TDS payable along with interest u/s 201(1A) of the Act. 3. Aggrieved by the order of AO, the assessee preferred an ap....
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....n appeal before us with the following grounds of appeal: "1. Issue of Royalty: i. The Id. CIT(A) has erred in law and on facts in not treating the payment made for purchase of software license as royalty under Article 12 of India- UK tax treaty. ii. The Ld. CIT(A) has erred in law and on facts in stating that as per the terms of agreement software purchased by the assessee is not a customized software but a standard off the shelf software. iii. The Ld. CIT(A) has erred in law and on facts in stating that payment has been made for acquisition of copyrighted article and has not been made for use of copyright and the same does not amount to transfer of right to use the copyright for internal business as per the terms of agreement and therefore should not be treated as royalty as per the relevant DTAA. iv. The Ld. CIT(A) has erred in law and on facts in stating that no right has been transferred to the assessee for making copies of software therefore the payment for the same does not constitute royalty as per relevant DTAA. v. The Ld. CIT(A) has erred in law and on facts in placing reliance on the judgment of Hon'ble Delhi High ....
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....Supplier Standard Software) es per terms of this Agreement." 6.1. The Ld.AR also reiterated that as per agreement the assessee cannot commercially exploit the software and its right. 6.2. The Ld.AR also placed reliance on the judgement of Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence(P.) Ltd. Vs CIT [2021] 125 taxmann.com 42 (SC). The relevant paras from the said judgement are reproduced hereunder: "117. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. ....
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....terest or right in such end-users which would amount to the use of or right to use any copyright. The relevant paras are reproduced herewith for ready reference: CONCLUSION "168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright....