AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 858
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....e DRP"), is erroneous in law, contrary to the facts and circumstances of the case, based on surmises and conjectures, against law and principles of natural justice and thus is unsustainable. 2. Based on the facts and circumstances of the case and in law, the Ld. AO has erred in issuing notices under section 148A and section 148 of the Act without having jurisdiction at the relevant time, to assess the Appellant, thereby rendering the entire reassessment proceedings a nullity in law, non-est, invalid and void ab initio. 3. The Ld. AO has grossly erred in suomoto purportedly transferring the Appellant's jurisdiction from New Delhi to Chennai (i) in a mechanical and arbitrary manner; (ii) without following the mandatory procedure laid down under the Act; and (ii) without any intimation to the Appellant; and hence, such assumption of jurisdiction is contrary to the principles of natural justice, the mandatory provisions of the Act and is thus liable to be quashed, thereby also rendering the Impugned Order non est, invalid and void ab initio. 4. The Ld. AO has grossly erred in either (i) issuing a notice under Section 148 bearing an incorrect DIN and attem....
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....uble Taxation Avoidance Agreement (DTAA"). While doing so, 9.1. The Ld. AO has blatantly failed to provide any cogent reasoning as to why the binding principles laid down in the Hon'ble Supreme Court's judgement in Engineering Analysis Centre of Excellence Private Limited v. CIT and ANR [Civil Appeal No. 8733-8734 of 2018] are not squarely applicable to the facts of the Appellant in view of its End User License Agreement; 9.2. The Ld. AO has misinterpreted the clear and unambiguous terms of the Letter of Intent (hereinafter referred to as the LOI") and the End User License Agreement (hereinafter referred to as the EULA") between the Appellant and the end-user. A bare reading of the LOI and the EULA would make it clear that the Appellant provided multiple licenses for the software, which licenses were not permitted to be modified, and were in fact non-exclusive, and non-transferable qua the use of the computer software in question. In fact, the Ld. AO conveniently ignores the express stipulation in the EULA that no copyright in the computer programme is transferred; 9.3. The Ld. AO failed to appreciate that the end-user (i) could only use the softw....
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....return by Non-Resident entities u/s. 115A of the Act and the case was reopened u/s. 147 of the Act as income chargeable to tax had escaped assessment. The A.O. had issued statutory notices to the assessee and assessee had filed their submissions claiming that the receipt is not taxable in India since there is a transfer of copy of software without the transfer 'copy right' of the software. However, the A.O was not convinced with the reply of the assessee, passed an order by rejecting the assessee's submission dated 29/01/2024 by taxing the said amount of Rs. 1,38,85,200/- by holding as under: "1. The company incorporated under the laws of Singapore. The Assessee is engaged for supply, installation, testing, commissioning and AMC of video management software and video analytics software for Vizag smart city project. 2. In response to the Notice u/s 148A(b) of the Income Tax Act, 1961 dated 30.03.2022 assessee submission is as follows: "BRIEF FACTS:- Larsen & Toubro Limited, Construction Smart World and Communication Division, Chennai, has issued Letter of Intent to M/s QognifyPte Limited, Singapore for Supply, Installation, Testing, Commissioning ....
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....essing Officer/DRP stated that the assessment order passed by misconceiving the payment made towards copy of the software by M/s. L&T Ltd as copy right of the software and brought to tax as royalty. In support of the claim of the assessee, the ld.AR took us through the tax residence certificate (Page no. 61 & 62 of paper book), wherein the assessee is a resident tax payer at Singapore for the relevant assessment year. Further, the 'letter of intent'(LOI) issued by M/s. L&T Ltd. to the assessee dated 21.09.2017 for supply, installation, testing, commissioning and AMC of Video Management Software (VMS) and Video Analytics Software (VA) for Vizag Smart City Project with an AMC till December, 2022 for US $285,000/- (Page No.11 to 14 of paper book) was brought to our notice to state that it is purely supply of software without any copy right and the LOI also states that AMC to be provided up to December, 2022. The ld.AR also took us through the End-User License Agreement (EULA) between the assessee and M/s. L&T Ltd, wherein it clearly shows that the software which has been ordered by M/s. L&T Ltd to the assessee grants a non-exclusive, non-transferable license to use this software toget....
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....prietary notice of QOGNIFY and its licensors from the Software or Software Documentation. You may make a reasonable number of copies of the Software Documentation, provided such reproductions shall include any copyright or proprietary labels, legends or notices placed upon or included in the Software Documentation by QOGNIFY. You may make one ( 1) back-up archival copy of the Software, provided you reproduce all confidentiality and proprietary notices on such copy. (d) You shall not publish disclose, rent lease modify, loan, distribute alter or create derivative works of an kind based on the Software, Software Documentation or any part thereof. You shall not reverse engineer, decompile, unbundle, translate, adapt, or disassemble the Software, nor shall you attempt to create the source code from the object code for the Software. (e) Solely for Software expressly licensed by QOGNIFY directly (and not for the avoidance of doubt through a QOGNIFY authorized reseller) on an on-premise, perpetual basis, QOGNIFY warrants that, during the period beginning on the dare of shipment or, in the case of Software delivered via QOGNTF Y's electronic software delivery system, ....
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.... Pvt Ltd vs CIT [Civil Appeal No. 8733 to 8734 of 2018], wherein it has been held that payments made to the supplier of software would constitute royalty, only if the copy right or ownership of software part with any of the rights/interest as specified in section 14(a) and 14(b) of the Copyright Act, 1952. The Hon'ble Supreme Court has further held that, the consideration for mere use of software for the purpose for which it was supplied does not amount to royalty for the use of copyright in the software. Amongst other matters, the SC also upheld that the provisions of DTAA would apply over the provisions of section 9(1)(vi) of the Act as the same is more beneficial to taxpayers. Accordingly, the ld.AR stated that the income of the non-resident from licensing of software shall not be chargeable to tax in India as royalty as use/grant of right to use the software does not entail any use/grant of right to use the copyright in such software. Relevant paragraphs of Hon'ble Supreme Court decision have been reproduced below: "When it comes to an end-user who is directly sold the computer programme, such end user can only use it by installing it in the computer hardware owned by ....
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.... to its specification and the same does not create any interest or right in such end-user which would amount to the use of or right to use any copy right and thus, the payment received from licensing of such customized software will not be a royalty under the DTAA held as under: "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 customized to its specifications or otherwise. A non-exclusive, non-transferable licence, merely enabling the use of a copyrighted product, is in t....
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....information included and had always included the "transfer of all or any right for use or right to use a computer software". Hence, the computer software was included in the definition and within the scope of the words right, 'property' or information' as provided under clauses (b) and (c) to Section 9(1)(vi) of the Act. Article -12 of Double Taxation Avoidance Agreement (DTAA) between India and Singapore define "royalty" to mean consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work. There is no provision like Explanation 4 to section 9(1)(vi)(b) in the Tax Treaty, which artificially expands the scope of the term 'royalty' by providing that transfer of all or any rights includes transfer of all or any right for use or right to use a computer software. The term 'royalty' is exhaustively defined under the Tax Treaties to 'mean' payment made for the use or right to use any copyright in a literary work. Meaning of the said term under the Act is different and wider than the Tax Treaty in as much as transfer of all or any rights includes granting of a license, in respect of any cop....
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....eceived an order for supply, installation, testing, commission and AMC of Video Management Software and Video Analytics Software for Vizag Smart city project from M/s. L&T Ltd for an amount of Rs. 1,38,85,200/- (285,000 US Dollars). On perusal of letter of intent the following are the components of the purchase order placed by M/s. L&T Ltd to the assessee: Sl.No Description Price in USD 1 Supply of software 215,492 2 Software installation, testing and training 23,940 3 AMC/Support 45,568 Total 285,000 13. It is further stated that warranty/AMC should also be provided by the supplier up to December, 2022 by the assessee to M/s. L&T Ltd. On perusal of EULA entered between the assessee and M/s.L&T Ltd, it clearly mentions that 'no title or ownership of the software' or its documentation is transferred to the buyer (M/s. L&T Ltd) and also the ownership of the software and its modification rights shall remain at all times with the assessee only which reads as under: Software License Terms. "(a) QOGNIFY grants to you a non-exclusive, non-transferable license to use this Software (in object code form only), together ....
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....f Excellence Pvt Ltd vs. CIT(Supra), wherein the Hon'ble Supreme Court held as under: "payments made to the supplier of software would constitute royalty, if the copy right ownership of software part with any of the rights/interest as specified in section 14(a) and 14(b) of the Copyright Act, 1952. The Hon'ble Supreme Court has further held that, the consideration for mere use of software for the purpose for which it was supplied does not amount to royalty for the use of copyright in the software. Amongst other matters, the SC also upheld that the provisions of DTAA would apply over the provisions of section 9(1)(vi) of the Act as the same is more beneficial to taxpayers." 15. Further, the decision of Hon'ble Supreme Court is considered in the case of CIT vs. Microsoft Corporation (Supra) and also in EY Global Services Ltd (Supra) and held that mere supply of software without a sale of copyright cannot be treated as royalty to bring it to tax u/s. 9(1)(vi) of the Act. The same analogy has been following with reference to India-Singapore DTAA in the following cases and decided in favour of the assessee by excluding the supply of software without any copyright as non-taxa....