TaxTMI 
TaxTMI 
2024 (11) TMI 858
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....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 attempting to regularize same after a period of approximately one year, in bla....
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.... 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 software by installing it in its computer hardware and could not in any manner reproduce the same for sale or transfer, contrary to th....
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....he 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 and AMC of Video Management Software (VMS) and Video Analytics Software (VA) for their Vizag Smart City Project. Copy of letter of Intent is attached as Annexure-1 M/s QognifyPte L....
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.... 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 together with the application for total number of licenses with the following software license terms (Page No. 63 to 65 of paper book): END-USER LICENSE AGREEMENT ["EULA"] IMPORTANT- READ CAREFULLY BEFORE USING THIS SOFTWARE BY USING THIS SOFTWARE, YOU ....
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....ocumentation 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, the date on which the Software becomes available for download, and ending on the date that is ninety (90) days thereafter ("Warranty Period"), the Software will operate substantially in accordance with the applicable Software Documentation. Should the Software fail to comply with the warranty set forth in this Secti....
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....e 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 the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. In all these cases, the 'licence' that is granted vide the EULA, is not a licence in terms of Section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in Secti....
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....nsee, 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 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 mentioned in Section 14 of the Copyright Act, or created any interest in any such rights so as to attract Section 30 of the Copyright Act." 7. The ld.AR further relied on the following judgments of Hon'ble High Court of Delhi....
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....fine "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 copyright of Since the license granted to end users does, not create any interest any literary work or right in the software, grant of such license would not amount to the "use of or right to use" of copyright and, hence, it would not qualify as royalty under the Tax Treaty. The phrase "in respect of used in the Act means "in" or "attributable to" Thus, in order to quality as royalty even under the Act, it is a sine qua non that there....
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.... 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 with the specifications and user documentation that accompany this Software (collectively "Software Documentation"), for the total number of licenses you have purchased from QOGNIFY or a QOGNIFY-authorized reseller or distributor. Such use shall be in accordance with and subject to the terms and conditions set forth herein. (b)No title or ownership of the Software or Software Documentation is transferred to you by way of this EULA. Ownership of the Software, Software Documentation, an all modifications, enhancements,....