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TMI Blog2008 (12) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... being incidental to the software receipts assume the same character as that of software receipts and the same are liable to be taxed accordingly. We therefore, set aside the order of the CIT(A) on this issue and restore the matter to the file of the AO with a direction to reframe the assessment in view of our decision on the preliminary issue that the payment received by the assessee company against software licensed was not in the nature of royalty but was in the nature of business profits chargeable to tax in its hands under art. 7 of the DTAA. As we have restored the matter to the file of the AO for framing the assessment afresh keeping in view our decision on the preliminary issue relating to the taxability of the software payments, we do not deem it necessary or expedient to adjudicate upon the remaining grounds raised by the assessee in this appeal which are mainly consequential in nature. In the result, the appeal of the assessee is treated as allowed. - Member(s) : P. M. JAGTAP., GEORGE MATHAN. ORDER-P.M. JAGTAP, A.M.: This appeal by the assessee is directed against the order of learned CIT(A)-XXIX, New Delhi, dt. 10th Jan., 2008. 2. In ground No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, the assessee company is entitled to deduction of purchase cost of software as well as other expenses incurred and the net profit alone can be taxed and that too, as business profits as per art. 7 of the DTAA between UK and India. It was also contended that even if the receipts of the assessee are to be treated as royalties or fees for technical services, the same having been arisen through a PE in India, it was chargeable to tax as business profit as per the said art. 7. As regards the applicability of s. 44D, it was submitted on behalf of the assessee company that s. 44D has been inserted by the Finance Act, 2003 making all the expenditure incurred for earning royalty or fees for technical services allowable and although the same has been made effective from 1st April, 2004, it can still be applied in the case of the assessee involving asst. yr. 2003-04 going by the legislative intention behind inserting the provisions of s. 44D. 4. The submissions made on behalf of the assessee company before him were not found acceptable by the AO. As regards the decision of Hon'ble Supreme Court in the case of Tata Consultancy Services cited by the assessee company, he held that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o denial of the fact that it is essentially an invention. The development of such software requires highly technical manpower, with highly sophisticated infrastructure and huge investments. Similarly the software can also be considered as a scientific work. Therefore, the software can also be said to be information developed out of scientific experience. (iii) The payment is also qualified for the use of secret formula or process. The software developed by Infrasoft when installed in a computer responds to every instruction in a specific way. It recognizes the command and as per its programming yields the desired result and reflects the same on the output devices. This argument is further strengthened from the fact that cost of the medium viz., computer discs, floppy etc., on which the program is written is negligible as compared to the overall price of software. Had it not been a secret programming, anybody could have written these types of programs and sold it at a very low price as compared to the price of the original software. (iv) The software developed by Infrasoft is customizing software which are used for specific purposes like design of highways, railways, airport, po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are.-Samsung Electronics Co. Ltd. vs. ITO (2005) 93 TTJ (Bang) 658 : (2005) 276 ITR 1 (Bang)(AT). (v) Use of a copyrighted article is not transfer of right in the copyright in the article-Wipro Ltd. vs. ITO (2005) 92 TTJ (Bang) 796 : (2005) 278 ITR 57 (Bang)(AT). (vi) No licence to duplicate the software to end-users. (vii) On p. 7 of his order, the Addl. Director of IT admits that the copyright of software remains with the appellant. (b) Paper book dt. 9th March, 2007 (i) Appellant carried on business in India through a PE. It would clearly fall out of the applicability of art. 13(6) of the Indo-UK convention and fall within the ambit of art. 7. (ii) Support comes from non-discriminatory art. 26 of the convention. (c) Paper book dt. 2nd June, 2006 (i) Sec. 115A cannot be applied as sale of software and related items of income not 'royalty'. (ii) In case a receipt is held to be not taxable as royalties and fees for technical services, the same cannot be subjected to tax under s. 44D r/w s. 115A.-Dy. CIT vs. Boston Consulting Group Pte. Ltd. (2005) 93 TTJ (Mumbai) 293 : (2006) 280 ITR 1 (Mumbai)(AT). (iii) Article 26 of the DTAA between India and UK states that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove were not found to be acceptable by the learned CIT(A) and he rejected the same after discussing all the relevant aspects of the matter in detail in his impugned order. He noted in this regard that the assessee was engaged in licensing of Mx software to Indian customers which is an engineer-friendly tool for all types of road projects. He also noted that the said software was consisting of different application softwares. He also took note of the position clarified on behalf of the assessee company that standard Mx software needs country-wise, project-wise and customer specific customization and the said software was supplied by the assessee company to customers in India only after such customization to include Indian standard on road construction and project specific requirements of the Indian customers. He also noted that the assessee company was undisputedly having its PE in India in the form of a branch office and also taken note of the activities for which the said branch office was opened in India as approved by the RBI. 9. In order to ascertain the exact nature and character of income received by the assessee company in India on account of supply of software, annual ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out transfer. He held that what is taxed as royalty is the amount received as a consideration for the use or the right to use and not outright purchase of the right to use an asset. He held that the royalty thus is a consideration including a lump sum consideration for the transfer of all or any right (including the granting of a license) in respect of a copyright, patent, trademark, design and model or secret formula, etc. According to the learned CIT(A), there are two types of transfer i.e., transfer of the "right in the property" and transfer of the "right in respect of the property". He held that these two transfers are distinct and have different legal effects. In one, rights are purchased while in the other, no purchase is involved and only the right to use has been granted. He also held that in an outright transfer to be treated as sale of property as opposed to license, alienation of all rights in the property is necessary. In this context, he relied on the decision of Hon'ble Calcutta High' Court in the case of CIT vs. Davy Ashmore India Ltd. (1991) 190 ITR 626 (Cal) wherein it was held that where the transferor retains the property right in the designs, secret formula, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nservative interpretation of the word 'use' as adopted in the Revised Commentary on OECD, however, was not applicable to the facts of the assessee's case for the following reasons: "(i) The interpretation of the meaning of the word 'use' in that definition in OECD Commentary is not acceptable to many of the source jurisdiction that impose withholding tax on royalty income like Canada, Spain, Greece, Korea, Portugal, Mexico and India. (ii) In September, 2001, India released a report of High Powered Committee in which India has taken certain positions with regard to characterization of electronic commerce income that are contrary to how the OECD proposes to treat these payments. The High Powered Committee has concluded that the payment for the 'right to use' software constitutes a 'royalty' both under s. 9(1)(vi) of the Act and under art. 13 of DTAA. (iii) It is arguable that copying a program from a floppy disk (or even a CD ROM) to the hard disk of a computer could constitute a use of a copyright so as to give rise to royalty income. Support for this proposition may be found in cases such as Dyason vs. Autodesk Inc. (1999) 96 ALR 57. where it has been established that 'the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of copyright principles will not always deliver a clear result and may lead to lines that are difficult to draw. For example, if a distributor is licensed to reproduce copies of the software for distribution to its customers (online, or otherwise), the revised commentary appears to characterize payments made by the distributor to the owner as royalties. However, if the distributor instead imports shrink-wrapped versions of the software, ready for distribution to its customers, the payments would be regarded as business profits under the revised commentary. The varied results that are possible in this example result from the modified application of copyright principles adopted in the revised commentary and similar difficulties may be encountered in other situations as a result of the selective adoption of copyright principles in characterizing computer software transactions. (vii) It is also important to remember that if the characterization of computer software payments is to be based on copyright laws, regard must be had to the variance (in some cases, wide variance) in these non-tax laws between countries that can lead to the potential of double or excessive taxation. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ems entirely apt. The copyright laws of many countries deal with this problem by specifically classifying software as a literary or scientific work. For other countries treatment as a scientific work might be the most realistic approach. Countries for which it is not possible to attach software to any of those categories might be justified in adopting in their bilateral treaties an amended version of para 2 which either omits all references to the nature of the copyrights or refers specifically to software. (x) At this stage, it would be necessary to refer to certain extracts from Klaus Vogel's Commentary on Double Taxation Conventions-Third Edn. which support a view that India and UK DTAA stipulate for taxation of use of software under a license as a 'royalty'. (a) Page 788-Marginal No. 46: 'Even if a State were to consider the granting of an exclusive licence for a non-recurring consideration to constitute capital gains, such consideration would, for purposes of OECD and UN Model Convention, be considered a royalty, unless the licensor' abandoned all his rights.' (b) Page 788-Marginal No. 45: '...even a sale may involve a 'time-limit', if it is coupled with an obligatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, where such income, under Australian law, has a source in Australia. 40. Canada, the Czech Republic, Hungary, Korea and Poland reserve the right to add the words 'for the use of, or the right to use, industrial, commercial or scientific equipment' to para 2. 41. Greece, Italy and Mexico reserve the right to continue to include income derived from the leasing of industrial, commercial or scientific equipment and of containers in the definition of 'royalties' as provided or in para 2 of art. 12 of the 1977 Model Convention. 42. New Zealand reserves the right to tax at source payments from the leasing of industrial, commercial or scientific equipment and of containers. 43. Portugal reserves the right to treat and tax as royalties all software income that is not derived from a total transfer of the rights attached to the software. Portugal also reserves the right to tax at source as royalties income from the leasing of industrial, commercial or scientific equipment and of containers, as well as income arising from technical assistance in connection with the use of, or the right to use, such equipment and containers. 44. Portugal and Spain reserve the right to tax at sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic law; or - there is a void or gap in domestic law. The intention or spirit of international conventions can be effectuated so long as there is no express conflict, with domestic law. Where the domestic law is clear, unambiguous and does not suffer from any void or gap, the spirit or intention of international convention, under no circumstances, can override the express provisions of domestic law." 13. For the reasons given above as well as relying on the decisions of Hon'ble Supreme Court in the case of Vishaka vs. State of Rajasthan AIR 1997 SC 3011 and in the case of People's Union for Civil Liberties vs. Union of India AIR 1997 SC 1203 as well as that of Hon'ble Bombay High Court in the case of CIT vs. Boots Co. (I) Ltd. (1995) 125 CTR (Bom) 238 : (1995) 214 ITR 175 (Bom) he held that the plea raised on behalf of the assessee based on revised OECD Commentary that payment received under software license agreement was not taxable as royalty could not be accepted. He noted that the said revised OECD Commentary on software payment has not been accepted even by some of the OECD member countries. He held that the said commentary on software payment thus was not applicable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company thus was of no help to it and notwithstanding the transfer of right to use software being held as 'sale' under the sales-tax law, software license fees for such transfer was taxable as royalties under the IT Act. 15. The learned CIT(A) also discussed the decisions of the Tribunal cited on behalf of the assessee, inter alia, in the cases of Motorola Inc. vs. Dy. CIT (2005) 96 TTJ (Del)(SB) 1 : (2005) 95 ITD 269 (Del)(SB), Lucent Technologies Hindustan Ltd. vs. ITO (2004) 82 TTJ (Bang) 163 : (2004) 3 SOT 757 (Bang) and Samsung Electronics Company Ltd. vs. ITO (2005) 93 TTJ (Bang) 658 : (2005) 94 ITD 91 (Bang) and held after discussing and narrating the facts involved in the said cases that the same were distinguishable on facts. He held that the said decisions thus were of no help to the assessee and the reliance thereon by it was misplaced. 16. The learned CIT(A) finally summarized his findings and conclusion on the issue under consideration in para No. 4.8 of his order as under: "4.8.1 As per provisions of s. 9(1)(vi) the royalty income should satisfy twin conditions that there has to be consideration, and this consideration should be for transfer of all o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into a different statute which defines the same transaction differently. The necessary corollary is that 'sales treatment' of computer software under sales-tax law, does not, per se. influence income-tax treatment of software transactions, as income-tax law defines this transaction differently. 4.8.6 OECD recommendations remain mere recommendations unless they are incorporated into domestic law and/or DTAAs. The distinction between 'copyright right' and 'program copy' recommended by the OECD has been dissented from even by several member States (discussed supra) not to speak of India which is no Tribunal even a Member of the OECD. Indian laws and India's DTAA recognize only two types of transactions in respect of computer software sale and licence (letting). No further dissection of licensing (on the lines of the OECD Commentary) is permitted under the Indian Copyright Act, IT Act and Indian DTAAs. Therefore, notwithstanding attractive phraseology and nomenclature, any computer software licence fees, where the vendor retains ownership and grants user rights only to the licensee are, without an iota of doubt, taxable as royalties having an Indian source." 17. On the basis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was any transfer of all or any rights in the software. He submitted that Copyright Act, 1957 also emphasizes an exclusive right i.e., a right to the exclusion of others and as further clarified by the Explanation to s. 14(a)(ii) of the Copyright Act, a copy which has been sold once shall be deemed to be a copy already in circulation. He contended that similarly, payment for the right to use a software program cannot be equated with a right to use process or formula. 19. As regards art. 13 of the relevant DTAA, he submitted that payments in connection with software as per the OECD Model Convention represent royalty only when there is a right given to commercially develop the software in reproduction or adaptation of software for onward adaptation. He contended that where software is acquired for personal or business use of the purchaser, it would, however, not give any rise to royalty income even as per art. 13 of the DTAA. He submitted that the learned CIT(A) has relied on the report of a high powered committee to conclude that payment for right to use software constituted royalty under art. 13 of the DTAA. In this regard, he submitted that report of the high powered committee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is sold is a copy of the software which is akin to the instance of one buying a copy of novel from a book store or a recorded song in a cassette or video tape. 21. As regards the decisions of Hon'ble Supreme Court in the cases of Gem Granites and Gramophone Co. of India Ltd. relied upon by the learned CIT(A) in his impugned order, the learned counsel for the assessee submitted that the facts involved in the said cases were different from the facts of the present case and the reliance of the learned CIT(A) on the decisions rendered by the Hon'ble Supreme Court in the said cases was clearly misplaced. He submitted that in the case of Gem Granites, Hon'ble Supreme Court was dealing with an issue relating to specific exclusion and as admitted by the learned CIT(A) himself in his impugned order, the IT Act was subsequently aligned with the Customs Act to keep pace with the changing times. He submitted that in the case of Gramophone Co. of India Ltd., the expression "import" was defined in ss. 51 and 53 of the Copyright Act and keeping in view this comprehensive definition, it was held by the Hon'ble Supreme Court that there was no need to search for definitions in other Acts, conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputer programme in order to utilize the public programme for the purpose for which it was supplied or to make backup copies purely as a temporary protection against loss, destruction or damage. (vi) It is mandatory for the operator, while making copies of the software for backup purposes, to also mark the copied software with copyright or other marking to show that the rights of the assessee are reserved. (vii) A holder of a copyright is permitted to exploit the copyright commercially and if he is not permitted to do so then what he has acquired cannot be considered as a copyright. In that case, it can only be said that he has acquired a copyrighted article. (viii) Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. The copyright owner may dispose of it on such terms as he may see fit. He has an individual right of exclusive enjoyment. The transfer of the manuscript does not itself, serve to transfer the copyright therein. (ix) The four rights which, if acquired by the transferee, constitute him the owner of a copyright right. They are: (a) The right to make copies of the computer p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Bangalore Bench of Tribunal in the case of Samsung Electronics Co. Ltd. wherein it was held that the primary condition for bringing within the definition of "royalty" in the DTAA is payment of any kind received as consideration for the use of or right to use of any copyright of a literary, artistic or scientific work etc. It was held that the right to use a copyright is totally different from the right to use the program embedded in a cassette or a CD which may be a software in which case what is acquired is only a copy of the copyrighted articles i.e., software whereas the copyright remained with the owner. It was also observed that no right was granted to utilize the copyright of the computer program and the purchase was merely of a copyrighted article viz., a computer program which is called software. The learned counsel for the assessee contended that the learned CIT(A) has distinguished this decision of the Bangalore Bench of Tribunal in the case of Samsung Electronics Co. Ltd. which is directly on the point in issue by stating that the same related to off the shelf product. He submitted that even in the case of the assessee, the software is a standardized one and customi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basic title in the software has been specifically retained by the seller and only right to use has been transferred. He contended that the amount received thus is on account of right given to use the software and the same, therefore, constitutes royalty as per the definition given in the domestic law as well as in the relevant DTAA as rightly held by the authorities below. He invited our attention to the copy of relevant agreement placed at page No. 67 of the assessee's paper book and pointed out that the specific terms and conditions contained in the said agreement especially those putting restrictions on the transferee clearly show that the ownership in the software was not transferred but the same was retained by the assessee. He contended that the term "copyrighted article" is not used anywhere in the IT Act and as the said term thus is not recognized by the IT Act, the stand of the assessee that the impugned transaction allowing right to use the software actually involved transfer of copyrighted article cannot be accepted. He contended that the said transactions involving right to use the software, on the other hand, was of the nature as specified in Expln. 2 to s. 9(1)(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware is nothing but a royalty for giving license to use the rights in intellectual property which the assessee had developed in the form of software. He submitted that Expln. 2 to s. 9(1)(vi) clearly defines royalty and the said inclusive definition has to be understood in its letter and spirit without referring to any other enactment. 29. The learned Departmental Representative relied on the decision of Hon'ble Calcutta High Court in the case of N.V. Philips Gloeilampenfabrieken Eindhoven vs. CIT (1987) 65 CTR (Cal) 103 : (1988) 172 ITR 521 (Cal) wherein it was held that specialized technical information supplied by non-resident company to Indian company for user of such specified knowledge can be treated as royalty or in the nature of royalty as against technical services fees. It was also held that the term "royalty" connotes payment for user by one person of certain exclusive rights belonging to another person. The learned Departmental Representative contended that the payment made to Infrasoft in the present case by the licensee was nothing but payments made for use of specialized knowledge i.e., licensed software which is even protected by Copyright Act and the same, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trademark or similar property; (iv) the imparting of any information concerning technical, industrial. commercial or scientific knowledge, experience or skill; (iva) the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in s. 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of Cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-cls. (i) to (iv), (iva) and (v)." 31. There is no dispute that the amount in question has been sought to be treated as royalty income by the Revenue authorities on the basis of the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the work in sub-cls. (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in cl. (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not, the essential object of the rental; (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three-dimensions of a two-dimensional work or in two-dimensions of a three-dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-cls. (i) to (iv); (d) in the case of cinematograph film,- (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in sub-cl. (2) of cl. (b) of that section which related to a computer program. The Special Bench of the Tribunal thus held that what the licensee/user of the software had acquired under the license agreement was not a copyright but was a copyrighted article. 35. The Tribunal then took note of the stringent restrictions imposed on the licensee under the license agreement so far as use of the software was concerned and found that the licensee had been denied the right of making the copies of the software or parts thereof except for archival back-up purposes. This meant that the licensee could not make copies of the software for commercial purposes which condition was contrary to s. 14 (a)(i) of the Copyright Act which permits the copyright holder to reproduce the work in any material form including the storing of it in any medium by electronic means. Referring to s. 52(1)(aa) of the Copyright Act, it was also held by the Tribunal that merely because the licensee had been permitted to take copies just for back-up purposes, it could not be said that he had acquired a copyright in the software. The Tribunal also took note of the restrictions placed on the licensee not to license or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would. without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer programme. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the programme onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the programme. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the programme by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as commercial income in accordance with art. 7." According to the Tribunal, the Commentary on OECD Model Convention although was of persuasive value only, the same threw considerable light on the character of the transactions and the treatment to be given to the payments for tax purposes. 38. The Tribunal also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the software and associated support information for back-up purposes with a condition that such copy shall include Infrasoft copyright and all copies of the software shall be the exclusive property of Infrasoft as per cl. 2(d) of the license agreement. As per cl. 2(f) of the license agreement; the licensee was allowed to use the software only for his own business as specifically identified and was not allowed to loan, rent, sale, sub-licenses or transfer the copy of software to any third party without the consent of Infrasoft. The licensee was also prohibited from copying, de-compiling, de-assembling or reverse engineering the software without the written consent of Infrasoft as per cl. 2(h) of the license agreement. It was also stipulated in cl. 5(a) of the license agreement that all copyrights and intellectual property rights in and to the software and copies made by the licensee are owned by Infrasoft and only Infrasoft has the power to grant the license rights for the use of the software. Clause 7(b) of the license agreement also provided that upon termination of the said agreement for any reason, licensee shall return the software including supporting information and lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case. The difference in facts sought to be pointed out by the learned CIT(A) was actually immaterial or insignificant in this context and the learned CIT(A), in our opinion, ought to have followed and applied the decision of the Special Bench of Tribunal in the present case being a binding precedent. 42. During the course of appellate proceedings before the learned CIT(A), another decision of Tribunal Bangalore Bench in the case of Samsung Electronics Co. Ltd. was also cited on behalf of the assessee. In the said case also, the issue involved was whether the payment made by the assessee company to the foreign companies for software was to be treated as royalty under s. 9(1)(vi) of the IT Act read with the DTAA of relevant countries. The Tribunal observed in this context that although the definition of s. 9(1)(vi) of the IT Act of "royalty" is wider, the definition of the said term as given in the relevant DTAA has to be followed if the same is beneficial to the assessee in view of s. 90(2) as well as the decision of Hon'ble Supreme Court in the case of Union of India Anr. vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC). The stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and no right was granted to the assessee to utilize the copyright of the computer program. The assessee had merely purchased a copy of the copyrighted article viz., the computer program which is called software and the payment for the same was not in the nature of royalty as defined in the relevant DTAAs. 43. The issue involved in the case of Samsung Electronics Co. Ltd. as well as of the material facts relevant thereto thus were similar to the one involved in the present case and the decision rendered therein by the Tribunal and relied upon on behalf of the assessee before the learned CIT(A) in support of its case was directly applicable in the present case. A perusal of the impugned order of the learned CIT(A), however, shows that he distinguished the same on the basis that the software licensed by the assessee in the case of Samsung Electronics Co. Ltd. was off-the-shelf software imported from the different foreign countries and sold in India whereas the software given by the assessee in the present case was not an off-the-shelf product as the same was required to be customized to meet the needs of the Indian customers for which the professional services were also req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleteness to our order, we may touch upon certain main points raised by the learned CIT(A) in his impugned order in brief. In this regard, it is observed that heavy reliance has been placed by the learned CIT(A) in support of his conclusion on the report of the high powered committee stated to be set up by Ministry of Finance, Government of India in the year 1999. This report has been relied upon by the learned CIT(A) for categorization of the software payment as royalty which is different from the revised OECD Commentary. As submitted by the learned counsel for the assessee in this regard, there is, however, nothing either in the order of the lean led CIT(A) or even brought on record by the learned Departmental Representative during the course of appellate proceedings before the Tribunal that the said report of the high powered committee has been accepted by the Government. In any case, the said report or more particularly the recommendation or suggestion of the high powered committee as contained in the said report have not been incorporated anywhere in the relevant provisions of the IT Act. We also see no basis on which the said report can justifiably be preferred to the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are susceptible to sales-tax. It was, further held that even intellectual property once it is put on the media whether it is in the form of books or canvas or computer discs or cassette and marketed would become goods. It was held that in all such cases the intellectual property is incorporated on a media for purposes of transfer and when the sale is made it is not just that of media which by itself has very little value. What the buyer purchases and pays for is not the disc or CD. A perusal of the other case laws relied upon by the learned CIT(A) in his impugned order as well as those cited by the learned Departmental Representative at the time of hearing before us also shows that the decisions rendered therein are not directly applicable to the point in issue. 46. Keeping in view the reasons given above, we are of the view that the issue involved in the present case relating to nature of software receipts is squarely covered by the decisions of Tribunal in the cases of Motorola Inc. and Samsung Electronics Co. Ltd. and respectfully following the same, we hold that the amount received by the assessee under the license agreement for allowing use of the software was not 'royalt ..... 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