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TMI Blog2010 (5) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware which is only the sale of copies of copyrighted articles HELD THAT:- A very similar issue in similar circumstances was considered by Larger Bench of the ITAT, Delhi Bench A (Special Bench) in the case of Motorola Inc. [ 2005 (6) TMI 226 - ITAT DELHI-A] the cellular operator did not transfer or load any part of the software as to the SIM card or the handset of the subscriber. That established that the software supplied by the assessee to the cellular operator was installed on the hardware and no part of it was loaded on the SIM card or the handset of the subscriber. The Tribunal held that the crux of the issue was whether the payment was for a copyright or for a copyrighted article. If it was for a copyright, it should be clas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the terms of DTAA. Assessee appeal allowed. - O. K. NARAYANAN and Shailendra Kumar Yadav, JJ. Arvind Sonde for the Appellant. Smt. Preeti Garg for the Respondent. ORDER O.K. Narayanan, Vice President - These two appeals are filed by the assessees, for the common assessment year 2005-06. These appeals are directed against the orders of the Commissioner of Income-tax(A)-IV, at Bangalore, dated 28-8-2009 and arise out of assessment orders passed under section 143(3) read with section 147 of the IT Act, 1961. 2. The assessee-company, M/s. Velankani Mauritius Ltd., is a company registered in Mauritius. The other company M/s. Bydesigns Inc is a company registered in USA. The assessees do not have a Permanent Establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in reopening the assessment under section 147 read with section 143(3) of the IT Act, 1961. It is the case of the assessees that the reopening of the assessments under section147 is bad in law. 6. On merits of the issue, the common ground raised by both the assessees is that the Commissioner of Income-tax(A) has erred in confirming the action of the Assessing Officer in treating the sale of software as income from royalty chargeable under the IT Act/DTAA and, thus, erred in making additions for the purpose of assessments in the hands of the assessees. It is the case of the assessees that the remittances did not fall under the purview of Royalty as defined under section 9(1)( vi ) of the IT Act, 1961/relevant DTAA. 7. We heard Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to the actual determination of the tax liability of the non-resident assesses in respect of the payments that they had received from the resident payers figuring as respondents in all these appeals, we answer all other questions relating to the correctness or otherwise of the orders passed by the Tribunal in the negative in favour of the Revenue and against the assessee, allow the appeals, set aside the orders passed by the Tribunal and restore the orders passed by the assessing authorities and affirming orders passed by the first appellate authorities, so far as it relates to confirming the demand raised on all these respondents-assessees in terms of the provisions of section 201 of the Act for the failure of the respondents-assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handset of the subscriber. That established that the software supplied by the assessee to the cellular operator was installed on the hardware and no part of it was loaded on the SIM card or the handset of the subscriber. The Tribunal held that the crux of the issue was whether the payment was for a copyright or for a copyrighted article. If it was for a copyright, it should be classified as Royalty both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payment was for a copyrighted article, then it only represented the purchase price of the article and, therefore, could not be considered as Royalty , either under the, IT Act or under the DTAA. 11. In the light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that software programme may consist of various commands which enable the computer to perform designated tasks. The copyright may remain with the originator of the programme, but the moment copies are made and marketed, it becomes goods which are assessable to Sales-tax. The Court continued to observe that even intellectual property once it is put to a media whether be in the form of books of canvas or computer disks or cassettes, would become "goods". 15. Therefore, in the facts and circumstances of the case, and in the light of the above binding decisions, we find that the sale of software cannot be treated as income from royalty either under the IT Act or under the terms of DTAA. Therefore, the addition made in the case of M/s. Vela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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