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TMI Blog2010 (4) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of Article 12(3) of the DTAA." 3. Briefly stated, TTI Team Telecom International Ltd., is a company incorporated in Israel and is a tax resident of that country. The assessee had filed Tax Residence Certificate before the Assessing Officer and claimed the benefit of Double Taxation Avoidance Agreement (DTAA) between India and Israel. The assessee had entered into a contract with Reliance Infocomm Ltd. (Reliance), dated 17-9-2002, for the supply and license of software, for the wireless network of Reliance in India. The Assessing Officer has mentioned that total consideration was US $ 322,50.180. The Assessing Officer has examined the software license agreement which provides that the assessee had granted Reliance a perpetual, irrevocable, non-exclusive, royalty-free, worldwide license to install and operate the software and the documentation licensed under the agreement for implementation, operation, management and maintenance of Wireless Reliance Network within India. The assessee had claimed that the payment received for supply of software was business income and in the absence of PE in India such business profit was not taxable in India. The Assessing Officer held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .); ( vii ) Lotus Development (Asia Pacific) (P.) Ltd. v. Dy. CIT [2006] 19 ITAT INDIA 628 (Delhi) (ITAT); ( viii ) Sonata Information Technology Ltd. v. Addl. CIT [2006] 103 ITD 324 (Bang.); 5. The CIT(A) has examined the agreement between the assessee-company and Reliance Infocomm Ltd., and noticed that there was only a grant of perpetual, irrevocable, non-exclusive, royalty-free, worldwide license to install, use and operate and copy the software and documentation licensed in the worldwide Reliance network. He also further found out that the agreement, does not give any title to the software or any trademark or copyright in it to the Reliance. The Reliance also cannot reverse engineer, decompile or disassemble or cannot remove, obscure or deface any property legend relating to the software. It was also further found that the software license cannot be sold, transferred, assigned, sublicensed or used by any cutsourcee of Reliance without the consent of the assessee. In view of these findings following various case laws relied upon by the assessee and also examination of DTAA of Indo-Israel and Indo-US DTAA and provisions of Article 12(3) and after analysing the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt examined the issue in detail and it was held that software is an intellectual property so long as if remains with the software developer. As soon as a copy of the software is produced and is placed on a media it becomes goods. Software on media is not different from any book or canvas (in case of painting) or compact discs or cassettes in respect of songs and pictures. Hon ble Supreme Court held that the software and the media cannot be split up since the media has a little value. Hon ble Supreme Court has observed as under : A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In cast of painting) or discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be reused or duplicated in any other exchange where identical orders were placed by the DOT. It was held that the payment made for the purchase of software did not partake the character of royalty and as such there was no obligation to deduct at source. As per the Contract conditions mentioned in para-2 of the agreement Reliance did not acquire any right of duplication of software except for use in its own system. ...... ...... 2.13 Appellant is a tax resident of Israel and therefore is entitled to the benefit of DTAA over the provisions of the Income-tax Act. Consequently if the payment of software is not covered by the definition of royalty in Article-12, it being covered by section 9(1)( vi ) would be irrelevant. Definition of royalty in Article-12(3) is in following parts : ( a )Consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work. ( b )Consideration for the use of or right to use of any patent, trademark, design or model, plan, secret formula or process. ( c )Consideration for the use of or right to use cinematograph film or won on film, tape or other means of reproduction of the use in connection with rad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial part of which, the film, or, as the case may be, the sound recording is made. (5) In the case of a work or architecture, copyright shall subsist only in the artistic character and,design and shall not extend to processes or methods of construction . 2.15 Section-13 therefore clearly provides that the copyright shall subsist only in respect of original literacy, dramatic, musical and artistic works, cinematograph films and sound recording. It is therefore clear that the copyright is different from the work. Copyright about work is not synonymous with that work. Copy right is an incorporeal property in a work (a copy property). 2.16 Section-14 of the Copyright Act provides the definition of copyright which reads as under : 14. Meaning of copyright For the purpose of this Act, "copyright" means the exclusive right subject to the provisions of this Act to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely ( a )in the case of a literary, dramatic or musical work, not being a computer programme, ( i )to reproduce the work in any material form including the storing of it in any medium by electronic means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The perusal of para-2 of the agreement clearly reveals that Reliance has got a copy of software for being used in its telecom network. The Reliance has got no right as envisaged in section 14 of the Copyright Act to duplicate the software, to issue copies of software in public or to give copies of software in rent or even to reverse engineer, decompile or modify the software. The sum total of the conditions mentioned in the para-2 is that appellant has given no part of copyright as envisaged in section-14 of the copyright to the appellant. Thus, sale of software by the appellant to Reliance cannot be said to be the transfer of the copyright to Reliance either in part or in whole. Thus, consideration paid by the Reliance to Appellant for acquiring copy of software is not for the use of copyright or transfer of right to use of copyright. As mentioned above, copyright is different from the work in respect of which copyright subsist. Reliance has only got a copy of software without any part of the copyright of the software. Thus, payment by the Reliance for acquiring copy of software does not amount to royalty within the definition of Article-12(3) of the DTAA. Thus, he gave a factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software which is provided by the supplier for the use in the cellular network does not involve transfer of any part of copyright of the software but only amounts to sale of a copyrighted article, namely, the copy of computer programme. Copyright continue to remain with the supplier of the computer programme. 2.21 The Hon ble Delhi Bench of ITAT in the case of Lotus Asia Specific ITA No. 564 to 566/Delhi/05 order dated 28-4-2006 have also examined the same issue and have held that in the case of a sale of shrink-wrap software being a copyrighted article, consideration received does not amount o royalty as there is no transfer of any part of copyright in the computed programme which continues to remain with the software supplier. 2.22 The Hon ble ITAT Bangalore Bench in the case of Sonata Information Technologies Ltd. ITA No. 1561 to 1580/Bang./2004 dated 31-1-2006 have considered the issue of payment received on sale of computer software without transfer of any copyright. Hon ble ITAT had examined the issue of royalty within the meaning of section 9(1)( vi ) and as provided in the DTAA. Hon ble ITAT had examined in detail the issue of royalty in respect of sale of shrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not royalty if there is no transfer of copyright partly or wholly. Facts obtaining in the case of appellant clearly point that no part of the copyright as envisaged by section-14 of the Copyright Act has been transferred by the appellant to Reliance. Therefore the payment for purpose of software cannot amount to royalty within the meaning of Article-12(3)." 9. As can be seen from the above discussion of the CIT(A), the factual position as per the agreements and the legal position with reference to the supply of software for use were analysed in detail. Various coordinate benches have already analysed and noted the difference between the purchase of copyrighted article and transfer of copy rights. We are in agreement with the findings of the CIT(A), who has correctly come to the conclusion that the supply of software to Reliance does not amount to any transfer of copyright and payment can be only for purchase of copyrighted article and does not amount to royalty within the meaning of Article 12(3) of the DTAA. Consequently the order of the CIT(A) is upheld. Revenue s appeal is dismissed. 10. Assessee has filed CO No. 64/Mum./2003 in support of the CIT(A) s order. Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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