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TMI Blog2010 (4) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) in deleting the addition made by the AO, The grounds taken by the revenue are, therefore, rejected. liability to pay interest u/s 234B - we find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee being a non-resident, its entire income arising in India is subject to deduction of tax at source in terms of section 195. In the absence of any distinguishing feature brought on record by the revenue, we, respectfully following the decision of the DIT (International Taxation) v. NGC Network Asia LLC [ 2009 (1) TMI 174 - BOMBAY HIGH COURT] and the Tribunal[ 2005 (6) TMI 226 - ITAT DELHI-A] , hold that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee and accordingly we are inclined to uphold the order, of the ld. CIT(A) in deleting the interest charged u/s 234B. The ground taken by the revenue is therefore rejected. - D.K. AGARWAL AND B. RAMAKOTAIAH, JJ. Narender Singh for the Appellant. Dhanesh Bafna and Aliasger Rampurawala for the Respondent. ORDER D.K. Agarwal Judicial Member. - This appeal preferred by the revenue is directed against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y right to disassemble, decompile or reverse engineer the software. Copyright over software remain with the assessee. On these facts, it was claimed by the assessee before the Assessing Officer that the software being sold by the assessee was a shrink wrap software being sold to customers for their personal use without transfer of any copyright, trade mark, or patent etc. In view of this payment received for supply of software was not royalty and was only business income. The assessee did not have a permanent establishment (PE) in India and therefore business income is not taxable as per Article-7 of the DTAA." 3. The Assessing Officer did not agree with the plea of the assessee. He was of the view that the payment received by the assessee for the use of software Solid Works 2003, is in the nature of royalty as defined under the Indo-US DTAA. He further observed that similar view was taken in the earlier years. On appeal, the ld. CIT(A) held that no royalty arises in India in respect of sale of the software. However, the department has not accepted the order of the ld. CIT(A) and appeal has been filed before the Tribunal. Accordingly he brought the payments to tax as royalty an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival submissions. The sample copy of the software distribution agreement filed before the lower authority shows that under section 6, thereof, the distributor has to obtain orders for the product and was free to fix price of the product. The assessee had a right to accept or reject the request of the distributor for supply. The distributor was not authorized directly or indirectly to entered into any written or oral contract on behalf of the assessee. More importantly, distributor cannot tamper with or remove from the original packaging and all product shall be distributed by the distributor in unopened packaging in which such products were received from the assessee. The Distributor does not have any right to make further copies of the products. Under section 3 of the agreement, which grants license for use of the product by the ultimate consumer clearly provides that distributor cannot disassemble, decompile or in any way attempt to reverse engineer any of the product or to modify or make works derived from the products. It also provides that license to use cannot be construed as a right to make copies of the product. When the ultimate consumer uses the product he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle 12(3) of the Indo-US DTAA shows that definition of royalty under DTAA is more restrictive than what is provided in section (9)(1) of the Act. Under the definition as contained in DTAA, there should be a transfer of copyright. Sale of software by the assessee to the distributor or end user does not involve any transfer of Copyright either in part or in whole; therefore consideration paid by the distributor cannot be said to be a payment for right of use copyright or transfer of use of copyright. It has been uniformly held in several decisions of the ITAT that sale of shrink-wrap software does not involve receipt of consideration, which can be said to be royalty. Decisions in this regard are as follows : u Samsung Electronics Co. Ltd. v. ITO 93 TTJ 658 u Motorola Incorporation 270 ITR (AT) 62 u Sonata Information Technologies Ltd. ITA No. 1561 to 1580/Bang./2004 dated 31-1-2006. 9. Computer programme cannot also be treated as patent and invention. Computer programme cannot said to be an invention and therefore cannot be said to be covered by the patient Act. Computer software cannot also be as process. End user of the software in the case of shrink-wrap software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to pay interest under section 234B of the Act. Special Bench of the ITAT in the case of Motorola Incorporation v. Dy. CIT 95 ITD 269 (Delhi)(SB) has also held that in such circumstances there will be no liability to levy of interest under section 234B of the Act. Learned CIT(A) has accepted the plea of the assessee and has deleted charging of interest under section 234B of the Act. In our view, order of learned CIT(A) is correct and does not call for any interference. Consequently, appeal of the revenue is dismissed." 13. Recently the Hon ble Jurisdictional High Court in DIT (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.), on the identical issue, has held vide placitum 8 (at page 190 of the ITR) as under : "We are in respectful agreement with the view taken in the case of CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320, by the Uttaranchal High Court. We are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee." In the absence of any distinguishing feature brought on record by the revenue, we, respectfully fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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