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TMI Blog2012 (9) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... that impugned payment made by the Appellant to Mercury UK constitutes "royalty" in accordance with section 9(1)(vi) of the Act, without appreciating the arguments put forth by the Appellant. 4. The learned CIT(A) has erred in law and on facts in not appreciating the arguments/reliance placed by the Appellant on various judicial precedents in arriving at the above conclusion to hold that such payments is "royalty" under the Act/relevant India - UK Tax Treaty. 5. Based on the above, the CIT(A) has erred in law and on facts in upholding the view of the AO in treating the Appellant as an "assessee in default" under section 201(1) of the Act owing to non withholding of tax under section 195 on impugned payment." 2. From the above grounds, it would be clear that the assessee is aggrieved by the action of the ld. CIT(A) in upholding the view of the AO in treating the assessee as "an assessee in default" u/s. 201(1) of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"] and also liable for interest u/s. 201(1A) of the Act. 3. The facts of the case in brief are that the assessee had made payment for sale of software and support services on 12.12.2007 to M/s. Mercu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "shrink-wrapped software" was liable for withholding tax. He further observed that unless the Hon'ble High Court reverses its judgment, it was obligatory on the part of the lower authorities to follow the judgment of the Hon'ble jurisdictional High Court. The ld. CIT(A) also observed that the Hon'ble Supreme Court though on a limited issue of chargeability remanded back the matter, still the ruling of the Hon'ble jurisdictional High Court on the issue of payments towards "shrinkwrapped software" being liable for withholding the tax has to be followed. He also referred to the decision of the ITAT Delhi Bench in the case of M/s.Microsoft, ITA Nos.1331 to 1336/Del/2008 for the AYs 1999-2000 to 2004-05, order dtd. 31.10.2010 as well as the Ruling of AAR in the case of ABC, IN RE reported at 238 ITR 296. He accordingly confirmed the action of the Assessing Officer. Now the assessee is in appeal. 8. We have considered the submissions of the ld. DR and carefully gone through the material on record. It is noticed that a similar issue having identical facts was subject matter of adjudication before this Bench of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd.. v. DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Software, upon payment of the licenses set forth in Exhibit A to the agreement only to End Users pursuant to a valid Actuate shrinkwrap or other Actuate license agreement and except as expressly set forth in the said agreement, distributor may not rent, lease, loan, sell or otherwise distribute the Software the Documentation or any derivative works based upon the Software or Documentation in whole or in part. Distributor shall not reverse engineer, decompile, or otherwise attempt to derive or modify the source code for the Software. Distributor shall have no rights to the Software other than the rights expressly set forth in the agreement. Distributor shall not modify or copy any part of the Software or Documentation. Distributor may not use sub-distributors for further distribution of the Software and Documentation without the prior consent of Actuate. What is charged is the licence fee to be paid by the Distributor of the Software as enumerated in Exhibit A to the agreement. Further, Clause 6.01 of the agreement dealing with title states that the Distributor acknowledges that Actuate and its suppliers retain all right, title and interest in and to the original, and any cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondents has strongly relied upon the decision of the Hon'ble Supreme Court in Tata Consultancy Services' case (supra) (hereinafter referred to as the TCS's case), wherein the Hon'ble Supreme Court was considering the question as to whether the canned software sold by the appellants can be termed to be "goods" and as such assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. Having regard to the broad definition of 'goods' under Section 2(h) of the said Act and also the provisions of Article 366(12) of the Constitution of India, the Hon'ble Supreme Court was pleased to answer the said question for determination by holding that once the 'information' or 'knowledge' is transformed into physical existence and recorded in physical form, it is corporeal property. The physical recording of the software is not an incorporeal right to be comprehended and accordingly, held that the software marketed by the appellants therein indisputably was canned software and thus, sale of the same would attract the provisions of the Andhra Pradesh General Sales Tax Act, 1957. 22. The question as to whether the payment made for imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 16 of the Copyright Act, 1957 states that no person shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise than under and in accordance with the provisions of the said Act or of any other law for the time being in force, but nothing in this section shall be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence. Section 14 of the said Act dealing with meaning of 'Copyright' reads as follows:- "14. Meaning of Copyright. - For the purposes 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; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority under the Act: does anything, the exclusive right to do which is by the Act conferred upon the owner of the Copyright. Section 52 of the Act dealing with Certain acts not to be infringement of copyright states that the following acts shall not constitute an infringement of copyright, namely- "xxxx (aa) the making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme, from such copy. (i) in order to utilise the computer programme for the purpose for which it was supplied; or (ii) to make back-up copies purely as a temporary protection against loss, destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied." 24. It is clear from the above said provisions of the Copyright Act that the right to copyright work would also constitute exclusive right of the copyright holder and any violation of the said right would amount to infringement under Section 51 of the Act. However, if such copying of computer program is done by a lawful possessor of a copy of such computer programme, the same would not constitute infringement of copyright and wherefore, but for the licence g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of copyright and licencee is in possession of the legal copy of the software under the licence. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright and transaction only involves sale of copy of the copyright software cannot be accepted. It is also to be noted that what is supplied is the copy of the software of which the respondent-supplier continues to be the owner of the copyright and what is granted under the licence is only right to copy the software as per the terms of the agreement, which, but for the licence would amount to infringement of copyright and in view of the licence granted, the same would not amount to infringement under Section 52 of the Copyright Act as referred to above. Therefore, the amount paid to the non-resident supplier towards supply of shrink-wrapped software, or off-the-shelf software is not the price of the C.D. alone nor software alone nor the price of licence granted. This is a combination of all and in substance, unless licence is granted permitting the end user to copy and download the software, the dumb C.D. containing the software would not in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Article 12 of the DTAA with the respective country, it is clear that the payment made by the respondents to the non-resident supplier would amount to royalty. In view of the said finding, it is clear that there is obligation on the part of the respondents to deduct tax at source under Section 195 of the Act and consequences would follow as held by the Hon'ble Supreme Court while remanding these appeals to this Court. Accordingly, we answer the substantial question of law in favour of the revenue and against the assessee by holding that on facts and circumstances of the case, the ITAT was not justified in holding that the amount(s) paid by the respondent(s) to the foreign software Suppliers was not 'royalty' and that the same did not give rise to any 'income' taxable in India and wherefore, the respondent(s) were not liable to deduct any tax at source and pass the following Order:- All the appeals are allowed. The order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A' impugned in these appeals is set aside and the order passed by the Commissioner of Income Tax (Appeals) confirming the order passed by the Assessing Officer (TDS)-I is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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