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TMI Blog2012 (11) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred in the present case is the transfer of copyright including the right to make copy of software for internal business, and payment made in that regard would constitute 'royalty' for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of Explanation 2 to Section 9(1)(vi) of the Act. - IT APPEAL NO. 551 (BANG.) OF 2011 - - - Dated:- 29-3-2012 - N.K. SAINI, SMT. P. MADHAVI DEVI, JJ. T. Suryanarayana for the Appellant. Saravanan B. for the Respondent. ORDER N.K. Saini, Accountant Member This is an appeal by the assessee against the order dated 14.02.2011 of the CIT(Appeals)-IV, Bangalore. 2. Following grounds have been raised in this appeal: "1. Payment towards Software treated as 'royalty' and held to be liable for deduction of tax at source under section 195 1.1 The learned Commissioner of Income Tax (Appeals) (hereinafter referred to as "CIT(A)"), erred in ruling that the appellant was liable to deduct tax at source on payments made on software to non-resident parties based out of USA and France. 1.2 The learned CIT(A) erred in relying on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Added Services and products (MVAS) with an expanding international presence and had made certain payments to non-residents for the purchase of software from Telisma SA, France Telenity, USA without deducting any tax at source. The details of payments for the financial year 2008-09 were as under:- Telenity (USA) Rs. 55,93,177/- Telisma SA (France) Rs. 10,56,49,994/- Total Rs. 11,12,43,171/- 5. According to the Assessing Officer, the assessee had not complied with the provisions of section 195 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"], he therefore initiated proceedings u/s. 201(1) of the Act by issuing notice on 4.3.2010 asking the assessee to show cause as to why it should not be treated as an assessee in default in respect of tax not deducted at source in respect of payments in question. The assessee submitted that the payments in question were neither royalties nor fees for technical services, and hence such income could only be characterized as business profits, which in the present case was not taxable in India as the supplier had no permanent establishment in India. 6. The AO however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of adjudication before this Bench of the Tribunal in the case of Samsung Electronics Co. Ltd. v. Dy. DIT (International Taxation) [2012] 52 SOT 295/23 taxmann.com 26 (Bang.) wherein vide order dated 22.03.2012, the issue has been decided against the assessee by following the judgment of the Hon'ble jurisdictional High Court in Samsung Electronics Co. Ltd. ( supra ) and the relevant findings are given in paras 7 8 of the aforesaid referred to order dated 22.03.2012 which read as under: "7. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that in assessee's own case, identical issue has been decided by the Hon'ble jurisdictional High Court and Their Lordships in the judgment dated 15.10.2011 while deciding the ITA No.2808/2005 Ors., observed in paras 20 to 25 as under: "20. Having regard to the above said definition of 'royalty', we have to consider the contents of software licence agreement entered into by non-resident with Samsung Electronics and also respondents in the case represented by Sri Ganesh, learned senior counsel and Sri Aravind Dattar, wherein i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies (by whomever produced), of the Software or Documentation and ownership of all patent copyright, trademark, trade secret and other intellectual property rights pertaining thereto, shall be and remain the sole property of Actuate. Distributor shall not be an owner of any copies of, or any interest in, the Software, but rather is licenced pursuant to the Agreement to use and distribute such copies. Actuate represents that it has the right to enter into the Agreement and grant the licences provided therein and confidentiality is protected. Therefore, on reading the contents of the respective agreement entered into by the respondents with the non-resident, it is clear that under the agreement, what is transferred is only a licence to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement as referred to above and the non-resident supplier continues to be the owner of the copyright and all other intellectual property rights. It is well settled that copyright is a negative right. It is an umbrella of many rights and licence is granted for making use of the copyright in respect of shrink wrapped software/off-the-shelf software under the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e non-resident Companies was royalty or not was not at all in issue in TCS's case and the question was whether canned software sold by the appellants therein amounted to sale of goods under the Andhra Pradesh General Sales Tax Act. Further, the issue of transfer of right to use the goods as per the expanded definition of 'sale' did not come up for consideration in that case. On the other hand the issue in the present case is as to whether the payment would amount to 'royalty' within the meaning of Income Tax Act and DTTA. In the said TCS's case, it has been held that copyright in computer program may remain with the originator of the program, but, the moment copies are made and marketed, if becomes goods, which are susceptible to tax. The contention of the assessee that the consideration received by the non-resident supplier towards the software products would amount to 'royalty' within the meaning of DTAA with respective country was not at all considered in the said case. Therefore, the said decision in TCS's case is not helpful to the respondents in the present cases. It is well settled that the intent of the legislature in imposing Sales Tax and Income Tax are entirely different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii ) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses ( i ) to ( vi ); ( b ) in the case of a computer programme,- ( i ) to do any of the acts specified in clause ( 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-clauses ( i ) to ( iv ); ( d ) in the case of a cinematograph film,- ( i ) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the licence granted in these cases to the respondent to make copy of the software contained in shrink-wrapped/off-the-shelf software into the hard disk of the designated computer and to take, a copy for backup purposes, the end user has no other right and the said taking backup would have constituted an infringement, but for the licence. Therefore, licence is granted for taking copy of the software and to store it in the hard disk and to take a back up copy and right to make a copy itself is a part of the copyright. Therefore, when licence to make use of the software by making copy of the same and to store it in the hard disk of the designated computer and to take back up copy of the software, it is clear that what is transferred is right to use the software, an exclusive right, which the owner of the copyright i.e. , the respondent-supplier owns and what is transferred is only right to use copy of the software for the Internal business as per the terms and conditions of the agreement. The decision of the Delhi High Court in Dynamic Vertical Software India (P.) Ltd.'s case ( supra ) relied upon by Sri Aravind Dattar, learned senior counsel appearing for the respondents in som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not in any way be helpful to the end user as software would become operative only if it is downloaded to the hardware of the designated computer as per the terms and conditions of the agreement and that makes the difference between the computer software and copyright in respect of books or prerecorded music software as book and prerecorded music C.D. can be used once they are purchased, but so far as software stored in dumb C.D. is concerned, the transfer of dumb C.D. by itself would not confer any right upon the end user and the purpose of the C.D. is only to enable the end user to take a copy of the software and to store it in the hard disk of the designated computer if licence is granted in that behalf and in the absence of licence, the same would amount to infringement of copyright, which is exclusively owned by non-resident suppliers, who would continue to be the proprietor of copyright. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C.D. or the C.D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles separately from 'computer' software ..... X X X X Extracts X X X X X X X X Extracts X X X X
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