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TMI Blog2012 (12) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 2. During the course of hearing, nobody was present on behalf of the assessee, however an application for adjournment was filed by the ld. counsel for the assessee stating therein as under:- "The above appeal is posted for hearing on 22.05.2012. The hearing notice was received only on 17-5-2012. As I have to attend an important family function in Kerala, I am unable to attend the case on 22-5-2012. Hence, I humbly request you to adjourn the case to some other date preferably in the last week of July 2012 and oblige." We did not find merit in the said application, hence the case was heard ex parte, qua the assessee. 3. The only grievance of the assessee in this appeal relates to the applicability of the provisions contained in section 9(1)(vi) of the Income-tax Act, 1961 [hereinafter referred to as "the Act" in short"] and in considering the sale of software as royalty. 4. The facts of the case in brief are that the assessee is a private limited company and was engaged in the manufacture and sale of Automated Teller Machines (ATMs), ATM parts and accessories. The assessee imported software from NCR Global Solutions Ltd., Ireland, however while making outward rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 it is a case of purchase, sale or distribution or otherwise of the off-the-shelf software. It is described as a 'software licence agreement', wherein it is averred that customer accepts an individual, non-transferable and non-exclusive licence to use the licensed software program(s) on the terms and conditions enumerated in the agreement. It is further averred that the customer - Samsung Electronics shall protect confidential infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respective agreement, which authorizes the end user i.e. , the customer to make use of the copyright software contained in the said software, which is purchased off the shelf or imported as shrink wrapped software and the same would amount to transfer of part of the copyright and transfer of right to use the copyright for internal business as per the terms and conditions of the agreement. Therefore, the contention of the learned senior counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 as Income Tax is a direct tax and Sales Tax is an Indirect Tax and wherefore, mere finding that the computer software would be included within the term 'Sales Tax' would not preclude this Court from holding that the said payments made by the respondents to the non-resident Company in the present cases would amount to 'royalty' unless the respondents are able to prove that the said payment is for the sale of computer software, wherein the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of computer programmes where the programme itself is not the essential object of the rental. ( c ) in the ease 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 make a copy of the film, including a photograph of any image forming part thereof; ( ii ) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; ( iii ) to communicate the film to the public; ( e ) in the case of a sound recording,- ( i ) to make any other sound recording embodying it; ( ii ) to sell or give on hire, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 some of the cases in support of his contention that by no stretch of imagination, payment made by the respondents to the non-resident suppliers can be treated as 'royalty' is not helpful to the respondents in the present cases as in the said case, Delhi High Court was considering the provisions of Section 40(a)(i) of the Act and the order of the High Court reads as follows :- "What is found, as a matter of fact, is that the assessee has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, 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 within the meaning of the 'Copyright' as referred to above under Section 14 of the Copyright Act. 25. It is also clear from the above said analysis of the DTAA Income Tax Act, Copyright Act that the payment would constitute 'royalty' within the meaning of Article 12(3) of the DTAA and even as per the provisions of 9(1)( vi ) of the Act as the definition of 'royalty' under clause 9(1)( vi ) of the Act is broader than the definition of 'r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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