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TMI Blog2013 (4) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of the AO with a direction to reconsider and verify the issue as to whether the payment for hardware and services would be regarded as royalty because in the case, along with purchase of software, the assessee had also imported hardware and payments were also made for services which were also considered as royalty. Further, in the said case, neither the AO nor the CIT(A) had considered the definition of ‘royalty’ in terms of the DTAA and, therefore, the Tribunal deemed it fit and proper to remand the issue for fresh consideration. However, in the case before us, the AO has already considered the definition of ‘royalty’ in DTAA as well as in the IT Act 1961 and has found that the meaning given in the DTAA as well as in the IT Act 1961 is one and the same. In view of the same, the decision of the Tribunal in the case of M/s Bodhi Professional Solutions Pvt. Ltd., [2013 (4) TMI 513 - ITAT BANGALORE] is not applicable to the facts of the case of the assessee. Respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of Samsung Electronics (2011 (10) TMI 195 - KARNATAKA HIGH COURT), we dismiss the appeal of the assessee. - Decided in favor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee was for procurement of the software and is thus royalty and the assessee was liable to deduct tax at source u/s 195 of the IT Act 1961. He, therefore, made disallowance u/s 40a(i) and 40a(ia) of the IT Act 1961. 4. Aggrieved, the assessee preferred an appeal before the CIT(A) who confirmed the order of the AO and the assessee is in second appeal before us. 5. At the outset, the learned counsel for the assessee reiterated the submissions made before the authorities below and also filed a paper book containing the submissions made by the assessee to the effect that the procurement of software in shrink wrap or download version will not amount to import of software and the payment made for such procurement is not royalty. 6. The learned counsel for the assessee filed a paper book containing the samples of purchase orders placed by the assessee on various companies for the procurement of software. 6. The learned DR however, supported the orders of the AO and the CIT(A) and submitted that this issue is now covered in favour of the Revenue by the decision of the Hon ble Karnataka High Court in the case of M/s Samsung Electronics in ITA No.2808/Bang/2005 order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 copies (by whomever produced), of the Software or Documentation and ownership of all patent copyright, trademark, trade secret and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 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 import of software or supply of software by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 the work; (v) to make any translation of the work: (vi) to make any adaptation of the work, (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 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 rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 restored. (emphasis supplied). 9. The learned counsel for the assessee s placeing reliance on the decision of the Tribunal in the case of M/s Bodhi Professional Solutions Pvt. Ltd., is misplaced. In the case of M/s Bodhi Professional Solutions Pvt. Ltd., this Bench (both of us are signatory to the said order) while upholding the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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