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TMI Blog2015 (3) TMI 683X X X X Extracts X X X X X X X X Extracts X X X X ..... rix Systems Asia Pacific Pty. Limited (2012 (2) TMI 258 - AUTHORITY FOR ADVANCE RULINGS ) has held that sale or licensing for use of copyrighted software is grant of right to use copyright and payment thereof is ‘royalty’ and is liable for deduction of tax at source under section 195 of the Act. CIT(A) is justified in his conclusion that the payment made for the purchase of software from the non resident for the purpose of downloading of licensed software is liable for deduction of tax under section 195 of the Act. Therefore, we are of the view that the CIT(A)’s order is correct and in accordance with law and no interference is called for. - Decided against assessee. - TA Nos. 526 to 529/Bang/2011 - - - Dated:- 13-7-2012 - SHRI GEORGE GEORGE K AND SHRI JASON P BOAZ, JJ. For The Appellant : Keerthi Narayan, C.A. For The Respondent : Shri Farhat Hussain Qureshi, CIT-II ORDER PER BENCH : These appeals preferred by the appellant company are directed against the consolidated order of the CIT(A)-IV, Bangalore dated 3/2/2011 in respect of assessment years 2007-08 to 2010-11. The order of the CIT(A) arise out of the orders of the Income Tax Officer (International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ung Electronics Co Ltd v ITO (93 TTJ 658), PSI Data Systems Limited v ITO (unreported) and Sonata Software Limited v ITO (6 SOT 700), wherein it has been held that payments made for the mere supply of a copyrighted article and not for transfer of or any right to use or commercially exploit the underlying copyright / intellectual property in the software, cannot be characterised as royalty . 4.4 Ignoring the provisions of the Indian Copyright Act, 1957; the commentary on Article 12 of the OECD Model Tax Convention various commentaries on Double Tax Conventions by renowned international authors; the report of the Technical Advisory Group (TAG) on taxation of e-commerce; and numerous international tax rulings, all of which further support the contentions of the appellant. 5) The learned CIT(A) has erred in law and facts, in confirming the order of the learned Assessing Officer, deeming the appellant as an assessee-in-default for non-deduction of taxes at source under section 195 of the Act. 6) The learned CIT(A) has erred in law and in facts, in confirming a sum of ₹ 2,16,555/- as payable by the appellant under section 201(1) of the Act for assessment year 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate authority under section 246A of the Act. 6. The CIT(A) dismissed the appeals filed by the appellant vide order dated 3rd February, 2011. The CIT(A), for dismissing the appeals of the appellant, relied on the order of the Delhi Bench Tribunal in the case of Microsoft Corporation (ITA Nos.1331 to 1336/Del/2008 and ITA No.1392/Del/2005) and the Ruling of Hon ble Authority for Advanced Rulings in the case of ABC, IN RE reported in 238 ITR 296. 7. The appellant being aggrieved is in appeal before us. 8. At the very outset, the learned DR submitted that the issue in question is squarely covered by the judgement of the Hon ble jurisdictional High Court in the case of Samsung Electronic Co. Ltd. reported in 245 CTR 481 (Kar.), in favour of the department. 9. The learned AR was unable to controvert the submission made by the learned DR. 10. We have heard the rival submissions and perused the materials on record. The Hon ble jurisdictional High Court in the case of M/s Samsung Electronics Company Ltd. in ITA No.2808/2005 dated 15/10/2011 reported in 245 CTR 481 (Kar.) had held that the payment made to NRI for the purchase of software is liable for tax deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 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 respondent with the Ron-resident, it is clear that under the agreement, what is transferred is only a licence to use the copyright belonging to the non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in physical form, it is corporeal property. The physical recording of the software is not an incorporeal right to he 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 nonresident Companies was royalty or not was not at all an Issue in its 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, it becomes goods, which are susceptible to tax, The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (1) 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. Therefore, the amount paid to the nonresident 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 CD. 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 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 CD. by itself would not confer any right upon the end user and the purpose of the CD. 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) is restored . 10.1 Further, the Hon ble Authority for Advance Ruling in the case of Citrix Systems Asia Pacific Pty. Limited (343 ITR 1) has held that sale or licensing for use of copyrighted software is grant of right to use copyright and payment thereof is royalty and is liable for deduction of tax at source under section 195 of the Act. The Authority on the stated facts, ruled : (i) That the payments received by the applicant from the distributor for sales of the software products were in the nature of royalty within the meaning of section 9(1)(vi) of the I T Act, 1961. (ii) That the payments concerned would be royalty as defined in article 12 of the DTAA between India and Australia. (iii) That the payment received by way of subscription for the updates would also be payment received for grant of a right to use the copyright embedded in the subscription advantage programme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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