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TMI Blog2015 (11) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Once it is held that payment made by the respondents to the nonresident companies would amount to "royalty" within the meaning 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 - Decided against assessee. - ITA No.715 - 717/Bang/2015 - - - Dated:- 16-10-2015 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI G MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri K.R Vasudevan, Advocate For The Respondent : Shri PK Srihari, Addl. CIT ORDER PER G MANJUNATHA, ACCOUNTANT MEMBER : These appeals filed by the assessee are directed against the common order of Commissioner of Income tax (Appeals)-IV, Bangalore dated 5/11/2014 for the assessment year 2009-10 to 2011- 12. 2. During the course of hearing in ITA No.750 authorized representative of the assessee brought to our notice that the assessee has already filed an appeal in ITA No.31/Bang/2015 dated 5/6/2015 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon either at the time of crediting or subsequently. As the assessee has failed to discharge its obligation to deduct tax at source as stipulated u/s 195 of the Incometax Act, obligation to deduct tax at source as stipulated u/s 195 of the Income-tax Act, 1961, as per the provisions of sec.201(1) of the Income-tax Act, 1961, for the FY 2007-08 the assessee is held to be an assessee in default in respect of tax not deducted at source on royalty payments to Cadence, Ireland. It is liable to pay tax deductible in this regard along with the interest u/s 201(1A). Tax Liability of the assessee: The tax liability of the assessee, Tejas Networks Ltd., u/s 201(1) 201(1A) for the asst. year 2009-10 (FY 2008-09) is determined as under: Month Amount in Rs Tax deductible u/s 201(1) Rs. Interest u/s 201(1A) Rs. 08-07-2008 537,500 53,750 30,638 14.-10-2008 593,750 59,375 32,063 11-12-2008 617,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, it is very clear from the express terms of the agreement that the right to use copy righted software has been transferred to the assessee. Keeping in view the fact that the judgment of the Hon ble High Court of Karnataka takes the nature of binding precedent the amounts in question paid as consideration for the right to use copy-rightedsoftware amounts to Royalty within the meaning of the Act read with respective DTAA, the contentions of the assessee s representative are rejected. 5. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 6. The authorized representative of the assessee during the course of hearing brought to our notice that the appeals are already decided against the assessee in assessee s own case in ITA No.31/Bang/2015 dated 5/6/2015. We further submit that the Hon ble High Court of Karnataka has also have judgment against the assessee in the case of Samsung Electronics Co. Ltd., (Supra), wherein the assessee is also one of the party. 7. On the other hand, the learned DR supported the order of the CIT(A). 8. We have heard both the parties, perused the material available on record and also considered the orders of the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferable 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 information and shall not remove any copyright, confidentiality or other proprietary rights provided by the non-resident. However, what is granted under the said licence is only a licence to use the software for internal business without having any right for making any alteration or reverse engineering or creating sublicences. What is transferred under the said licence is the licence to use the software and the copyright continue to be with the non-resident as per the agreement. Even as per the agreement entered into with the other distributors as also the end-user licence agreement, it is clear that the distributor would get exclusive non-transferable licence within the territory for which he is appointed and he has got right to distribute via resellers the software, upon payment of the licences set forth in exhibit A to the agreement only to end users pursuant to a valid Actuate shrinkwrap or other actuate licence agreement and except as expressly set forth in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped 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 appearing for the respondents that there is no transfer of copyright or any part thereof under the agreements entered into by the respondent with the nonresident supplier of software cannot be accepted. .. It is well settled that in the absence of any definition of copyright in the Income-tax Act or the DTAA with the respective countries, in view of article 3 of the DTAA, reference is to be made to the respective law regarding the definition of copyright , namely, Copyright Act, 1957, in India, wherein it is clearly stated that literary work includes computer programmes, tables and compilations including computer (databases). Section 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions ; (iii) to communicate the sound recording to the public. Explanation.-For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation. It may also be noted that under section 51 of the Act dealing with When copyright infringed states that copyright in a work shall be deemed to be infringed-when any person, without a licence granted by the owner of the copyright or the Registrar of Copyrights under the Act or in contravention of the conditions of a licence so granted or of any condition imposed by a competent authority 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helpful to the respondents in the present cases as in the said case, the 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 (page 223) : What is found, as a matter of fact, is that the assessee has been purchasing the software from Microsoft and sold it further in Indian market by no stretch of imagination, it would be termed as royalty. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright under the impugned agreements or licences cannot be accepted. Accordingly, we hold that right to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back up copy would itself amount to copyright work under section 14(1) of the Act and license is granted to use the software by making copies, which work, but for the licence granted would have constituted infringement of copyright and the licensee is in possession of the legal copy of the software under the licence. Therefore, the contention of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysis of the DTAA, the Income-tax Act, the 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 section 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 royalty under the DTAA as the right that is transferred 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. In any view of the matter, in view of the provisions of section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. Once it is held that payment made by the respondents to the nonresident companies would amount to royalty within the meaning 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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