9911796707
TMI Blog2016 (3) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Disallowance of tax credit of branch profit tax paid in USA - Held that:- The scope of Article II relating to “Taxes Covered” has been explained in the said guide/technical explanation. It has been specifically provided that the taxes covered in the case of US, as indicated in paragraph 1(a) of Article II, are the Federal income taxes imposed by the Code, together with the excise tax imposed on insurance premiums paid to foreign insurers (Code section 4371). The Article specifies that the Convention does not apply to the accumulated earning tax (Code section 531), the personal holding company tax (Code section 541) or the social security taxes (Code sections 1401, 3101 and 3111). State and local taxes in the United States are also not covered by the Convention. A perusal of the Article II of the ‘DTAA’ read with the ‘technical explanation to the convention’ reveals beyond doubt that the taxes which have been excluded from the purview of the DTAA have been specifically mentioned therein. Further, as observed above, the accumulated earning tax, which has been provided under section 531 of the Internal Revenue Code of the US, is different from ‘branch profit tax’ which is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of ‘royalty’ as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a license provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957. - Decided in favour of assessee - ITA No.7779/M/2011 - - - Dated:- 29-2-2016 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER For The Assessee : Shri M.M. Golvala, A.R. For The Revenue : Shri A.A. Khan, D.R. ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 08.08.2011 of the Dispute Resolution Panel (hereinafter referred to as the DRP) relevant to assessment year 2007-08. 2. The brief facts of the case are that the assessee namely Capgemini Business Services (India) Limited [Formerly known as 'Unilever India Shared Services Limited ] (hereinafter referred to as the assessee or assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in USA and the expenditure incurred towards purchase of software . Being aggrieved by the order of the Ld. DRP, the assessee has come in appeal before us with the following grounds of appeal: Ground No.1 - Transfer Pricing ( TP') adjustment of ₹ 3,30,70,534 On the facts, in law and in the circumstances of the present case, the learned Additional Commissioner of Income-tax 1(2) (hereinafter referred as 'AO') and the Dispute Resolution Panel ('DRP') erred in concluding the assessment by upholding the action of the Additional Commissioner of Income-tax Transfer Pricing Officer - 1(2) (hereinafter referred as 'TPO') in determining the arm's length price of the international transaction of business process management services rendered to Associated Enterprises ('AEs') at ₹ 50,99,80,530 instead of ₹ 47,69,09,996 as determined by Capgemini Business Services (India) Limited ('the Appellant') by: a. considering the Appellant's transactions with overseas Unilever group entities, post transfer of the Appellant's shareholding to Capgemini Group from Unilever Group on 11 October 2006, as internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n USA be allowed as tax credit while determining the Indian income-tax liability. 4. Payment towards purchase of software On the facts, in law and in the circumstances of the present case, the AO has erred in disallowing expenditure of ₹ 953,437, incurred for purchase of 'off the shelf' software from QAD Singapore Pte Ltd., Singapore, under Section 40(a)(i) of the Act alleging that the said expenditure is subject to deduction of tax at source under Section 195 of the Act. The Appellant prays that the expenditure towards purchase of 'off the shelf' software be allowed. 5. On the facts, in law and in the circumstances of the present case, the learned AO erred in levying interest under Section 234B and 234C of the Act. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal (hereinafter referred to as the AO) and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. Ground No.1 3. Though, the assessee has raised various points and issues vide different sub grounds taken in ground No.1, however, the Ld. A.R. of the assessee, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces providing services in relation to designing and detailing of the buildings apart from other activities. The Ld. A.R. has further invited our attention to the Special Bench decision of the Tribunal in the case of Maersk Global Centres (India) (P.) Ltd. vs. ACIT (2014) 31 ITR(Tri.-1) (Mumbai-SB). The assessee company in that case was engaged in almost similar activities as that of the assessee before us, i.e. services relating to transaction, processing data entry, reconciliation of statements and other similar support services. In the said case, the AO had taken the said company Mold-Tek Technologies Ltd. as comparable, however the Special Bench of the Tribunal in para 81 of the order has observed that from the annual report of the said company for the financial year 2007-08, it revealed that the said company was providing structural engineering KPO services and its business activity was entirely different from that of the assessee s BPO/KPO services provided by the assessee in relation to back office support, data processing and analysis etc. The relevant observations of the Special Bench of the Tribunal for the sake of convenience are reproduced as under: 81. In so far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AR is that the nature of services provided by Mold-Tek Technologies Ltd. are entirely different from that of the assessee. The assessee s services are mainly relating to data analysis and back up office support services which do not require much involvement of high skilled knowledge process and expense whereas, in case of Mold-Tek Technologies Ltd. the nature of services, itself, reveals that the same involved high-tech skills, domain knowledge and experience of highly skilled and professionals/ persons and that the profit margin in such type of skilled services will be higher. We agree with the finding of the Special Bench of the Tribunal when we compare the case of the assessee with that of Mold-Tek Technologies Ltd. that the Mold-Tek cannot be taken as a comparable to determine arm's length price in case of transactions of assessee with its associate enterprises. The second objection pressed by the assessee is in relation to Vishal International Technology Ltd. pleading that the same cannot be considered as a comparable for the purpose of calculating the bench mark operating profit margin on the ground that the business model of the said company was different. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence on account of obtaining corporate membership. The corporate membership obtained was for a limited period and it was obtained for running the business with a view to produce profit and the said corporate membership fee paid to the club was to be treated as revenue expenditure. Relying on the said the Full Bench decision of the Hon ble Punjab Haryana High Court, this ground is decided in favour of the assessee. Ground No.3 8. Vide ground No.3, the assessee has agitated the action of the lower authorities in not allowing tax credit of branch profit tax paid in USA. The lower authorities, in this respect, have relied upon Article 2 of the Indo US DTAA (Double Taxation Avoidance Agreement), wherein, the taxes covered under the treaty in the United States inter alia are the federal income taxes imposed by the US Internal Revenue Code but excluding the accumulated earning tax , the personal holding tax and social security taxes etc. The contention of the lower authorities is that the branch holding tax is akin to the accumulated earning tax which has been specifically excluded from the taxes covered under the DTAA. The Ld. A.R. of the assessee, however, br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shelf software from QAD Singapore Pvt. Ltd. under section 40(a)(i) of the Act on the ground that the said expenditure was subject to deduction of tax at source under section 195 of the Act. The AO noticed that the assessee had incurred expenses in foreign currency for the purchase of software from QAD Singapore Pvt. Ltd. The case of the assessee has been that it had not purchased any copyright in the software rather, it had purchased only a copyrighted article named as MFG Pro Software. The AO, however, observed that the assessee had purchased the right to use the software and the software is used for the business purpose in India. He, therefore, held that the same was liable for deduction of tax at source under section 195 of the Act in view of the provisions of section 9 of the Income Tax Act, wherein it has been provided that the income on account of consideration paid for royalty is to be deemed to have accrued in India. 10. Before the DRP, the assessee adduced evidence in the form of invoice and other documents/material in respect of the software purchased to prove that the said software has been standard software and that the payment made by the assessee for the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. and in specific relying on para 29, 35 36 of the said decision, has contended that the software purchased by the assessee was a separate software and the same was not supplied along with the equipments and that the same was not an embedded software in the computer/equipment. The assessee was not the owner of the software, the ownership of the software had remained with the owner; the assessee was just a given license to use the software which was the right to use of copyright in the software. The Tribunal in the said decision (supra) has relied upon the decision of the Hon ble Karnataka High Court in the case of CIT vs. Samsung Electronics Company Ltd. Others (2012) 345 ITR 494 and upon another decision of the Hon ble Karnataka High Court in the case of CIT vs. Synopsis International Old Ltd. (2013) 212 taxman 454. The Ld. DR in this respect has relied upon the amended definition of the royality u/s 9 of the Income Tax Act. It is pertinent to mention here that vide amendment Act of 2012, Explanation 4 has been added to section 9(1)(vi) of the Act with retrospective effect including the software in the definition of royalty. The Ld. DR has stated that the definition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have considered the rival contentions of the Ld. Representatives in this respect. We have also gone through the relevant definitions as provided under the DTAA and under the Income Tax Act. So far as the definition of royalty as provided under section 9(1)(vi)of The Income Tax Act is concerned, the relevant part of the said provision is reproduced as under: Section 9(1) (vi) income by way of royalty payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any services in connection with the activities referred to in subclauses (i) to (iv), (iva) and (v). Explanation 3.-For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of royalties and almost identical/similar definition has been provided in various treaties with various other countries. 18. A comparison of the definition of royalty as provided under the DTAA (as reproduced above) with the definition of royalty as provided under Income Tax Act shows that the same are not at paramateria with each other. The definition provided under the DTAA is the very short and restrictive definition, whereas, the definition of the royalty as provided under the Income Tax Act is a very wide and inclusive but vague. A careful reading of the relevant provision under the DTAA and under the Income Tax Act reveals that the DTAA covers only a part of the items mentioned under sub clause (i) to (v) to Explanation 2 to section 9(1)(vi). We may mention here that the section 9(1)(vi) having sub clauses (a), (b), (c) is very vast to cover consideration paid for any right, property or information used or services utilized for the purpose of business or profession. Further, we find that in the said sub clauses (a), (b) (c) of section 9(1) (vi), the wording is somewhat vague and negatively written. Even, if we apply and read the negatively written wording i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, hence as per the provisions of section 90, the definition of royalty as provided under DTAA is to be taken. So far as the reliance of the Ld. D.R. on the decision of the Hon ble Madras High Court in the case of Vrizon Communication Singapore (supra) and of the Mumbai Tribunal in the case of Viacom 18 Media Pvt. Ltd. (supra) is concerned, we find that the said decisions have been rendered in context of some other item relating to the consideration paid for transponder/band width/telecom services. In that context, the Hon ble Madras High Court has interpreted the right to use the equipment and the word process applying the domestic law, definition of which was not available in the DTAA. However, in this case, we have to define the term literary work , the term copyright ; the definitions of the same are not available under the Income Tax Act, rather, the same are available under the Copyright Act, 1957. 20. Moreover, the Hon ble Delhi High Court in the case of DIT vs Nokia networks OY [2012] Taxmann.com 225 (Delhi) has held that though Explanation 4 was added to section 9(1)(vi) by the Finance Act 2012 with retrospective effect from 1.6.1976 to provide th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Madras High Court, in CIT vs VR. S.RM. Firms Ors , the Hon ble Delhi High Court held that the tax treaties are considered to be mini legislation containing in themselves all the relevant aspects or features which are at variance with the general taxation laws of the respective countries. The Parliament is not equipped with the power to, through domestic law, change the terms of a treaty. Amendments to domestic law cannot be read into treaty provisions without amending the treaty itself. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Hon ble Delhi High Court concluded in the said decision (supra) that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty prior to the amendment in the Income Tax Act will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied by us). Hence, what is relevant is the consideration paid for the use of or the right to use any copyright . The right to use a computer software/programme has not been specifically mentioned in the treaty with Singapore or even in the identically worded treaty with US and or with any other country. However, the Ld. DR, at this stage, has stressed on the definition of word literary work . It has been submitted that the definition of Literary work as provided under the domestic law viz. Copyright Act, 1957 should be considered while deciding the scope of the term Royalty as defined under the treaty. This issue has been discussed by the Hon ble Karnataka High Court in the case of Samsung Electronics Company Ltd. Others (supra) while relying upon Article 3 sub section (2) of the DTAA with US, observing that any term not defined in the convention shall, unless the context otherwise requires, have the meaning which it has under the laws of that State concerning the tax to which the convention applies. Hence, the reference is to be made to the respective law of the taxing State (India in this case) regarding the definition of literary work and copyright . T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved two distinct parties who could discuss all the terms of such agreement between them. However, now a days the software become mass market items and are available off the shelf. At the time of sale of such off the shelf software embedded diskettes or CD-ROMs, the rights assigned by the author/owner of the software would be very specific in their scope, indicating clearly to the purchaser the actions that he/she is permitted to perform in relation to the software embedded in those discs. 27. Now, the question before us is as to whether the sale of shrink wrapped /off the shelf computer software by the non-resident to the resident assessee amounts to the transfer for the use of or the right to use any copyright in a literary work. Before deliberating further in this respect, we think it proper to first discuss the nature of the shrink wrapped software. The words shrink wrap refer to the shrink wrap packaging that generally contain the CD ROM of software. The terms and conditions of accessing the particular software are printed on the shrink wrap cover of the CD and the purchaser after going through the same tears the cover to access the CD ROM. The typical shrink ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anty, limitation of liability, distribution of the software, etc. These are generally biased towards the licensor. 29. The plea raised on behalf of the Revenue is that sale of off-the-shelf software may be easily termed as sale but in such a 'buying', the title to the box, containing disk, manual etc., may pass to the buyer, but the title to IP in the software does not. Hon ble Karnataka High Court in CIT vs. Samsung Electronics Company Ltd. Others (2012) 345 ITR 494 has observed that under the agreement, what was transferred was only a license to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement and that the non-resident supplier continued to be the owner of the copyright and all other intellectual property rights; that the copyright is a negative right. It is a bundle of many rights and license 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facility extended to the licensee to make use of the copyrighted product for his internal business purposes. The said process is necessary to make the program functional and to have access to it. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. The Hon ble Delhi High Court has observed that in such a case there is no transfer of any right in respect of copyright to the assessee and it is a case of transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty. The Hon ble Delhi High Court has further held that what is transferred is neither can be right in the software nor the use of the copyright in the software, but is the right to use copyrighted material or article which is clearly distinct from the rights in a copyright and the same does not give rise to any royalty income and would be the business income . The Hon ble Delhi High Court in the case of Infrasoft Ltd. (supra) has also relied upon another decision of the Hon ble Delhi High Court in the case of DIT vs. Nokia Networks OY (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tellectual property has been incorporated on a media for purposes of transfer. The software and the media cannot be split up. In Associated Cements Co. Ltd. vs. Commissioner of Customs , AIR 2001 SC 862, the Hon ble Supreme Court examined whether the drawings and license could be considered as goods . The Hon ble Supreme Court held that all tangible, movable articles are goods for charge of custom duties under section 12 read with section 2(22)(e) of the Customs Act, 1962, irrespective of what the article may be or may contain. It may be that what the importer wanted and paid for was technical advice or information technology, an intangible asset, but the moment the information or advice is put on media, whether paper or cassette or diskette or any other thing, that what is supplied, it becomes chattel. The Hon ble Supreme Court, thus, held that the intellectual property such as drawings, license and technical material when put on a media is to be regarded as an article and there is no scope for splitting the engineering drawings or encyclopedia into intellectual input on the one hand and the paper on which it is scribed on the other hand. 32. No doubt, the dominant object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self but only protects the way or the manner in which such ideas are expressed. 33. Further, it is also not disputed that in case of shrink wrapped software, the product is available off the shelf in the market. The owner or the licensor does not invite any expression of interest from the intending users of the product. He does not grant license by seeing the names and details of the persons seeking the license to use software rather the situation is a diagonally opposite. The license is not granted to any specific person; anybody can purchase the product from the market which is available in the shape of CD ROM/diskette falling in the definition of goods as defined under the sale of Goods Act, 1930. Whosoever pay the price of the good, he is supposed to have right to use that good. On the completion of the sale, the property in such a good passes to the buyer and the buyer has every right of fair use of the said product and subject to the conditions mentioned in the shrink wrap/cover of the product which are in the shape of restrictions or limitations to the effect that the buyer will not misuse the product which may amount to infringe of copyright in the product. So what the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fringed. Such conditions, in our view, are not the license to use the product. The purchaser gets the right to use the product/diskette along with the property in the good in the shape of work embedded or written in it when the sale is complete i.e. when such diskette/COD ROM is delivered by the seller to the purchaser in lieu of the consideration paid to him. Thus what is restricted by the so called agreement or commonly used software license is that the user will not infringe the copyrights in the product of the copyright owner of the work. The purchaser is always entitled to fair use of the work which he has purchased. Thus at the most, what can be said to be granted under such a license is the right to use the copyrighted work and the right to use the copyright itself in the work. What is prohibited through these conditions is its misuse which may infringe the rights of the owner of the software e.g. the purchaser of the product may attempt as it is easy in case of software to make copies etc. These license agreements in case of shrink wrapped software are thus the conditions of the sale of the product and cannot be termed as a grant of license to use the product. 36. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it may fulfill all the requirements of a valid contract, such an agreement may not be enforceable, if, its stipulations conflict with the law governed in the country where such licenses are intended to be enforced, or if it is an unconscionable or unreasonable bargain. In computer software, generally it is the tendency of software producers to do away with the rights and privileges of the user, even which are specifically conferred upon the user by the relevant laws such as Copyright Act, Contract Act and other relevant laws. The fair use of the purchased article is the other plea which contradicts the license theory. As per the provisions of section 52 of the Copyright Act 1957, which has provisions similar to the provisions of section 117 of the US Copyright Act, the owner of a copyright of computer software is legally entitled to fair use that copy of software even without a license from the software publisher and any condition put in a license restricting the fair or reasonable use of the product purchased by the buyer in that respect will have to be ignored. If the license severely limits the rights of the consumers, such as implied conditions and warranties in a contract, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for his own/ business use. So what the buyer buys is the copyrighted product and he is entitled to fair use of the product as is provided under section 52 of the Copyright Act. He is also entitled to perform all or any of the activities which is essentially required for the fair use and for the purpose for which the product is purchased by the buyer. 38. It may also be pointed out here that even, if, such a license agreement is not signed by the end user still the owner of the product will have the copyrights in such a product, as are defined and explained under the Indian Copyright Act; even the registration of the product or the work under the Copyright Act is not compulsory. The owner of the work is deemed to be protected in relation to the copyrights in the work but the fair use of the product/work cannot be denied and any clause in such agreement should be deemed to be void as against the principle of fair use of the product. 39. Further, to determine whether a copyright in a work is infringed or not or would be deemed to be infringed or not, the most important test is to find out whether the use is likely to harm the potential market or the value of the copyright work. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 41. Section 51 of the copyright is also relevant which deals as to when the copyright is infringed which for the sake of convenience is reproduced as under: CHAPTER XI Infringement of Copyright 51. When copyright infringed. -Copyright in a work shall be deemed to be infringed- (a) when any person, without a licence granted by the owner of the copyright or the Registrar of Copyrights under this Act or in contravention of the conditions of a licence so granted or of any condition imposed by a competent authority under this Act- (i) does anything, the exclusive right to do which is by this Act conferred upon the owner of the copyright, or (ii) permits for profit any place to be used for the communication of the work to the public where such communication constitutes an infringement of the copyright in the work, unless he was not aware and had no reasonable ground for believing that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43. The proviso to section 57 of the Act is also relevant. The said section 57 of the Act of 1957 is also reproduced as under: 57. [Author s special rights. (1) Independently of the author s copyright and even after the assignment either wholly or partially of the said copyright, the author of a work shall have the right- (a) to claim authorship of the work; and (b) to restrain or claim damages in respect of any distortion, mutilation, modification or other act in relation to the said work which is done before the expiration of the term of copyright if such distortion, mutilation, modification or other act would be prejudicial to his honour or reputation: Provided that the author shall not have any right to restrain or claim damages in respect of any adaptation of a computer programme to which clause (aa) of sub-section (1) of section 52 applies. 44. A perusal of the above provisions of the copyright Act reveals that the computer software is included in the definition of literary work and is covered under the purview and scope of copyright. The exclusive rights to do or authorize the doing of certain acts as mentioned in clause (a) and clause (b) of section 14 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically include the computer software in the term literary work and under such circumstances, if we apply the same analogy to the treaty, then perhaps the computer software will be out of the scope of the treaty. However, if we apply the Copyright Act, then the computer software will have to be included in the term literary work but to constitute royalty under the treaty, the consideration should have been paid for the use of or the right to use the copyright in the literary work and not the literary work itself. 46. Further, when we read the definition of copyright and literary work as provided in the Copyright Act, 1957, it is also important to note down that what constitutes infringement of copyright and what are the exceptions to it. If the software purchased by the assessee and the use of it by the assessee is covered within the exceptions as provided under section 52 of the Copyright Act, then in that event it cannot be said that the transfer of right to use or for use of the copyright has passed. The proviso to section 57 of the Copyright Act has further clarified that the author of the work shall not have right to restrain or claim damages in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be examined in the light of the Copyright Act and the relevant treaty or the convention, if any, signed by India with that country to which the foreign author belongs. The copyright in a foreign product thus does not flow automatically or impliedly, so far as the Indian copyright laws are concerned. 48. Hence, while interpreting the definition of royalty as provided in the DTAA, it is to be seen as to what has been purchased by the assessee i.e. whether the copyright itself has been purchased or what the assessee has purchased is only a copyrighted work . It is also required to be analysed as to whether the use of such right would amount to infringement of copyright if a license or permission in this respect is not given by the owner; and when assessee has purchased a copyrighted product i.e. off the shelf software, whether the use of the same for the business purpose of the assessee is covered within the exceptions as provided under section 52 of the Copyright Act. Further, in case of imported work/product, whether the protection of copyright is available to the foreign author in terms of section 40,40A, 41 and 42 of the Copyright Act 1957. 49. The provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of DTAA. We may clarify here that even in cases where the owner of the copyrighted work may restrict the use of or right to use the work by way of certain terms of the license/software agreement, the validity or the enforceability of the same may be subject matter in other laws such as Indian Contract Act 1872 , Sale of goods Act 1930 or the Consumer Protection Act 1986 etc., but, the same in any way can not be said to grant of or infringement of copyright in the light of specific statutory provisions of Copyright Act 1957. 50. Now coming to the facts of the case in hand, the DRP has given a specific finding of fact that what the assessee in the present case has purchased is the shrink wrapped /off the shelf software. It has also been discussed in detail in paras above that the definition of royalty given in the treaty is more beneficial to the assessee as compared to the provisions of section 9 of the Income Tax Act and the assessee has opted for the definition that is provided under the DTAA, thus as per section 90 of the Income Tax Act, definition of royalty as provided in the DTAA will prevail as over the general definition of royalty provided under the In ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
