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TMI Blog2016 (6) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... States on account of consideration for the purchase of certain software for internal use in the business of the assessee is liable to tax in India as 'Royalties' under the provisions of section 9(1)(vi) of the Income Tax Act or the same is to be treated as business income of the foreign company-recipient/supplier of the software, not taxable in India as per the provisions of DTAA with that respective country. It is pertinent to mention here that the facts in ITA No. 5829/M/2009 and 5264/M/2009 are a bit different on the aspect that the software in these cases had been purchased by the assessee from the resident of Hong Kong with which India has no tax treaty/ DTAA. We will discuss the effect of absence of DTAA in the above stated two appeals in the latter part of this order. 3. The assessees herein purchased different type of software from residents of different countries such as Australia, Canada, Singapore, Netherlands, Germany, USA, UK, and France etc.; Undisputedly, India has a tax treaty/Double Taxation Avoidance Agreement (hereinafter referred to as DTAA) with all these countries. According to the AO, the consideration paid by the assessees in these cases for the purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l there was an element of sale, it was only in respect of career media i.e. the CD (Compact Disk) in which the software was transacted/loaded. He, therefore, observed that there was enormous difference in the values of the career media i.e. the CD and the software loaded on it. He ignored the sale price of the career media being very low, but, held that what the assessee was given was the license to use software and that the payments made for the import of software were in the shape of royalty and as per the provisions of section 9(1)(vi) of the Act, the income in respect of the same was deemed to have accrued in India and thus the assessee was liable to deduct the tax at source under section (40)(a)(i) of the Act in respect of such payments. He, accordingly, vide order dated 16.08.04 directed the assessee to deduct TDS at the rate of 17.65% on the gross amount of license fees payable to M/s. Paradigm Geophysical Pvt. Ltd. (foreign resident). He therefore rejected the petition of the assessee moved under section 195(2) of the Act. 8. In appeal, the Ld. CIT(A) relying upon the definition of 'royalty' as provided under the DTAA of India with Australia and following his own decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /M/2012 and ITA No.3219/M/2012, the Ld. CIT(A) has upheld the findings of the AO rejecting the application of the assessee under section 195(2) of the Act and hence, the assessee has come in appeal in the said cases. 11. We have heard the rival contentions of the ld. Representatives of the parties. We note that both the lower authorities have relied upon the following clauses of the license agreement in arriving out at their respective conclusions. "1.1. Software SELLER'S Proprietary software tool/products for application in Processing/ Interpretation of Seismic data in Oil and Gas Exploration industry. 1.2 Copy of Software & agreement Under each Software Copy, SELLER supplies Software Users Kit that comprises a) a CD with executable code and documentation for the Software b) Installation manual and User manuals in one softcopy (on CD) and Two Hard copies and c) One Security key. The Security key allows the software tools to be installed on Network server and any number of client machines connected to the Network server. Software copies can be Concurrently accessed and used by as many users as are the Supplied number of software Copies. The Software copy shall be fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national Old Ltd." (2013) 212 taxman 454. The Ld. D.R. has further relied upon the decision of the co-ordinate bench of the Tribunal in the case of "Reliance Infocom Ltd." dated 06.09.13 reported in (2013) 37 CCH 0069 (Mum-Trib) to contend that the software purchased by the assessee was a separate software and the same was neither supplied along with the equipment nor the same was an embedded software in the computer/equipment. That the assessee was not the owner of the software, the ownership of the software had remained with the seller; that the assessee was just given a license to use the software, which was only the right to use of 'copyright' in the software. He has further contended that the Tribunal in the case of "Reliance Infocom Ltd." (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 also relied upon the amended definition of the 'royality' u/s 9(1)(vi) of the Income Tax Act made vide amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation of a provision, the construction which favours the assessee is to be taken. He has further submitted that the amendment brought in the Income Tax Act, 1961 cannot be read into the treaty. He has also submitted that at the time of the purchase of the alleged software, no such 'Explanation 4' was introduced in the Income Tax Act and there was no intuition to the assessee that such an amendment will be brought into relevant provision. The assessee thus relying upon the interpretation of the relevant provision, as was in operation at the time of transaction, was rightly of the view that no TDS was required to be deducted in relation to the remittance made to the foreign resident for the purchase of software. The assessee's above action/view was justified as per the provisions that were subsisting/in operation at the time of transaction and which view has also been affirmed by the higher authorities including the different benches of the Tribunal in the own case of the assessee. He, in this respect, has relied upon the following decisions of the co-ordinate benches of the Tribunal in the own cases of the assessee, wherein the identical issue has already been decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003) 263 ITR 607. 17. We have considered the rival contentions of the Ld. Representatives in this respect. We have also gone through the relevant definitions of 'royalty' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icence) in respect 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 sub-clauses (i) to (iv), (iva) and (v). Explanation 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of article 8. 2. Israel: Article 12(3) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. 3. China: Article 12(3) The term "royalties" as used in this Article means payment of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcasting, any patent, trade mark design or model, plan, secret formula or process or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-paragraph (a), any such equipment as is mentioned in sub-paragraph (b) or any such knowledge or information as is mentioned in sub-paragraph (c); e. the use of, or the right to use: i. motion picture films; ii. films or video tapes for use in connection with television; or iii. tapes for use in connection with radio broadcasting; f. total or partial forbearance in respect of the use or supply of any property or right referred to in sub-paragraphs (a) to (e); or g. the rendering of any services (including those of technical or other personnel) which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design; but that term does not include payments or credits relating to services mentioned in sub-paragraphs (d) and (g) that are made; h. for services that are ancillary and subsidiary, and inextricably and essentially linked, to a sale of property; i. for services that are ancillary and subsidiary to the rental of ships, aircraft containers or other equipment used in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or aircraft in international traffic. 10. Netherlands: Chapter III Article 12(4) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience." 19. A perusal of the above definitions in treaties with different countries reveal that in all the treaties, the Article 12 therein, generally, deals with the payments in respect of royalties and almost identical/similarly worded definition of 'royalty' has been provided in the treaties of India with various countries. This fact has also been noticed by the Hon'ble Karnataka High court in the case of Synopsis International Old Ltd. (supra). For further discussion of the matter, as agreed by both the representatives of the parties also, we take the base definition of 'royalty' as provided in treaty with USA. 20. A comparison of the definition of 'royalty' as provided under the DTAA (USA), as reproduced above, with the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expanded. 'Explanation 4' inserted by Finance Act, 2012, provides that the transfer of rights in respect of any right, property or information includes and has always included the right for use or right to use a computer software including granting of a license. We find that so far as Income Tax Act is concerned, 'computer software' has neither been included nor is deemed to be included within the scope or definition of 'literary work' under section 9(1)(vi) of the Act. The term 'literary work' has been separately mentioned under clause (v) to 'Explanation 2' to include the consideration paid for the same within the scope of royalty, whereas, the 'Explanation 4' has broadened the scope of clauses (a) (b) and (c) of section 9(1)(vi) to include 'computer software' under the definition of 'right', 'property' or 'information.' Hence, the computer software has been recognized as a separate item not only in 2nd proviso to clause (vi) but in 'Explanation 4' also and has been included in the definition and within the scope of the words 'right', 'property' or 'information' as provided under clauses (b) and (c) to section 9(1)(vi) . The term 'computer software' has not been included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said treaty differs from the amended Section 9 of the Act. It is categorically held in CIT Vs. Siemens Aktiongesellschaft, 310 ITR 320 (Bom) that the amendments cannot be read into the treaty. On the wording of the treaty, we have already held in Ericsson (supra) that a copyrighted article does not fall within the purview of Royalty." Further, in a recent judgment in the case of "DIT Vs New Skies Satellite BV," (ITA 473/2012 vide order dated 08.02.2016), the Hon'ble Delhi High Court has observed that no amendment to the Act, whether retrospective or prospective can be read in a manner so as to extend its operation to the terms of an international treaty. In other words, a clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have the same retroactive effect on an international instrument affected between two sovereign states prior to such amendment. That an amendment to a treaty must be brought about by an agreement between the parties. Unilateral amendments to treaties are therefore categorically prohibited. Even the Parliament is not competent to effect amendments to internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l provisions contained in the Income Tax Act if, the same is more beneficial to the assessee as provided under section 90(2) of the Income tax Act. All the Hon'ble High Courts (supra) have also been unanimous to further hold that the definition of 'royalty' is restrictive in DTAA whereas the definition of royalty under the Income Tax Act is broader in its content; Therefore, the definition of royalty in DTAA is more beneficial to the assessee and hence the case of the assessee is to be examined in the light of the definition of royalty as provided in the DTAA and that the provisions of the DTAA will, in such an event, override the provisions of the Income Tax Act. Since, in the cases in hand also, the Ld. AR of the assessee has stated that the definition of treaty in the DTAA is more beneficial to the assessee and that the case of the assessee be decided taking the definition as provided in the treaty, hence, in the light of above cited decisions, we proceed to examine as to the consideration paid by the assessee for the purchase of the software can be covered within the scope of the definition of 'royalty' as provided under the DTAA. 24. As discussed in earlier paras of this ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form, i.e. writing or print or in some form of notation or symbols, which means in a form capable of either visually or audibly recreating the representation of the original work. As per the provisions of section 2(o) of the Indian Copyright Act, 1957, the term 'literary work' includes computer programs, tables and compilations including computer data base. Therefore, the computer software has been recognized as a literary work in India, if they are original intellectual creations. 26. The next controversy that has been raised before us as to whether the sale of software can be said to be sale of 'Goods' or grant of 'License to use' the same. In the past, software were often sold as an integral part of the computer system, but now a days, software products are sold or licensed in the form of computer readable media such as diskettes and CD-ROMs or directly over the Internet. The software sale/purchase contracts involve two distinct parties who could discuss all the terms of such agreement between them. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware and design techniques, that does not take away the software out of the definition of the copyright. Even if it is not a transfer of exclusive right in the copyright, the right to use the confidential information embedded in the software in terms of the license makes it abundantly clear that there is transfer of certain rights which the owner of a copyright possesses in the said computer software/programme in respect of the copyright. The Hon'ble Karnataka High Court while analyzing the provisions of the DTAA held that the consideration paid 'for the use' or 'right to use' the said confidential information in the form of computer programme software itself constitutes royalty and attracts tax. 28. However, different benches of the Hon'ble Delhi High Court in the case of "DIT vs. Infrasoft Ltd." (supra); "DIT vs Nokia networks OY" (supra) and in the case of "DIT vs. Ericson A.B." (supra) have been unanimous to hold that the license granted to the licensee permitting him to download the computer programme and storing it in computer for its own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thstanding the fact that computer software is intellectual property, whether it is conveyed in diskettes, floppy, magnetic tapes or CD ROMs, whether canned (shrink-wrapped) or uncanned (customized), whether it comes as part of the computer or independently, whether it is branded or unbranded, tangible or intangible; is a commodity capable of' being transmitted, transferred, delivered, stored, processed, etc., and therefore, as a 'good' liable to sales tax. The Hon'ble Supreme Court held that, 'it would become 'goods' provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of being transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be 'goods.' The Hon'ble Apex court while citing the decision of the US court in "Advent Systems Ltd v Unisys Corporation" (925) F 2d 670 (3rd Cir 1991), held that a computer program may be copyrightable as intellectual property, does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, movable and available in the marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving some ideas in his mind in an intangible form but the copyright in those ideas is created only when they are expressed in a particular manner in the shape of some impressions, symbols or language or visuals etc. on a media such as book, film or CD or screen etc. Now a days, not only the computer programmes, but also, the other literary work can be transmitted over the internet from one media/computer to the other media /computer. But these expressions of ideas called literary work including computer programmes cannot be read or utilized without downloading or writing them on a media. Hence, though the same as a result of advancement in technology can be transmitted in an intangible form, but to constitute a literary work, these have to be transformed into a tangible form. Computer programmes in itself can not be equated and categorized into an intangible material or right, such as a business or commercial right like copy right, right to practice some profession or noncompeting right etc.; Once incorporated on a media, it become 'goods' and cannot be to be said to be copy right in itself; however a copy right can be created in respect of such computer software / ideas expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es a contract for sale/supply of such software to a specific person/persons as it may not be of use to general customers, because the same being Industry/ task specific, that, itself, doesn't in any way may mean or infer that the owner has transferred or sold the copy right in the work. One has to understand the difference between the term 'use of copy right in software' and 'use of software' itself. To constitute 'royalty' under DTAA, it is the consideration for transfer of 'use of copyright in the work' and not the 'use of work' itself. In our view, the sale of a CD ROM/diskette containing software is not a license but it is a sale of a product which of course is a copyrighted product and the owner of the copyright by way of agreement puts the conditions and restrictions on the use of the product so that his copyrights in such copyrighted article or the work, may not be infringed. 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is restricting the fair use of right of the user/purchaser of the product. It is also a determinative factor as to whether the property in the goods after buying the product/ software CD has passed on to the purchaser or not as per the provisions of 'Sale Of Goods Act 1930'. 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. Even as discussed above, even if we assume that such licenses may be legally enforceable in relation to all the terms mentioned therein, even then, what at the most can be assumed is that the licensor/owner has granted the right to use the software. It doesn't in any manner gives any inference that the seller/licensor has given/licensed the copyright in the software. It may also be pointed out here that whether such an license agreement is signed or not by the licensee/purchaser, still the owner of the product will have the copyrights in such a product, as are defined and explained under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-cls. (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in cl. (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. ........................" 36. 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 vests in the owner of the work s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puter programme] for the purposes of- private use, including research; criticism or review, whether of that work or of any other work;" (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- in order to utilize the computer programme for the purposes for which it was supplied; or 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;" (ab) the doing of any act necessary to obtain information essential for operating inter-operability of an independently created computer programme with other programmes by a lawful possessor of a computer programme provided that such information is not otherwise readily available; (ac) the observation, study or test of functioning of the computer programme in order to determine the ideas and principles which underline any elements of the programme while performing such acts necessary for the functions for which the computer programme was supplied; (ad) the making of copies or adaptation of the computer programme from a personally legall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and further the doing of any act necessary to obtain information essential for operating inter operatability of an independently created computer programme with other programmes in case such information is not otherwise readily available, the observation, study or test of functioning of computer programme with determination, the ideas and principles necessary for the functions for which the computer programme was supplied and the making of copies or adaptation of computer programme from a personally and legally obtained copy from non-commercial personal use, have been excluded from the definition of infringement of copyright. Even import of one infringed copy of the work for private and domestic work of the importer has been excluded from the scope of infringement of Copyright under the Act. 41. It is also pertinent to mention here that the Income Tax Act does not specifically include the 'computer software' in the term 'literary work' and under such circumstances, if we apply the provisions of Income Tax to define the scope of 'Literary Work', then perhaps the 'computer software' will be out of the scope of the term royalty as defined under the DTAA. However, if we apply the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign authors first published in India wherein it has been provided that if a foreign country does not give adequate protection to the works of the Indian authors, the Central Government may direct that such of the provisions of the Act as confer copyright on works first published in India of the foreign authors shall not apply. So if a foreign country recognizes the copyrights of the Indian authors in their copyrighted work, the India also allows the copyright to the foreign authors on reciprocal basis. So a foreign author can claim the copyright in a product, if India has a treaty with that country or if India and that other country are signatories of the certain international treaties or conventions e.g. Berne convention to which India is a signatory. Under such circumstances, in respect of works done in foreign countries or by foreign authors, the copyright does not automatically flow or extended to them. The rights of the foreign author 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and doing of such other acts including making of copy for protection from damage or loss cannot, in any case, said to be any infringement of copyright whether or not any license in this respect has been granted by the author/owner of the work. The right to use or for use of the product accrues to the purchaser by the operation of the statute and as held by the Hon'ble Delhi High Court in the case of "Infrasoft Ltd." (supra), the same would amount to the sale of a goods and the acts done such as downloading of the same to the computer or making backup copies etc. would be the necessary acts for enabling the use of the product and would not amount to the transfer of copyright therein, but only the transfer of the copyrighted product and thus will not be covered under the definition of royalty under DTAA. The consideration, thus, paid will be the business income of the non-resident and taxable in accordance with the 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 mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration for the use of or the right to use any copyright of literary, artistic or scientific work, ..... computer software, any patent, trademark...'. It is thus clear that wherever the Government of India intended to include consideration for the use of software as 'Royalties', it explicitly provided so in the DTAA with the concerned country. Since Article 13(3)(a) of the DTAA with UK does not contain any consideration for the use of or the right to use any 'computer software', the same cannot be imported into it." 47. The above analysis made by the Tribunal (supra) of various tax treaties of India with other countries clinches the issue. Even at the cost of repetition, we deem it proper to refer to the observations of the Hon'ble Delhi High Court in the case "DIT Vs New Skies Satellite BV," (supra), that an international instrument affected between two sovereign states is the result of the negotiations by those sovereign nations which in itself is considered to be mini legislation containing in it all the relevant aspects or features which may be at variance with the general taxation laws of the respective countries and the same are to be read as such. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Samsung case also and has taken the view in favour of the assessee. The Hon'ble Delhi High court has taken the identical view favouring the assessee in the case of "DIT vs Nokia Network" (supra) and in the case of "DIT vs. Ericson A.B." (supra) also. The Hon'ble Bombay High Court in the case of "The Addl. Commissioner of Sales Tax vs. M/s Ankit International," Sales Tax Appeal No.9 of 2011 vide order dated 15 September, 2011 while relying upon the decisions of the Hon'ble Supreme Court in "The Commissioner of Income Tax V. Vegetable Product Ltd." (1973) 88 ITR 192 and in "Mauri Yeast India Pvt. Ltd. V. State of U.P." (2008) 14 VST 259(SC) : (2008) 5 S.C.C. 680 has held that, if two views in regard to the interpretation of a provision are possible, the Court would be justified in adopting that construction which favours the assessee. Reliance can also be placed in this regard on the decision of Hon'ble Supreme Court in "Bihar State Electricity Board and another vs. M/s. Usha Martin Industries and another : (1997) 5 SCC 289. We accordingly adopt the construction in favour of the assessee. 51. The Ld. A.R. of the assessee, at this stage, has raised another important argument. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the orders dated 29.10.2010 (supra) and 26.11.2010 (supra) and also various other orders in the case of assessees in the earlier assessment years has contended that the different benches of the Tribunal have upheld the findings in relation to the interpretation of the provisions of section 9(1)(vi) made by the first appellate authority [CIT(A)] which has been summed up in the following points: "(a) It is now established law that Computer software after being put on to a media then sold, becomes goods like any other Audio Cassette or painting on canvas or a book and that the Assessing Officer is wrong in holding that Computer software media, continues to be an intellectual property right and that the Assessing Officer was wrong in treating this computer software as a "Patent" or as "Invention" the payment cannot be termed as "Royalty". (b)That the definition of the term 'Royalty' in article 12(3) of the Indo-US DTAA is restrictive than what is provided in section 9(1)(vii) of the Income-tax Act, 1961 that in such a situation the provisions of the Double Taxation Avoidance Agreement override the domestic law. (c)That the assessee has purchased a copyrighted article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been included by any court of law prior to the insertion of Explanation 4 vide amendment of Act of 2012. The Hon'ble Supreme Court in the case of "Sedco Forex International Drill INC. & Others vs. Commissioner of Income Tax & another" (supra) has held that if an explanation added to a provision changes the law, then it is not to be presumed to be retrospective irrespective of the fact that the phrase used are 'it is declared' or 'for the removal of doubts'. As it is an admitted position that in the earlier years, not only the various High Courts but also the Tribunal in the cases of the assessee has taken a view that the consideration paid for the purchase of the software cannot be treated as royalty; the assessee was, thus, under the bonafide belief that no TDS/withholding of tax was required to be done in respect to said purchases. The assessee had no reason to believe or to foresee a subsequent event vide which the definition of royalty has been extended to include the consideration for the use of or right to use the software has been included in the definition of royalty under the Act. As per the existing law which was in operation at the time of purchase of software, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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