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TMI Blog2010 (2) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... ments received by the assessee from RIL on account of use of its software is not a royalty, ignoring Article 12 of India-USA DTAA and as per section 9(1)(vi) of Explanation 2 of I.T. Act. The appellant prays that the order of learned CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 3. The assessee is engaged in the business of providing software solutions across the globe. The assessee entered into a software licensing Intec Billing America Inc. agreement on February 26,2002 with Reliance Industries Limited (RIL), a company incorporated under the laws of India. In pursuance of the agreement, the assessee provided certain software products for the business purpose of RIL during the financial year ended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance at 15% on a gross basis as royalty under Article 12 of the India- US tax treaty. 4. On appeal by the assessee, learned CIT(A) held that the payment in question was not in the nature of royalty and was payment for purchase of copyrighted article. It was in the nature of business profits; and since the assessee did not have a PE in India the same was not taxable, in view of Article-7 of the DTAA between India and USA. Addition Intec Billing America Inc. made by the Assessing Officer was deleted by the learned CIT(A) giving rise to the present appeal by the revenue before the Tribunal. 5. We have heard the rival submissions. Agreement between the assessee and RIL provides only a license to use the software. Clause 2(a)(b) of the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode the machine code of software or to make copies of software for commercial use other than for its internal use or backup purposes. It is therefore obvious that the RIL has right to use software only for its business or personal purposes and has obtained no other rights as per the agreement. Intec Billing America Inc. 6. The Hon'ble Supreme Court in the case of Tata Consultancy Services Pvt. Ltd. Vs. State of Andhra Pradesh (2004) 271 ITR 401 has held as follows :- "A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are suscept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Indo-US DTAA shows that definition of royalty under DTAA is more restrictive than what is provided in section (9)(1) of the Act. Under the definition as contained in DTAA, there should be a transfer of copyright. Sale of software by the assessee to the end user does not involve any transfer of copyright either in part or in whole; therefore consideration paid by the distributor Intec Billing America Inc. cannot be said to be a payment for right of use copyright or transfer of use of copyright. It has been uniformly held in several decisions of the ITAT that sale of shrink-wrap software does not involve receipt of consideration, which can be said to be royalty. Decisions in this regard are as follows :- Samsung Electronics Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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