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TMI Blog2017 (5) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Appeals)-lO [ the CIT(A) ]erred in holding that payment of US$ 1,36,832.23 and US$ 1,23,229.02 made towards purchase of software , to Apex Systems P. Ltd., Singapore ( Apex ) as a royalty payment, requiring tax deduction at source @ 15%. 2. He further erred in holding that such payments are nothing but consideration for license to use a software and hence covered by the definition of royalty both under section 9(l)(vi) of the Income tax Act, 1961 as well as under Article 12 of India- Singapore Tax Treaty for Avoidance of Double Taxation. 3. He further erred in concluding that selling or giving on hire of the software or offering for sale or for commercial rental any copy of the computer program regardless of whether such a copy has been sold or given on hire on earlier occasion constitute the grant of a right to use copyrights 4. He further erred in concluding that use of software program on computer will amount to transfer of copyright under section 14 of the copyright Act since the buyer of software makes use of the copyright contained n the said software purchased and the same would amount to transfer of part of the copyright. 5. He further erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a copyrighted article and not received any right in the copyright. i. the payments for use of copyrighted software (as in the instant case) is distinguished from payments for use of copyrights in the software. j. payments for the rights in relation to the acts of copying, where they do no more than enable the effective operation by the user, will not be characterised as Royalty. k. The tax withholding obligations from payments to nonresidents, as set out in Section 195, require that the person making the payment at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income -tax thereon at the rates in force . When these obligations are to be discharged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time 8. The Appellant prays that it be held that payment of US$ 1,36,832.23 and US$ 1,23,229.02 to Apex towards purchase of software are in the nature of Copyrighted Article and are not royalty , both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave held that there is no short deduction/payment of TDS in the case of the Appellant since the payments are not liable to TDS. 3. The Appellant prays that it is not liable for interest under section 201(1A) and AO be directed to delete the interest under section 201(1A). 4. Without prejudice to the above, AO be directed to recalculate the interest U/s. 201(1A) consequent to the any relief granted on any of the grounds stated above. The Appellant craves leave to add, alter and/or amend the aforesaid Grounds of Appeal at or before the time of hearing. 3. Brief facts of the case are as under :- The assessee Company is engaged in the business of life insurance. The assessee Company has procured, software for the administration of various life insurance policies from a Singapore Company called Apex Systems P Ltd. ( Apex ) and entered into an agreement with Apex on 1.10. 2001. Under this Agreement, the following three types of payments were made by the Appellant to Apex: (a) a licence to use the software package developed by Apex, for which the assessee was to pay Apex a licence fee; (b) maintenance of the software package by resolving querie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that in the said case vide order dated 22n d May, 2017, we had adjudicated the issue as under:- 5. We have heard both the Counsels and perused the records. Learned Counsel of the assessee submitted that the amount paid is not a royalty both under the Income-tax Act as well as Indo-Japan DTAA. He submitted that assessee has been granted limited use of the software for own internal purposes. There is complete prohibition for making copy for sale or transferring it to others. Furthermore, learned Counsel placed reliance upon several case laws for the proposition that similar issue has been decided in favour of the assessee. For this proposition, he placed reliance upon following case laws:- (i) Reliance Industries Ltd ITA Nos.1980, 1981, 1982, 1984, 1986, 2523, 2529/Mum/2008 (Mumbai Tribunal) (ii) Capegemini Business Services (India) Ltd. ITA No.7779/Mum/ 2011 (Mumbai Tribunal) (iii) Infrasoft Ltd. [(2013) 39 Taxmann.com 88 (Delhi HC) (iv) Allianz SE (Formerly known as Allianz AG) ITA No 1569/PN/ 2008 (Pune Tribunal) (v) Solid Works Corporation ITA No.3219/Mum/2010 (Mumbai Tribunal) (vi) First Advantage (P) Ltd. [2017] 77 taxmann.com 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely referred to the decision of the Tribunal in the case of ADIT (IT) v. First Advantage (P.) Ltd. [(2017) 77 taxmann.com 195 (Mumbai-Trib.)]. Further the Tribunal in the case of National Stock Exchange of India Ltd. (supra) had also referred to decision of Hon ble Delhi High Court and Karnataka High Court, and concluded as under:- 15. In this regard we may also refer to Hon ble Delhi High Court exposition on this subject in the case of DIT vs Ericsson AB 343 ITR 470 as under: That in order to qualify as royalty payment, within the meaning of section 9(1)(vi) and particularly clause (v) of Explanation 2 there to, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. Section 2(0) of the Copyright Act, 1957, makes it clear that a computer programme is to be regarded as a literary work. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. This was not established. It was not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and made payment for the same without deducting tax at source u/s 195. The AO CIT (A) held that the payments were assessable to tax as royalty u/s 9(1)(vi)/ Article 12 and that the assessee was liable to pay the tax u/s 201. On appeal, the Tribunal relied on the judgement of the Supreme Court in Tata Consultancy Services vs. State of AP 271 ITR 401 (SC) and held that the assessee had acquired a copyrighted article but not the copyright itself and so the amount paid was not assessable as royalty . On appeal by the department, HELD reversing the Tribunal: (i) U/s 9(1)(vi) of the Act Article 12 of the DTAA, payments of any kind in consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work is deemed to be royalty . Under the Copyright Act, 1957, a software programme constitutes a copyright . A right to make a copy of the software and use it for internal business by making copy of the same and storing it on the hard disk amounts to a use of the copyright u/s 14 (1) of that Act because in the absence of such a licence, there would have been an infringement of the copyright. Accordingly, the argument that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that admittedly there is no direct jurisdictional High Court decision on the subject. However there is a direct Hon ble Delhi High Court decision which is in favour of the assessee. As against this there are decisions of Hon ble Karnataka High Court which are in favour of revenue. In this regard we note that Hon ble Apex Court in the case of vegetable products 88 ITR 192 had held that if two constructions are possible one in favour of the ass ssee should be adopted. Accordingly respectfully following the precedent we follow the Hon ble Delhi High Court decision. Accordingly we set aside the order of authority below. We hold that the transfer / sale of software in this case is not taxable as royalty. Hence the assessee was not liable to deduct tax at source u/s 195 of the Income-tax Act, before remitting the money to the US supplier. 9. Now we examine the present case on the touchstone of above said decisions. In this case we find that assessee has purchased software from overseas supplier from Japan. As per the terms of purchase assessee is entitled to make copies of the same for its internal use. It cannot be copied and sold. In this factual background the A.O. and the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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