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TMI Blog2018 (5) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(2) of DTAA clearly set out the definition of royalty as per the distributor agreement and the end user license agreement which was produced before the Assessing Officer as well as before the CIT(A). The DRP has not taken into account the correct and true meaning of the royalty and the services do not come under the purview of royalty. As in case of Principal CIT Vs. M. Tech India Pvt. Ltd. [2016 (1) TMI 812 - DELHI HIGH COURT] has held that payment made by reseller for the purchase of software for sale in Indian market could not be considered as royalty - Decided in favour of assessee. - I.T.A .No. 3312/DEL/2016, I.T.A .No. 2376/DEL/2016, I.T.A .No. 2377/DEL/2016, I.T.A .No. 3313/DEL/2016 And I.T.A .No. 177/DEL/2017 - - - Dated:- 17-5-2018 - SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Appellant : Sh. S. P. Singh, AR And Sh. Sharad Goyal, CA For The Respondent : Sh. Satpal Gulati, CIT DR ORDER PER SUCHITRA KAMBLE, JM These appeals are filed by the assessee Revenue against the Order dated 30/03/2016 for A. Y. 2008-09 passed by CIT(A), order dated 19/01/2016 passed by the DCIT Circle 2(2)(1) u/s 144C(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable as Royalty as per the provisions of section 9(1 )(vi) of the Act read with Article 13 of the India-UK Double Taxation Avoidance Agreement ( DTAA ). 3. That on the facts and circumstances of the case and in law, the AO/DRP has erred in law in ignoring the submissions placed on record by the assessee during the course of the assessment proceedings, and in not appreciating that the amount received from the sale of software is business income which in the absence of Permanent Establishment, business income cannot be made taxable in India. 4. That on the facts and circumstances of the case and in law, the AO / DRP erred on facts and in law in treating the sale of software as provision of copy righted of copy righted article for the purpose of Section 9(1)(vi) of the Act. 5. That on the facts and in the circumstances of the case, the AO/DRP has erred in law while carrying out the assessment of the-assessee for assessment year ( AY ) 2009-10 under section 147 of the Act, reason being: 5. 1 There was no speaking order passed by the AO rejecting the objections filed by the assessee for opening of the assessment proceedings under section 147 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate opportunity of being heard. 6. That the A. O has erred in charging interest u/s 234B of the Act to the Appellant. ITA No. 3313/Del/2016 (2011-12) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the consideration received by the assessee from various entities on account of sale of software is not royalty within the meaning of Article 13 of the India-UK DTAA ( DTAA ). 1. Whether the Ld. CIT(A) has erred in not considering the effect of Article 3(2) of the DTAA in terms of which any term not defined in the DTAA is deemed to have the same meaning as it has under the domestic law and therefore, the clarification provided in explanation 4 to section 9(l)(vi) of the Act can be used for interpreting the terms used in Article 13 of the DTAA. 2. Whether on stated facts and in law the Ld C1T(A) has erred in not giving the effect of the subsequent amendment to Section 9(l)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof. 3. The appellant craves to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant was assessed, at ₹ 1, 46, 56, 078/ - as under:- S. No. Particulars Amount (INR) 1 Returned Income NIL 2 Additions on account of royalty 1, 46, 56, 078 Total Assessed Income 1, 46, 56, 078 Aggrieved by his order of the Assessing Officer, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee for Assessment Year 2008-09. The Revenue is in appeal before us. 4. The Ld. DR submitted that the Assessing Officer has rightly made an addition of ₹ 1, 46, 56, 078/- in the nature of royalty. The CIT(A) ignored the fact that the consideration received by the assessee from various entities on account of sale on software is not royalty within the meaning of Article 13 of the Indian UK DTAA. The Ld. DR further submitted that the CIT(A) has not considered the effect of Article 3(2) of the DTAA in terms of which any term not defined in the DTAA. The Ld. DR submitted that it is deem to have the same mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt decision in case of Infra Soft Ltd. (supra). The Income represents business income of the respondent outside of India and should be covered under the definition of royalty. In absence of any permanent established in India, the same would not be chargeable to Tax in India in Article 7 of India UK Tax Treaty. Further, the same cannot be treated as royalty income under the Act or India-UK Tax Treaty. 7. The assessee is only selling copy righted article and there is no payment for use of copy right or acquiring the right to use the copy right and hence the same is not covered within the definition of royalty in DTAA. It is the separate position that the payment made for the use of copy righted article should be treated as business income and not the royalty income. The reliance on the Hon ble Delhi High Court decision in case of Infra Soft Ltd. and M. Tech. India Pvt. Ltd is relevant in the assessee s case as Infra Soft Ltd. The Hon ble High Court held in the order that payment to be qualified as a royalty payment it is necessary to establish that there is a transfer of all or any rights including grant of license in respect of copy right of a literally artistic or scientific w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transactions would be dealt with as business income in accordance with Article 7 of India-UK DTAA. 8. Thus, the issue relating to the consideration received by the assessee from various entities on account of sale of software is not royalty within the meaning of Article 13 of the India UK DTAA, the effect of Article 3(2) of DTAA clearly set out the definition of royalty as per the distributor agreement and the end user license agreement which was produced before the Assessing Officer as well as before the CIT(A). The DRP has not taken into account the correct and true meaning of the royalty and the services do not come under the purview of royalty. The Hon'ble High Court in case of Principal CIT Vs. M. Tech India Pvt. Ltd. vide order dated 19/1/2016 has held that payment made by reseller for the purchase of software for sale in Indian market could not be considered as royalty. IT is observed and held that amendments cannot be read retrospectively in consonance with the treaty. The Ld. DR s contention was that as per the judgment in the case of Shine Satellite, the amendment has to be given retrospective effect. But when we read the judgment of the Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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