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TMI Blog2018 (12) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved by the final order of assessment dated 31st October, 2016 passed by the ACIT, Circle 2(2)(1), International Tax, New Delhi u/s 144C(1)/143 of the Income Tax Act, 1961 (hereinafter called The Act ). Final order of assessment has been passed by the Assessing Officer (AO) pursuant to the directions issued by Ld. Dispute Resolution Panel (DRP) vide order dated 6th September, 2016. 2.0 Briefly stated, the relevant facts are that the assessee is a company incorporated in Ireland and during the year under consideration it was in receipt of certain sum towards Sale of Software and Provision for Support Services from its Indian Distributors. It is undisputed that the amount received by the assessee from Provision of Support Services was been offered to tax on gross basis as per Article 12 of India-Ireland Double Taxation Avoidance Agreement (DTAA). It is also not in dispute that there is no Permanent Establishment (PE) of the assessee in terms of Article 5 of DTAA in India. In the present appeal, the dispute pertains to the taxability of amount received by the assessee from Sale of Software . During the course of assessment, the AO directed the assessee to submit as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held by the AO as under:- The assessee Company is Company based out of Ireland. As per Section 90 of the Income Tax Act, 1961 taxability of a non-resident is to be governed by the provisions of the Act or the DTAA whichever is more beneficial to the assessee. Payments for software are anyways taxable under Section 9(1)(vi) of the Act. The intention of the legislature to tax software payments was made clear by way of amendments brought in the by Finance Act 2012 by way of insertion of Explanation 12 to Section 9(1)(vi) by which it was clarified that transfer of all or any rights for use or right to use a computer software. The assessee being a resident of Ireland is eligible to claim taxation under the DTAA if provisions of DTAA are not beneficial to assessee. The relevant DTAA in this case is India-Ireland DTAA. As per Article 12 of the DTAA, royalties 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 or films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, agreements with foreign countries (DTAA) would override the provisions of the Act. Once it is held that payment made by the assessee to the non-resident companies would amount to royalty within the meaning of article 12 of the DTAA with the respective country, it is clear that the payment made by the assessee to the non-resident supplier would amount to royalty . Similar view was upheld by Karnataka High Court in the case of Synopsis International Old Ltd. (212 Taxman 454) wherein the Court while dealing with taxability of software payments held as under:- It is no doubt true the provisions of the DTAA overrides the provisions of the Income-tax Act. In the DTAA the term royalty means payments of any kind received as a consideration for the use or the right to use any copyright of literary, artistic or scientific work whereas in the Income-tax Act, royalty means consideration for the transfer of all or any rights including the granting of a license. Therefore, under the DTAA to constitute royalty there need not be any transfer of or any rights in respect of any copyright. It is sufficient if consideration is received for use of or the right to use any copyright. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the discussions supra, in addition to the rationale given by the AO in the draft assessment order, the panel is in agreement with the position of the AO. Accordingly, the action of the AO in this respect is upheld. The Assessee has taken a plea about not being heard by the AO. That is now redundant as the matter has been heard by the DRP at length and the assessee has been afforded sufficient opportunity to make out its case. DRP, being an extension of the assessment process, has heard the assessee before reaching its conclusions. The assessee cannot now claim to non-availability of opportunity of being heard. This objection is hence dismissed. The AO has also recorded that The reliance placed by the assessee on the judgements of Delhi High Court in the case of Infrasoft Ltd., Dynamic Vertical Software India (P) Ltd. and M. Tech India P. Ltd. cannot be relied upon since the issue has not attained finality and the department has filed SLP in few cases and the decision of the Hon ble Supreme Court is still pending . The departmental position is clear in this regard and the panel is part of assessment process. Therefore the issues in challenge before Hon ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctronics reported in 203 Taxmann 477 (Kar) is not to be followed as the same is contrary to the decision of Hon ble Jurisdictional High Court cited by him. In this regard, the Ld. AR specifically referred to Para 98 99 of the decision of Hon ble Jurisdictional High Court in the case of Infrasoft Ltd. (supra) wherein the Hon ble High Court has held that they are not in agreement with the decision of the Hon ble Karnataka High Court. The Ld. AR further submitted that the reliance placed by the AO on the decision of Delhi Tribunal in the case of Microsoft Corporation (supra) is also not relevant as the said decision has been held to be bad in law by the Hon ble Jurisdictional High Court in the case of Nokia Network Oy (supra). In this regard, the Ld. AR invited our attention to Para 23 of the decision in the case of Nokia Network (supra). 4.0 The Ld. CIT (DR), on the other hand, did not dispute the contentions raised by the Ld. AR. By placing reliance on the order passed by the lower authorities it was submitted by him that the view expressed by them does not require any interference by this Court. 5.0 We have carefully considered the facts of the case and the material availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a literary, artistic or scientific work. Section 2(o) of the Copyright Act 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. In the presence case, this has not been established. It is not even the case of the revenue that any right contemplated under section 14 of the Copyright Act, 1957 stood vested in this cellular operator as a consequence of the supply contract. Distinction has to be made between the acquisition of a 'copyright right' and a 'copyrighted article'. 5.1 Similar view is expressed by the Hon'ble Jurisdictional High Court in the case of Infrasoft Ltd. (supra), wherein their Lordships held as under:- 86. The Licensing Agreement shows that the license is nonexclusive, non-transferable and the software has to be uses in accordance with the agreement. Only one copy of the software is being supplied for each site. The licensee is permitted to make only one copy of the software and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7. 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and nontransferable licence enabling the use of a copyrighted product cannot be construed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any copyright in the computer software by the assessee to its customers, we observe that all the arguments put forth by the AO and the assessee are considered and answered by the Jurisdictional High Court in these decisions. Further, the Delhi High Court in Infrasoft (supra) has specifically expressed its disagreement with the view taken by the Hon ble Karnataka High Court in the case of Samsung Electronics Co Ltd. (supra). Hence, the decisions relied by the AO in the case of Samsung Electronics and GracemacCorpn. (supra) does not help the case of the Revenue, as we are under the Jurisdiction of the Hon'ble Delhi High Court. 5.3 Accordingly, respectfully following decision of the Hon'ble jurisdictional High Court in the case of Infrasoft Ltd. (supra) and on the basis of discussions above we hold that receipts derived by the assessee from Sale of Software is not in nature of Royalty as defined under Article 12 of India-Ireland DTAA. Since treaty provisions are more beneficial, an adjudication on nature of receipts vis a vis provisions of Section 9(1)(vi) is not required. Grounds Nos. 1 to 4 are accordingly allowed. 5.4 In ground no. 5, the assessee has challenged t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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