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TMI Blog2019 (11) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... erred on facts and in law in concluding, following direction of the DRP, that the receipt of Rs. 2,91,02,372/- towards supply of software was taxable as "Royalty". 2.1 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in not appreciating that the appellant was a distributor of software products developed by other companies, and it merely purchased and re-sold the off the shelf software without acquiring or transferring any right to use the copyright in the software. 2.2 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in not appreciating that the appellant, a distributor, never acquired any copyright in the software, and hence it could not be possibly have transferred any copy-right. 2.3 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in ignoring the decisions of the jurisdictional Delhi High Court and in following the decisions of the Karnataka High Court instead. 2.4 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in concluding that the consideration paid by the customers in India for the use of the software w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware without acquiring or transferring any right to use the copyright in the software. 2.2 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in concluding that the consideration paid by the customers in India for the use of the software would be taxable as royalty, even while recognizing that the appellant never owned any copyrights in the software that it could transfer to the customers. 2.3 That the Honorable DRP failed to appreciate that payment for a mere resale of computer software de hors any copyright associated with it is not covered within the ambit of clause (v) of the definition of royalty under the Act, ignoring the well settled principles as laid down by the Jurisdiction Hon'ble High Court of New Delhi. 2.4 That on the facts and in the circumstances of the case, the DRP erred on facts and in law in ignoring the decisions of the jurisdictional Delhi High Court and in following the decisions of the Karnataka High Court instead. 2.5 That the Learned AO as well as the Honorable DRP failed to appreciate that in order to qualify as a royalty payment within the Act, it is to be established that the acquirer, by making paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided by the assessee shall not be taxed as FTS. In response the assessee filed detailed legal submissions dated 19.03.2014. The draft assessment order was passed and was served to the assessee on 04.04.2014. Thereafter, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide directions dated 14.11.2014 disposed off the objections of the assessee. The Assessment Order passed on 24.12.2014. The Assessing Officer observed that assessee could not transfer right to the customer without owning it. Therefore, at the time of sale to the customers in India, assessee remains the owner of such rights which are transferred to the customers by the assessee. Therefore, assessee could not merely be categorized as a commission agent or a pass through entity. While providing the software to the customers, assessee company in effect transferred the license to use the software by the customers. The customer was granted a license by the assessee under which the customer was granted some of the rights by the assessee using which the customer is authorized to copy the code into the hard disk of computer/ equipment, run the executable file/ installer programme, install th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distributor of software products developed by the other companies, and it merely purchased and re-sold the off the shelf software without acquiring or transferring any right to use the copyright in the software. Thus, it could not be possibly have transferred any copyright. In fact DRP observed that the assessee never owned any copyrights in the software that it could be transfer to the customer. The Ld. AR submitted that the same is covered by the decision of the Tribunal in case of Black Duck Software Inc. vs. DCIT (2017) 86 taxmann.com 62 (Delhi-Trib.). The Ld. AR also relied upon the decision of Hon'ble Delhi High Court in case of CIT vs. DYNAMIC VERTICAL SOFTWARE INDIA P. LTD. [2011] 332 ITR 222 (Delhi) as well as the decision in the case of PCIT vs. M. Tech India (P) Ltd. 381381 ITR 31 (Delhi). The Ld. AR further submitted that the assessee is a trader and not a developer or manufacturer. Avnet Asia and its parent company are all distributors of software and hardware products of various manufacturers. This major fact was ignored by the Assessing Officer as well as DRP. The assessee and its group companies merely buy and sell software products developed by other companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty. A payment for the absolute assignment and ownership of rights is not a payment for the use of something belonging to another. Accordingly, payments for transfer of any right in respect of a patent, technology or of copyright, trademark or for simpliciter use of patent, trademark, copy right etc. are in nature of royalty under section 9(1) of the Act. Explanation 4 clarifies that the intention of the legislature has always been to include consideration in respect of transfer of all or any right for use or right to use a computer software (including granting of licence) as royalty, irrespective of the medium through which such right is transferred. Thus, legal ownership of such rights, indirect use of such rights and claims related to the location of such rights will not be material in deciding whether such consideration amounts to royalty. The Ld. DR further submitted that as per India- Singapore DTAA, royalty is defined as consideration for the use or the right to use any copyright of a literary, artistic or scientific work falls within the definition of royalty. Thus, the Assessing Officer as well as DRP has rightly made addition in respect of receipt for supply of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground Nos. 3 to 3.3 are partly allowed for statistical purpose. 12. As regards to Ground No. 4, the Ld. AR submitted that the credit for tax deducted at source should have been allowed by the Assessing Officer. 13. The Ld. DR relied upon the Assessment Order. 14. We have heard both the parties and perused all the relevant record. This aspect is not properly verified by the Assessing Officer as regards credit for tax deducted at source. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given proper opportunity of hearing by following principles of natural justice. Ground No. 4 is partly allowed for statistical purpose. 14. Thus, appeal being ITA No. 1288/DEL/2015 for A.Y. 2011-12 is partly allowed for statistical purpose. 15. As regards appeal being ITA No. 4173/DEL/2016 for A.Y. 2012-13 involves only one issue that of supply of software whether amounts to royalty or not which is iden ..... X X X X Extracts X X X X X X X X Extracts X X X X
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