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TMI Blog2020 (1) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... WIPRO/IBM is getting mere access to the software. The source code embedded in the software has not been imparted to them. Hence, there is no use or right to use of any process as held by the learned AO. Hence, the finding of the learned CIT(A) that the payment in question cannot be reckoned as royalty is factually and legally correct and the same is upheld. For all the years the payments received by the assessee from WIPRO/IBM in pursuance to the MSA cannot be treated as royalty under Article 12(4) of the India-Netherland DTAA. Thus, the matter is decided in favour of the assessee and against the revenue - ITA No. 7283/MUM/2018 - - - Dated:- 10-1-2020 - Shri C.N. Prasad, Hon'ble Judicial Member And Shri Manoj Kumar Aggarwal, Hon'ble Accountant Member For the Assessee : Shri Madhur Agarwal For the Department : Shri V. Sreekar ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Dispute Resolution Panel 2, Mumbai [hereinafter for short DRP ] dated 10.09.2018 for the A.Y. 2015-16. 2. Assessee has raised the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Refund adjusted against demand for earlier years 8. Erred in adjusting the refund without appreciating the fact there is no demand outstanding pertaining to earlier years as the appellant has already received a favorable ITAT order for earlier years. Interest under Section 244A of the Act 9. Erred in recovering interest under Section 244A of the Act without appreciating the facts and circumstances of the case. Interest under Section 234D of the Act 10. Erred in levying interest under Section 234D of the Act without appreciating the facts and circumstances of the case. 3. At the outset Ld. Counsel for the assessee submitted that Ground Nos. 3 and 4 are in respect of receipts towards access to use software held as royalty under the India Netherlands DTAA, is decided by the Tribunal in favour of the assessee for the A.Ys. 2012-13 and 2013-14 in ITA No. 2192 2193/Mum/2017 dated 24.10.2018 and also for the A.Y. 2014-15 in ITA No. 7428/MUM/2017 dated 05.03.2019. It was also submitted that the very same issue was also decided in its favour by the Tribunal for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecret formula or process, or for information concerning industrial, commercial or scientific experience. From the plain reading of the article it can be inferred that, it refers to 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, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Thus, in order to tax the payment in question as royalty , it is sine qua non that the said payment must fall within the ambit and scope of Para4 of Article 12. The main emphasis on the payment constituting royalty in Para4 is for a consideration for the use of or the right to use any copyright.......... The key phrases are for the use or the right to use any copyright of ; any patent......., or process , or for information........., ; or scientific experience , etc., are important parameter for treating a transaction in the nature of royalty . If the payment doesn t fit within these parameters then it doesn t fall within terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for sale or for commercial rental any copy of the computer programme: Provided that, such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv); (d) In the case of cinematograph film, - (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court in case of DIT vs. Infrasoft Ltd., reported in [2013] 39 Taxmann.com 88, wherein host of other decisions have been referred and relied upon. In the A.Y. 2008-09, the learned CIT (A) has relied upon the decision of Hon ble Karnataka High Court in the case CIT vs. Samsung Electronics Co. Ltd. [2013]345 ITR 494 and some other decisions of the Tribunal. We find that the Hon ble Delhi High Court has taken note of this fact and also analysed the payment of software within the ambit of royalty as defined under Article 12 of the India US Treaty. The relevant observation and finding of the Hon ble High Court is as under: 87. In order to qualify as royalty payment, 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. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a copyright right and a copyrighted ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro-tanto. 90. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said paragraph because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t within the definition of royalty as given in the DTAA. What the licensee has acquired is only a copy of the copyright article whereas the copyright remains with the owner and the Licensees have acquired a computer programme for being used in their business and no right is granted to them to utilize the copyright of a computer programme and thus the payment for the same is not in the nature of royalty. 95. We have not examined the effect of the subsequent amendment to section 9 (1)(vi) of the Act and also whether the amount received for use of software would be royalty in terms thereof for the reason that the Assessee is covered by the DTAA, the provisions of which are more beneficial. 96. The amount received by the Assessee under the licence agreement for allowing the use of the software is not royalty under the DTAA. 97. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 ITR 470 wherein identical argument with respect to whether consideration paid towards supply of software along with hardware rather software embedded in the hardware amounted to royalty. After noticing several contentions of the revenue, this Court held in Ericsson A.B. (supra) as follows: 54. It is difficult to accept the aforesaid submissions in the facts of the present case We have already held above that the assessee did not have any business connection in India. We have also held that the supply of equipment in question was in the nature of supply of goods. Therefore, this issue is to be examined keeping in view these findings. Moreover, another finding of fact is recorded by the Tribunal that the Cellular Operator did not acquire any of the copyrights referred to in Section 14 (b) of the Copyright Act, 1957. 55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Income -Tax Act or under the DTAA. We have to keep in mind what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Delhi High Court. Thus, in view of the finding given above, we uphold the order of the CIT(A) that the payment received by the assessee for sums amounting to ₹ 3,75,25,291/- does not amount to royalty within the meaning of Article 12(4) of Indo-Netherland DTAA and accordingly, the same is not taxable in India. Since, admittedly, the assessee has no PE in India; therefore, same cannot be taxed as business income under Article 7. Accordingly, ground raised by the revenue stands dismissed. The aforesaid decision clearly clinches the issues in favour of the assessee. 16. So far as the reading of amended definition of royalty as given in section 9(1)(vi) into treaty as contended and argued by ld. CIT DR, we find that, Hon ble Delhi High Court in its latest judgment in the case of DIT vs. New Skies Satellite, reported in [2016] 95 CCH 0032, wherein their Lordships shave discussed the issue threadbare and came to the conclusion in the following manner:- 60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from WIPRO/IBM in pursuance to the MSA cannot be treated as royalty under Article 12(4) of the India-Netherland DTAA. 17. Thus, the matter is decided in favour of the assessee and against the revenue. 18. For the A.Y. 2007-08 also, the Revenue has raised exactly similar grounds, therefore, our finding given in the aforesaid appeal will apply mutatis mutandis and, hence, the appeal of the Revenue for A.Y. 2007-08 is dismissed. 19. In 2008-09, the same issue of royalty on similar payment to the same parties, governed by same MSA has been decided against the assessee by the Ld. CIT (A) following the decision of Hon ble Karnataka High Court in the case of Samsung Electronics (supra). Since we have already discussed this issue while dealing with the appeal for A.Y. 2006-07 and the decision of the Hon ble Delhi High Court wherein this issue has been discussed in detail, therefore, the appeal for A.Y. 2008-09 of the assessee is allowed. 6. Similarly, the Tribunal decided this issue in favour of the assessee for the A.Y. 2009-10 to 2014-15 by various orders and for the A.Y.2012-13 in ITA.No. 2192/Mum/2017 dated 24.10.2018. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 and also the grounds raised are identically worded hence, we will take- the facts from 2009-10. 9. The learned Counsel for the assessee, first of all, took us through the findings of the DRP on the issue which is recorded in Para 53 as under: 5.3 Discussions and directions of DRP 5.3.1 We have considered the draft assessment order, submissions of assessee and material. We have seen that under the Master Services Agreement, the assessee SITI BV has furnished technical and advisory services to various clients based in India. The delineated services are significantly technical in nature and the resultant fees are liable to be treated as Fees for Technical Services. We are also in agreement with the AO that the Ruling of Hon'ble Authority for Advance Rulings in the case of ARE VA T D India Limited (A TD/L) is applicable in the case of assessee. In this case, the Aar held as below: We have noted that under- the IT Agreement, the French company is to provide support services through a central team in the area of Information Technology to the Applicant and to its other subsidiaries in the worId. The provision of suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian customers. SITI BV is a tax resident of the NetherIand and is eligible to claim benefits under the Double Taxation Avoidance Agreement entered into between India and The Netherlands. He explained that SITI BV is in the business of providing information technology support services SITI BV typically, provides helpdesk services-and network infrastructure services to Shell group companies comprising. Information Technology (II) support for solving any IT related problems faced by users i e any problem faced by users for accessing any application software c-mails, Computer repairs and maintenance etc. desktop laptop and workstation support, Services related to Wide area network ('WAN') arid Local area network ('LAN') for connection to the global servers', and Facilitating teleconferencing and video conferencing services Further, in the event Shell requires IT services from external service providers like WIPRO and IBM SITI BV is engaged in providing the necessary network access and related services as well. For this purpose, reference can be made to the scope of services to be rendered by SITI BV to WIPRO under the Services Agreement (copy of which is enclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software i.e. computer Programme. SITI BV does not provide them the right to use the copyright embedded in the software. In other words, WIPRO, IBM are not permitted to make copies and sell the software. Under the Services Agreements, WIPRO and IBM-have been granted the mere under the right in the copyrighted software and not the right of, use of-copyright'. Whereas use of copyright' encompasses exploitation of the rights embedded in a copyright but a mere user right is a limited right and consideration paid for Such user right cannot be regarded as consideration for use of or right to use a copyright. In view of the above, the learned Counsel for the assessee stated that the issue is fully covered by the decision of Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter Co Ltd (2012) 20 taxmann.com 807 (Del-HC), wherein India-UK DTAA was under consideration of Hon ble Delhi High Court and Hon'ble High Court after considering the Article 13 of the DTAA of India-UK and also the facts of the assessee finally held the concept of 'make available' of technical services that such receipts would not amount to fee for technical services so as to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnel) which: (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received, or Make available technical knowledge, experience. skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricable and essentially linked, to the sale of property, other than property described in paragraph 3 (a) of this Article; (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) For teaching in or by educational institutions; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (Lloyd's processing market) for signing. The assessee will act as a claim administrator and Will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the reinsurance process as discussed above, it is evident- to us that the assessee was rendering only intermediary services while acting as an intermediary/facilitator in getting the reinsurance cover for New India Insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to fees for technical services as the make available clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case. 13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such no substantial question of law arises for our consideration. The appeal is dismissed. There shall be. no order as to costs. 13. Further, the learned Counsel for the ass ssee stated that the reliance placed by DRP in Arevay T and D India Limited of Perfeti Van Melle Holdings B.V. In re [2011] 16 taxmann.com 207 (AAR - New Delhi) was reversed by Hon'ble Delhi High Court and reported in 2014 52 taxmann.com 161 (Delhi), wherein Hon'ble Delhi High Court has considered as under: - 1. This writ petition is directed against the ruling dated 09.12.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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