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TMI Blog2021 (3) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had purchased only a right to use the copyright i.e. the software and not the entire copyright itself, the payment cannot be treated as Royalty as per the Double Taxation Avoidance Agreement and Treaties? HELD THAT:- By virtue of Article 12(3) of the DTAA, royalties are payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary work, which includes a computer programme or software.There can be no doubt as to the real nature of the transactions in the appeals before us. What is licensed by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly supplied to the resident end-user, is in fact the sale of a physical object which contains an embedded computer programme, and is therefore, a sale of goods, which, as has been correctly pointed out by the learned counsel for the assessee. The logic behind Article 30 of the India-USA DTAA is for reasons connected with USA s municipal taxation laws, and has nothing to do with Indian municipal law governing the liability of persons to deduct tax at source under section 195 of the Income Tax Act. This is reinforced by the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the copyright owner s distribution right and the right of the purchaser to further resale, was tilted in favour of the latter, the words regardless of whether such copy has been sold or given on hire on earlier occasion being deleted by the amendment. Likewise, when it comes to section 14(a)(ii) of the Copyright Act, the distribution right subsists with the owner of copyright to issue copies of the work to the public, to the extent such copies are not copies already in circulation, thereby manifesting a legislative intent to apply the doctrine of first sale/principle of exhaustion. The language of section 14(b)(ii) of the Copyright Act makes it clear that it is the exclusive right of the owner to sell or to give on commercial rental or offer for sale or for commercial rental any copy of the computer programme . Thus, a distributor who purchases computer software in material form and resells it to an end-user cannot be said to be within the scope of the aforesaid provision. The sale or commercial rental spoken of in section 14(b)(ii) of the Copyright Act is of any copy of a computer programme , making it clear that the section would only apply to the making of copies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) [ 2012 (2) TMI 258 - AUTHORITY FOR ADVANCE RULINGS ] is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed. - CIVIL APPEAL NOS. 8733-8734 OF 2018 - - - Dated:- 2-3-2021 - R. F. Nariman, Hemant Gupta And B.R. Gavai CIVIL APPEAL NOS. 8735-8736 OF 2018, 8737-8941 OF 2018, 8942-8947 OF 2018, 8950-8953 OF 2018, 8948-8949 OF 2018, 4419 OF 2012, 4420 OF 2012, 10114 OF 2013, 10097 OF 2013, 10112-10113 OF 2013, 10106 OF 2013, 8954-8955 OF 2018, 10115-10117 OF 2013, 8956 OF 2018, 8957 OF 2018, 8990 OF 2018, 10103 OF 2013, 10104 OF 2013, 8960 OF 2018, 8966 OF 2018, 8958 OF 2018, 8959 OF 2018, 8962 OF 2018, 8961 OF 2018, 8963 OF 2018, 8964 OF 2018, 8965 OF 2018, 8969 OF 2018, 8967 OF 2018, 8968 OF 2018, 8972 OF 2018, 8971 OF 2018, 8970 OF 2018, 4629 OF 2014, 8973 OF 2018, 4631 OF 2014, 4630 OF 2014, 8974-8975 OF 2018, 6386-6387 OF 2016, 10105 OF 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Sanat Kapoor, Adv., Ms. Soumya Singh, Adv., Mr. Kamal Mohan Gupta, AOR, Mr. V. Balachandran, AOR, Mr. K.R. Vasudevan, Adv., Mr. Siddharth Naidu, Adv., Mr. Kishore Kunal, AOR, Mr. Manish Rastogi, Adv., Ms. Tanushree Jain, Adv., Mr. Parth Jaiprakash, Adv., Mr. Jagjit Singh Chhabra, AOR, Ms. Vanita Bhargava, Adv., Mr. Ajay Bhargava, Adv., Ms. Trishala Trivedi, Adv., Ms. Maithili Moondra, Adv., for M/s. Khaitan Co., AOR, Mr. G. Sridhar, Adv., Ms. Gayatri Gulati, Adv., Mr. Siddharth Vasudev, Adv., Mr. Rahul Unnikrishnan, Adv., Mr. Sandeep Bagmar, Adv., Mr. T. V. S. Raghavendra Sreyas, AOR, Mr. Ambhoj Kumar Sinha, AOR, Mr. Vishal Kalra, Adv., Mr. S.S. Tomar, Adv., Mr. Anil Kumar Gautam, AOR, Mr. Debmalya Banerjee, Adv., Mr. Kartik Bhatnagar, Adv., Ms. Astha Prasad, Adv., Mr. Rohan Sharma, Adv., Mr. Ujjwal Singh, Adv., Mr. Vardaan Wanchoo, Adv., for M/s. Karanjawala Co., AOR, Mr. Rony Oommen John, AOR, Mr. Piyush Swami, Adv., Mr. Arshdeep Singh, Adv., Mr. G.C. Srivastava, Adv., Mr. Suvinay Kumar Dash, Adv., Mr. Piyush Sachdev, Adv., Ms. Runamoni Bhuyan, AOR, Mr. Jagjit Singh Chhabra, AOR, Ms. Kavita Jha, AOR, Mr. Senthil Jagadeesan, AOR, Mrs. Anil Katiyar, AOR, Mr. Anil Kumar Gau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013, C.A No. 2305/2013, C.A No. 2306/2013, C.A Nos. 10098-10102/2013, C.A Nos. 2307-2308/2013, C.A Nos. 4666-4667/2013, C.A No. 6764/2013, C.A No. 4634/2014, C.A No. 8976/2018, C.A Nos. 8977-8988/2018, C.A No. 3402/2017, C.A No. 2006/2019. and in the ruling by the Authority for Advance Rulings [ AAR ], impugned in C.A. No. 8990/2018. 3. One group of appeals arises from a common judgment of the High Court of Karnataka dated 15.10.2011 reported as CIT v. Samsung Electronics Co. Ltd., (2012) 345 ITR 494 , by which the question which was posed before the High Court, was answered stating that the amounts paid by the concerned persons resident in India to non-resident, foreign software suppliers, amounted to royalty and as this was so, the same constituted taxable income deemed to accrue in India under section 9(1)(vi) of the Income Tax Act, 1961 [ Income Tax Act ], thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at source [ TDS ] under section 195 of the Income Tax Act. This judgment dated 15.10.2011 has been relied upon by the subsequent impugned judgments passed by the High Court of Karnataka to decide the same question i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36/2020, C.A. No. 4634/2014. iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users. This category includes C.A. Nos. 10115-10117/2013, C.A. Nos. 6386-6387/2016, C.A. Nos. 8954-8955/2018, SLP(C) No. 37580/2016, SLP(C) No. 28867/2016, SLP(C) No. 28868/2016, C.A. No. 10673/2016, SLP(C) No. 29571/2016, C.A. No. 10674/2016, SLP(C) No. 36782/2016. 5. These cases have a chequered history. The facts of C.A. Nos. 8733-8734/2018 shall be taken as a sample, indicative of the points of law that arise from the various appeals before us. In this case, the appellant, Engineering Analysis Centre of Excellence Pvt. Ltd. [ EAC ], is a resident Indian end-user of shrink-wrapped computer software, directly imported from the United States of America [ USA ]. The assessment years that we are concerned with are 2001-2002 and 2002-2003. 6. The Assessing Officer by an order dated 15.05.2002, after applying Article 12(3) of the Double Taxation Avoidance Agreement [ DTAA ], between India and USA, and upon applying section 9(1)(vi) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt dated 24.09.2009 had misread AP Transco (supra). Consequently, this Court remanded the matter to the High Court of Karnataka to decide, on merits, the question of law framed as follows: 24. In our view, Section 195(2) is based on the principle of proportionality . The said sub-section gets attracted only in cases where the payment made is a composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. It is in this context that the Supreme Court stated: (Transmission Corpn. case [(1999) 7 SCC 266 : (1999) 239 ITR 587] , SCC p. 274, para 10) 10. If no such application is filed income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. He has to discharge the obligation [to TDS]. (emphasis supplied) If one reads the observation of the Supreme Court, the words such sum clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faced with the following question so posed by this Court: The question which the High Court will answer is- whether, on facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the amount(s) paid by the appellant(s) to the foreign software suppliers was not royalty and that the same did not give rise to any income taxable in India and, therefore, the appellant(s) was not liable to deduct any tax at source? (page 498) 11. After setting out the facts in one of the appeals treated as the lead matter, namely ITA No. 2808/2005 concerning Samsung Electronics Co. Ltd., and the relevant provisions of the Income Tax Act, India s DTAAs with USA, France and Sweden respectively, the High Court of Karnataka, on an examination of the End-User Licence Agreement [ EULA ] involved in the transaction, found that what was sold by way of computer software included a right or interest in copyright, which thus gave rise to the payment of royalty and would be an income deemed to accrue in India under section 9(1)(vi) of the Income Tax Act, requiring the deduction of tax at source. 12. Leading the charge on behalf of the appellants in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(vi) of the Income Tax Act IBM India s transaction would entail parting with copyright and attract royalty, upon applying the more beneficial provisions of the India-Singapore DTAA, it would be made clear that the amounts payable were not in the nature of royalty, and no income in the hands of the foreign supplier would be deemed to accrue in India. Thus, no tax had to be deducted by the Indian importer under section 195(1) of the Income Tax Act. Equally, he submitted that the retrospective amendment to section 9(1)(vi) of the Income Tax Act brought in by the Finance Act 2012, which added explanation 4 to the provision and expanded its ambit with effect from 01.06.1976, could also not be applied to the DTAA in question. 14. Pointing to the provisions of the Copyright Act, 1957 [ Copyright Act ], Shri Datar argued that there was a difference between a copyright in an original work and a copyrighted article, and that this was recognised in section 14(b) of the Copyright Act, which refers to a computer program per se and a copy of a computer program as two distinct subject matters. He emphasized that under the Remarketer Agreement, no copyright was given by IBM Singapore a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision under Article 12 of the DTAA, and the latter being taxable as business profits under Article 7 of the DTAA, provided that the foreign, non-resident supplier or manufacturer had a permanent establishment [ PE ] in India. 16. Shri S. Ganesh, learned Senior Advocate appearing on behalf of Sonata Information Technology Ltd. in C.A. Nos. 8737-8941/2018, submitted that to comprehend the nature of a licence, one would have to refer to section 52 of the Indian Easements Act 1882. He stressed the fact that the ruling by the AAR in the case of Dassault Systems, K.K., In Re., (2010) 322 ITR 125 (AAR), as followed in Geoquest Systems B.V. Gevers Deynootweg, In Re., (2010) 327 ITR 1 (AAR), was not appealed against by the Revenue, and the exhaustive statement of law contained therein is something that he relied upon. According to him, if the position of the Revenue were correct, arbitrary results would ensue, inasmuch as his client, receiving a 2% commission, would, however, after the disallowance of the deduction under section 40(a)(ia) of the Income Tax Act, end up paying tax of a huge amount, way beyond the commission, resulting in extreme financial hardship. Thus, if sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te appearing on behalf of Sunray Computers Pvt. Ltd. in C.A. Nos. 10115-10117/2013, stressed upon the language of section 14(b)(ii) of the Copyright Act, both pre and post the 1999 Amendment, brought in with effect from 15.01.2000, and cited the doctrine of first sale/principle of exhaustion, arguing that the amendment, after deleting the words regardless of whether such copy has been sold or given on hire on earlier occasions , was a statutory application of the doctrine of first sale/principle of exhaustion. This, he argued, made it clear that since no distribution right by the original owner extended beyond the first sale of the copyrighted goods, it can be said that only the goods, and not the copyright in the goods, had passed onto the importer. 19. Shri Sachit Jolly, learned advocate appearing on behalf of Engineering Analysis Centre of Excellence Pvt. Ltd. in C.A. Nos. 8733-8734/2018, and GE India Technology Centre Pvt. Ltd. in C.A. Nos. 8735-8736/2018, also echoed these submissions and in particular, relied upon judgments which made it clear that a retrospective amendment to a statute cannot be applied to an assessment year in which, as a matter of fact, the expanded de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerning withholding taxes and other taxes, unlike the entry into force provision for India, which makes no such distinction. This, he argued, would make it clear that persons who have to make deductions under section 195 of the Income Tax Act do not fall within the subject matter of the India-USA DTAA and other such DTAAs. He then relied heavily upon AP Transco (supra) and other judgments which make it clear that a payer under section 195 and an assessee under section 2(7) of the Income Tax Act are distinct. He also relied heavily upon a recent judgment of this Court in PILCOM v. CIT, West Bengal-VII, 2020 SCC Online SC 426 [ PILCOM ], which dealt with section 194E of the Income Tax Act, for the proposition that tax has to be deducted at source irrespective of whether tax is otherwise payable by the non-resident assessee. He then relied upon CBDT Circular No. 588 dated 02.01.1991, 187 ITR (St.) 0063 which clarified that tax concessions were not available in relation to payments in respect of software imported separately or independently of computer hardware. 22. Coming to the Copyright Act, the learned Additional Solicitor General relied upon sections 2(a)(v), 19(3), 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate that even if the OECD Commentary could be relied upon, it being a rule of international law contrary to domestic law, to the extent it was contrary to explanations 2 and 4 of section 9(1)(vi) of the Income Tax Act, it must give way to domestic law. Referring to the doctrine of first sale/principle of exhaustion, he cited a number of judgments in order to show that under section 14(b)(ii) of the Copyright Act, this doctrine cannot be said to apply insofar as distributors are concerned. He finally concluded his arguments by stating that the judgments which deal with computer software under sales tax law and excise law have no relevance to income tax law, as the laws relating to indirect taxes are fundamentally different from the laws relating to direct taxes, since they must follow the drill of the chargeability under the Income Tax Act, which is different from chargeability under sales tax law or excise law. THE INCOME TAX ACT, 1961 24. Having heard the learned counsels appearing on behalf of various parties, we first set out the relevant provisions of the Income Tax Act that we are directly concerned with: 2. Definitions. In this Act, unless the context oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.-For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (14 of 2001), sec. 4(ii), for sub-clauses (i) to (v) (w.e.f. 1-4-2002). [sub-clauses (i) to (iv), (iva) and (v)]. Substituted by the Finance Act 2000 (10 of 2000), sec. 4, for Explanation 3 (w.e.f. 1-4-2001). Explanation 3 before substitution, stood as under: Explanation 3.- For the purposes of this clause, the expression computer software shall have the meaning assigned to it in clause (b) of the Explanation to section 80HHE Explanation 3.-For the purposes of this clause, computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data. Inserted by the Finance Act 2012 (23 of 2012), sec 4(b) (w.r.e.f 1-6-1976). Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. Inserted by the Finance Act 2012 (23 of 2012), sec 4(b) (w.r.e.f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. xxx xxx xxx Inserted by the Finance Act 2017, sec. 39 (w.e.f. 1-4-2018) Explanation 4.-For the removal of doubts, it is hereby declared that where any term used in an agreement entered into under sub-section (1) is defined under the said agreement, the said term shall have the same meaning as assigned to it in the agreement; and where the term is not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and explanation, if any, given to it by the Central Government. 195. Other sums. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax: Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a payee or on the sum credited to the account of a payee shall not be deemed to be an assessee in default in respect of such tax if such payee- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed: Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax. 25. The scheme of the Income Tax Act, insofar as the question raised before us is concerned, is that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Sections 4 and 5 of the Act are expressly made subject to the provisions of this Act , which would include Section 90 of the Act. As to what would happen in the event of a conflict between the provision of the Income Tax Act and a notification issued under Section 90, is no longer res integra. 28. A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that Section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a Double Taxation Avoidance Agreement. When that happens, the provisions of such an agreement, with respect to cases to which they apply, would operate even if inconsistent with the provisions of the Income Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections subject to the provisions of the Act . The very object of grafting the said two sections w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n athlete) who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, 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 issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of ten percent 29. It is in this context that this Court referred to the judgment in GE Technology (supra) (see paragraph 16) and distinguished the same, stating: 16.1 The submission that unless permission was obtained under Section 195(2) of the Act, the liability to deduct Tax at Source must be with respect to the entire payment, was not accepted. Relying on the expression chargeable under the provisions of the Act occurring in Section 195(1) of the Act, it was held the obligation to deduct TAS, is however, limited to the appropriate proportion of the income chargeable under the Act forming part of the gross sum of money payable to the non-resident . 16.2 This decision, in our view, has no application insofar as payments at serial nos. (vi) and (vii) are concerned. To the extent the payments represente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to any work, any use of such work involving its rearrangement or alteration; xxx xxx xxx (d) author means,- Substituted by Act 38 of 1994, sec. 2 (w.e.f. 10-5-1995) (vi) in relation to any literary, dramatic, musical or artistic work which is computer-generated, the person who causes the work to be created; xxx xxx xxx Inserted by Act 27 of 2012, sec. 2(ii) (w.e.f. 21-6-2012). (fa) commercial rental does not include the rental, lease or lending of a lawfully acquired copy of a computer programme, sound recording, visual recording or cinematographic film for non-profit purposes by a non-profit library or non-profit educational institution; xxx xxx xxx (ffb) computer includes any electronic or similar device having information processing capabilities (ffc) computer programme means a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result; xxx xxx xxx (m) infringing copy means- (i) in relation to a literary, dramatic, musical or artistic work, a reproduction thereof otherwise than in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of this Act or of any other law for the time being in force, but nothing in this section shall be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence. 18. Assignment of copyright.-- (1) The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole term of the copyright or any part thereof: Provided that in the case of the assignment of copyright in any future work, the assignment shall take effect only when the work comes into existence. Inserted by Act 27 of 2012, sec. 8 (w.e.f. 21-6-2012) Provided further that no such assignment shall be applied to any medium or mode of exploitation of the work which did not exit or was not in commercial use at the time when the assignment was made, unless the assignment specifically referred to such medium or mode of exploitation of the work: Provided also that the author of the literary or musical work included in a cinematograph film shall not assign or waive the right to receive royalties to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to the benefit of the licence. Inserted by Act 38 of 1994, s. 10 (w.e.f. 10-5-1995) 30A. Application of section 19.- The provisions of section 19 shall, with any necessary adaptations and modifications, apply in relation to a licence under section 30 as they apply in relation to assignment of copyright in a work. 51. When copyright infringed. Copyright in a work shall be deemed to be infringed- (a) when any person, without a licence granted by the owner of the copyright or the Registrar of Copyrights under this Act or in contravention of the conditions of a licence so granted or of any condition imposed by a competent authority under this Act- (i) does anything, the exclusive right to do which is by this Act conferred upon the owner of the copyright, or (ii) permits for profit any place to be used for the communication of the work to the public where such communication constitutes an infringement of the copyright in the work, unless he was not aware and had no reasonable ground for believing that such communication to the public would be an infringement of copyright; or (b) when any person- (i) makes for sale or hire, or sells or lets for hire, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing conclusions. Under section 2(o) of the Copyright Act, a literary work includes a computer programme and a computer programme has been defined under section 2(ffc) of the Copyright Act to mean a set of instructions expressed in words, codes, schemes or in any other form capable of causing a computer to perform a particular task or achieve a particular result. 35. Though the expression copyright has not been defined separately in the definitions section of the Copyright Act, yet, section 14 makes it clear that copyright means the exclusive right , subject to the provisions of the Act, to do or authorise the doing of certain acts in respect of a work . When an author in relation to a literary work which includes a computer programme , creates such work, such author has the exclusive right, subject to the provisions of the Copyright Act, to do or authorise the doing of several acts in respect of such work or any substantial part thereof. In the case of a computer programme, section 14(b) specifically speaks of two sets of acts the seven acts enumerated in sub-clause (a) and the eighth act of selling or giving on commercial rental or offering for sale or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssigned, and shall be treated as the owner of the copyright of what is assigned to him (see section 18(2) read with section 19(3) of the Copyright Act). Also, under section 30 of the Copyright Act, the owner of the copyright in any literary work may grant any interest in any right mentioned in section 14(a) of the Copyright Act by licence in writing by him to the licensee, under which, for parting with such interest, royalty may become payable (see section 30A of the Copyright Act). When such licence is granted, copyright is infringed when any use, relatable to the said interest/right that is licensed, is contrary to the conditions of the licence so granted. Infringement of copyright takes place when a person makes for sale or hire or sells or lets for hire or offers for sale or hire or distributes so as to affect prejudicially the owner of the copyright , vide section 51(b) of the Copyright Act. Importantly, the making of copies or adaptation of a computer programme in order to utilise the said computer programme for the purpose for which it was supplied, or to make up back-up copies as a temporary protection against loss, destruction or damage so as to be able to utilise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions concerning business profits and royalties . The provisions of one of these DTAAs, namely the India-Singapore DTAA, are set out as follows: ARTICLE 2 - TAXES COVERED 1. The taxes to which this Agreement shall apply are: (a) in India: income-tax including any surcharge thereon (hereinafter referred to as Indian tax ); (b) in Singapore: the income tax (hereinafter referred to as Singapore tax ). 2. The Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws. ARTICLE 3 - GENERAL DEFINITIONS xxx xxx xxx 2. As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Agreement applies. ARTICLE 7 - BUSINESS PROFITS 1. The profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall enter into force on the date of the later of these notifications and shall thereupon have effect: (a) in India: in respect of income arising in any fiscal year beginning on or after the first day of April 1994; (b) in Singapore: in respect of income arising in any fiscal year beginning on or after the first day of January 1994. 2. The Agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income signed in Singapore on 20th April, 1981 shall terminate and cease to be effective from the date on which this Agreement comes into effect. 42. The subject matter of each of the DTAAs with which we are concerned is income tax payable in India and a foreign country. Importantly, as is now reflected by explanation 4 to section 90 of the Income Tax Act and under Article 3(2) of the DTAA, the definition of the term royalties shall have the meaning assigned to it by the DTAA, meaning thereby that the expression royalty , when occurring in section 9 of the Income Tax Act, has to be construed with reference to Article 12 of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its affiliated companies and its third party suppliers and licensors, that accompanies this EULA, which includes computer software and may include associated media, content and data, printed materials, or electronic documentation in connection with your use of Samsung Mobile Device, which will be defined below ( Samsung Software ). xxx xxx xxx 1. GRANT OF LICENCE. Samsung grants you a limited non-exclusive licence to install, use, access, display and run one copy of the Samsung Software on a single Samsung Mobile Device, local hard disk(s) or other permanent storage media of one computer and you may not make Samsung Software available over a network where it could be used by multiple computers at the same time. You may make one copy of the Samsung Software in machine readable form for backup purposes only; provided that the backup copy must include all copyright or other proprietary notices contained on the original. Certain items of the Samsung Software may be subject to open source licences. The open source licence provisions may override some of the terms of this EULA. We make the applicable open source licenses available to you on the Legal Notices section of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BM Singapore, a foreign, non-resident supplier of computer programmes and IBM India, an Indian distributor/remarketer, with which C.A. No. 4419/2012 is concerned, contains, inter alia, the following terms: IMB Distribution Agreement General Terms 1.Definitions IMB shall mean International Business Machines Corporation Customer is either an End User or a Remarketer. You may market to End User or Remarketers or both. End User is anyone, who is not a Related Company, who acquires Programs for its own use and not for resale. Programs shall mean instructions written, contained or recorded on materials, documents or machine readable media capable of being executed on, or used in the operation of a machine and information technology or data related thereto. The term shall include, but is not limited to, instructions, documentation, information or data recorded on reels of magnetic tape, magnetic disks, microfiche cards, and other similar media, and logic manuals, flow charts, operational instruction guides, interface specifications, detailed listings, application manuals, modification guides, operating Instructions, functional specifications and design speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly notify us in writing of the claim; and 2. allow us to control, and cooperate with us in the defense and any related settlement negotiations; You may market to your Customers the Programs we sell to you. We will notify you from time to time of the types of Programs that are available for purchase by you under this Agreement. These terms apply to all methods of distribution including to End Users and through distributors, resellers, solution providers, and systems integrators. (emphasis supplied) 44. ii) b. The EULA dated 01.07.2019, involved in C.A. No. 4419/2012, granting resident Indian end-users the licence to use the software remarketed or distributed in India through IBM India, contains the following terms: 1. Definitions and Interpretation 1.1 In this Agreement, unless the context requires otherwise, the following words and expressions shall have the following meanings: Authorized Use the specified level at which Licensee is authorized to execute or run the Program. That level may be measured by number of users, millions of service units ( MSUs ), Processor Value Units ( PVUs ), or other level of use specified by IBM. IBM International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess the Internet using the Internet Connection Sharing feature of the SOFTWARE PRODUCT. You may not allow these connected COMPUTERS to use any other components of the SOFTWARE PRODUCT, nor to invoke application sharing as described below. The five (5) connection maximum includes any indirect connections made through software or hardware that pools or aggregates connections. b. Storage/Network Use - You may also store or install a copy of the SOFTWARE PRODUCT on a storage device, such as a network server, used on to install or run the SOFTWARE PRODUCT on your other COMPUTERS over an internal network: however, you must acquire and run a licence for each separate COMPUTER on or from which the SOFTWARE PRODUCT is installed, used, accessed, displayed, or forgoing any number of COMPUTERS may access or otherwise utilize the file and print services and peer web services of the SOFTWARE PRODUCT. In addition, you may use the Multiple Display feature of the SOFTWARE PRODUCT to expand your desktop as described in the online Help file without obtaining a license for each display. 2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS xxx xxx xxx Limitations on Reverse Engineering, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and all such rights shall remain with Contractor or its suppliers. 20.3 JT MOBILES agrees that the Software or Documentation provided to it by Contractor under this Contract or any renewals, extension, or expansions thereof, shall, as between the parties hereto, be treated as proprietary and a trade secret of Contractor or its suppliers, and be subject to the provisions of Article 30, Confidentiality. 20.4 In pursuance of the foregoing JT MOBILES shall: a) not provide or make the Software or Documentation or any portions or aspects thereof (including any methods or concepts utilized or expressed therein) available to any person except to its employees on a need to know basis; b) not make any copies of Software or Documentation or parts thereof, except for archival backup purposes; c) when making permitted copies as aforesaid transfer to the copy/copies any copyright or other marking on the Software or Documentation. d) not use the Software or Documentation for any other purpose than permitted in this Article 20, License or sell or in any manner alienate or part with its possession. e) not use or transfer the Software and/or the Documentation outside India w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. 47. In all these cases, the licence that is granted vide the EULA, is not a licence in terms of section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in sections 14(a) and 14(b) of the Copyright Act, but is a licence which imposes restrictions or conditions for the use of computer software. Thus, it cannot be said that any of the EULAs that we are concerned with are referable to section 30 of the Copyright Act, inasmuch as section 30 of the Copyright Act speaks of granting an interest in any of the rights mentioned in sections 14(a) and 14(b) of the Copyright Act. The EULAs in all the appeals before us do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid position will suffice. If an English publisher sells 2000 copies of a particular book t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d royalties and licence fee which have been added to the price actually paid for the imported software for use at the principal place called the Support Centre. If that is so under the press note no customs duty is leviable on the royalty so paid. This takes us to the relevant terms of the agreement which would indicate as to whether or not the royalty/licence fees needed to be included in the value of the imported goods. 49. The contention of the State Bank of India that the countrywide licence fee paid by it by way of royalty was for the reproduction of the said software and was thus exempt from customs duty, was turned down by this Court as follows: 17. The question that arises for consideration is if licence fee charged towards countrywide use of software in the second invoice could be the charges for the right to reproduction and were these added to the price actually paid or payable for the imported goods. If we refer to the agreement, software is not sold to SBI as such but it was to remain the property of Kindle. There is no other value of the software indicated in the agreement except the licence fee. Price is payable only for allowing SBI to use the software in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. Clause 6.5 of the agreement says that SBI shall not copy or permit copying of the software supplied to it by Kindle save as may be strictly required for delivery to licence sites. The terms of the agreement also apply to the copies. (emphasis supplied) Though this judgment has been delivered under the Customs Act 1962, yet the important differentiation made between the right to reproduce and the right to use computer software has been recognized by this judgment. Whereas the former would amount to a parting of copyright by the owner thereof, the latter would not. 51. An argument was advanced by the learned Additional Solicitor General that in some of the aforestated EULAs, it was clearly stated that what was licensed to the distributor/end-user by the non-resident, foreign supplier would not amount to a sale, thereby making it clear that what was transferred was not goods. This argument has no legs to stand on. It is settled law that in all such cases, the real nature of the transaction must be looked at upon reading the agreement as a whole. Thus, in Sundaram Finance Ltd. v. State of Kerala, (1966) 2 SCR 828, one of the questions that was raised before this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent and distinct hiring to the vendor, the transaction may not be regarded as a loan transaction, even though the reason for which it was entered into was to raise money. If the real transaction is a loan of money secured by a right of seizure of the goods, the property ostensibly passes under the documents embodying the transaction, but subject to the terms of the hiring agreement, which become part of the buyer's title, and confer a licence to seize. When a person desiring to purchase goods and not having sufficient money on hand borrows the amount needed from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The real character of the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hire-purchase agreement is a more complex transaction. The owner under the hire-purchase agreement enters into a transaction of hiring out goods on the terms and conditions set out in the agreement, and the option to purchase exercisable by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the intention of the appellants in obtaining the hire-purchase and the allied agreements was to secure the return of loans advanced to their customers, and no real sale of the vehicle was intended by the customer to the appellants. The transactions were merely financing transactions. (page 844) 52. There can be no doubt as to the real nature of the transactions in the appeals before us. What is licensed by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly supplied to the resident end-user, is in fact the sale of a physical object which contains an embedded computer programme, and is therefore, a sale of goods, which, as has been correctly pointed out by the learned counsel for the assessees, is the law declared by this Court in the context of a sales tax statute in Tata Consultancy Services v. State of A.P., 2005 (1) SCC 308 (see paragraph 27). APPLICABILITY OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT S PROVISIONS 53. The learned Additional Solicitor General sought to reopen a contention made by the Revenue in the earlier round of litigation in GE Technology (supra) which led to this Court framing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lates not merely amounts, the whole of which are pure income payments, it also covers composite payments which have an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, chargeable under the provisions of the Act . It is for this reason that vide Circular No. 728 dated 30-10-1995 CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3-B) of the 1922 Act. xxx xxx xxx 11. While deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. xxx xxx xxx 20. We find no merit in these contentions. As stated hereinabove, Section 195(1) uses the expression sum chargeable under the provisions of the Act . We need to give weightage to those words. Further, Section 195 uses the word payer and not the word assessee . The payer is not an assessee. The payer becomes an assessee-in-default on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. If no such application is filed income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such sum to deduct tax thereon before making payment. He has to discharge the obligation [to TDS]. (emphasis supplied) If one reads the observation of the Supreme Court, the words such sum clearly indicate that the observation refers to a case of composite payment where the payer has a doubt regarding the inclusion of an amount in such payment which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corpn. case [(1999) 7 SCC 266 : (1999) 239 ITR 587] which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all chargeable to tax in India , then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of Section 195(1) which in clear terms lays down that tax at source is deductible only from sums chargeable under the provisions of the IT Act i.e. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated outside India. Where such shares become subject-matter of offshore transfer between two non-residents, there is no liability for capital gains tax. In such a case, question of deduction of TAS would not arise. 172. If in law the responsibility for payment is on a non-resident, the fact that the payment was made, under the instructions of the non-resident, to its agent/nominee in India or its PE/Branch Office will not absolve the payer of his liability under Section 195 to deduct TAS. Section 195(1) casts a duty upon the payer of any income specified therein to a non-resident to deduct therefrom TAS unless such payer is himself liable to pay income tax thereon as an agent of the payee. Section 201 says that if such person fails to so deduct TAS he shall be deemed to be an assessee-in-default in respect of the deductible amount of tax (Section 201). 173. Liability to deduct tax is different from assessment under the Act. Thus, the person on whom the obligation to deduct TAS is cast is not the person who has earned the income. Assessment has to be done after liability to deduct TAS has arisen. The object of Section 195 is to ensure that tax due from non-resident persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l rationale behind that provision, does not commend itself to us. 59. i) Article 30 of the India-USA DTAA, relied upon by the learned Additional Solicitor General, reads: 1. Each Contracting State shall notify the other Contracting State in writing, through diplomatic channels, upon the completion of their respective legal procedures to bring this Convention into force. 2. The Convention shall enter into force on the date of the latter of such notifications and its provisions shall have effect: (a) in the United States (i) in respect of taxes withheld at source, for amounts paid or credited on or after the first day of January next following the date on which the Convention enters into force; (ii) in respect of other taxes, for taxable periods beginning on or after the first day of January next following the date on which the Convention enters into force; and (b) in India, in respect of income arising in any taxable year beginning on or after the first day of April next following the calendar year in which the Convention enters into force. 59. ii) By way of contrast, under the Convention between the Republic of India and the Kingdom of Netherlands for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force ; and (b) in India : as regards income for any 'previous year' beginning on or after the first day of April of the calendar year next following that in which this Convention enters into force. 3. The Agreement between Japan and India for the Avoidance of Double Taxation in respect of Taxes on Income signed at New Delhi on January 5, 1960 shall terminate and cease to have effect in respect of income to which this Convention applies under the provisions of paragraph 2. 59. iv) Under the Convention between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains, GSR 91(E), dated 11-2-1994, as amended by Notification No. 10/2014 [F.No. 505/1986 FTD-I], dated 10-2-2014 [ India-UK DTAA ] Article 30 reads as follows: (1) Each of the Contracting States shall notify to the other the completion of the procedures required by its law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich diplomatic notes indicating the completion of internal legal procedures necessary in each country for the entry into force of this Agreement have been exchanged. This Agreement shall have effect : (a) in China, in respect of income arising in any taxable year beginning on or after the first day of January next following the calendar year in which this Agreement enters into force; (b) in India, in respect of income arising in any previous year beginning on or after the first day of April next following the calendar year in which this Agreement enters into force. 60. Obviously, the logic behind Article 30 of the India-USA DTAA is for reasons connected with USA s municipal taxation laws, and has nothing to do with Indian municipal law governing the liability of persons to deduct tax at source under section 195 of the Income Tax Act. This is reinforced by the fact that the OECD Commentary on Articles 30 and 31 acknowledges the fact that the entry into force provisions, unlike the rest of the provisions in the OECD Model Tax Convention on Income and on Capital, depend on the domestic laws of Contracting States, as follows: COMMENTARY ON ARTICLES 30 AND 31 CONCERNIN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of all or any rights , it expressly includes the granting of a licence in respect thereof; and iii. It states that such transfer must be in respect of any copyright of any literary work. 64. However, even where such transfer is in respect of copyright, the transfer of all or any rights in relation to copyright is a sine qua non under explanation 2 to section 9(1)(vi) of the Income Tax Act. In short, there must be transfer by way of licence or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act. 65. In State of Madras v. Swastik Tobacco Factory, (1966) 3 SCR 79 , this Court construed the words in respect of used in rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules 1939, as follows: The House of Lords in Inland Revenue Commissioners v. Coutts Co. [(1963) 2 All ER 722, 732], in the context of payment of estate duty, construed the words in respect of in Section 5(2) of the Finance Act, 1894 (57 58 Vict, c. 30) and observed that the phrase denoted some imprecise kind of nexus between the property and the estate duty. The House of Lords in Asher v. Seaford Court Estates Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is deductible from the gross turnover under Rule 5(1)(i) of the Rules. (pages 82-83) (emphasis supplied) 66. The aforesaid meaning accords with the meaning to be given to the expression in respect of contained in explanation 2(v) to section 9(1)(vi) of the Income Tax Act. ROYALTY UNDER THE INCOME TAX ACT 67. The insertion of sub-sections (v), (vi) and (vii) in section 9(1) of the Income Tax Act, by way of an amendment through the Finance Act 1976, Act 66 of 1976, (w.e.f 1-6-1976). was to introduce source-based taxation for income in the hands of a non-resident by way of interest, royalty and fees for technical services. In Carborandum Co. v. CIT, (1977) 2 SCC 862 , this Court, applying residence-based rules of taxation, held that the technical service fees received by the non-resident assessee (relatable to the assessment year 1957-1958) could only be deemed to accrue in India if such income could be attributed to a business connection in India. In the facts of that case, since no part of the foreign assessee s operations were carried on in India, the technical services being rendered wholly in foreign territory, it was held that no part of the tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work . 70. The comma after the word copyright does not fit as copyright is obviously spoken of as existing in a literary, artistic or scientific work. As a matter of fact, this drafting error was rectified in the Draft Taxes Code 2010, This Code has, however, remained in draft form and was never enacted under Chapter XIX in Part H thereof, which set out the definition of royalty as follows: PART H - CHAPTER XIX INTERPRETATIONS AND CONSTRUCTIONS xxx xxx xxx (314)(220) royalty means consideration (including any lump-sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for- xxx xxx xxx (g) the transfer of all or any rights (including the granting of a licence) in respect of - (i) any copyright of literary, artistic or scientific work; (ii) cinematographic films or work on films, tapes or any other means of reproduction; or (iii) live coverage of any event (emphasis supplied) 71. The transfer of all or any rights (including the granti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there will be no difference in the position between the definition of royalties in the DTAAs and the definition of royalty in explanation 2(v) of section 9(1)(vi) of the Income Tax Act. 73. Even if we were to consider the ambit of royalty only under the Income Tax Act on the footing that none of the DTAAs apply to the facts of these cases, the definition of royalty that is contained in explanation 2 to section 9(1)(vi) of the Income Tax Act would make it clear that there has to be a transfer of all or any rights'' which includes the grant of a licence in respect of any copyright in a literary work. The expression including the granting of a licence in clause (v) of explanation 2 to section 9(1)(vi) of the Income Tax Act, would necessarily mean a licence in which transfer is made of an interest in rights in respect of copyright, namely, that there is a parting with an interest in any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act. To this extent, there will be no difference between the position under the DTAA and explanation 2 to section 9(1)(vi) of the Income Tax Act. 74. However, the learned Additional Solicitor Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy, whether or not such process is secret. These amendments will take effect retrospectively from 1st June, 1976 and will accordingly apply in relation to the assessment year 1977-78 and subsequent assessment years. 76. Shri Pardiwala argued that explanation 4, that was inserted with retrospective effect, uses the language that is contained in section 9(1)(vi)(b) of the Income Tax Act, namely, that the expression any right, property or information occurring in section 9(1)(vi)(b) alone is the subject matter of explanation 4, explanation 4 not expanding the scope of the definition of royalty contained in explanation 2, which does not contain the aforesaid expression. A reference to the Memorandum explaining the provisions in the Finance Bill 2012 set out hereinabove, would make it clear that the expression as mentioned in Explanation 2 in sub-para (i) of the aforesaid Memorandum shows that explanation 4 was inserted retrospectively to expand the scope of explanation 2(v). In any case, explanation 2(v) contains the expression, the transfer of all or any rights which is an expression that would subsume any right, property or information and is wider than the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustoms duty and income tax, on royalty payments for the licensing of software. This statement, again, in no manner furthers the case of the Revenue that explanation 4 is merely clarificatory of the legal position as it always stood. Likewise, Notification No. 21/2012 dated 13.06.2012, which deals with section 194J of the Income Tax Act, does no more than providing that a transferee is exempt from deducting TDS under section 194J when TDS has already been deducted under section 195 on the payment made in the previous transfer of the same software which the transferee acquires without any modification. In any case, this notification being issued on 13.06.2012, i.e., after explanation 4 was inserted vide the Finance Act 2012, it would not assist the Revenue in asserting that explanation 4 clarifies the legal position as it always stood. 80. The learned Additional Solicitor General then argued that being covered by explanation 4 of section 9(1)(vi) of the Income Tax Act, the persons liable to deduct TDS under section 195 of the Income Tax Act ought to have deducted tax at source on the footing that explanation 4 existed on the statute book with effect from 1976. We have, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad impossibilia i.e. the law does not demand the impossible, and impotentia excusat legem i.e. when there is a disability that makes it impossible to obey the law, the alleged disobedience of the law is excused. This was well put by this Court in Presidential Poll, In re [Presidential Poll, In re, (1974) 2 SCC 33] as follows : (SCC pp. 49-50, paras 14-15) 14. If the completion of election before the expiration of the term is not possible because of the death of the prospective candidate it is apparent that the election has commenced before the expiration of the term but completion before the expiration of the term is rendered impossible by an act beyond the control of human agency. The necessity for completing the election before the expiration of the term is enjoined by the Constitution in public and State interest to see that the governance of the country is not paralysed by non-compliance with the provision that there shall be a President of India. 15. The impossibility of the completion of the election to fill the vacancy in the office of the President before the expiration of the term of office in the case of death of a candidate as may appear from Section 7 of the 1952 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant period to be given by such State Electricity Board to the State Government. Since this mandatory provision was impossible of compliance, it was held that the State Electricity Board was excused from giving such notice, as follows : (1965) 3 SCR 187, at p. 193 : AIR pp. 1691-92, para 8 8. Sub-section (1) of Section 6 expressly vests in the State Electricity Board the option of purchase on the expiry of the relevant period specified in the licence. But the State Government claims that under sub-section (2) of Section 6 it is now vested with the option. Now, under sub-section (2) of Section 6, the State Government would be vested with the option only where a State Electricity Board has not been constituted, or if constituted, does not elect to purchase the undertaking . It is common case that the State Electricity Board was duly constituted. But the State Government claims that the State Electricity Board did not elect to purchase the undertaking. For this purpose, the State Government relies upon the deeming provisions of sub-section (4) of Section 6, and contends that as the Board did not send to the State Government any intimation in writing of its intention to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this maxim was founded upon justice and good sense; and afforded a safe and certain guide for the administration of the law. The above maxim should, however, be applied with caution. The other maxim is lex non cogit ad impossibilia (Broom's Legal Maxims, p. 162) - The law does not compel a man to do that which he cannot possibly perform. The law itself and the administration of it, said Sir W. Scott, with reference to an alleged infraction of the revenue laws, must yield to that to which everything must bend, to necessity; the law, in its most positive and peremptory injunctions, is understood to disclaim, as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of laws must adopt that general exception in the consideration of all particular cases. 7. In this case indisputably during the period from 26-7-1978 to December 1982 there was subsisting injunction preventing the arbitrators from taking any steps. Furthermore, as noted before the award was in the custody of the court, that is to say, 28-1-1978 till the return of the award to the arbitrators on 24-11-1983, arbitrators or the parties could not have presented the awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en applied to relieve authorities of fulfilling their obligation to allot plots when such plots have been found to be unallottable, owing to the contravention of the Central statutes - see Hira Tikkoo v. State (UT of Chandigarh) [Hira Tikkoo v. State (UT of Chandigarh), (2004) 6 SCC 765] (at paras 23 and 24). 51. On an application of the aforesaid maxims to the present case, it is clear that though Section 65-B(4) is mandatory, yet, on the facts of this case, the respondents, having done everything possible to obtain the necessary certificate, which was to be given by a third party over whom the respondents had no control, must be relieved of the mandatory obligation contained in the said sub-section. 82. As a matter of fact, even under the Income Tax Act, the High Court of Bombay has taken a view, applying the aforestated maxims in the context of the provisions of the relevant DTAAs, to hold that persons are not obligated to do the impossible, i.e., to apply a provision of a statute when it was not actually and factually on the statute book. 83. In CIT v. NGC Networks (India) Pvt. Ltd., ITA No. 397/2015 , a question arose as to the applicability of explanation 6 to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument, which was available to the assessee. Once the salary is paid by the employer after deducting tax at source as per the law prevailing on the date of paying the salary, then any subsequent amendment in law brought about retrospectively cannot require the employer to deduct tax at source for the past period, because the salary for that period has already been paid. Consequently, the employer cannot be made liable for the consequences set out in Section 201 of the Act on account of the retrospective amendment to Section 17(2) of the Act. 85. It is thus clear that the person mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of royalty inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute. RULINGS OF THE AAR AND JUDGMENTS OF HIGH COURTS 86. The question of law posed before us in these appeals has been answered in several rulings some by the AAR, some by the High Court of Karnataka, and some by the High Court of Delhi. These authorities will now be deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, when copyright is referred to as an exclusive right, the emphasis is on the word exclusive . Thus, the 1988 Act, whilst not defining copyright otherwise than as a property right, which is transmissible as personal or moveable property, provides that the owner of the copyright in a work has the exclusive right to do the acts restricted by the copyright in a work of that description specified in the 1988 Act. [Copyright, Designs and Patents Act, 1988 of UK.] (p. 27) The following passage also deserves notice: It is important to recognize that ownership of copyright in a work is different from the ownership of the physical material in which the copyright work may happen to be embodied. Just as the owner of the physical material on which a copyright work is first recorded is not necessarily the first owner of the copyright, so the transfer of title to the original physical material does not by itself operate to transfer the title to the copyright Thus, to take an obvious example, the purchaser of a book or video recording becomes the owner of the physical article but he does not thereby become the owner of any part of the copyright in the works reproduced in it. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in derogation of the applicant's exclusive rights in relation to the copyright have been conferred on the licensee i.e., the end-user or VAR. The core of the transaction is to authorize the end-user to have access to and make use of the licensed software products over which the applicant has exclusive copyright, without giving any scope for dealing with them any further. Passing on a right to use and facilitating the use of a product for which the owner has a 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 trigger the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in a copyright. Where the purpose of the licence or the transaction is only to establish access to the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself has been transferred to any extent. It does not make any difference even if the comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded: As stated in Copinger's treatise on Copyright, the exclusive right to prevent copying or reproduction of a work is the most fundamental and historically oldest right of a copyright owner . We do not think that such a right has been passed on to the end-user by permitting him to download the computer programme and storing it in the computer for his own use. The copying/reproduction or storage is only incidental to the facility extended to the customer to make use of the copyrighted product for his internal business purpose. As admitted by the Revenue's representative, that 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 provision because it is only integral to the use of copyrighted product. Apart from such incidental facility, the customer has no right to deal with the product just as the owner would be in a position to do. In so far as the licensed material reproduced or stored is confined to the four corners of its business establishment, that too on a non-exclusive basis, the right referred to in sub-clause (i) of Section 14(a) would be wholly out of plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing observations of the Constitution Bench of the Supreme Court in Tata Consultancy Services v. The State of Andhra Pradesh case are quite apposite, though made in a different context: a software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, [they become] goods, which are susceptible to sales tax. Viewed from any angle, we have no hesitation in rejecting the contention of the Revenue referred to in para 18 supra. (pages 147-148) 91. Referring to section 14(b)(ii) of the Copyright Act, the AAR then held: Next, it has been argued on behalf of the Revenue that the right to sell or offer for sale the applicant's software product has been conferred on the VAR and therefore such authority given to VAR amounts to conferment of rights in or over the copyright in view of cl. (b)(ii) of Section 14. We are unable to sustain this contention. First of all, this contention of Revenue goes contrary to its stand that the product was licensed but not sold. Be that as it may, even for other reasons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR) ] qua an applicant which was a company incorporated in the Netherlands and sold certain software packages to the Oil and Natural Gas Corporation in India. After referring to and relying upon the determination in Dassault (AAR) (supra), the AAR concluded that the amount payable to the applicant did not amount to royalties within the meaning of Article 12 of the India-Netherlands DTAA. 94. However, a discordant note was soon struck by the AAR in Citrix Systems Asia Pacific Ptyl. Ltd., In Re., (2012) 343 ITR 1 (AAR) [ Citrix Systems (AAR) ], which ruling is impugned in C.A. No. 8990/2018 before us. In this case, the same question that arose before the AAR in the earlier two cases, namely Dassault (AAR) (supra) and Geoquest (AAR) (supra), arose. The case concerned an applicant incorporated in Australia that had entered into a distribution agreement with an independent Indian company engaged in the business of distribution of computer software and hardware. Ingram was appointed as the non-exclusive distributor of the products of the applicant in India. This time, the AAR, after referring to the provisions of the Income Tax Act and the Convention between the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eator over the software is an important and commercially valuable right. So, whenever a software is assigned or licensed for use, there is involved an assignment of the right to use the embedded copyright in the software or a license to use the embedded copyright, the Intellectual Property Right in the software. Therefore, it appears to us that it is not possible to divorce the software from the Intellectual Property Right of the creator of the software embedded therein. The amendment to Section 14(1)(b) of the Copyright Act, by Act 49 of 1999, clarifying that in the case of a computer programme, copyright means the right to sell or give on commercial rental or offer for sale or commercial rental any copy of the computer programme, seems to be significant. This addition would suggest that even the right to sell or give on rental, would amount to a copyright and would be a right to be dealt with as a copyright. (pages 13-14) 95. The AAR disagreed with the determination in Dassault (AAR) (supra), stating: In Dassault (AAR 821 of 2009), it was noticed that the core of the transaction in that case was to authorise the end-user to have access to and make use of the licensed s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use the copyright embedded therein. That apart, the Copyright Act or the Income-tax Act or the DTAC does not use the expression copyrighted article , which could have been used if the intention was as claimed by the applicant. In the circumstances, the distinction sought to be made appears to be illusory. (page 19) 97. This ruling of the AAR flies in the face of certain principles. When, under a non-exclusive licence, an end-user gets the right to use computer software in the form of a CD, the end-user only receives a right to use the software and nothing more. The end-user does not get any of the rights that the owner continues to retain under section 14(b) of the Copyright Act read with sub-section (a)(i)-(vii) thereof. Thus, the conclusion that when computer software is licensed for use under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back up copy would itself amount to copyright work under section 14(1) of the Act and licence is granted to use the software by making copies, which [would], but for the licence granted, have constituted infringement of copyright and the licensee is in possession of the legal copy of the software under the licence. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright and transaction only involves sale of copy of the copyright software cannot be accepted. It is also to be noted that what is supplied is the copy of the software of which the respondent-supplier continues to be the owner of the copyright and what is granted under the licence is only right to copy the software as per the terms of the agreement, which, but for the licence would amount to infringement of copyright and in view of the licence granted, the same would not amount to infringement under section 52 of the Copyright Act as referred to above. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (iv) of Explanation 2 to section 9(1)(vi) of the Act. In any view of the matter, in view of the provisions of section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. Once it is held that payment made by the respondents 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 respondents to the non-resident supplier would amount to royalty. In view of the said finding, it is clear that there is obligation on the part of the respondents to deduct tax at source under section 195 of the Act and consequences would follow as held by the hon'ble Supreme Court while remanding these appeals to this court. Accordingly, we answer the substantial question of law in favour of the Revenue and against the assessee by holding that on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was not justified in holding that the amount(s) paid by the respondents) to the foreign software suppliers was not royalty and that the same did not give rise to any income taxable in India and wherefore, the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscal legislation, the meaning cannot be narrowed down and it cannot be interpreted so as to give benefit to the assessee only. Then it would be re-writing the section, under the guise of interpreting a fiscal legislation, which is totally impermissible in law. When the legislature has advisedly used the words in respect of , the intention is clear and manifest. The said phrase being capable of a broader meaning, the same is used in the section to bring within the tax net all the incomes from the transfer of all or any of the rights in respect of a copyright. In a taxing statute provisions enacted to prevent tax evasion are to be given a liberal construction to effectuate the purpose of suppressing tax evasion, although provisions imposing a charge are construed strictly there being no a priori liability to pay a tax and the purpose of charging section being only to levy a charge on persons and activities brought within its clear terms. Therefore, the specific words used in a taxing statute, charging tax cannot be ignored. It is not the consideration for transfer of all or any of the rights in the copyright. Without transferring a right in the copyright it is possible to receive c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the right to use the copyright in the program i.e., to exploit the rights that would otherwise be the sole prerogative of the copyright holder. Therefore, to constitute royalty under the Income-tax Act it is not necessary that there should be transfer of exclusive right in copyright, it is sufficient if there is transfer of any interest in the right and also a licence and consideration paid for grant of a licence constitutes royalty for the purpose of the said clause in the Income-tax Act. It is in this background, the discussion whether the payment is for a copyright or for a copyright article would be totally irrelevant. The crux of the issue is whether any consideration is paid for any right, or for granting of licence in respect of a copyright. The word 'in respect of gives a broader meaning. It has been used in the sense of being connected with. When the legislature has advisedly used the words 'in respect of', the intention is clear and manifest. The said phrase being capable of a broader meaning, the same is used in the section to bring within the tax net all the incomes from the transfer of all or any of the rights in respect of the copyright. xxx xxx xx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uses it, it amounts to infringement of copyright. For transfer of such right if consideration is paid, it is not a consideration for transfer of a copyright but for use of intellectual property embedded in the copyright, and therefore it is for transfer of one of those rights of the owner of the copyright. It is not a right in copyright but it is in respect of a copyright. When a copyrighted article is sold also, the end-user gets the right to use the intellectual property embedded in the copyright and not a right in the copyright as such. Therefore the mode adopted or the terminology given is not decisive to decide the nature of transfer. Ultimately, it is the substance which has to be looked into. 105. The reasoning of the High Court of Karnataka in Synopsis Intl. (supra) does not commend itself to us. First and foremost, as held in State of Madras v. Swastik Tobacco Factory, (1966) 3 SCR 79, the expression in respect of , when used in a taxation statute, is only synonymous with the words on or attributable to . Such meaning accords with the meaning to be given to the expression in respect of contained in explanation 2(v) to section 9(1)(vi) of the Income Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n C.A. Nos. 6386-6387/2016 before us, the assessee was a company incorporated in Sweden which entered into an agreement with Indian cellular operators, pursuant to which the assessee supplied various equipment (hardware) embedded with software to the said cellular operators. The High Court in this case, found: 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 well as the software, therefore, the Tribunal is right in holding that it was not permissible for the Revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by Mr. Sorabjee, the court was concerned with interpretation of uniform civil code which applied to transactions in goods . The goods therein were defined as all things (including specially manufactured goods) which are moveable at the time of the identification for sale . It was held: Computer programs are the product of an intellectual process, but once implanted in a medium are widely distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a good , but when transferred to a laser-readable disc becomes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a good, but, when transcribed as a book, it becomes a good. That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the marketplace. The fact that some programs may be tailored for specific purposes need not alter their status as goods because the Code definition includes specially manufactured goods. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capable of independent use and it was a contract for supply of goods. Therefore, no part of the payment therefore can be classified as payment towards royalty. (pages 501-502) 111. This judgment was followed in Director of Income Tax v. Nokia Networks OY, (2013) 358 ITR 259 [ Nokia Networks OY ], This judgment has been relied upon by various judgments of the High Court of Delhi impugned in the appeals before us with the High Court of Delhi, adverting, this time, to the further expanded definition of royalty that is contained in the retrospective amendment that inserted explanation 4 to section 9(1)(vi) of the Income Tax Act. In this case, the High Court was concerned with the Agreement between the Republic of India and the Republic of Finland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, Notification No. 36/2010 [F. No. 501/13/1980-FTD-I], dated 20-5-2010 [ India-Finland DTAA ]. After setting out the rationale for the clarificatory amendment made vide the Finance Act 2012, the High Court held : He, thus submitted that the question of copyrighted article or actual copyright does not arise in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities and the arguments addressed before us that the crux of the issue is whether the payment is for a copyright or for a copyrighted article. If it is for copyright, it should be classified as royalty both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the Assessee on that basis. If the payment is really for a copyrighted article, then it only represents the purchase price of the article and, therefore, cannot be considered as royalty either under the Act or under the DTAA. This issue really is the key to the entire controversy and we may now proceed to address this issue. 156. We must look into the meaning of the word copyright as given in the Copyright Act, 1957. Section 14 of this Act defines Copyright as the exclusive right subject to the provisions of this Act, to do or authorize the doing of any of the following acts in respect of a work or any substantial part thereof [ ] It is clear from the above definition that a computer programme mentioned in Clause (b) of the section has all the rights mentioned in Clause (a) and in addition also the right to sell or give on commercial rental or offer for sale or for commercial re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and further all the cellular operators can use the software only for the purpose of their own operation and maintenance of the system and not for any other purpose. The user of the software by the cellular operators in the public domain is totally prohibited, which is evident from the use of the words in Article 20.1 of the agreement, restricted and not otherwise . Thus JTM has a very limited right so far as the use of software is concerned. It needs no repetition to clarify that JTM has not been given any of the seven rights mentioned in Clause (a) of Section 14 or the additional right mentioned in Sub-clause (ii) of Clause (b) of the section which relates to a computer programme and, therefore, what JTM or any other cellular operator has acquired under the agreement is not a copyright but is only a copyrighted article. (pages 362-364) 113. Further, the Court noted that the same argument that found favour with the AAR in Citrix Systems (AAR) (supra) was pressed into service by the learned senior counsel who appeared for the Revenue in the case of Motorola (ITAT) (supra), and this was correctly turned down as follows: 163. We may now briefly deal with the obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 88. The license granted by the Assessee is limited 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 copyri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of SAMSUNG ELECTRONICS CO. LTD (SUPRA) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DIT v. Nokia Networks OY (Supra) as not amounting to acquiring a copyright in the software. (page 388) 116. Likewise, in CIT v. ZTE Corporation, (2017) 392 ITR 80 [ ZTE ], This judgment has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this case, the assessee is the copyright proprietor; it made available, through one time license fee, the software to its customers; this software without the hardware which was sold, is useless. Conversely the hardware sold by the assessee to its customers is also valueless and cannot be used without such software. This analysis is to show that what was conveyed to its customers by the assessee bears a close resemblance to goods-significantly enough, Section 14(1) talks of sale or rental of a copy . The question of conveying or parting with copyright in the software itself would mean that the copyright proprietor has to assign it, divesting itself of the title implying that it has divested itself of all the rights under Section 14. This would mean an outright sale of the copyright or assignment, under Section 18 of the Act. Section 16 of the Copyright Act enacts that there cannot be any other kind of right termed as copyright . In the present case, the facts are closely similar to Ericsson. The supplies made (of the software) enabled the use of the hardware sold. It was not disputed that without the software, hardware use was not possible. The mere fact that separate invoic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the licensed computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by section 52(1)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customised to its specifications or otherwise. v) A non-exclusive, non-transferable licence, merely enabling the use of a copyrighted product, is in the nature of restrictive conditions which are ancillary to such use, and cannot be construed as a licence to enjoy all or any of the enumerated rights mentioned in section 14 of the Copyright Act, or create any interest in any such rights so as to attract section 30 of the Copyright Act. vi) The right to reproduce and the right to use computer software are distinct and separate rights, as has been recognized in SBI v. Collector of Customs, 2000 (1) SCC 727 (see paragraph 21), the former amounting to parting with copyright and the latter, in the context of non-exclusive EULAs, not being so. 118. Consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us it is a powerful weapon against those at the top of a chain of distribution. In accordance with general principles, section 18 must be interpreted so far as possible in such a way as to conform with relevant EU Directives, in this instance, the Software Directive and the Information Society Directive. Recent case law of the CJEU has made a conforming interpretation more difficult. An important aspect of the distribution right is that it is exhausted in relation to a particular article by the first sale (and, in the case of the Information Society Directive, the first transfer of ownership) of that article in the Community by the rightholder or with his consent. For the purposes of the Software Directive, certain forms of distribution of electronic copies are considered to exhaust the distribution right in respect of such copies. (pages 613-614) Exhaustion of the distribution right: tangible objects. Exhaustion applies to the tangible object into which a protected work or its copy is incorporated if it has been placed on the market with the copyright holder s consent. In the case of artistic works, the consent of the copyright holder does not cover the distribution of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are lawful acquirers of the software for the purposes of article 5(1) of the Software Directive and benefit from the right of reproduction provided for in that provision. (pages 621-622) 122. In Warner Bros. Entertainment Inc. v. Santosh V.G., CS (OS) No. 1682/2006 [ Warner Bros. ] reported in 2009 SCC OnLine Del 835 , a Single Judge of the High Court of Delhi dealt with copyright in a cinematograph film, as a result of which, section 14(d)(ii) of the Copyright Act, before it was amended in 2012, By Act 27 of 2012, s. 5(ii)(b) (w.e.f. 21.06.2012) came up for consideration. The said section, prior to being amended in 2012, read as follows: 14. Meaning of Copyright.- For the purposes of this Act, copyright means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely xxx xxx xxx (d) in the case of a cinematograph film,- xxx xxx xxx (ii) to sell or give on hire or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasion 123. The learned Single Judge of the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintiffs' license. The Plaintiffs urge that since the importation, for the purpose of renting of these cinematographic films has not been authorized by them in India, the copies are infringing copies. Hence their import would be barred under Section 51(b)(iv). The defendant's argument, however, is that the copies were legitimately purchased in the course of trade; they are rental copies, and can be used for purpose of renting, in India. He says that the device of zoning, whereby the plaintiffs restrict the licensee owner to use it in territories other than what is indicated by them, is artificial, and unenforceable. Such long arm conditions are inapplicable. Particular reference is made to the explanation to Section 14, which describes the content of copyright; it clarifies that For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation. Though attractive, this contention is unfeasible for more than one reason. The reference to copies in circulation is in the context of copyright in literary, artistic, dramatic or musical work, - not computer programme - (Section 14(a); the statute enables the copyright owner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inging copy for the private and domestic use of the importer . As noted earlier, importation of a copy into India, in contravention of the Act - for instance, without the license, or authorization of the copyright owner, is an infringement; such copy is an infringing copy under Section 2(m). (emphasis in original) 127. Thus, the Single Judge concluded: 67. The express indication in Section 14(a)(ii) that a copyright owner of literary works cannot exercise domain over copies in circulation, shows that exhaustion, if one may term it, applies only in relation to the class of copyrights in Section 14(a) and to the extent specified in clause (ii). Thus, the copyright owner of a literary work, cannot dictate how and under what conditions a copy can be re-sold, once it is circulated . This limited exhaustion negates the applicability of the principle in regard to other classes of copyrights. Thus, Parliament having intervened in one category of copyrights to grant a limited kind of exhaustion and consciously chosen not to extend it to others, sleight of judicial reasoning cannot extend its application 128. However, the learned Additional Solicitor General relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering for sale or by taking orders for sale to the territories beyond the ones for which permission has been granted by the owners of the copyright, the said acts are prima facie tantamount to putting into circulation or issuance of copies not being in circulation in other territories where the right to do so is of the owner to exercise and violates the rights of the owner of the copyright under Section 14 read with Section 51 of the Act, if not the rights of the exclusive licensee. In other words, the said acts of selling the books from India or offering for sale from India through website and thereafter accepting the money and couriering the books to an unauthorized territory will violate the right of the owners of the copyright which are plaintiff no. 1, 3, 5 to issue the copies to the public not already in circulation (not of exclusive licensees) and thus will, prima facie, infringe their copyright. xxx xxx xxx 79. The said position of the licensee is equally applicable in cases of computer software and is seen in normal course when anyone purchases the software. Computer software are mostly licensed and are sold and distributed with their own conditions and limitations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust the rights of the exclusive licensees to complain and not the rights of the owner. The right of the owner to complain for remaining infringement in unauthorised territories for violation of the permission granted and violation of the rights will remain intact. Thus, the applicability of first sale doctrine will partially exhaust the rights of the licencee and not of the owner of the copyright i.e. plaintiff nos. 1, 3 and 5. xxx xxx xxx 104. The discussion makes it apparent that the learned single judge has doubted the mode of the applicability of the first sales doctrine in India as per the existing law. The same may lead to partial or regional exhaustion or international exhaustion. As per my opinion, as the express provision for international exhaustion is absent in our Indian law, it would be appropriate to confine the applicability of the same to regional exhaustion. Be that as it may, in the present case, the circumstances do not even otherwise warrant this discussion as the rights if at all are exhausted are to the extent to which they are available with the licensees as the books are purchased from the exclusive licensees who have limited rights and not from the ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled that under Article 4(2) of Directive 2009/24 the first sale in the European Union of a copy of a computer program by the rightholder or with his consent exhausts the distribution right within the European Union of that copy. 37. According to the order for reference, the copyright holder itself, in this case Oracle, makes available to its customers in the European Union who wish to use its computer program a copy of that program which can be downloaded from its website. 38. To determine whether, in a situation such as that at issue in the main proceedings, the copyright holder s distribution right is exhausted, it must be ascertained, first, whether the contractual relationship between the rightholder and its customer, within which the downloading of a copy of the program in question has taken place, may be regarded as a first sale of a copy of a program within the meaning of Article 4(2) of Directive 2009/24. 133. Concluding that the transfer of a copy of a computer programme, accompanied by the conclusion of an EULA constituted a first sale of a copy of a program within the meaning of Article 4(2) of EC Directive 2001/29 (see paragraph 48), the ECJ then went ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right is exhausted in accordance with Article 4(2) of Directive 2009/24 who resells that copy must, in order to avoid infringing that rightholder s exclusive right of reproduction of his computer program under Article 4(1)(a) of Directive 2009/24, make the copy downloaded onto his computer unusable at the time of its resale. 79. As Oracle rightly observes, ascertaining whether such a copy has been made unusable may prove difficult. However, a copyright holder who distributes copies of a computer program on a material medium such as a CD‑ROM or DVD is faced with the same problem, since it is only with great difficulty that he can make sure that the original acquirer has not made copies of the program which he will continue to use after selling his material medium. To solve that problem, it is permissible for the distributor - whether classic or digital - to make use of technical protective measures such as product keys. 80. Since the copyright holder cannot object to the resale of a copy of a computer program for which that rightholder s distribution right is exhausted under Article 4(2) of Directive 2009/24, it must be concluded that a second acquirer of that copy a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1) modify, translate, reverse engineer, decompile, or disassemble the Software (3) remove any proprietary notices, labels, or marks from the Software or Documentation; (4) use the Software outside of the Western Hemisphere; (5) utilize any computer software or hardware designed to defeat any hardware copy-protection device, should the software you have licensed be equipped with such protection; or (6) use the Software for commercial or other revenue-generating purposes if the Software has been licensed or labeled for educational use only. Fifth, the SLA provides for license termination if the user copies the software without authorization or does not comply with the SLA's restrictions. Finally, the SLA provides that if the software is an upgrade of a previous version: [Y]ou must destroy the software previously licensed to you, including any copies resident on your hard disk drive ․ within sixty (60) days of the purchase of the license to use the upgrade or update․ Autodesk reserves the right to require you to show satisfactory proof that previous copies of the software have been destroyed. Autodesk takes measures to enforce these license requirements. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court noted that its decision solely applied to the rights of a copyright owner that distributed its work without a license agreement. (Id. at 350) ( There is no claim in this case of contract limitation, nor license agreement controlling the subsequent sales of the book. ). Congress codified the first sale doctrine the following year. See 17 U.S.C. 41 (1909). In its current form, it allows the owner of a particular copy of a copyrighted work to sell or dispose of his copy without the copyright owner's authorization. (Id. 109(a) (enacted 1976)). The first sale doctrine does not apply to a person who possesses a copy of the copyrighted work without owning it, such as a licensee. See id. 109(d); cf. Quality King Distribs., Inc. v. L'Anza Research Int'l Inc., 523 U.S. 135, 146-47 (1998) ( [T]he first sale doctrine would not provide a defense to ․ any non-owner such as a bailee, a licensee, a consignee, or one whose possession of the copy was unlawful. ). (pages 1107-1108) 138. Given the restrictions specifically imposed by the software licence agreement in the facts of the case, the Court held that the copyright owner retained the title to the copi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion agreements that the appeals before us are concerned with, do not grant a licence in terms of section 30 of the Copyright Act, but do in fact convey title to the material object embedded with a copy of the computer software to the distributors/end-users. 140. A conspectus of the aforesaid authorities would show that the doctrine of first sale/principle of exhaustion is dependent, in the first place, upon legislation which either recognises or refuses to recognise the doctrine (thereby continuing to vest distribution rights in the copyright owner, even beyond the first sale of the copyrighted work). Thus, for example, prior to the amendment of section 14(d)(ii) in 2012, dealing with a cinematograph film, the distribution right to sell or give on hire or offer for sale or hire, any copy of the film, would continue to vest in the copyright owner, regardless of whether such copy ha[d] been sold or given on hire on earlier occasion , which manifested the legislative intent against the application of the doctrine of first sale/principle of exhaustion. Post 2012, however, the balance between the copyright owner s distribution right and the right of the purchaser to further resale, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a computer software stored on a floppy disc/CD is accompanied by the destruction of the said software on the computer of the reseller/first acquirer, the copyright owner s rights would be easily infringed by mere reproduction thereof. This is also recognised in section 65A of the Copyright Act which punishes the circumvention of technological protection measures, such as encryption codes, product keys etc. designed to ensure that the first acquirer s copy is made unusable. Thus, once it is understood that the object of section 14(b)(ii) of the Copyright Act is not to interdict the sale of computer software that is licensed to be sold by a distributor, but that it is to prevent copies of computer software once sold being reproduced and then transferred by way of sale or otherwise, it becomes clear that any sale by the author of a computer software to a distributor for onward sale to an end-user, cannot possibly be hit by the said provision. Further, as has rightly been pointed out by Shri S. Ganesh, learned Senior Advocate appearing on behalf of Sonata Information Technology Ltd. in C.A. Nos. 8737-8941/2018, the distributor cannot use the computer software at all and has to pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y good reason. To get agreement, politic uncertainty is called for. The interpretation of a treaty imported into municipal law by indirect enactment was described by Lord Wilberforce as being unconstrained by technical rules of English law, or by English legal precedent, but conducted on broad principles of general acceptation. This echoes the optimistic dictum of Lord Widgery, C.J. that the words are to be given their general meaning, general to lawyer and layman alike the meaning of the diplomat rather than the lawyer . [Francis Bennion: Statutory Interpretation, p. 461 [Butterworths, 1992 (2nd Edn.)].] 131. An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases. Commenting on this aspect of the matter, David R. Davis in Principles of International Double Taxation Relief [ David R. Davis: Principles of International Double Taxation Relief, p. 4 (London, Sweet Maxwell, 1985).] , points out that the main function of a Double Taxation Avoidance T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and that such categories as enterprise, commercial or industrial profits and permanent establishment have no exact counterpart in the taxing code of the United Kingdom. (page 480) 147. All the DTAAs with which we are concerned, have, as their starting point, either the OECD Model Tax Convention on Income and Capital [ OECD Model Tax Convention ] and/or the United Nations Model Double Taxation Convention between Developed and Developing Countries [ UN Model Convention ] insofar as the taxation of royalty for parting with copyright is concerned. 148. The OECD Model Tax Convention speaks of the importance of the OECD Commentary, as follows: 2. It has long been recognised among the member countries of the Organisation for Economic Co-operation and Development that it is desirable to clarify, standardise, and confirm the fiscal situation of taxpayers who are engaged in commercial, industrial, financial, or any other activities in other countries through the application by all countries of common solutions to identical cases of double taxation. These countries have also long recognised the need to improve administrative co-operation in tax matters, notably throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 SCC 1 at pages 42-43; ii. Formula One World Championship Ltd. v. CIT, (2017) 15 SCC 602 at pages 629-630; and iii. CIT v. E-Funds IT Solution Inc., (2018) 13 SCC 294 at pages 322-323. 151. The importance of the OECD Commentary, when it comes to DTAAs, was also underscored by the High Court of Australia in Thiel v. Federal Commissioner of Taxation, High Court of Australia, [1990] 94 ALR 647, which put it thus: Article 31 of the Vienna Convention provides that a treaty is to be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose''. The context includes, in addition to the text, any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. For my part, I do not see why the OECD model convention and commentaries should not be regarded as having been made in connection with and accepted by the parties to a bilateral treaty subsequently concluded in accordance with the framework of the model. However, some doubts have been expresse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onarch Airlines Ltd. (1981) A.C. 251 at pp. 276, 282, 290; Commonwealth v. Tasmania (the Tasmanian Dam case) (1983) 158 C.L.R. 1 at p. 222; Golder case (1975) 57 I.L.R. 201 at pp. 213-214. Article 31 of the Convention requires a treaty to be interpreted in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose''. The context includes the preamble and annexes to the treaty: Art. 31(2). Recourse may also be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion'' to confirm the meaning resulting from the application of Art. 31 or to determine the meaning of the treaty when interpretation according to Art. 31 leaves its meaning obscure or ambiguous or leads to a result which is manifestly absurd or unreasonable: Art. 32. The Agreement is one for the avoidance of double taxation with respect to taxes on income''. Accordingly, it is necessary to interpret the words of the Agreement with that particular purpose in mind. Moreover, the term enterprise'' in Art. 3 and 7 of the Agreement is ambiguous because, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and exploitation of the program. The rights in computer programs are a form of intellectual property. Research into the practices of OECD member countries has established that all but one protect rights in computer programs either explicitly or implicitly under copyright law. Although the term computer software is commonly used to describe both the program - in which the intellectual property rights (copyright) subsist - and the medium on which it is embodied, the copyright law of most OECD member countries recognises a distinction between the copyright in the program and software which incorporates a copy of the copyrighted program. Transfers of rights in relation to software occur in many different ways ranging from the alienation of the entire rights in the copyright in a program to the sale of a product which is subject to restrictions on the use to which it is put. The consideration paid can also take numerous forms. These factors may make it difficult to determine where the boundary lies between software payments that are properly to be regarded as royalties and other types of payment. The difficulty of determination is compounded by the ease of reproduction of computer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user s computer hard drive or for archival purposes. In this context, it is important to note that the protection afforded in relation to computer programs under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer program. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer s hard drive or random access memory or making an archival copy is an essential step in utilising 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary to distribute copies of the software program. In such transactions, distributors are paying only for the acquisition of the software copies and not to exploit any right in the software copyrights. Thus, in a transaction where a distributor makes payments to acquire and distribute software copies (without the right to reproduce the software), the rights in relation to these acts of distribution should be disregarded in analysing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business profits in accordance with Article 7. This would be the case regardless of whether the copies being distributed are delivered on tangible media or are distributed electronically (without the distributor having the right to reproduce the software), or whether the software is subject to minor customisation for the purposes of its installation. 15. Where consideration is paid for the transfer of the full ownership of the rights in the copyright, the payment cannot represent a royalty and the provisions of the Article are not applicable. Difficulties can arise where there is a transfer of rights involving: - exclusive right of use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.4, 15, 16 and 17.3; it is of the view that some of the payments referred to may constitute royalties (Positions on Article 12, OECD Commentary 2014) 154. From these positions taken, which use the language reserves the right to and is of the view that some of the payments referred to may constitute royalties , it is not at all clear as to what exactly the nature of these positions are. This may be contrasted with the categorical language used by India in its positions taken with respect to other aspects ( India does not agree to ), as follows: 18. India does not agree with the interpretation that information concerning industrial, commercial or scientific experience is confined to only previous experience. 20. India does not agree with the interpretation in paragraph 9.1 of the Commentary on Article 12 according to which a payment for transponder leasing will not constitute royalty. This notion is contrary to the Indian position that income from transponder leasing constitutes an equipment royalty taxable both under India s domestic law and its treaties with many countries. It is also contrary to India s position that a payment for the use of a transponder is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsufficient to persuade this Court to hold that such amendments are applicable to the DTAAs. (emphasis in original) 156. It is significant to note that after India took such positions qua the OECD Commentary, no bilateral amendment was made by India and the other Contracting States to change the definition of royalties contained in any of the DTAAs that we are concerned with in these appeals, in accordance with its position. As a matter of fact, DTAAs that were amended subsequently, such as the Convention between the Republic of India and the Kingdom of Morocco for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes On Income, Notification : No. GSR 245(E), dated 15-3-2000 [ India-Morocco DTAA ], which was amended on 22.10.2019, Amended by Notification No. S.O. 3789(E) [No.84/2019/F.No.503/09/2009-FTD-II], Dated 22-10-2019 incorporated a definition of royalties, not very different from the definition contained in the OECD Model Tax Convention, as follows: The term royalties as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or income derived from licence agreements which is then taxed as business profits depending on the existence of a PE in the Contracting State. 160. The learned Additional Solicitor General, however, relied upon the HPC Report 2003 and the E-Commerce Report 2016 . The HPC Report 2003 , noting the various characterisation issues in relation to e-commerce payments, recommended as follows: ...The Committee also recommends that a clear position on each category of transactions should be taken by the Central Board of Direct Taxes ( CBDT ). This will ensure uniformity of approach among all the assessing officers. Since new categories of transactions are likely to emerge at a fast pace with advances in technology, it is also recommended that the CBDT should closely monitor the developments and issue guidelines to the assessing officers on new emerging categories of transactions as a continuing process. The monitoring should be through an expert advisory body on which the tax administration, the profession and the concerned industry is represented. (pages 146-147) 161. The E-Commerce Report 2016 proposed an equalization levy to be chargeable on specified digital servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national law and treaty obligations. As a result, rules of international law which are not contrary to domestic law are followed by the courts in this country. This is a situation in which there is an international treaty to which India is not a signatory or general rules of international law are made applicable. It is in this situation that if there happens to be a conflict between domestic law and international law, domestic law will prevail. (2) In a situation where India is a signatory nation to an international treaty, and a statute is passed pursuant to the said treaty, it is a legitimate aid to the construction of the provisions of such statute that are vague or ambiguous to have recourse to the terms of the treaty to resolve such ambiguity in favour of a meaning that is consistent with the provisions of the treaty. (3) In a situation where India is a signatory nation to an international treaty, and a statute is made in furtherance of such treaty, a purposive rather than a narrow literal construction of such statute is preferred. The interpretation of such a statute should be construed on broad principles of general acceptance rather than earlier domestic precedents, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source, rate at which tax has been deducted and date of deduction. : Foreign Indian Amount to be remitted ss ..... . .... Tax deducted at source ..... ...... Actual Amount remitted ..... ..... Rate at which deducted . .... ..... Date of Deduction ...... ..... 4. In case the remittance as indicated in (2) above is net of taxes, whether tax payable has been grossed up? If so, computation thereof may be indicated. : 5. If the remittance is for royalties, fee for technical services, interest, dividend, etc., the clause of the relevant DTAA under which the remittance is covered along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is then treated as business profits, taxable under the relevant DTAA depending upon whether there is a PE through which the assessee operates in India. This is one more circumstance to show that the Revenue has itself appreciated the difference between the payment of royalty and the supply/use of computer software in the form of goods, which is then treated as business income of the assessee taxable in India if it has a PE in India. CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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