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TMI Blog2021 (12) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... e Limited and EYGBS (India) Private Limited, respectively. As recorded in the Impugned Ruling dated 10.08.2016, M/s EYME Technologies Private Limited has been amalgamated with EYGBS (India) Private Limited with effect from 01.04.2016 and therefore, at the request of EYGBS (India) Private Limited, a common order was passed in the two references. The same has been challenged by EYGBS (India) Private Limited before us by way of W.P. (C) 12003 of 2016. 3. In the Application(s), being AAR No. 1408 of 2012 and AAR No. 1409 of 2012, the learned AAR has followed its Ruling in AAR No. 1403 of 2011 and therefore, reference in the present judgment will be made to the facts from the writ petition, being W.P.(C) 11957 of 2016, which arises out of the said Impugned Ruling. 4. The learned AAR in its Impugned Ruling dated 10.08.2016 records that the EY Global Services Ltd. (EYGSL) UK [hereinafter referred to as the "EYGSL (UK)"] is a limited liability company engaged in providing technology and other support services and software licences to member firms of the EY network in various countries all over the world. All member firms, including EYGSL (UK), use the brand Ernst & Young (EY). The Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of methodology and techniques which further enhance the knowledge sharing capacity of Member Firms. The following services, mentioned in the MOU, have not been rendered: 4. Global Industry Centres 4.1 Providing the Members Firms with business support in relation to specific industry sectors through the operation of Global Industry Centres, thereby expanding Member Firms capacity to deploy relevant knowledge, learning and resources on client engagements. 5. Global Procurement Services 5.1 Providing the Member Firms with sourcing and demand management services for the globalized categories of spend including technology, travel, real estate and content. Additionally, for other subcategories (for example, professional services), global procurement services will facilitate (a) efforts to put in place master services agreements; and (b) contract negotiations, where appropriate. Finally, Global Procurement Services will develop strategies and drive transition plans to standardize tools to support category operations (for example, online booking tools, travel management operations / companies, source to pay solutions). 6. Global Shared Services Centres 6.1 Procuring for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving right to benefit from the computer software procured from several third party vendors (deliverables) is in the nature of royalty under Article 13 of India -UK DTAA as well as section 9(1)(vi) of the Act whereas consideration received for giving right to benefit from services is not in the nature of royalty under Article 13 of India-UK DTAA. Q.4 In respect of Q.No.3, we have ruled that consideration for computer software is taxable as royalty. This is irrespective of the fact whether the applicant has a PE in India or not. Q.5 Consideration received in respect of giving right to benefit from computer software (deliverables) by the applicant would suffer withholding of tax under section 195 of the IT Act." 8. The Impugned Ruling also answered the question as to whether the consideration received in respect of the computer software (deliverables) by EYGSL (UK) is "royalty". As submissions have been made by the learned counsels for the parties on this specific question, the finding of the learned AAR is quoted hereinbelow, in detail: "32. There is no doubt that treaty provisions override the provisions of the Act. Therefore, we may first examine whether consideration receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose provisions of the Berne Convention that apply to literary works shall be applied also to them. Article 4 of the 1996 WIPO Copyright Treaty (WCT) includes the same clarification in very similar terms. Article 4 of the WCT states that computer programs (software) are protected as literary works within the meaning of Article 2 of the Berne Conventions. Such protection applies to computer programs, whatever may be the mode or form of their expression. We also see that similar provisions exist in various countries around the world. Almost all developed countries give the same meaning to computer programme as literary work. As per the Indian Copyright Act, 1957, Section 2(o) defines literary works as "literary work" includes computer programmes, tables and compilations including computer "literary data base". This discussion clearly establishes that computer software is literary work protected by copyright laws around the world and, therefore, is covered under the definition of royalty under Article 13(3) of DTAA. 34. Whether consideration received for the use, or the right to use computer software is royalty or business profits will depend on the facts and circumstances of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent received by EYGSL (UK) from its members is for the use of computer software loaded on its server by the creation of a standard facility for which access is granted to all the EY member firms. He submits that in terms of the judgment of the Supreme Court in Engineering Analysis Centre (supra), there is no transfer of copyright in favour of the member firms, including EYGBS (India), and therefore, the payment received from EYGBS (India) by EYGSL (UK) does not amount to royalty under Article 13 of the Double Taxation Avoidance Agreement between India and the United Kingdom (hereinafter referred to as the "India-UK DTAA"). 10. On the other hand, the learned counsel for the Revenue submits that the judgment of the Supreme Court in Engineering Analysis Centre (supra) has no application to the facts of the present case. He submits that the said judgment is confined only to the four categories of cases as mentioned in the judgment itself in paragraph 4 thereof. The EYGSL (UK) and the EYGBS (India) do not fall in any of the said four categories. He submits that in the present case, the EYGSL (UK) procures the computer software from different vendors and provides the same to its member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 DTAA. This position is also clarified by CBDT Circular No. 333 dated 02.04.1982,5 which states as follows: xxxxx 43. Thus, 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. xxxxx 45. A reading of the aforesaid distribution agreement would show that what is granted to the distributor is only a nonexclusive, non-transferable licence to resell computer software, it being expressly stipulated that no copyright in the computer programme is transferred either to the distributor or to the ultimate end-user. This is further amp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way of licence or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterised as royalty for the exclusive right to reproduce the book in the territory mentioned by the licence. xxxxx 72. The transfer of "all or any rights (including the granting of a licence) in respect of any copyright", in the context of computer software, is referable to sections 14(a), 14(b) and 30 of the Copyright Act. As has been held hereinabove, the expression "in respect of" is equivalent to "in" or "attributable to". Thus, explanation 2(v) to section 9 (1)(vi) of the Income Tax Act, when it speaks of "all of any rights...in respect of copyright" is certainly more expansive than the DTAA provision, which speaks of the "use of, or the righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maining exclusively with the owner. iii) Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of the physical substance, in which copyright subsists, gives the purchaser the right to do with it whatever he pleases, except the right to reproduce the same and issue it to the public, unless such copies are already in circulation, and the other acts mentioned in section 14 of the Copyright Act. iv) A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14 (b) of the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term "royalty" as held by the Supreme Court in Engineering Analysis Centre (supra). 15. We may also note that the learned AAR in its Impugned Order has relied upon its earlier view in Citrix Systems Asia Pacific Pty Ltd., In Re., (2012) 343 ITR 1 (AAR), which has been expressly stated to be bad law in Engineering Analysis Centre (supra). 16. The submission of the learned counsel for the Revenue that the judgment of the Supreme Court in Engineering Analysis Centre (supra) cannot be applied because it confines itself only to the four categories mentioned in paragraph 4, also cannot be accepted. Though the Supreme Court was on facts considering the four ..... X X X X Extracts X X X X X X X X Extracts X X X X
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