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TMI Blog2022 (2) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... n ignoring specific provision as given in section 9(1)(vi) of the Income-tax Act, 1961 holding the software to be taxed as royalty? 3. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal" 3. As could be seen from the grounds raised, the dispute arising for consideration is, whether the embedded software supplied along with the hardware is taxable either under the provisions of India-France Double Taxation Avoidance Agreement (DTAA) or under the provisions of Section 9(1)(vii) of the Income-tax Act, 1961. 4. Briefly, the facts are, the assessee is a company incorporated in France and is a tax-resident of France. As stated by the departmental authorities and appears from record, Alcatel Group which also includes the assessee is a leading tele-communication equipment and infrastructure manufacturer and supplier. As stated by the Assessing Officer, Alcatel Lucent France is the flagship company of the group. Be that as it may, in the impugned assessment year, the assessee derived income from supply of tele-communication equipment. The income in the nature of fee for technical services (FTS) was offered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Departmental Representative that the issue arising for consideration is squarely covered by various judicial precedents, including, the decision of the Tribunal in assessee's own case for assessment years 2013-14 and 2014-15. Undisputedly, the Assessing Officer has treated part of the payment received by the assessee as royalty for the embedded software supplied with the telecommunication equipments. While doing so, he has relied upon the Assessment Order passed in case of another group company viz. Alcatel Lucent France. As discussed by the learned Commissioner(Appeals), the decision of the Assessing Officer in case of Alcatel Lucent France was not only reversed by the First Appellate Authority but Tribunal also upheld the decision of the First Appellate Authority by holding that the payment received for embedded software cannot be treated as royalty. It is a fact on record that the decision of the Tribunal in case of Alcatel Lucent France was upheld by the Hon'ble Delhi High Court. In fact, the Special Leave Petition ( SLP ) filed by the Revenue against the aforesaid decision of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Apex Court while deciding the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Section 9(1)(vi) was not attracted and the same reasons. Article 13(3) of the DTAA was not involved. 5. We have noticed, at the outset, that the ITAT had relied upon ruling of this Court in Director of Income-tax V Ericsson A.B. (2012) 3 ITR 470 wherein identical argument with respect to whether consideration paid towards supply of software along with hardware - rather software embedded in the hardware amounted to royalty. After noticing several contentions of the revenue, this Court held in Ericsson A.B. (supra) follows:- "54. It is difficult to accept the aforesaid submissions in the facts of the present case. We have already held above that the assessee did not have any business connection in India. We have also held that the supply of equipment in question -was in the nature of supply of goods. Therefore, this issue is to be examined keeping in view these findings. Moreover, another finding of fact is recorded by the Tribunal that the Cellular Operator did not acquire any of the copyrights referred to in Section 14(b) of the Copyright Act, 1957. 55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he software are and the media cannot be split up. What the buyer purchases and pays for is not the disc or the CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes..... In Advent Systems Ltd. Vs. Unisys Corpn, (925 F. 2d 670 (3rd Cir. 1991) relied on by Mr. Sorabjee, the court w as 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 distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act, The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the 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) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed. 10. Considering the facts of the case in the light of the decisions mentioned here in above we do not find any merit in this appeal by the revenue and the same is accordingly dismissed. 11. In the result, the appeal filed by the revenue is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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