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TMI Blog2022 (7) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... t that an assessee has not challenged the addition does not per se lead to imposition or confirmation of penalty u/s.271(1)(c) of the Act thereon. The relevant facts and circumstances of the case need to be viewed independently for the purpose of penalty, which is distinct proceeding. Amongst others, it is a well settled proposition that penalty cannot be imposed on a debatable issue. If a favourable view initially canvassed by the assessee is judicially substantiated, it cannot lead to imposition of penalty simply because there exists a contrary view which the assessee has finally chosen by not filing an appeal. Reverting to the prevailing factual panorama, we find that as against the unfavorable view of the Pune Tribunal in the cases there is another decision in Ovid Technologies Inc. [ 2022 (3) TMI 1019 - ITAT DELHI ] holding that consideration received for granting license to access online database does not fall within the definition of Royalty. In view of the prevalence of divergent views on the point, we hold that the penalty is not sustainable. The conclusion drawn in the impugned order is, ergo, accorded imprimatur on this legal score. Appeal of assessee allowed. - I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated such Software Maintenance service charges as Royalty in the draft order. The assessee placed reliance on the judgment of the Hon ble Delhi High Court in DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329 (Delhi) in support of non-taxability. The DRP rejected the assessee s claim by relying on the judgment of Hon ble Karnataka High Court in CIT Vs. Samsung Electronics Company Ltd. (2012) 345 ITR 494 (Kar.). We find that the Hon ble Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. (supra) has overturned the decision of Samsung Electronics (supra) by holding held that ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. 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 hence, the consideration for it cannot be treated as Royalty in the hands of the recipient. If we view the receipt of Rs.8.56 crore as consideration for licensing of software, as has been decided by the authorities below on macro level, then obvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the server of it for the use of Indian entities . Even though the assessee categorically admitted that the consideration received was for allowing access to the Indian entities to the assessee s servers abroad, yet the DRP also proceeded on the premise as if some software license was transferred by the assessee to its Indian entity. This ingrains that the assessee received Rs.8.56 crore from the Indian entities for allowing access to its Database or IT infrastructure facility abroad. 6. Now we turn to the decision of the Pune Benches in Vanderlande Industries (supra), emphatically relied by the ld. DR. The Tribunal in that case has drawn a distinction between Copyright Royalty and Industrial Royalty by holding that whereas the consideration for the use of software constitutes software royalty but the consideration for the use of IT Infrastructure facility an industrial royalty. It further held that the decision in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra) is applicable in the case of Copyright Royalty. Ex consequenti, the consideration received by the assessee in that case for the use of the IT Infrastructure facility was held to be in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software, there cannot be a case of gaining access to the underlined technology of the equipment, when payment is made for using it. That is the raison d etre for the legislature using the word `copyright in clause (v) of the Explanation 2 and omitting it in the clause (iva). If the assessee s point of view of the consideration for the use of the IT facility becoming royalty only on getting access to the underlined technology is taken to logical conclusion, then the applicability of clause (iva) of the Explanation 2 will invariably be ousted making it a redundant piece of legislation as there cannot be a case of paying something for using an equipment by getting access to the underlined technology which led to its creation. In a loose sense, one can say that the access is automatically obtained to the underlined technology of the Facility when it is used. But, strictly speaking, the user of an equipment implies its use simpliciter de hors access to its underlined technology facilitating the operation. As section 9(1) of the Act is a deeming provision and it unequivocally provides, inter alia, for treating consideration for the use of equipment as royalty, we cannot countenance the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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