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TMI Blog2023 (2) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... .S. PANNU, HON BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For the Assessee : Shri Tarandeep Singh, Adv. For the Revenue : Shri Anand Kumar Kedia, CIT DR ORDER PER SAKTIJIT DEY, J.M. Captioned appeal has been filed by the assessee challenging the final assessment order passed for the assessment year 2015-16 in pursuance to the directions of learned Dispute Resolution Panel (DRP). 2. The core issue arising for consideration in the present appeal is whether the Revenue earned from sale/distribution of software is chargeable to tax in India as Royalty under Article 12 of India- Ireland Double Taxation Avoidance Agreement (DTAA). 3. Briefly the facts are that assessee is a non-resident corporate entity incorporated in Ireland. Assessee is basically engaged in the business of sale of software and hardware and provision of support services. During the year under consideration, the assessee had earned Revenue from sale of software as well as provision of support services in India. In the return of income filed for the assessment year under dispute, assessee offered the Revenue earned from provision of support services to tax by treating it as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 independently. This software merely facilitates the functioning of the equipment and is an integral part thereof. A fortiorari when the assessee supplies the software which is incorporated on a CD, it has supplied tangible property and the payment made by the cellular operator for acquiring such property cannot be regarded as a payment by way of royalty. It is also to be borne in mind that the supply contract cannot be separated into two viz., hardware and software. No doubt, in an annexure to the supply contract the lump su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary or affiliated entity of Licensee or used for the operation of a service bureau or for data processing. The Licensee is further restricted from making copies, decompile, disassemble or reverseengineer the Software without Infrasoft s written consent. The Software contains a mechanism which Infrasoft may activate to deny the Licensee use of the Software in the event that the Licensee is in breach of payment terms or any other provisions of this Agreement. All copyrights and intellectual property rights in and to the Software, and copies made by Licensee, are owned by or duly licensed to Infrasoft. 87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific Work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a copyright right and a copyrighted article . Copyright is distinct from the material object/ copyr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that , the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. 5.2 We find that treaty provisions between India and Ireland unambiguously require that the use of copyright is to be taxed in the source country. In the present case, the payment has been made by assessee for use of copyrighted material rather than for the use of copyright. The facts of the present case are identical with the facts before the Hon'ble Jurisdictional High Court. None of the lower authorities have factually doubted the contention of the assessee that it has received consideration for the transfer of a copyrighted product and not for the transfer of copyrights in the computer software programme. The distinction between the transfer of a copyright and the transfer of a copyrighted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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