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TMI Blog2024 (6) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... anted to assessee by Microsoft Denmark ApS under an object code-only, non-exclusive, non-sublicensable, non-transferable, revocable license to access and use the object code version of the proprietary software, solely for assessee and its group/associate companies' internal business purposes. A reading of the judgment EY Global Services Ltd [ 2021 (12) TMI 571 - DELHI HIGH COURT] and Engineering Analysis Centre of Excellence Pvt. Ltd[ 2021 (3) TMI 138 - SUPREME COURT] clearly show that for the payment received by the assessee to be taxed as royalty , it is essential to show a transfer of copyright in the software to do any of the acts mentioned in section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorize the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with end therefore, the payment received cannot be termed as royalty . The software used by SGIPL and the amount for which is cross charged by assessee, does not pertain to any use or right to use of any co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t quoting unsubstantiated, imaginary and farfetched facts to conclude that the Appellant maintained IT infrastructure and was providing third party standard software through Enterprise applications and Enterprise Servers by allowing access to such IT infrastructure. The Ld. AO failed to appreciate that the software under question are standard offerings of third-party vendors and IT infrastructure, if any is maintained only by such third-party vendor and not by Appellant. 4. That, the Ld. AO has erred in facts and in law by disregarding the directions of the Hon'ble DRP to consider and factually verify the assessee's submission dated 03.04.2023 and to pass speaking reasoned order within the ambit of law and judicial precedents. The Ld. AO failed to appreciate and was grossly negligent in concluding that the documents shared via submission dated 03.04.2023 were already available with the Ld. AO while passing draft assessment order for the captioned year. 5. The Ld. AO has erred in facts and in law by not recording any observation regarding the examination of relevant facts and documents as directed by the Hon'ble DRP while concluding that the Appellant maintains IT infras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gineering Analysis Centre of Excellence Private Limited vs. CIT [2021] 125 taxmann.com 42 (SC) is applicable to the facts of the case and receipts are not chargeable to tax. 8. In the case of the assessee, central procurement IT department carries out the following functions in the process of procurement of licenses and allocating them to various group concerns: (i) Negotiate with Microsoft/other vendors for purchase of licenses. (ii) Signs enterprise licensing agreements. (iii) Ensures distribution of licenses to various group concerns. (iv) Computes and allocates cost to various group concerns on actual usage basis. (v) Implement and monitor group IT Policy. (vi) Acts as point of contact for any issues related to third party software. 9. It is seen that the assessee procures the following licensed software: Office365: Office 365 comprises of traditional Microsoft Office desktop applications, Microsoft application services, and some new productivity services, all of which are enabled as consumable services over Microsoft s Azure cloud platform. Examples include Outlook, Teams, OneNote etc. which are used in day to day operations; Windows Remote Desktop: This is a Microsoft applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of owned, leased, supported and hosted IT systems, hardware devices, internet and intranet systems etc. It is not the case that the assessee makes purchases on the request of its AEs. As per ELA, affiliates of the assesse can access the licensed software. The assessee has filed copy of intercompany services agreement which provides use of or right to use of IT infrastructure to its AEs. 13. The assessee hosts the software/program through enterprise applications and Enterprise servers for the benefit of whole group which optimizes the resources as discussed above. Therefore, the Assessing Officer held that it is a clear case of making available IT infrastructure and AEs are charged on actual usage basis. 14. The assessee argued that its case is covered by the decision of Hon ble Supreme Court in the case of M/s Engineering Analysis Centre of Excellence Private Limited vs. CIT. 15. The Assessing Officer held that the current case is regarding taxation of equipment royalty. The Assessing Officer held that the assessee receives from its group concerns is charges for allowing use of its IT Infrastructure which consists of various third party software, owned/leased/supported platforms in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everse engineer, modify or reproduce the software / user license. SGIPL acknowledges that the Microsoft Software has been granted to assessee by Microsoft Denmark ApS under an object code-only, non-exclusive, non-sublicensable, nontransferable, revocable license to access and use the object code version of the proprietary software, solely for assessee and its group/associate companies' internal business purposes. 17. On going through above averments, the ld. DRP held as under: 4.1.3 An opportunity of being heard was afforded to the assessee before the Panel on 27.03.2023. During the hearing, the Authorized Representative of the assessee by referring the paperbook including page no. 9 of the paper-book submitted inter-alia that the servers were not maintained by the assessee and the cloud infrastructure was made and provided by the Microsoft company. The AR further submitted that this case was covered by the Supreme Court judgment in case of M/s Engineering Analysis Centre of Excellence Private Limited vs. CIT and had referred to page no. 26 of the paper-book. However, the AR was asked to file a copy of the agreement made between the holding company and the Microsoft regarding p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate companies' internal business purposes. 19. Reliance is being placed on the judgments of EY Global Services Ltd. Vs. ACIT 133 taxmann.com 157 (Del) and Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT 125 taxmann.com 42 (SC). The conclusion drawn from the above said judgments is as under: (i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. (ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. 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. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining 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 ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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