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TMI Blog2024 (7) TMI 1480X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 9(1)(vi) and its explanations, not being more beneficial to the assessee than the DTAA, are not applicable in these cases. Revenue also argues that the amounts paid to non-resident computer software manufacturers/suppliers are taxable in India as they constitute income arising from the use of copyright, which should be taxed as royalties. The amounts paid by resident Indian end-users to non-resident computer software manufacturers/suppliers, as consideration for the use of the computer software through EULAs, do not constitute the payment of royalties for the use of copyright in the computer software. Consequently, these payments do not give rise to any income taxable in India. Therefore, the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS on these payments. Decided in favour of assessee. - Ms. Suchitra Kamble, Judicial Member And Shri Makarand V. Mahadeokar, Accountant Member For the Assessee : Shri Dinal Shah, AR For the Revenue : Shri Sudhakar Verma, Sr.DR ORDER PER SHRI MAKARAND V. MAHADEOKAR, AM: This appeal is filed by the Revenue as against the order passed by the Ld. Commissioner of Income-tax(Appeals)-Gandhinagar (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of copying, modification etc of the standard software product. 4. All copyright, or other intellectual property rights, in the standard software products and associated documentation, designs, configuration etc remain the property of HIJKm. 5. Mycom does not supply any know-how or the source code in the software product to VWL. 2.5. The assessee further stated that VWL made a payment for use of the standard Mycom software, without obtaining any rights towards creation of copies or modification or adaptation of the particular standard software. 2.6. About the taxability of payment for supply of standard off the shelf software as royalty, the assessee stated that Mycom is a company incorporated in the United Kingdom ( UK') and is also a tax resident of UK. (Copy of the tax residency certificate obtained by Mycom from UK tax authorities was submitted to the AO). Mycom is eligible to claim the benefits conferred by the Double Taxation Avoidance Agreement entered into between India and United Kingdom (India-UK tax treaty). As per section 90 of the income-tax Act, 1961, the provisions of the Act or the provisions of the treaty would apply to the extent they are more benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of India-UK tax treaty. 2.10. The Assessee further stated that the payment made by VWL was towards the limited right to use the standardized software for its own business purpose, without any right to commercially exploit the copyright in the software. The ownership of the copyright in the standardised software remains with Mycom and it is not transferred to VWL. 2.11. Assessee further submitted that as the payment made by VWL is towards use of standard Mycom software, which is a copyrighted article, the same would not be treated as royalty income under provisions of the Article 13 of India-UK tax treaty. Thus, payment made by VWL to Mycom would not be subject to tax in India as per provisions of Article 13 of India- UK tax treaty. 2.12. The Assessee also stated that as payments made by VWL to Mycom does not qualify as royalty under India-UK tax treaty, the said payments would be classified as business profits under Article 7 of the India-UK tax treaty. Assessee on the basis of letter from Mycom letter dated 12 September 2012, submitted that Mycom does not have a permanent establishment in India and in absence of permanent establishment of Mycom in India, business profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. The assessee is merely provided the access to the copyrighted software which the assessee uses for monitoring quality performance and capacity of its mobile network. 6. Mycom does not provide the assessee the right to use the Copyright embedded in the software. 4. The Ld.CIT(A) thus noting these points concluded that such payment made towards acquisition of copyrighted product without right to exploit copyright and, hence, should not be treated as royalty as per the provisions of India-UK tax treaty. 4.1. To conclude this, the Ld.CIT(A) placed reliance on decision of Hon ble Delhi High Court in case of DIT Vs. Infrasoft Ltd. (264 CTR 329), wherein the Hon ble High Court held that amount received towards the license agreement for allowing the use of software cannot be considered as Royalty. The Ld.CIT(A) further found support of this decision from the OECD Commentary on Model Convention in this regard. 4.2. In respect of AO s reliance on the judgement of Hon ble High Court of Karnataka in case of Samsung Electronics (supra), the Ld.CIT(A) stated that where the decision of jurisdictional court is not available and there are differing views of two different High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is therefore prayed that the stand of the AO be upheld. 5. The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing. On the Grounds of appeal: 6. During the course of hearing before us, the Ld.Authorised Representative (AR) for the Assessee relied on the order of the Ld.CIT(A). He explained the issue stating that it is related to assessee s acquiring standard product like buying a books from the bookshelf without its copyright. He also submitted the copy of the agreement between the assessee and Mycom (UK) Ltd. He also explained the relevant clauses of the agreement more particularly clause-10 which is dealing with Intellectual Property Rights. The clause-10.5 is reproduced herewith for ready reference: 10.5. For use with licenses to Supplier Standard Software purchased hereunder end in addition to the licenses granted in the EULA incorporated in Clause 10.7 below. the Supplier hereby grants and shall procure that all other Supplier Group Companies (if applicable) grant to Vodafone a royalty-free, non-exclusive, within India, perpetual, irrevocable (except for material breach by Vodafone), licence to use, and right to Vodafone to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes place, as is recognized by section 52(1)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customised to its specifications or otherwise. v) A non-exclusive, non-transferable licence, merely enabling the use of a copyrighted product, is in the nature of restrictive conditions which are ancillary to such use and cannot be construed as a licence to enjoy all or any of the enumerated rights mentioned in section 14 of the Copyright Act, or create any interest in any such rights so as to attract section 30 of the Copyright Act. vi) The right to reproduce and the right to use computer software are distinct and separate rights, as has been recognized in SBI v. Collector of Customs, 2000 (1) SCC 727 (see paragraph 21), the former amounting to parting with copyright and the latter, in the context of non-exclusive EULAs, not being so. 6.2.1. This judgement of Hon ble Supreme Court also decided the issue relating to royalties contained in Article 12 of the DTAAs, which clarified that there is no obligation on the persons mentioned in section 195 of the Act to deduct tax at source, as the EULAs in the facts of these cases do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax in India. The payments made in the present case do not fall under the definition of royalties as per the DTAA, and hence, are not chargeable to tax in India. Section 9(1)(vi) of the Income Tax Act, along with Explanations-2 and 4, defines royalty for domestic purposes. However, since these provisions are not more beneficial to the assessee than the DTAA, they are not applicable in the present case, in accordance with section 90(2) of the Act. The Judicial Pronouncements Referenced in the cases are: 1. Engineering Analysis Centre of Excellence Private Limited v. CIT [2021] 432 ITR 471 (SC). The Supreme Court held that payments made by resident Indian endusers/ distributors to non-resident computer software manufacturers/ suppliers are not royalties and therefore not liable for TDS under section 195 of the Income Tax Act. 2. Samsung Electronics Co. Ltd. v. Deputy Director of Income Tax [2011] 245 CTR 481 (Kar.). The Karnataka High Court ruled that payments for the use of software are royalties, but this decision was overturned by the Supreme Court in the Engineering Analysis case. 8.2. The primary ground raised by the revenue is that the payments made by resident Indian end-us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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