Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 7711 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 6 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-08-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
G
Assessment Year
2013-2014
Appeal Filed On
21-02-2017
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI , ! ' ' . . %&' ()*! BEFORE MS. SUSHMA CHOWLA, VP & SHRI N.K.BILLAIYA, AM [THROUGH VIDEO CONFERENCING] + / ITA NO.1000/DEL/2017 , - - /ASSESSMENT YEAR 2013-14 SYMANTEC ASIA PACIFIC PTE. LTD., 6 TEMASEK BOULEVARD, #12-01, SUNTEC TOWER FOUR, SINGAPORE 038986 PAN-AAOCS1828F .......... ./ /APPELLANT VS THE DCIT (INTERNATIONAL TAXATION), CIRCLE-3(1)(2), ROOM NO.419, BLOCK E-2, CIVIC CENTRE, J.L.N.MARG, NEW DELHI-110002. . 01./ / RESPONDENT ./23 / APPELLANT BY : SH. NAGESHWAR RAO, ADV. & MS. DEEPIKA AGGARWAL, ADV. 01./23 / RESPONDENT BY : SH. SATPAL GULATI, CIT DR 24) / DATE OF HEARING : 21.07.2020 56 24) / DATE OF PRONOUNCEMENT: 31.08.2020 7 / ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST O RDER OF DCIT, CIRCLE- 3(1)(2), INTERNATIONAL TRANSACTION, NEW DELHI DATED 08.11.2016 RELATING TO ASSESSMENT YEAR 2013-14 AGAINST THE ORDER PASSED U NDER SECTION 143(3)R.W.S 144C(13) OF THE INCOME-TAX ACT, 1961 (IN SHORT TH E ACT). 2 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, SYMANTEC ASIA PACIFIC PTD LTD (HEREINAFTER REFERRED TO AS THE' APPELLANT' ) RESPECTFULLY CRAVES LEAVE TO PREFER AN APPEAL UNDER SECTION 253(1)( D) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE' ACT'), AGAINST THE ORDER DATED 8 NOVEMBER 2016 (RECEIVED BY THE APPELLANT ON 4 JANUARY 2017) PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 3(1)(2), INTERNATIONAL TAXATION, NEW DELHI (HEREINAFTER REFERRED TO AS 'AO') IN PURS UANCE OF THE DIRECTIONS ISSUED BY THE HON'BLE DISPUTE RESOLUTION PANEL - 2, NEW DELHI (HEREINAFTER REFERRED TO AS 'DRP') DATED 17 OCTOBER 2016 UNDER S ECTION 143(3) OF THE INCOME-TAX ACT, 1961 ('ACT') READ WITH SECTION L44C (13) OF THE ACT ON THE FOLLOWING GROUNDS, WHICH ARE INDEPENDENT OF AND WIT HOUT PREJUDICE TO EACH OTHER. GROUND 1 - CONSIDERATION FROM SALE OF SOFTWARE LICE NSES OF RS. 2,37,63,86,143 TAXED AS ROYALTY I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AO AND THE HON'BLE DRP HAS ERRED IN TREATIN G THE CONSIDERATION RECEIVED FROM SALE OF SOFTWARE LICENSE TAXABLE AS ' ROYALTY' BOTH UNDER THE PROVISIONS OF THE ACT AS WELL AS ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA') BETWEEN INDIA AND SING APORE. II. THE LEARNED AO AND THE HON'BLE DRP FAILED TO AP PRECIATE THE APPELLANT'S ARGUMENTS AND SUBMISSIONS EXPLAINING TH AT THE SOFTWARE LICENCES SOLD BY THE APPELLANT ARE GOODS AND NOT SE RVICES. III. THE LEARNED AO AND THE HON'BLE DRP ERRED IN HO LDING THAT THE APPELLANT GRANTS RIGHT IN THE COPYRIGHT OF THE SOFT WARE LICENSES, INSTEAD OF TREATING THE GRANT OF SOFTWARE LICENSES AS COPYRIGH TED ARTICLE WITHOUT ANY RIGHTS IN THE COPYRIGHT. IV. THE LEARNED AO AND THE HON'BLE DRP ERRED IN HOL DING THAT THE TERM 'USE' OR 'RIGHT TO USE' DOES NOT PRESUPPOSE COMMERC IAL EXPLOITATION OF SOFTWARE. V. THE LEARNED AO AND THE HON'BLE DRP ERRED IN TREA TING THAT SALE OF SOFTWARE LICENSES BY THE ASSESSEE INVOLVED CONSIDER ATION FOR USE OR RIGHT TO USE ANY PROCESS ASSUMING THAT COMPUTER PROGRAM IS P ROCESS. 3 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 VI. THE LEARNED AO AND THE HON'BLE DRP ERRED IN NOT FOLLOWING THE BINDING DECISIONS OF THE JURISDICTIONAL HON'BLE DEL HI HIGH COURT WHICH SQUARELY COVERED THE AFORESAID ISSUE. GROUND 2 - ERRONEOUS LEVY OF SURCHARGE AND CESS ON THE TAX RATE APPLICABLE AS PER DTAA ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO ERRED IN LEVYING SURCHARGE AS WELL AS SECONDARY AND HIGHER SECONDARY CESS ON THE TAX RATE ADOPTED UNDER INDIA - SINGAPOR E DT AA GROUND 3 - INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN INITIATING PENALTY PROCE EDINGS UNDER SECTION 271(1)(C) OF THE ACT. 2. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE IS IN CORPORATED UNDER THE LAWS OF SINGAPORE AND IS ENGAGED IN THE BUSINESS OF SALE OF SOFTWARE LICENSING RELATING TO INFORMATION SECURITY AND STORAGE TECHNO LOGY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DECLARED REVE NUE OF RS.22,37,63,86,143/- AGAINST SALE OF SOFTWARE LICEN SES TO THE END USER CUSTOMERS EITHER DIRECTLY OR THROUGH AUTHORIZED DI STRIBUTOR/ RE-SALERS IN INDIA. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER RELYING ON THE RATIO LAID DOWN BY THE DELHI BENCH O F TRIBUNAL IN GRACEMAC CORPORATION VS ADIT 143 TTJ 257 (DEL.), TAXED THE I NCOME RECEIVED FROM SALE OF SOFTWARE LICENSES AS ROYALTY UNDER ARTICLE 12 OF IN DIA SINGAPORE AGREEMENT. THE ASSESSING OFFICER IN FINAL PART OF THE ASSESSME NT ORDER ALSO HELD THE SAME TO BE CONSIDERATION RECEIVED FROM USE OF PROCESS, TAXABLE UNDER EXPLANATION (III) TO SECTION 9(1)(VI) OF THE I.T.ACT. 4 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 3. BEFORE THE DRP, THE ASSESSEE PLACED HEAVY RELIAN CE ON THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE O F DIT VS INFRASOFT LTD. 264 CTR 329 (DEL.). THE DRP VIDE DIRECTIONS DATED 17.1 0.2016 UPHELD THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THE DEPART MENT HAS FILED SLP BEFORE THE HONBLE APEX COURT AGAINST THE DECISION OF HON BLE DELHI HIGH COURT IN DIT VS INFRASOFT LTD. (SUPRA) AND THE MATTER NEEDS TO BE KEPT ALIVE IN VIEW THEREOF. THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.AR FOR THE ASSESSEE POINTS OUT THAT THE I SSUE RAISED VIDE GROUND OF APPEAL NO.1 IS AGAINST THE TAXABILITY OF CONSIDE RATION RECEIVED ON SALE OF SOFTWARE. FURTHER, HE POINTED OUT THAT THE ASSESSE E WAS A NON-RESIDENT IN INDIA AND IT IS NOTED BY THE ASSESSING OFFICER THAT THERE IS NO PERMANENT ESTABLISHMENT (IN SHORT PE) IN INDIA AND HENCE, T HE RECEIPTS ARE NOT TO BE TAXED AS ROYALTY EITHER UNDER THE PROVISION OF DTAA OR UNDER THE PROVISIONS OF THE ACT. OUR ATTENTION IS DRAWN TO VARIOUS PARTS O F ASSESSMENT ORDER WHEREIN MAJOR RELIANCE WAS PLACED ON THE DECISION OF DELHI BENCH OF TRIBUNAL IN GRACEMAC CORPORATION VS ADIT 42 SOT 550 (DEL.). TH E LD.AR FOR THE ASSESSEE POINTS OUT THAT THE ISSUE STANDS COVERED BY THE ORD ER OF HONBLE HIGH COURT IN DIT VS INFRASOFT LTD. (SUPRA) CASE AND ALSO BY THE DECISION OF THE TRIBUNAL IN SUBSEQUENT CASE OF MOL CORPORATION & OTHERS FOR ASS ESSMENT YEARS 2007-08 TO 2009-10 IN ITA NOS. 6089 TO 6091/DEL/2012, ORDER DATED 26.09.2016, WHEREIN RELIANCE WAS PLACED ON THE ORDER OF HONBLE DELHI HIGH COURT AND IT WAS HELD THAT THE DECISION IN GRACEMAC CORPORATION VS ADIT (SUPRA) WAS NO 5 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 LONGER GOOD LAW. THE LD.AR FOR THE ASSESSEE ALSO R EFERRED TO THE DECISION OF PUNE BENCH OF TRIBUNAL IN SYMANTAC CORPORATION VS D CIT IN ITA NO.387/PUNE/2017 REALTING TO ASSESSMENT YEAR 201 3-14 ORDER DATED 05.04.2019 AND IT WAS POINTED OUT THAT THE SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 5. COMING TO THE SECOND ISSUE RAISED VIDE GROUND OF APPEAL NO.2, IT WAS POINTED OUT THAT THE SAME WAS ALTERNATE PLEA AND W OULD NOT SURVIVE INCASE THE FIRST ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 6. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.3 IS A GAINST THE INITIATION OF PENALTY PROCEEDINGS, WAS PRE-MATURE. 7. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE HAS BE EN DECIDED BY THE HONBLE HIGH COURT IN INFRASOFT LTD.(SUPRA). HOWEV ER, THE SECOND ASPECT OF PROCESS WAS NOT CONSIDERED BY THE HONBLE HIGH COUR T IN INFRASOFT LTD.(SUPRA) AND THE SAME MAY BE CONSIDERED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS WITH REGARD T O NON-RESIDENT COMPANY, WHICH IS OPERATING FROM SINGAPORE AND THE ISSUE WHI CH ARISES IS THE TAXABILITY OF CONSIDERATION RECEIVED ON SALE OF SOFTWARE AND WHETHER THE SAME IS ASSESSABLE IN THE HANDS OF THE ASSESSEE AS ROYALTY UNDER THE PROVISIONS OF DTAA OR UNDER THE PROVISIONS OF ACT. 6 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 9. THE FIRST ASPECT OF THE ISSUE WHICH HAS BEEN RAI SED BEFORE US IS THAT THE ASSESSEE WAS LICENSING ITS SOFTWARE TO ITS CUSTOMER S, DOES NOT MAKE AVAILABLE ANY PROCESS TO THE CUSTOMERS, WHO IN TURN USES THE PROCESS WHILE CARRYING OUT THEIR BUSINESS. FURTHER, NO EXCLUSIVE RIGHT IN THE SOFTWARE ARE TRANSFERRED TO THE CUSTOMERS; IT IS ONLY A COPYRIGHTED ARTICLE WHI CH IS BEING LICENSED, AND NO RIGHT TO USE COPYRIGHT SUBSISTING IN SUCH SOFTWARE IS TRANSFERRED. THEREFORE, THE SAME DOES NOT FALL WITHIN THE DEFINITION OF ROY ALTY AS PER AMENDED PROVISIONS OF SECTION 9(1)(VI) OF THE ACT. THE ASS ESSEE ALSO CLAIMED THAT THE CONSIDERATION RECEIPT CANNOT BE FOR USE OF PROCESS, SINCE THERE WAS NO CONTROL OF THE CUSTOMER OVER THE SOFTWARE SYSTEM AND ALL RIGHT S THEREIN ARE RETAINED WITH THE ASSESSEE. FURTHER, THE TRANSACTION MERELY INVO LVES SUPPLY OF THE PRODUCTS ON A LICENSE BASIS AND NOT THE GRANT OF RIGHTS (INC LUDING ANY RIGHTS TOWARDS THE COPYRIGHT) IN THE SOFTWARE/COMPUTER PROGRAMME EMBED DED WITHIN THE PRODUCT. 10. ANOTHER PLEA RAISED BY THE ASSESSEE IS THAT THE PAYMENTS RECEIVED ON SUPPLY OF SOFTWARE TO THE END USERS OR THROUGH THE DISTRIBUTOR DO NOT FALL WITHIN THE DEFINITION OF ROYALTY UNDER ARTICLE 12 (3) B ETWEEN INDIA AND SINGAPORE TAX TREATY, WHERE SUCH DEFINITION IS NARROWER IN A MBIT, AS COMPARED TO THE ACT. ON THE OTHER HAND, THE CASE OF THE AUTHORITIES IS THAT THE SALE OF SOFTWARE IS TAXABLE AS ROYALTY IN THE HANDS OF THE ASSESSE E. FOR THIS PROPOSITION, RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE D ELHI BENCH OF THE TRIBUNAL IN GRACEMAC CORPORATION VS ADIT (SUPRA). 7 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 11. THE QUESTION WHICH ARISES IS WHETHER THE RECEIP TS ON SALE OF LICENSED SOFTWARE TO THE END USER CUSTOMERS IN INDIA, WHICH WAS AN APPLICATION SOFTWARE, CAN BE COVERED UNDER THE TERM ROYALTY I NCOME ARISING ON SALE OF SUCH SOFTWARE AS PROVIDED IN SECTION 9(1)(VI) OF T HE ACT AND/ OR UNDER ARTICLE 12(3) OF THE INDIA SINGAPORE TREATY. 12. WE HAVE ALREADY ADJUDICATED SIMILAR ISSUE IN TH E CASE OF NAGRAVISION S.A. VS ACIT IN ITA NO.9130/DEL/2019 VIDE ORDER DATED 06 .07.2020 WHEREIN TREATY IN QUESTION WAS BETWEEN INDIA AND SWEDEN AND THE IS SUE WHICH WAS RAISED WAS WHETHER SALE OF LICENSE OF SOFTWARE WAS COVERED UND ER THE TERM ROYALTY AS PROVIDED IN SECTION 9(1)(VI) OF THE ACT AND/OR ART ICLE 12(3) OF THE DTAA. RELIANCE WAS PLACED ON THE DECISION OF DIT VS INFRA SOFT LTD. (SUPRA). WE REPRODUCE THE FOLLOWING PARAS FROM NAGRAVISION S.A . (SUPRA) FOR READY- REFERENCE:- 19. THE QUESTION WHICH ARISES IS WHETHER SUCH LICE NSE OF SOFTWARE BY THE ASSESSEE IS COVERED UNDER THE TERM ROYALTY AS PROVIDED IN SECTION 9(1)(VI) OF THE ACT AND/OR ARTICLE 12 OF THE DTAA. ARTICLE 12 OF THE DTAA BETWEEN INDIA AND SWEDEN STIPULATES AND DEFINES WHA T IS ROYALTY AND FEES FOR TECHNICAL SERVICES. THE TERM ROYALTY AS PER CLAUSE 3 OF ARTICLE 12 MEANS PAYMENT OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC , OR SCIENTIFIC WORK, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE OF DEPOSITION T HEREOF. THE TERM ROYALTY HAS BEEN DEFINED BY CLAUSE 3 OF ARTICLE 1 2 AS PAYMENT RECEIVED FOR THE USE OF, OR THE RIGHT TO USE ANY COPYRIGHT. SECTION 9(1)(VI) OF THE ACT DEFINES ROYALTY. THE AUTHORITIES BELOW WERE OF TH E VIEW THAT BECAUSE OF INSERTION OF EXPLANATION 5 TO SECTION 9(1)(VI) OF T HE ACT WITH RETROSPECTIVE EFFECT FROM 01.06.1976, WHERE THE MEANING OF TERM ROYALTY HAS BEEN EXTENDED TO INCLUDE USE OF COPYRIGHT OR COPYRIGHTED ARTICLE IS TO BE APPLIED AND ON SUCH APPLICATION, THE ASSESSEE WAS HELD TO B E TAXABLE. THE CASE OF THE ASSESSEE IS THAT IT HAD NOT TRANSFERRED ANY COP YRIGHT BUT HAD ONLY PARTED WITH COPYRIGHTED ARTICLE, IN THE FORM OF SOF TWARE, THEN IT IS NOT ROYALTY AND WAS NOT COVERED UNDER THE PROVISIONS OF SECTION 9(1)(VI) OF THE 8 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 ACT. IN THE ALTERNATE, IT IS SUBMITTED BY THE LEAR NED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT SINCE THE DEFI NITION OF ROYALTY HAS NOT BEEN AMENDED IN TAX TREATY AND THE SAID PROVISI ONS BEING BENEFICIAL, THEN PROVISIONS OF ARTICLE 12(3) OF DTAA WITH SWEDE N WOULD APPLY AND THE ASSESSEES CASE WOULD FALL WITHIN NON AMENDED PROVI SIONS OF DEFINITION OF ROYALTY UNDER ARTICLE 12(3) OF DTAA. 20. THE HONBLE HIGH COURT OF DELHI IN DIT VS. INFR ASOFT LTD. (SUPRA) HAVE NOTED THAT UNDER THE LICENSE AGREEMENT, LICENSE WAS NON-EXCLUSIVE, NON- TRANSFERRABLE AND THE SOFTWARE HAD TO BE USED IN AC CORDANCE WITH AGREEMENT; THE LICENSEE WAS PERMITTED TO MAKE ONLY ONE COPY OF SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FO R BACKUP PURPOSE. ALL COPIES OF SOFTWARE WERE THE EXCLUSIVE PROPERTY OF INFRASOFT AND IT WAS STIPULATED THAT COPY SHALL INCLUDE INFRASOFT COPY RIGHT AND ALL COPIES OF SOFTWARE ALSO; AND WITHOUT CONSENT OF THE LICENSOR, THE SOFTWARE COULD NOT BE LOANED, RENTED, SOLD, SUB-LICENSED OR TRANSFERRE D TO ANY THIRD PARTY. THE HONBLE HIGH COURT FURTHER WENT ON TO HOLD THAT DIS TINCTION HAD TO BE MADE BETWEEN ACQUISITION OF COPYRIGHT AND COPYRIGHTED AR TICLE; COPYRIGHTING WAS DISTINCT FROM MATERIAL OBJECT. 21. THE HONBLE HIGH COURT IN DIT VS. INFRASOFT LTD . (SUPRA) VIDE ITS DECISION DATED 22.11.2013 WAS OF THE VIEW THAT WHER E THE ASSESSEE WAS GOVERNED BY INDO-US DTAA, THE INCOME OF ASSESSEE WO ULD BE CHARGEABLE TO TAX IN TERMS OF PROVISIONS OF INDO-US DTAA AND I F THE SAME WAS MORE ADVANTAGEOUS OR BENEFICIAL, THEN DEFINITION OF THE WORD ROYALTY AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT COULD NOT BE APPLIED. THE HONBLE HIGH COURT VIDE PARAS 64 AND 65 HELD AS UNDER :- 64. TO BE TAXABLE AS ROYALTY INCOME COVERED BY ART ICLE 12 OF THE DTAA THE INCOME OF THE ASSESSEE SHOULD HAVE BEEN GE NERATED BY THE 'USE OF OR THE RIGHT TO USE OF' ANY COPYRIGHT. 65. THE ISSUE WHETHER CONSIDERATION FOR SOFTWARE WA S ROYALTY CAME UP FOR CONSIDERATION BEFORE THE SPECIAL BENCH OF TH E TRIBUNAL IN DELHI IN THE CASE OF MOTOROLA INC VS DEPUTY CIT (2005) 14 7 TAXMAN 39 (DELHI) . THE TRIBUNAL HAS HELD AS UNDER: 155. IT APPEARS TO US FROM A CLOSE EXAMINATION OF T HE MANNER IN WHICH THE CASE HAS PROCEEDED BEFORE THE INCOME-TAX AUTHORITIES AND THE ARGUMENTS ADDRESSED BEFORE US THAT THE CRUX OF THE ISSUE IS WHETHER THE PAYMENT IS FOR A COPYRIGHT OR FOR A COP YRIGHTED ARTICLE. IF IT IS FOR COPYRIGHT, IT SHOULD BE CLASSIFIED AS ROY ALTY BOTH UNDER THE INCOME-TAX ACT AND UNDER THE DTAA AND IT WOULD BE T AXABLE IN THE HANDS OF THE ASSESSEE ON THAT BASIS. IF THE PAYMENT IS REALLY FOR A COPYRIGHTED ARTICLE, THEN IT ONLY REPRESENTS THE PU RCHASE PRICE OF THE ARTICLE AND, THEREFORE, CANNOT BE CONSIDERED AS ROY ALTY EITHER UNDER 9 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 THE ACT OR UNDER THE DTAA. THIS ISSUE REALLY IS THE KEY TO THE ENTIRE CONTROVERSY AND WE MAY NOW PROCEED TO ADDRESS THIS ISSUE. 156. WE MUST LOOK INTO THE MEANING OF THE WORD 'COP YRIGHT' AS GIVEN IN THE COPYRIGHT ACT, 1957. SECTION 14 OF THIS ACT DEFINES 'COPYRIGHT' AS 'THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS O F THIS ACT, TO DO OR AUTHORIZE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY: --------- IT IS CLEAR FROM THE ABOVE DEFINITION THAT A COMPUT ER PROGRAMME MENTIONED IN CLAUSE (B) OF THE SECTION HAS ALL THE RIGHTS MENTIONED IN CLAUSE (A) AND IN ADDITION ALSO THE RIGHT TO SELL O R GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL A NY COPY OF THE COMPUTER PROGRAMME. THIS ADDITIONAL RIGHT WAS SUBST ITUTED W.E.F. 15.1.2000. THE DIFFERENCE BETWEEN THE EARLIER PROVI SION AND THE PRESENT ONE IS NOT OF ANY RELEVANCE. WHAT IS TO BE NOTED IS THAT THE RIGHT MENTIONED IN SUB -CLAUSE (II) OF CLAUSE (B) O F SECTION 14 IS AVAILABLE ONLY TO THE OWNER OF THE COMPUTER PROGRAM ME. IT FOLLOWS THAT IF ANY OF THE CELLULAR OPERATORS DOES NOT HAVE ANY OF THE RIGHTS MENTIONED IN CLAUSES (A) AND (B) OF SECTION 14, IT WOULD MEAN THAT IT DOES NOT HAVE ANY RIGHT IN A COPYRIGHT. IN THAT CAS E, THE PAYMENT MADE BY THE CELLULAR OPERATOR CANNOT BE CHARACTERIZ ED AS ROYALTY EITHER UNDER THE INCOME-TAX ACT OR UNDER THE DTAA. THE QUESTION, THEREFORE, TO BE ANSWERED IS WHETHER ANY OF THE OPE RATORS CAN EXERCISE ANY OF THE RIGHTS MENTIONED IN THE ABOVE P ROVISIONS WITH REFERENCE TO THE SOFTWARE SUPPLIED BY THE ASSESSEE. 157. WE MAY FIRST LOOK AT THE SUPPLY CONTRACT ITSEL F TO FIND OUT WHAT JTM, ONE OF THE CELLULAR OPERATORS, CAN RIGHTFULLY DO WITH REFERENCE TO THE SOFTWARE. WE MAY REMIND OURSELVES THAT JTM IS T AKEN AS A REPRESENTATIVE OF ALL THE CELLULAR OPERATORS AND TH AT IT WAS COMMON GROUND BEFORE US THAT ALL THE CONTRACTS WITH THE CE LLULAR OPERATORS ARE SUBSTANTIALLY THE SAME. CLAUSE 20.1 OF THE AGREEMEN T, UNDER THE TITLE 'LICENSE', SAYS THAT JTM IS GRANTED A NON - E XCLUSIVE RESTRICTED LICENSE TO USE THE SOFTWARE AND DOCUMENTATION BUT O NLY FOR ITS OWN OPERATION AND MAINTENANCE OF THE SYSTEM AND NOT OTH ERWISE. THIS CLAUSE APPEARS TO MILITATE AGAINST THE POSITION, IF IT WERE A COPYRIGHT, THAT THE HOLDER OF THE COPYRIGHT CAN DO ANYTHING WI TH RESPECT TO THE SAME IN THE PUBLIC DOMAIN. WHAT JTM IS PERMITTED TO DO IS ONLY TO USE THE SOFTWARE FOR THE PURPOSE OF ITS OWN OPERATI ON AND MAINTENANCE OF THE SYSTEM. THERE IS A CLEAR BAR ON THE SOFTWARE BEING USED BY JTM IN THE PUBLIC DOMAIN OR FOR THE P URPOSE OF COMMERCIAL EXPLOITATION. 158. SECONDLY, UNDER THE DEFINITION OF 'COPYRIGHT' IN SECTION 14 OF THE COPYRIGHT ACT, THE EMPHASIS IS THAT IT IS AN EXCLUS IVE RIGHT GRANTED TO 10 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 THE HOLDER THEREOF. THIS CONDITION IS NOT SATISFIED IN THE CASE OF JTM BECAUSE THE LICENSE GRANTED TO IT BY THE ASSESSEE I S EXPRESSLY STATED IN CLAUSE 20.1 AS A 'NON EXCLUSIVE RESTRICTED LICEN SE'. THIS MEANS THAT THE SUPPLIER OF THE SOFTWARE, NAMELY, THE ASSE SSEE, CAN SUPPLY SIMILAR SOFTWARE TO ANY NUMBER OF CELLULAR OPERATOR S TO WHICH JTM CAN HAVE NO OBJECTION AND FURTHER ALL THE CELLULAR OPERATORS CAN USE THE SOFTWARE ONLY FOR THE PURPOSE OF THEIR OWN OPER ATION AND MAINTENANCE OF THE SYSTEM AND NOT FOR ANY OTHER PUR POSE. THE USER OF THE SOFTWARE BY THE CELLULAR OPERATORS IN THE PU BLIC DOMAIN IS TOTALLY PROHIBITED, WHICH IS EVIDENT FROM THE USE O F THE WORDS IN ARTICLE 20.1 OF THE AGREEMENT, 'RESTRICTED' AND 'NO T OTHERWISE'. THUS JTM HAS A VERY LIMITED RIGHT SO FAR AS THE USE OF S OFTWARE IS CONCERNED. IT NEEDS NO REPETITION TO CLARIFY THAT J TM HAS NOT BEEN GIVEN ANY OF THE SEVEN RIGHTS MENTIONED IN CLAUSE ( A) OF SECTION 14 OR THE ADDITIONAL RIGHT MENTIONED IN SUB-CLAUSE (II ) OF CLAUSE (B) OF THE SECTION WHICH RELATES TO A COMPUTER PROGRAMME A ND, THEREFORE, WHAT JTM OR ANY OTHER CELLULAR OPERATOR HAS ACQUIRE D UNDER THE AGREEMENT IS NOT A COPYRIGHT BUT IS ONLY A COPYRIGH TED ARTICLE. 159. CLAUSE 20.4 OF THE SUPPLY CONTRACT WITH JTM IS AS UNDER: 20.4 IN PURSUANCE OF THE FOREGOING JT MOBI LES SHAL L: (A) NOT PROVIDE OR MAKE THE SOFTWARE OR DOCUMENTATI ON OR ANY PORTIONS OR ASPECTS THEREOF (INCLUDING ANY METHODS OR CONCEPTS UTILIZED OR EXPRESSED THEREIN) AVAILABLE TO ANY PER SON EXCEPT TO ITS EMPLOYEES ON A 'NEED TO KNOW' BASIS; (B) NOT MAKE ANY COPIES OF SOFTWARE OR DOCUMENTATIO N OR PARTS THEREOF, EXCEPT FOR ARCHIVAL BACKUP PURPOSES; (C) WHEN MAKING PERMITTED COPIES AS AFORESAID TRANS FER TO THE COPY/COPIES ANY COPYRIGHT OR OTHER MARKING ON THE S OFTWARE OR DOCUMENTATION. (D) NOT USE THE SOFTWARE OR DOCUMENTATION FOR ANY O THER PURPOSE THAN PERMITTED IN THIS ARTICLE 20, LICENCE OR SELL OR IN ANY MANNER ALIENATE OR PART WITH ITS POSSESSION. (E) NOT USE OR TRANSFER THE SOFTWARE AND/OR THE DOC UMENTATION OUTSIDE INDIA WITHOUT THE WRITTEN CONSENT OF THE CO NTRACTOR AND AFTER HAVING RECEIVED NECESSARY EXPORT OR RE -E XPORT PERMITS FROM RELEVANT AUTHORITIES. THIS CLAUSE PLACES STRINGENT RESTRICTIONS ON THE CE LLULAR OPERATOR SO FAR AS THE USE OF SOFTWARE IS CONCERNED . IT FIRST SAYS THAT THE CELLULAR OPERATOR CANNOT MAKE THE SOF TWARE OR PORTIONS THEREOF AVAILABLE TO ANY PERSON EXCEPT TO ITS EMPLOYEES AND EVEN WITH REGARD TO EMPLOYEES IT HAS TO BE ONLY ON A 'NEED TO KNOW BASIS' WHICH MEANS THAT EVE N THE 11 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 EMPLOYEES ARE NOT TO BE TOLD IN ALL ITS ASPECTS. WH AT THE ASSESSEE CAN DO IS ONLY TO TELL THE PARTICULAR EMPL OYEE WHAT HE HAS TO KNOW ABOUT THE SOFTWARE FOR OPERATIONAL P URPOSES. THE CELLULAR OPERATOR HAS BEEN DENIED THE RIGHT TO MAKE COPIES OF THE SOFTWARE OR PARTS THEREOF EXCEPT FOR ARCHIVA L BACKUP PURPOSES. THIS MEANS THAT THE CELLULAR OPERATOR CAN NOT MAKE COPIES OF THE SOFTWARE FOR COMMERCIAL PURPOSES. THI S CONDITION IS PLAINLY CONTRARY TO SECTION 14(A)(I) OF THE COPY RIGHT ACT WHICH PERMITS THE COPYRIGHT HOLDER TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN AN Y MEDIUM BY ELECTRONIC MEANS. WE MAY ALSO NOTICE SECTION 52(1)( AA) OF THE COPYRIGHT ACT WHICH LISTS OUT CERTAIN ACTS WHICH CA NNOT BE CONSIDERED AS INFRINGEMENT OF COPYRIGHT. THE PARTIC ULAR CLAUSE PERMITS THE MAKING OF COPIES OR ADAPTATION OF A COM PUTER PROGRAMME BY THE LAWFUL POSSESSOR OF THE COPY AND T HE COMPUTER PROGRAMME IN ORDER TO UTILIZE THE PUBLIC P ROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED OR TO MAK E BACKUP COPIES PURELY AS A TEMPORARY PROTECTION AGAINST LOS S, DESTRUCTION OR DAMAGE. THEREFORE, MERELY BECAUSE TH E CELLULAR OPERATOR HAS BEEN PERMITTED TO TAKE COPIES JUST FOR BACKUP PURPOSES, IT CANNOT BE SAID THAT IT HAS ACQUIRED A COPYRIGHT IN THE SOFTWARE. 160. CLAUSE 20.4(C) MAKES IT MANDATORY FOR THE CELL ULAR OPERATOR, WHILE MAKING COPIES OF THE SOFTWARE FOR BACKUP PURP OSES, TO ALSO MARK THE COPIED SOFTWARE WITH COPYRIGHT OR OTHER MA RKING TO SHOW THAT THE RIGHTS OF THE ASSESSEE ARE RESERVED. THIS IS ONE MORE INDICATION THAT WHAT THE CELLULAR OPERATOR ACQUIRED IS NOT A COPYRIGHT. 161. CLAUSE 20.4(D) SAYS THAT THE CELLULAR OPERATOR CANNOT USE THE SOFTWARE FOR ANY OTHER PURPOSE THAN WHAT IS PERMITT ED AND SHALL NOT ALSO LICENSE OR SELL OR IN ANY MANNER ALIENATE OR P ART WITH ITS POSSESSION. THIS HAS TO BE READ WITH CLAUSE 20.5 WH ICH SAYS THAT THE LICENSE CAN BE TRANSFERRED, BUT ONLY WHEN THE G SM SYSTEM ITSELF IS SOLD BY THE CELLULAR OPERATOR TO A THIRD PARTY. THIS IN A WAY SHOWS THAT THE SOFTWARE IS ACTUALLY PART OF THE HARDWARE AND IT HAS NO USE OR VALUE INDEPENDENT OF IT. THIS RESTRICTION PLACED ON THE CELLULAR OPERATOR (NOT TO LICENSE OR SELL THE SOFTWARE) RUNS COUNTER TO SECTION 14(B)(II) OF THE COPYRIGHT ACT WHICH PERMITS A COPY RIGHT HOLDER TO SELL OR LET OUT ON COMMERCIAL RENTAL THE COMPUTER PROGRA MME. FOR THIS REASON ALSO IT CANNOT BE SAID THAT JTM OR ANY CELLU LAR OPERATOR ACQUIRED A COPYRIGHT IN THE SOFTWARE. 162. A CONJOINT READING OF THE TERMS OF THE SUPPLY CONTRACT AND THE PROVISIONS OF THE COPYRIGHT ACT, 1957 CLEARLY SHOWS THAT THE CELLULAR OPERATOR CANNOT EXPLOIT THE COMPUTER SOFTWARE COMME RCIALLY WHICH IS 12 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 THE VERY ESSENCE OF A COPYRIGHT. IN OTHER WORDS A H OLDER OF A COPYRIGHT IS PERMITTED TO EXPLOIT THE COPYRIGHT COM MERCIALLY AND IF HE IS NOT PERMITTED TO DO SO THEN WHAT HE HAS ACQUIRED CANNOT BE CONSIDERED AS A COPYRIGHT. IN THAT CASE, IT CAN ONL Y BE SAID THAT HE HAS ACQUIRED A COPYRIGHTED ARTICLE. A SMALL EXAMPLE MAY CLARIFY THE POSITION. THE PURCHASER OF A BOOK ON INCOME-TAX ACQ UIRES ONLY A COPYRIGHTED ARTICLE. ON THE OTHER HAND, A RECORDING COMPANY WHICH HAS RECORDED A VOCALIST HAS ACQUIRED THE COPYRIGHT IN THE MUSIC RENDERED AND IS, THEREFORE, PERMITTED TO EXPLOIT TH E RECORDING COMMERCIALLY. IN THIS CASE THE MUSIC RECORDING COMP ANY HAS NOT MERELY ACQUIRED A COPYRIGHTED ARTICLE IN THE FORM O F A RECORDING, BUT HAS ACTUALLY ACQUIRED A COPYRIGHT TO REPRODUCE THE MUSIC AND EXPLOIT THE SAME COMMERCIALLY. IN THE PRESENT CASE WHAT JTM OR ANY OTHER CELLULAR OPERATOR HAS ACQUIRED UNDER THE SUPPLY CON TRACT IS ONLY THE COPYRIGHTED SOFTWARE, WHICH IS AN ARTICLE BY ITSELF AND NOT ANY COPYRIGHT THEREIN. 163. WE MAY NOW BRIEFLY DEAL WITH THE OBJECTIONS OF MR. G.C. SHARMA, THE LEARNED SENIOR COUNSEL FOR THE DEPARTME NT. HE CONTENDED THAT IF A PERSON OWNS A COPYRIGHTED ARTIC LE THEN HE AUTOMATICALLY HAS A RIGHT OVER THE COPYRIGHT ALSO. WITH RESPECT, THIS OBJECTION DOES NOT APPEAR TO US TO BE CORRECT. MR. DASTUR FILED AN EXTRACT FROM IYENGAR'S COPYRIGHT ACT (3RD EDITION) EDITED BY R.G. CHATURVEDI. THE FOLLOWING OBSERVATIONS OF THE AUTHO R ARE ON THE POINT: '(H) COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT , COPYRIGHTED: IT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH A S A MANUSCRIPT. THE COPYRIGHT OWNER MAY DISPOSE OF IT O N SUCH TERMS AS HE MAY SEE FIT. HE HAS AN INDIVIDUAL RIGHT OF EXCLUSIVE ENJOYMENT. THE TRANSFER OF THE MANUSCRIPT DOES NOT, OF ITSELF, SERVE TO TRANSFER THE COPYRIGHT THEREIN. THE TRANSFER OF THE OWNERSHIP OF A PHYSICAL THING IN WHICH COPYRIGH T EXISTS GIVES TO THE PURCHASER THE RIGHT TO DO WITH IT (THE PHYSICAL THING) WHATEVER HE PLEASES, EXCEPT THE RIGHT TO MAK E COPIES AND ISSUE THEM TO THE PUBLIC' (UNDERLINE IS OURS). THE ABOVE OBSERVATIONS OF THE AUTHOR SHOW THAT ONE CANNOT HAVE THE COPYRIGHT RIGHT WITHOUT THE COPYRIGHTED ARTICLE BUT AT THE SAME TIME JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DO ES NOT FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. MR. SHARMA'S OBJE CTION CANNOT BE ACCEPTED. 13 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 164. IT IS NOT NECESSARY, THEREFORE, TO CONSIDER TH E ALTERNATIVE ARGUMENT OF MR. DASTUR, NAMELY, THAT EVEN ASSUMING THAT THE DEPARTMENT IS RIGHT IN SAYING THAT IF YOU HAVE THE COPYRIGHTED ARTICLE, YOU ALSO HAVE THE COPYRIGHT RIGHT THEREIN, STILL IT WOULD MEAN THAT THE COPYRIGHT RIGHTS ARE TRANSFERRED (ACQUIRED BY JTM) AND IT WOULD NOT BE A CASE OF MERELY GIVING THE RIGHT TO U SE AND CONSEQUENTLY ARTICLE 13 OF THE DTAA WOULD NOT APPLY . MR. DASTUR, HOWEVER, WAS FAIR ENOUGH TO CONCEDE THAT IF THE DEP ARTMENT IS RIGHT IN SAYING THAT IF YOU HAVE THE COPYRIGHTED ARTICLE, YOU ALSO HAVE THE COPYRIGHTED RIGHTS, THEN CLAUSE (V) OF EXPLANATION 2 BELOW SECTION 9(1) OF THE INCOME-TAX ACT WILL APPLY BECAUSE HIS C LAUSE ROPES IN 'TRANSFER OF ALL OR ANY RIGHTS' AND IS NOT RESTRICT ED TO 'USE' OR 'RIGHT TO USE', THE COPYRIGHT. HOWEVER, HE ADDED THAT SINCE T HE BASIC PROPOSITION OF THE DEPARTMENT HAS BEEN DEMONSTRATED TO BE WRONG, CLAUSE (V) OF EXPLANATION 2 BELOW SECTION 9(1) IS N OT AN IMPEDIMENT TO ACCEPTING THE ASSESSEE'S CONTENTION. 165. WE MAY ALSO USEFULLY REFER TO THE COMMENTARY O N THE OECD MODEL CONVENTION (DATED 28.1.2003) WHICH IS OF PERS UASIVE VALUE AND WHICH THROWS CONSIDERABLE LIGHT ON THE CHARACTE R OF THE TRANSACTION AND THE TREATMENT TO BE GIVEN TO THE PA YMENTS FOR TAX PURPOSES. PARAGRAPH 14 OF THE COMMENTARY, A COPY OF WHICH WAS FILED IN PAPER BOOK NO. V IS RELEVANT: COMMENTARY ON ARTICLE 12 - PAPER BOOK V '14. IN OTHER TYPES OF TRANSACTIONS, THE RIGHTS ACQ UIRED IN RELATION TO THE COPYRIGHT ARE LIMITED TO THOSE NECE SSARY TO ENABLE THE USER TO OPERATE THE PROGRAM, FOR EXAMPLE , WHERE THE TRANSFEREE IS GRANTED LIMITED RIGHTS TO REPRODU CE THE PROGRAM. THIS WOULD BE THE COMMON SITUATION IN TRAN SACTIONS FOR THE ACQUISITION OF A PROGRAM COPY. THE RIGHTS T RANSFERRED IN THESE CASES ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. THEY ALLOW THE USER TO COPY THE PROGRAM, FOR EXAMPL E ONTO THE USER'S COMPUTER HARD DRIVE OR FOR ARCHIVAL PURPOSES . IN THIS CONTEXT, IT IS IMPORTANT TO NOTE THAT THE PROTECTIO N AFFORDED IN RELATION TO COMPUTER PROGRAMS UNDER COPYRIGHT LAW M AY DIFFER FROM COUNTRY TO COUNTRY. IN SOME COUNTRIES THE ACT OF COPYING THE PROGRAM ONTO THE HARD DRIVE OR RANDOM ACCESS ME MORY OF A COMPUTER WOULD, WITHOUT A LICENSE, CONSTITUTE A B REACH OF COPYRIGHT. HOWEVER, THE COPYRIGHT LAWS OF MANY COUN TRIES AUTOMATICALLY GRANT THIS RIGHT TO THE OWNER OF SOFT WARE WHICH INCORPORATES A COMPUTER PROGRAM. REGARDLESS OF WHET HER THIS RIGHT IS GRANTED UNDER LAW OR UNDER A LICENSE AGREE MENT WITH THE COPYRIGHT HOLDER, COPYING THE PROGRAM ONTO THE COMPUTER'S HARD DRIVE OR RANDOM ACCESS MEMORY OR MAKING AN ARC HIVAL 14 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 COPY IS AN ESSENTIAL STEP IN UTILIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFECTIVE OPERATION OF THE PRO GRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARAC TER OF THE TRANSACTION FOR TAX PURPOSES. PAYMENTS IN THESE TYP ES OF TRANSACTIONS WOULD BE DEALT WITH AS COMMERCIAL INCO ME IN ACCORDANCE WITH ARTICLE 7.' 166. WE MAY ALSO USEFULLY REFER TO THE PROPOSED AME NDMENTS TO THE REGULATIONS OF THE INTERNAL REVENUE SERVICE (IRS) I N THE USA. AGAIN THESE REGULATIONS MAY NOT BE BINDING ON US BU T THEY HAVE A PERSUASIVE VALUE AND THROW LIGHT ON THE QUESTION BE FORE US, NAMELY THE DIFFERENCE BETWEEN A COPYRIGHT RIGHT AN D A COP YRIGHTED ARTICLE. THESE REGULATIONS HAVE BEEN PLACED AT PAGES 136 TO 157 OF PAPER BOOK NO. II. THE ACTUAL REGULATIONS AS WELL AS THE EXPLANATORY NOTE EXPLAINING THE OBJECT AND THE PURPOSE OF THE PROPOS ED REGULATIONS HAVE ALSO BEEN GIVEN. IN PARAGRAPH 1 OF THE NOTE TI TLED 'BACKGROUND', IT HAS BEEN STATED THAT THE PROPOSED REGULATIONS REQUIRE THAT A TRANSACTION INVOLVING A COMPUTER PRO GRAMME MAY BE TREATED AS BEING ONE OF THE FOUR POSSIBLE CATEGORIE S. TWO SUCH CATEGORIES ARE THE TRANSFER OF COPYRIGHT RIGHTS AND THE TRANSFER OF A COPYRIGHTED ARTICLE. THE U.S. REGULATIONS DISTINGUI SHED BETWEEN TRANSFER OF COPYRIGHT RIGHTS AND TRANSFER OF COPYRI GHTED ARTICLES BASED ON THE TYPE OF RIGHTS TRANSFERRED TO THE TRAN SFEREE. BRIEFLY STATED, IF THE TRANSFEREE ACQUIRES A COPY OF A COMP UTER PROGRAMME BUT DOES NOT ACQUIRE ANY OF THE RIGHTS IDENTIFIED I N CERTAIN SECTIONS (OF THE U.S. REGULATIONS), THE REGULATION CLASSIFIE D THE TRANSACTION AS THE TRANSFER OF A COPYRIGHTED ARTICLE. PARAGRAPH 3 OF THE EXPLANATORY NOTE SAYS THAT IF A TRANSFER OF A COMPUTER PROGRAMM E RESULTS IN THE TRANSFEREE ACQUIRING ANY ONE OR MORE OF THE LISTED RIGHTS, IT IS A TRANSFER OF A COPYRIGHT RIGHT. 167. PARAGRAPH 4 SAYS THAT IF A PERSON ACQUIRES A C OPY OF A COMPUTER PROGRAMME BUT DOES NOT ACQUIRE ANY OF THE FOUR LISTED COPYRIGHT RIGHTS, HE GETS ONLY A COPYRIGHTED ARTICL E BUT NO COPYRIGHT. 168. THE ACTUAL REGULATIONS BRING OUT THE DISTINCTI ON VERY CLEARLY BETWEEN THE COPYRIGHT RIGHT AND A COPYRIGHTED ARTIC LE. THEY ALSO SPECIFY THE FOUR RIGHTS WHICH, IF ACQUIRED BY THE T RANSFEREE, CONSTITUTE HIM THE OWNER OF A COPYRIGHT RIGHT. THEY ARE: (A) THE RIGHT TO MAKE COPIES OF THE COMPUTER PROGRA MME FOR PURPOSES OF DISTRIBUTION TO THE PUBLIC BY SALE OR O THER TRANSFER OF OWNERSHIP, OR BY RENTAL, LEASE, OR LENDING. 15 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 (II) THE RIGHT TO PREPARE DERIVATIVE COMPUTER PROGR AMMES BASED UPON THE COPYRIGHTED COMPUTER PROGRAMME (III) THE RIGHT TO MAKE A PUBLIC PERFORMANCE OF THE COMPUTER PROGRAMME. (IV) THE RIGHT TO PUBLICALLY DISPLAY THE COMPUTER P ROGRAMME. 169. A COPYRIGHTED ARTICLE HAS BEEN DEFINED IN THE REGULATION (PAGE 147 OF THE PAPER BOOK) AS INCLUDING A COPY OF A COM PUTER PROGRAMME FROM WHICH THE WORK CAN BE PERCEIVED, REPRODUCED OR OTHERWISE COMMUNICATED EITHER DIRECTLY OR WITH THE AID OF A M ACHINE OR DEVICE. THE COPY OF THE PROGRAMME MAY BE FIXED IN THE MAGNE TIC MEDIUM OF A FLOPPY DISC OR IN THE MAIN MEMORY OR HARD DRIVE O F A COMPUTER OR IN ANY OTHER MEDIUM. 170. SO FAR AS THE TRANSFER OF COPYRIGHTED ARTICLES AND COPYRIGHT RIGHTS ARE CONCERNED, THE REGULATION GOES ON TO SAY (PAGE 148 OF THE PAPER BOOK) THAT THE QUESTION WHETHER THERE WAS A T RANSFER OF A COPYRIGHT RIGHT OR ONLY OF A COPYRIGHTED ARTICLE MU ST BE DETERMINED TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE BENEFITS AND BURDEN OF OWNERSHIP WHICH HAVE BEE N TRANSFERRED. SEVERAL EXAMPLES HAVE BEEN GIVEN BELOW THESE REGULA TIONS TO FIND OUT WHETHER A PARTICULAR TRANSFER IS A TRANSFER OF A COPYRIGHT RIGHT OR A TRANSFER OF A COPYRIGHTED ARTICLE. 171. THE COMMENTARY OF 'CHARL P. DU TOIT' ON THIS Q UESTION HAS BEEN PLACED AT PAGES 202 TO 204 OF PAPER BOOK NO. I I. THE COMMENTARY IS TITLED 'BENEFICIAL OWNERSHIP OF ROYAL TIES IN BILATERAL TAX TREATIES.' HE HAS OPINED THAT ARTICLES SUCH AS BOOKS AND RECORDS ARE COPYRIGHTED ARTICLES AND IF THEY ARE SO LD, THE USER DOES NOT OBTAIN THE RIGHT TO USE ANY SIGNIFICANT RIGHTS IN THE UNDERLYING COPYRIGHT ITSELF, WHICH IS WHAT SHOULD DETERMINE TH E CHARACTERIZATION OF THE REVENUE AS SALE PROCEEDS RATHER THAN ROYALTI ES. HE HAS FURTHER OPINED THAT CONSIDERATION RELATING TO SALE OF SOFTW ARE CAN AMOUNT TO ROYALTY ONLY IN LIMITED CIRCUMSTANCES. 172. FOR THE ABOVE REASONS, WE ARE OF THE VIEW THAT THE PAYMENT BY THE CELLULAR OPERATOR IS NOT FOR ANY COPYRIGHT IN T HE SOFTWARE BUT IS ONLY FOR THE SOFTWARE AS SUCH AS A COPY RIGHTED ART ICLE. IT FOLLOWS THAT THE PAYMENT CANNOT BE CONSIDERED AS ROYALTY WITHIN THE MEANING OF EXPLANATION 2 BELOW SECTION 9(1) OF THE INCOME-TAX ACT OR ARTICLE OF THE DTAA WITH SWEDEN. -------- 184. IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD T HAT THE SOFTWARE SUPPLIED WAS A COPYRIGHTED ARTICLE AND NOT A COPYRI GHT RIGHT, AND THE PAYMENT RECEIVED BY THE ASSESSEE IN RESPECT OF THE SOFTWARE CANNOT 16 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME-TA X ACT OR THE DTAA. 22. THE HONBLE HIGH COURT OF DELHI IN DIT VS. INFR ASOFT LTD. (SUPRA) THEN REFERS TO THE DECISION OF THE HONBLE HIGH COURT OF DELHI ITSELF IN DIT VS. ERICSSON A.B. (2012) 343 ITR 470 (DEL), WHEREIN IT WAS HELD THAT ONCE IT IS HELD THAT PAYMENT IN QUESTION IS NOT ROYALTY WHICH WOULD COME WITHIN THE MISCHIEF OF CLAUSE (VI), THE EXPLANATION WILL H AVE NO APPLICATION AND THAT THE QUESTION OF APPLICABILITY OF THE EXPLANATI ON WOULD ARISE ONLY WHEN PAYMENT IS TO BE TREATED AS 'ROYALTY' WITHIN T HE MEANING OF CLAUSE (VI) OR 'FEE FOR TECHNICAL SERVICES' AS PROVIDED IN CLAUSE (VII) OF THE ACT. AFTER REFERRING TO DIFFERENT TERMS OF LICENSING SOF TWARE AGREEMENT, THE HONBLE HIGH COURT OBSERVED AS UNDER:- 85. THE LICENSING AGREEMENT SHOWS THAT THE LICENSE IS NON- EXCLUSIVE, NON-TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACCORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE LICENSEE IS PERMI TTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INF ORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATE D THAT THE COPY SO MADE SHALL INCLUDE INFRASOFTS COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSI VE PROPERTY OF INFRASOFT. THE SOFTWARE INCLUDES A LICENCE AUTHORIS ATION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWA RE IS TO BE USED ONLY FOR LICENSEES OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENCE SCHEDULE. WITHOUT THE CONSENT OF THE ASSESS EE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUBLICENSED OR TRAN SFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AF FILIATED ENTITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUR EAU OR FOR DATA PROCESSING. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVERSE-ENGINEER THE SOFT WARE WITHOUT INFRASOFTS WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE U SE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREAC H OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. AL L COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE , AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRA SOFT. 23. THE HONBLE HIGH COURT CONCLUDED BY HOLDING AS UNDER:- 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGH TS (INCLUDING THE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. IN ORDER TO TREAT THE CONSIDERATIO N PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT T HE LICENSEE, BY 17 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPY RIGHT RIGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETW EEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHT ED ARTICLE'. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COP YRIGHTED. COPYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MA NUSCRIPT. JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DOES NO T FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LICENCE IN RESPECT OF COPYRIGHT . COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM SALE CONSIDERATION PAID FOR COPYRIGHTED ARTICLE. THIS SALE CONSIDERATION IS FOR PURCHASE OF GOODS AND IS NOT ROYALTY. 88. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO THOSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PRO GRAM. THE RIGHTS TRANSFERRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COMPUTER'S HARD DRIVE OR RANDO M ACCESS MEMORY OR MAKING AN ARCHIVAL COPY IS AN ESSENTIAL S TEP IN UTILIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFECTIVE OPE RATION OF THE PROGRAM BY THE USER, SHOULD BE DISREGARDED IN ANALY ZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYM ENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINE SS INCOME IN ACCORDANCE WITH ARTICLE 7. 89. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY PA ID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRO DUCT WITH THE OWNER RETAINING HIS COPYRIGHT, IS NOT THE SAME THING AS T RANSFERRING OR ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. VIEWED FROM THIS ANG LE, A NON - EXCLUSIVE AND NON-TRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHO RITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN AR TICLE 12 OF DTAA. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY TO RESTRICT USE OF THE COPYRIGHTED PRODUCT FOR INTERNAL BUSINES S PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPY RIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT . THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACH ED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHORIZING OR ENABLING A CUS TOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN W ITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, AMO UNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE COPYRIGHT. THE TRANSFER OF RIGHTS IN OR OVER CO PYRIGHT OR THE 18 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 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 W HO DIVESTS HIMSELF OF THE RIGHTS HE POSSESSES PRO TANTO. 90. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN THE COMPUT ER FOR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUS INESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUN CTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FR OM THE RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ON LY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDEN TAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION TO DO. 91. THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY THE ASSESSEE AND IT IS A CASE OF MERE TRANSFER OF A COP YRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRES ENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDER ED AS ROYALTY EITHER UNDER THE INCOME TAX ACT OR UNDER THE DTAA. 24. THE HONBLE HIGH COURT THEN REFERRED TO THE DEC ISION OF THE HONBLE HIGH COURT OF KARNATAKA IN CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) AND DISTINGUISHED THE SAME HOLDING AS UNDER:- 98. WE ARE NOT IN AGREEMENT WITH THE DECISION OF TH E ANDHRA PRADESH HIGH COURT IN THE CASE OF SAMSUNG ELECTRONI CS CO. LTD (SUPRA) THAT RIGHT TO MAKE A COPY OF THE SOFTWARE AND STORING THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TAKING BACKUP COPY WOULD AMOUNT TO COPYRIGHT WO RK UNDER SECTION 14(1) OF THE COPYRIGHT ACT AND THE PA YMENT MADE FOR THE GRANT OF THE LICENCE FOR THE SAID PURP OSE WOULD CONSTITUTE ROYALTY. THE LICENSE GRANTED TO THE LICE NSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME A ND STORING IT IN THE COMPUTER FOR HIS OWN USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE US E OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPO SE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITAT IVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID P ROVISION BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHT ED PRODUCT. THE RIGHT TO MAKE A BACKUP COPY PURELY AS A TEMPORA RY 19 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE HAS BEEN HELD BY THE DELHI HIGH COURT IN DIT V. M/S NOKIA NETWORK S OY (SUPRA) AS NOT AMOUNTING TO ACQUIRING A COPYRIGHT I N THE SOFTWARE. 25. FURTHER, THE HONBLE HIGH COURT OF DELHI IN PR. CIT VS M.TECH INDIA LTD. (P.) [2017] 381 ITR 31 (DEL.) HELD AS UNDER :- 12. IN THE CASES WHERE AN ASSESSEE ACQUIRES THE RI GHT TO USE A SOFTWARE, THE PAYMENT SO MADE WOULD AMOUNT TO ROYAL TY. HOWEVER IN CASES WHERE THE PAYMENTS ARE MADE FOR PURCHASE O F SOFTWARE AS A PRODUCT, THE CONSIDERATION PAID CANNOT BE CONSIDE RED TO BE FOR USE OR THE RIGHT TO USE THE SOFTWARE. IT IS WELL SETTLE D THAT WHERE SOFTWARE IS SOLD AS A PRODUCT IT WOULD AMOUNT TO SALE OF GOO DS. IN THE CASE OF TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADES H: (2004) 271 ITR 401 (SC), THE SUPREME COURT EXAMINED THE TRANSA CTIONS RELATING TO THE PURCHASE AND SALE OF SOFTWARE RECORDED ON A CD IN THE CONTEXT OF THE ANDHRA PRADESH GENERAL SALES TAX ACT. THE CO URT HELD THE SAME TO BE GOODS WITHIN THE MEANING OF SECTION 2(B) OF THE SAID ACT AND CONSEQUENTLY EXIGIBLE TO SALES TAX UNDER THE SA ID ACT. CLEARLY, THE CONSIDERATION PAID FOR PURCHASE OF GOODS CANNOT BE CONSIDERED AS ROYALTY. THUS, IT IS NECESSARY TO MAKE A DISTI NCTION BETWEEN THE CASES WHERE CONSIDERATION IS PAID TO ACQUIRE THE RI GHT TO USE A PATENT OR A COPYRIGHT AND CASES WHERE PAYMENT IS MA DE TO ACQUIRE PATENTED OR A COPYRIGHTED PRODUCT/MATERIAL. IN CASE S WHERE PAYMENTS ARE MADE TO ACQUIRE PRODUCTS WHICH ARE PAT ENTED OR COPYRIGHTED, THE CONSIDERATION PAID WOULD HAVE TO B E TREATED AS A PAYMENT FOR PURCHASE OF THE PRODUCT RATHER THAN CON SIDERATION FOR USE OF THE PATENT OR COPYRIGHT. 26. THE HONBLE HIGH COURT HAS THUS, MADE DISTINCTI ON BETWEEN THE CASES WHERE CONSIDERATION IS PAID TO ACQUIRE RIGHT TO USE, PATENT OR COPYRIGHT AND CASES WHERE PAYMENT IS MADE TO ACQUIR E PATENTED OR COPYRIGHTED PRODUCTS / MATERIAL AND HAS HELD THAT W HERE THE PAYMENT IS MADE TO ACQUIRE PRODUCTS WHICH ARE PATENTED OR COPY RIGHTED, CONSIDERATION PAID WOULD HAVE TO BE TREATED AS PAYMENT FOR PURCHA SE OF PRODUCT RATHER THAN CONSIDERATION FOR USE OF PATENT OR COPYRIGHT. IN PARA 13, THE HONBLE HIGH COURT IN PR.CIT VS. M.TECH INDIA (P) LTD. (SUP RA) REFERS TO EARLIER DECISION OF COORDINATE BENCH OF THE HONBLE HIGH CO URT OF DELHI IN DIT VS. INFRASOFT LTD. (SUPRA) AND ALSO REFERS TO THE RELIA NCE PLACED UPON BY THE REVENUE ON THE DECISION OF THE HONBLE HIGH COURT O F KARNATAKA IN CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) AND HOLDS THAT THE BENCH IN DIT VS. 20 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 INFRASOFT LTD. (SUPRA) HAS UNEQUIVOCALLY EXPRESSED ITS VIEW THAT IT WAS NOT IN AGREEMENT WITH THAT DECISION. THE QUESTION WAS THUS, DECIDED HOLDING THE CONSIDERATION PAID COULD NOT BE CONSIDERED AS ROYALTY FOR USE OR RIGHT TO USE SOFTWARE. 27. FURTHER, REFERENCE MAY ALSO BE MADE TO EARLIER DECISION OF THE HONBLE HIGH COURT OF DELHI IN DIT VS. ERICSSON A.B . (SUPRA). RELYING ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH (2004) 271 ITR 401 (SC), THE HONBLE HIGH COURT OF DELHI IN DIT VS. ERICSSON A.B. (SUPRA ) HAD HELD AS UNDER:- 56. A FORTIORARI WHEN THE ASSESSEE SUPPLIES THE SOF TWARE WHICH IS INCORPORATED ON A CD, IT HAS SUPPLIED TANGIBLE PROP ERTY AND THE PAYMENT MADE BY THE CELLULAR OPERATOR FOR ACQUIRING SUCH PROPERTY CANNOT BE REGARDED AS A PAYMENT BY WAY OF ROYALTY. .. 59. BE THAT AS IT MAY, IN ORDER TO QUALIFY AS ROYAL TY PAYMENT, WITHIN THE MEANING OF SECTION 9(1)(VI) AND PARTICULARLY CL AUSE (V) OF EXPLANATION 2 THERETO, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTI NG OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCI ENTIFIC WORK. SECTION 2(O) OF THE COPYRIGHT ACT MAKES IT CLEAR THAT A COM PUTER PROGRAMME IS TO BE REGARDED AS A 'LITERARY WORK'. THUS, IN OR DER TO TREAT THE CONSIDERATION PAID BY THE CELLULAR OPERATOR AS ROYA LTY, IT IS TO BE ESTABLISHED THAT THE CELLULAR OPERATOR, BY MAKING S UCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WORK. IN THE PRESENT CASE, THIS HAS NOT BEEN ESTABLISHED. IT IS NOT EVEN THE CASE OF THE REVENUE THAT ANY RIGHT CONTEMPLATED UNDER SECTI ON 14 OF THE COPYRIGHT ACT, 1957, STOOD VESTED IN THIS CELLULAR OPERATOR AS A CONSEQUENCE OF ARTICLE 20 OF THE SUPPLY CONTRACT. D ISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIGHT RIG HT' AND A 'COPYRIGHTED ARTICLE'. 60. MR. DASTUR IS RIGHT IN THIS SUBMISSION WHICH IS BASED ON THE COMMENTARY ON THE OECD MODEL CONVENTION. SUCH A DIS TINCTION HAS BEEN ACCEPTED IN A RECENT RULING OF THE AUTHORITY F OR ADVANCE RULING (AAR) IN DASSAULT SYSTEMS KK 229 CTR 125. WE ALSO F IND FORCE IN THE SUBMISSION OF MR. DASTUR THAT EVEN ASSUMING THE PAYMENT MADE BY THE CELLULAR OPERATOR IS REGARDED AS A PAYMENT B Y WAY OF ROYALTY AS DEFINED IN EXPLANATION 2 BELOW SECTION 9 (1) (VI ), NEVERTHELESS, IT CAN NEVER BE REGARDED AS ROYALTY WITHIN THE MEANING OF THE SAID TERM IN ARTICLE 13, PARA 3 OF THE DTAA. THIS IS SO BECAUSE THE DEFINITION IN THE DTAA IS NARROWER THAN THE DEFINIT ION IN THE ACT. ARTICLE 13(3) BRINGS WITHIN THE AMBIT OF THE DEFINI TION OF ROYALTY A PAYMENT MADE FOR THE USE OF OR THE RIGHT TO USE A C OPYRIGHT OF A 21 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 LITERARY WORK. THEREFORE, WHAT IS CONTEMPLATED IS A PAYMENT THAT IS DEPENDENT UPON USER OF THE COPYRIGHT AND NOT A LUMP SUM PAYMENT AS IS THE POSITION IN THE PRESENT CASE. WE THUS HOLD THAT PAYMENT RECEIVED BY THE ASSESSEE WAS TOWARDS THE TITLE AND GSM SYSTEM OF WHICH SOFTWARE WAS AN I NSEPARABLE PARTS INCAPABLE OF INDEPENDENT USE AND IT WAS A CON TRACT FOR SUPPLY OF GOODS. THEREFORE, NO PART OF THE PAYMENT THEREFO RE CAN BE CLASSIFIED AS PAYMENT TOWARDS ROYALTY. 28. THE HONBLE HIGH COURT OF DELHI IN DIT VS. INFR ASOFT LTD. (SUPRA) HAS TAKEN NOTE OF THE SAID DECISION OF DIT VS. ERICSSON A.B. (SUPRA) IN PARA 71 AND IN PARA 72 HELD AS UNDER:- 72. THE DELHI HIGH COURT FURTHER IN ERICSSON CASE (SUPRA) FURTHER HELD THAT ONCE IT IS HELD THAT PAYMENT IN QUESTION IS NOT ROYALTY WHICH WOULD COME WITHIN THE MISCHIEF OF CLAUSE (VI), THE EXPLANATION WILL HAVE NO APPLICATI ON AND THAT THE QUESTION OF APPLICABILITY OF THE EXPLANATION WOULD ARISE ONLY WHEN PAYMENT IS TO BE TREATED AS 'ROYALTY' WITHIN THE ME ANING OF CLAUSE (VI) OR 'FEE FOR TECHNICAL SERVICES' AS PROVIDED IN CLAUSE (VII) OF THE ACT. [[ 29. THE HONBLE HIGH COURT OF DELHI IN DIT VS. NOKI A NETWORKS OY (2013) 358 ITR 259 (DEL) HAD HELD THAT EXPLANATION 4 WAS ADDED TO SECTION 9(1)(VI) OF THE ACT BY FINANCE ACT, 2012 WITH RETRO SPECTIVE EFFECT FROM 01.06.1976 TO PROVIDE THAT ALL CONSIDERATION FOR US E OF SOFTWARE SHALL BE ASSESSABLE AS ROYALTY. HOWEVER, THE DEFINITION I N DTAA HAS BEEN LEFT UNCHANGED. IT IS AN ADMITTED FACT THAT THOUGH EXPL ANATION 5 HAS BEEN INSERTED IN SECTION 9(1)(VI) OF THE ACT BUT NO AMEN DMENT HAS BEEN MADE TO THE DEFINITION OF ROYALTY UNDER DTAA AND SINCE T HE PROVISIONS OF DTAA ARE BENEFICIAL TO THE ASSESSEE, THEN THE SAID PROVI SIONS WOULD BE APPLIED. 30. IN VIEW OF THE ABOVE SAID PROPOSITIONS, WE HOLD THAT WHAT HAS BEEN TRANSFERRED IS LIMITED RIGHT TO USE COPYRIGHTED MAT ERIAL, THEN THE RECEIPTS ON SALE OF LICENSING OF SOFTWARE IS NOT ROYALTY IN VIE W OF THE BENEFICIAL PROVISIONS OF THE DTAA BETWEEN INDIA AND SWEDEN. W E FURTHER HOLD THAT AMENDED DEFINITION OF ROYALTY UNDER THE DOMESTIC LAW CANNOT BE EXTENDED TO THE DEFINITION OF ROYALTY UNDER DTAA, WHERE THE TERM ROYALTY ORIGINALLY DEFINED HAS NOT BEEN AMENDED. AS PER DEFINITION OF ROYALTY UNDER DTAA, IT IS PAYMENT RECEIVED IN CON SIDERATION FOR USE OR RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC.; THUS, PURCHASE OF COPYRIGHTED ARTICLE DOES NOT FALL IN RE ALM OF ROYALTY. WE ALSO HOLD THAT SINCE THE PROVISIONS OF DTAA OVERRIDES TH E PROVISIONS OF INCOME TAX ACT AND ARE MORE BENEFICIAL AND THE DEFINITION OF ROYALTY HAVING NOT 22 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 UNDERGONE ANY AMENDMENT IN TAX TREATY, THE ASSESSEE WAS NOT LIABLE TO BE TAXED ON AFORESAID RECEIPTS OF LICENSING SOFTWAR E AND ALSO ON SALE OF HARDWARE. ACCORDINGLY, WE HOLD SO. THE GROUND OF APPEAL NOS. 3 TO 6 ARE THUS ALLOWED. 13. WE MAY ALSO REFER TO THE DECISION OF THE PUNE B ENCH OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE I.E. SYM ANTAC CORPORATION WHEREIN ALSO SIMILAR ISSUE AROSE AND THE ONLY DIFFERENCE WA S THAT ASSESSEE THEREIN WAS BASED IN USA AS AGAINST THE ASSESSEE, WHO IS BASED IN SINGAPORE. IT MAY BE POINTED OUT THAT THE PROVISIONS OF DTAA BETWEEN IND IA AND SWEDEN; ALSO BETWEEN INDIA AND USA; & INDIA AND SINGAPORE IN ART ICLE 12(3) ARE SIMILAR. THE TRIBUNAL VIDE PARAS 5 ONWARDS HAD CONSIDERED THE FA CTUAL ASPECTS OF THE CASE AND HAD RELIED ON THE RATIO LAID DOWN BY THE HONBL E DELHI HIGH COURT IN INFRASOFT LTD. (SUPRA) AND PUNE BENCH OF THE TRIBUN AL IN JOHN DEERE INDIA PVT. LTD VS DDIT IN ITA NOS. 905 & 906/PUN/2015 VIDE ORD ER DATED 23.01.2019 AND HELD AS UNDER:- 8. THE ASSESSEE IS NON-RESIDENT ENTITY AND IS R ECIPIENT OF CONSIDERATION ON SALE OF SOFTWARE PRODUCTS. THE ASSESSEE CLAIMS T HAT THE SAID INCOME IS NOT TAXABLE IN ITS HANDS. ON THE OTHER HAND, THE CA SE OF REVENUE AUTHORITIES IS THAT RECEIPTS FROM SALE OF SOFTWARE LICENSE ARE TO BE TAXED AS 'ROYALTY' BOTH UNDER THE INCOME TAX ACT AND AS PER DTAA WITH USA. THE ASSESSEE CLAIMS TO HAVE SOLD STANDARD SOFTWARE TO I TS CUSTOMERS, WHEREIN END USERS WERE NOT ALLOWED TO MODIFY, COPY, SUB-LIC ENSE, RENT, LEASE OR TRANSFER ANY PORTION OF SAID SOFTWARE. THE SAID ART ICLE SOLD BY THE ASSESSEE WAS A COPYRIGHTED ARTICLE AND THE ASSESSEE CLAIMED THAT IT HAD NOT TRANSFERRED COPYRIGHT OF THE LITERARY, ARTISTIC OR SCIENTIFIC WORK TO THE END USER. 9. THE HON'BLE HIGH COURT OF DELHI IN THE CASE O F INFRASOFT LTD. (SUPRA) HAD HELD THAT SALE OF STANDARD SOFTWARE IS NOT COVE RED UNDER THE REALM OF 'ROYALTY' AS DEFINED UNDER THE INCOME TAX ACT OR AS PER DTAA. 23 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 10. FURTHER, PUNE BENCH OF TRIBUNAL IN JOHN DEERE INDIA PVT. LTD. VS. DDIT (SUPRA) WHILE DECIDING THE ISSUE OF TAX DEDUCT ION AT SOURCE UNDER SECTION 201(1) OF THE ACT ON PAYMENT MADE FOR PURCH ASE OF SOFTWARE HAS ELABORATED ON THE SETTLED LEGAL PROPOSITIONS FROM P ARA 45 ONWARDS AND HAD OBSERVED AS UNDER:- '65. THE HON BLE HIGH COURT OF DELHI IN DIT VS. INFRASOFT LTD. ( SUPRA) HAVE NOTED THAT UNDER THE LICENSE AGREEMENT, LICENS E WAS NON- EXCLUSIVE, NON-TRANSFERRABLE AND THE SOFTWARE HAD T O BE USED IN ACCORDANCE WITH AGREEMENT; THE LICENSEE WAS PERMITT ED TO MAKE ONLY ONE COPY OF SOFTWARE AND ASSOCIATED SUPPORT INFORMA TION AND THAT ALSO FOR BACKUP PURPOSE. ALL COPIES OF SOFTWARE WERE THE EXCLUSIVE PROPERTY OF INFRASOFT AND IT WAS STIPULATED THAT COPY SHALL INCLUDE INF RASOFT COPYRIGHT AND ALL COPIES OF SOFTWARE ALSO; AND WITH OUT CONSENT OF THE LICENSOR, THE SOFTWARE COULD NOT BE LOANED, RENTED, SOLD, SUB-LICENSED OR TRANSFERRED TO ANY THIRD PARTY. THE HON BLE HIGH COURT FURTHER WENT ON TO HOLD THAT DISTINCTION HAD TO BE MADE BETWEEN AC QUISITION OF COPYRIGHT AND COPYRIGHTED ARTICLE; COPYRIGHTING WAS DISTINCT FROM MATERIAL OBJECT. 66. THE HON BLE HIGH COURT IN DIT VS. INFRASOFT LTD. (SUPRA) VI DE ITS DECISION DATED 22.11.2013 WAS OF THE VIEW THAT WHER E THE ASSESSEE WAS GOVERNED BY INDO-US DTAA, THE INCOME OF ASSESSE E WOULD BE CHARGEABLE TO TAX IN TERMS OF PROVISIONS OF INDO-US DTAA AND IF THE SAME WAS MORE ADVANTAGEOUS OR BENEFICIAL, THEN DEFI NITION OF THE WORD ROYALTY AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT COULD NOT BE APPLIED. THE HON BLE HIGH COURT VIDE PARAS 64 AND 65 HELD AS UNDER:- '64. TO BE TAXABLE AS ROYALTY INCOME COVERED BY ART ICLE 12 OF THE DTAA THE INCOME OF THE ASSESSEE SHOULD HAVE BEEN GENERAT ED BY THE 'USE OF OR THE RIGHT TO USE OF' ANY COPYRIGHT. 65. THE ISSUE WHETHER CONSIDERATION FOR SOFTWARE WA S ROYALTY CAME UP FOR CONSIDERATION BEFORE THE SPECIAL BENCH OF THE T RIBUNAL IN DELHI IN THE CASE OF MOTOROLA INC VS DEPUTY CIT (2005) 147 TAXMAN 39 (DELHI). THE TRIBUNAL HAS HELD AS UNDER: 155. IT APPEARS TO US FROM A CLOSE EXAMINATION OF T HE MANNER IN WHICH THE CASE HAS PROCEEDED BEFORE THE INCOME- TAX AUTHORITIES AND THE ARGUMENTS ADDRESSED BEFORE US THAT THE CRUX OF T HE ISSUE IS WHETHER THE PAYMENT IS FOR A COPYRIGHT OR FOR A COPYRIGHTED ARTICLE. IF IT IS FOR COPYRIGHT, IT SHO ULD BE CLASSIFIED AS ROYALTY BOTH UNDER THE INCOME-TAX ACT AND UNDER THE DTAA AND IT WOULD BE TAXABLE IN THE HANDS OF THE ASSESSEE ON THAT BASIS. IF THE PAYMENT IS REALLY FOR A COPYRIGHTED ARTICLE, TH EN IT ONLY REPRESENTS THE PURCHASE PRICE OF THE ARTICLE AND, T HEREFORE, 24 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE AC T OR UNDER THE DTAA. THIS ISSUE REALLY IS THE KEY TO THE ENTIR E CONTROVERSY AND WE MAY NOW PROCEED TO ADDRESS THIS ISSUE. 156. WE MUST LOOK INTO THE MEANING OF THE WORD 'COP YRIGHT' AS GIVEN IN THE COPYRIGHT ACT, 1957. SECTION 14 OF THIS ACT DEF INES 'COPYRIGHT' AS 'THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF T HIS ACT, TO DO OR AUTHORIZE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY: --------- IT IS CLEAR FROM THE ABOVE DEFINITION THAT A COMPUT ER PROGRAMME MENTIONED IN CLAUSE (B) OF THE SECTION HAS ALL THE RIGHTS MENTIONED IN CLAUSE (A) AND IN ADDITION ALSO THE RIGHT TO SELL O R GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL A NY COPY OF THE COMPUTER PROGRAMME. THIS ADDITIONAL RIGHT WAS SUBST ITUTED W.E.F. 15.1.2000. THE DIFFERENCE BETWEEN THE EARLIER PROVI SION AND THE PRESENT ONE IS NOT OF ANY RELEVANCE. WHAT IS TO BE NOTED IS THAT THE RIGHT MENTIONED IN SUB -CLAUSE (II) OF CLAUSE (B) O F SECTION 14 IS AVAILABLE ONLY TO THE OWNER OF THE COMPUTER PROGRAM ME. IT FOLLOWS THAT IF ANY OF THE CELLULAR OPERATORS DOES NOT HAVE ANY OF THE RIGHTS MENTIONED IN CLAUSES (A) AND (B) OF SECTION 14, IT WOULD MEAN THAT IT DOES NOT HAVE ANY RIGHT IN A COPYRIGHT. IN THAT CAS E, THE PAYMENT MADE BY THE CELLULAR OPERATOR CANNOT BE CHARACTERIZED AS ROYALTY EITHER UNDER THE INCOME-TAX ACT OR UNDER THE DTAA. THE QUESTION, THEREFORE, TO BE ANSWERED IS WHETHER ANY OF THE OPERATORS CAN EXERCI SE ANY OF THE RIGHTS MENTIONED IN THE ABOVE PROVISIONS WITH REFER ENCE TO THE SOFTWARE SUPPLIED BY THE ASSESSEE. 157. WE MAY FIRST LOOK AT THE SUPPLY CONTRACT ITSEL F TO FIND OUT WHAT JTM, ONE OF THE CELLULAR OPERATORS, CAN RIGHTFULLY DO WITH REFERENCE TO THE SOFTWARE. WE MAY REMIND OURSELVES THAT JTM IS T AKEN AS A REPRESENTATIVE OF ALL THE CELLULAR OPERATORS AND TH AT IT WAS COMMON GROUND BEFORE US THAT ALL THE CONTRACTS WITH THE CE LLULAR OPERATORS ARE SUBSTANTIALLY THE SAME. CLAUSE 20.1 OF THE AGREEMEN T, UNDER THE TITLE 'LICENSE', SAYS THAT JTM IS GRANTED A NON - EXCLUSI VE RESTRICTED LICENSE TO USE THE SOFTWARE AND DOCUMENTATION BUT ONLY FOR ITS OWN OPERATION AND MAINTENANCE OF THE SYSTEM AND NOT OTHERWISE. TH IS CLAUSE APPEARS TO MILITATE AGAINST THE POSITION, IF IT WER E A COPYRIGHT, THAT THE HOLDER OF THE COPYRIGHT CAN DO ANYTHING WITH RESPEC T TO THE SAME IN THE PUBLIC DOMAIN. WHAT JTM IS PERMITTED TO DO IS ONLY TO USE THE SOFTWARE FOR THE PURPOSE OF ITS OWN OPERATION AND MAINTENANC E OF THE SYSTEM. THERE IS A CLEAR BAR ON THE SOFTWARE BEING USED BY JTM IN THE PUBLIC DOMAIN OR FOR THE PURPOSE OF COMMERCIAL EXPLOITATIO N. 25 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 158. SECONDLY, UNDER THE DEFINITION OF 'COPYRIGHT' IN SECTION 14 OF THE COPYRIGHT ACT, THE EMPHASIS IS THAT IT IS AN EXCLUS IVE RIGHT GRANTED TO THE HOLDER THEREOF. THIS CONDITION IS NOT SATISFIED IN THE CASE OF JTM BECAUSE THE LICENSE GRANTED TO IT BY THE ASSESSEE I S EXPRESSLY STATED IN CLAUSE 20.1 AS A 'NON EXCLUSIVE RESTRICTED LICENSE' . THIS MEANS THAT THE SUPPLIER OF THE SOFTWARE, NAMELY, THE ASSESSEE, CAN SUPPLY SIMILAR SOFTWARE TO ANY NUMBER OF CELLULAR OPERATORS TO WHI CH JTM CAN HAVE NO OBJECTION AND FURTHER ALL THE CELLULAR OPERATORS CA N USE THE SOFTWARE ONLY FOR THE PURPOSE OF THEIR OWN OPERATION AND MAI NTENANCE OF THE SYSTEM AND NOT FOR ANY OTHER PURPOSE. THE USER OF T HE SOFTWARE BY THE CELLULAR OPERATORS IN THE PUBLIC DOMAIN IS TOTALLY PROHIBITED, WHICH IS EVIDENT FROM THE USE OF THE WORDS IN ARTICLE 20.1 O F THE AGREEMENT, 'RESTRICTED' AND 'NOT OTHERWISE'. THUS JTM HAS A VE RY LIMITED RIGHT SO FAR AS THE USE OF SOFTWARE IS ITA NO.387/PUN/2017 S YMANTEC CORPORATION CONCERNED. IT NEEDS NO REPETITION TO CL ARIFY THAT JTM HAS NOT BEEN GIVEN ANY OF THE SEVEN RIGHTS MENTIONED IN CLAUSE (A) OF SECTION 14 OR THE ADDITIONAL RIGHT MENTIONED IN SUB -CLAUSE (II) OF CLAUSE (B) OF THE SECTION WHICH RELATES TO A COMPUTER PROG RAMME AND, THEREFORE, WHAT JTM OR ANY OTHER CELLULAR OPERATOR HAS ACQUIRED UNDER THE AGREEMENT IS NOT A COPYRIGHT BUT IS ONLY A COPY RIGHTED ARTICLE. 159. CLAUSE 20.4 OF THE SUPPLY CONTRACT WITH JTM IS AS UNDER: 20.4 IN PURSUANCE OF THE FOREGOING JT MOBI LES SHAL L: (A) NOT PROVIDE OR MAKE THE SOFTWARE OR DOCUMENTATI ON OR ANY PORTIONS OR ASPECTS THEREOF (INCLUDING ANY METHODS OR CONCEP TS UTILIZED OR EXPRESSED THEREIN) AVAILABLE TO ANY PERSON EXCEPT T O ITS EMPLOYEES ON A 'NEED TO KNOW' BASIS; (B) NOT MAKE ANY COPIES OF SOFTWARE OR DOCUMENTATIO N OR PARTS THEREOF, EXCEPT FOR ARCHIVAL BACKUP PURPOSES; (C) WHEN MAKING PERMITTED COPIES AS AFORESAID TRANS FER TO THE COPY/COPIES ANY COPYRIGHT OR OTHER MARKING ON THE S OFTWARE OR DOCUMENTATION. (D) NOT USE THE SOFTWARE OR DOCUMENTATION FOR ANY O THER PURPOSE THAN PERMITTED IN THIS ARTICLE 20, LICENCE OR SELL OR IN ANY MANNER ALIENATE OR PART WITH ITS POSSESSION. (E) NOT USE OR TRANSFER THE SOFTWARE AND/OR THE DOC UMENTATION OUTSIDE INDIA WITHOUT THE WRITTEN CONSENT OF THE CONTRACTOR AND AFTER HAVING RECEIVED NECESSARY EXPORT OR RE -EXPORT PERMITS FRO M RELEVANT AUTHORITIES. 26 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 THIS CLAUSE PLACES STRINGENT RESTRICTIONS ON THE CE LLULAR OPERATOR SO FAR AS THE USE OF SOFTWARE IS CONCERNED. IT FIRST SAYS THAT THE CELLULAR OPERATOR CANNOT MAKE THE SOFTWARE OR PORTIONS THERE OF AVAILABLE TO ANY PERSON EXCEPT TO ITS EMPLOYEES AND EVEN WITH REGARD TO EMPLOYEES IT HAS TO BE ONLY ON A 'NEED TO KNOW BASIS' WHICH MEAN S THAT EVEN THE EMPLOYEES ARE NOT TO BE TOLD IN ALL ITS ASPECTS. WH AT THE ASSESSEE CAN DO IS ONLY TO TELL THE PARTICULAR EMPLOYEE WHAT HE HAS TO KNOW ABOUT THE SOFTWARE FOR OPERATIONAL PURPOSES. THE CELLULAR OPERATOR HAS BEEN DENIED THE RIGHT TO MAKE COPIES OF THE SOFTWARE OR PARTS THEREOF EXCEPT FOR ARCHIVAL BACKUP PURPOSES. THIS MEANS THAT THE C ELLULAR OPERATOR CANNOT MAKE COPIES OF THE SOFTWARE FOR COMMERCIAL P URPOSES. THIS CONDITION IS PLAINLY CONTRARY TO SECTION 14(A)(I) O F THE COPYRIGHT ACT WHICH PERMITS THE COPYRIGHT HOLDER TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY ME DIUM BY ELECTRONIC MEANS. WE MAY ALSO NOTICE SECTION 52(1)(AA) OF THE COPYRIGHT ACT WHICH LISTS OUT CERTAIN ACTS WHICH CANNOT BE CONSID ERED AS INFRINGEMENT OF COPYRIGHT. THE PARTICULAR CLAUSE PE RMITS THE MAKING OF COPIES OR ADAPTATION OF A COMPUTER PROGRAMME BY THE LAWFUL POSSESSOR OF THE COPY AND THE COMPUTER PROGRAMME IN ORDER TO UTILIZE THE PUBLIC PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED OR TO MAKE BACKUP COPIES PURELY AS A TEMPORARY PROTECTION AGAI NST LOSS, DESTRUCTION OR DAMAGE. THEREFORE, MERELY BECAUSE TH E CELLULAR OPERATOR HAS BEEN PERMITTED TO TAKE ITA NO.387/PUN/2017 SYMA NTEC CORPORATION COPIES JUST FOR BACKUP PURPOSES, IT CAN NOT BE SAID THAT IT HAS ACQUIRED A COPYRIGHT IN THE SOFTWARE. 160. CLAUSE 20.4(C) MAKES IT MANDATORY FOR THE CELL ULAR OPERATOR, WHILE MAKING COPIES OF THE SOFTWARE FOR BACKUP PURPOSES, TO ALSO MARK THE COPIED SOFTWARE WITH COPYRIGHT OR OTHER MARKING TO SHOW THAT THE RIGHTS OF THE ASSESSEE ARE RESERVED. THIS IS ONE MORE INDI CATION THAT WHAT THE CELLULAR OPERATOR ACQUIRED IS NOT A COPYRIGHT. 161. CLAUSE 20.4(D) SAYS THAT THE CELLULAR OPERATOR CANNOT USE THE SOFTWARE FOR ANY OTHER PURPOSE THAN WHAT IS PERMITT ED AND SHALL NOT ALSO LICENSE OR SELL OR IN ANY MANNER ALIENATE OR P ART WITH ITS POSSESSION. THIS HAS TO BE READ WITH CLAUSE 20.5 WH ICH SAYS THAT THE LICENSE CAN BE TRANSFERRED, BUT ONLY WHEN THE GSM S YSTEM ITSELF IS SOLD BY THE CELLULAR OPERATOR TO A THIRD PARTY. THIS IN A WAY SHOWS THAT THE SOFTWARE IS ACTUALLY PART OF THE HARDWARE AND IT HA S NO USE OR VALUE INDEPENDENT OF IT. THIS RESTRICTION PLACED ON THE C ELLULAR OPERATOR (NOT TO LICENSE OR SELL THE SOFTWARE) RUNS COUNTER TO SECTI ON 14(B)(II) OF THE COPYRIGHT ACT WHICH PERMITS A COPYRIGHT HOLDER TO S ELL OR LET OUT ON COMMERCIAL RENTAL THE COMPUTER PROGRAMME. FOR THIS REASON ALSO IT CANNOT BE SAID THAT JTM OR ANY CELLULAR OPERATOR AC QUIRED A COPYRIGHT IN THE SOFTWARE. 27 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 162. A CONJOINT READING OF THE TERMS OF THE SUPPLY CONTRACT AND THE PROVISIONS OF THE COPYRIGHT ACT, 1957 CLEARLY SHOWS THAT THE CELLULAR OPERATOR CANNOT EXPLOIT THE COMPUTER SOFTWARE COMME RCIALLY WHICH IS THE VERY ESSENCE OF A COPYRIGHT. IN OTHER WORDS A H OLDER OF A COPYRIGHT IS PERMITTED TO EXPLOIT THE COPYRIGHT COMMERCIALLY AND IF HE IS NOT PERMITTED TO DO SO THEN WHAT HE HAS ACQUIRED CANNOT BE CONSIDERED AS A COPYRIGHT. IN THAT CASE, IT CAN ONLY BE SAID THAT HE HAS ACQUIRED A COPYRIGHTED ARTICLE. A SMALL EXAMPLE MAY CLARIFY TH E POSITION. THE PURCHASER OF A BOOK ON INCOME-TAX ACQUIRES ONLY A C OPYRIGHTED ARTICLE. ON THE OTHER HAND, A RECORDING COMPANY WHICH HAS RE CORDED A VOCALIST HAS ACQUIRED THE COPYRIGHT IN THE MUSIC RENDERED AN D IS, THEREFORE, PERMITTED TO EXPLOIT THE RECORDING COMMERCIALLY. IN THIS CASE THE MUSIC RECORDING COMPANY HAS NOT MERELY ACQUIRED A COPYRIG HTED ARTICLE IN THE FORM OF A RECORDING, BUT HAS ACTUALLY ACQUIRED A CO PYRIGHT TO REPRODUCE THE MUSIC AND EXPLOIT THE SAME COMMERCIALLY. IN THE PRESENT CASE WHAT JTM OR ANY OTHER CELLULAR OPERATOR HAS ACQUIRED UND ER THE SUPPLY CONTRACT IS ONLY THE COPYRIGHTED SOFTWARE, WHICH IS AN ARTICLE BY ITSELF AND NOT ANY COPYRIGHT THEREIN. 163. WE MAY NOW BRIEFLY DEAL WITH THE OBJECTIONS OF MR. G.C. SHARMA, THE LEARNED SENIOR COUNSEL FOR THE DEPARTMENT. HE C ONTENDED THAT IF A PERSON OWNS A COPYRIGHTED ARTICLE THEN HE AUTOMATIC ALLY HAS A RIGHT OVER THE COPYRIGHT ALSO. WITH RESPECT, THIS OBJECTI ON DOES NOT APPEAR TO US TO BE CORRECT. MR. DASTUR FILED AN EXTRACT FROM IYENGAR'S COPYRIGHT ACT (3RD EDITION) EDITED BY R.G. CHATURVEDI. THE FO LLOWING OBSERVATIONS OF THE AUTHOR ARE ON THE POINT: '(H) COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT , COPYRIGHTED: IT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NAT URE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MA NUSCRIPT. THE COPYRIGHT OWNER MAY DISPOSE OF IT ON SUCH TERMS AS HE MAY SEE FIT. HE HAS AN INDIVIDUAL RIGHT OF EXCLUSIVE ENJOYMENT. THE TRANSFER OF THE MANUSCRIPT DOES NOT, OF ITSELF, SERVE TO TRANSFER T HE COPYRIGHT THEREIN. THE TRANSFER OF THE OWNERSHIP OF A PHYSICAL THING I N WHICH COPYRIGHT EXISTS GIVES TO THE PURCHASER THE RIGHT TO DO WITH IT (THE PHYSICAL THING) WHATEVER HE PLEASES, EXCEPT THE RIGHT TO MAKE COPIE S AND ISSUE THEM TO THE PUBLIC' (UNDERLINE IS OURS). THE ABOVE OBSERVATIONS OF THE AUTHOR SHOW THAT ONE CANNOT HAVE THE COPYRIGHT RIGHT WITHOUT THE COPYRIGHTED ARTICLE BUT AT THE SAME TIME JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DOES NO T FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. MR. SHARMA'S OBJECTION CA NNOT BE ACCEPTED. 28 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 164. IT IS NOT NECESSARY, THEREFORE, TO CONSIDER TH E ALTERNATIVE ARGUMENT OF MR. DASTUR, NAMELY, THAT EVEN ASSUMING THAT THE DEPARTMENT IS RIGHT IN SAYING THAT IF YOU HAVE THE COPYRIGHTED ARTICLE, YOU ALSO HAVE THE COPYRIGHT RIGHT THEREIN, STILL IT WOULD MEAN THAT T HE COPYRIGHT RIGHTS ARE TRANSFERRED (ACQUIRED BY JTM) AND IT WOULD NOT BE A CASE OF MERELY GIVING THE RIGHT TO USE AND CONSEQUENTLY ARTICLE 13 OF THE DTAA WOULD NOT APPLY. MR. DASTUR, HOWEVER, WAS FAIR ENOUGH TO CONCEDE THAT IF THE DEPARTMENT IS RIGHT IN SAYING THAT IF YOU HAVE THE COPYRIGHTED ARTICLE, YOU ALSO HAVE THE COPYRIGHTED RIGHTS, THEN CLAUSE ( V) OF EXPLANATION 2 BELOW SECTION 9(1) OF THE INCOME-TAX ACT WILL APPLY BECAUSE HIS CLAUSE ROPES IN 'TRANSFER OF ALL OR ANY RIGHTS' AND IS NOT RESTRICTED TO 'USE' OR 'RIGHT TO USE', THE COPYRIGHT. HOWEVER, HE ADDED TH AT SINCE THE BASIC PROPOSITION OF THE DEPARTMENT HAS BEEN DEMONSTRATED TO BE WRONG, CLAUSE (V) OF EXPLANATION 2 BELOW SECTION 9(1) IS N OT AN IMPEDIMENT TO ACCEPTING THE ASSESSEE'S CONTENTION. 165. WE MAY ALSO USEFULLY REFER TO THE COMMENTARY O N THE OECD MODEL CONVENTION (DATED 28.1.2003) WHICH IS OF PERS UASIVE VALUE AND WHICH THROWS CONSIDERABLE LIGHT ON THE CHARACTER OF THE TRANSACTION AND THE TREATMENT TO BE GIVEN TO THE PAYMENTS FOR T AX PURPOSES. PARAGRAPH 14 OF THE COMMENTARY, A COPY OF WHICH WAS FILED IN PAPER BOOK NO. V IS RELEVANT: COMMENTARY ON ARTICLE 12 - PAPER BOOK V '14. IN OTH ER TYPES OF TRANSACTIONS, THE RIGHTS ACQUIRED IN RELATION TO TH E COPYRIGHT ARE LIMITED TO THOSE NECESSARY TO ENABLE THE USER TO OPERATE TH E PROGRAM, FOR EXAMPLE, WHERE THE TRANSFEREE IS GRANTED LIMITED RI GHTS TO REPRODUCE THE PROGRAM. THIS WOULD BE THE COMMON SITUATION IN TRANSACTIONS FOR THE ACQUISITION OF A PROGRAM COPY. THE RIGHTS TRANS FERRED IN THESE CASES ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. TH EY ALLOW THE USER TO COPY THE PROGRAM, FOR EXAMPLE ONTO THE USER'S COMPU TER HARD DRIVE OR FOR ARCHIVAL PURPOSES. IN THIS CONTEXT, IT IS IMPOR TANT TO NOTE THAT THE PROTECTION AFFORDED IN RELATION TO COMPUTER PROGRAM S UNDER COPYRIGHT LAW MAY DIFFER FROM COUNTRY TO COUNTRY. IN SOME COU NTRIES THE ACT OF COPYING THE PROGRAM ONTO THE HARD DRIVE OR RANDOM I TA NO.387/PUN/2017 SYMANTEC CORPORATION ACCESS MEMORY OF A COMPUTER WOULD, WITHOUT A LICENSE, CONSTITUTE A BRE ACH OF COPYRIGHT. HOWEVER, THE COPYRIGHT LAWS OF MANY COUNTRIES AUTOM ATICALLY GRANT THIS RIGHT TO THE OWNER OF SOFTWARE WHICH INCORPORA TES A COMPUTER PROGRAM. REGARDLESS OF WHETHER THIS RIGHT IS GRANTE D UNDER LAW OR UNDER A LICENSE AGREEMENT WITH THE COPYRIGHT HOLDER , COPYING THE PROGRAM ONTO THE COMPUTER'S HARD DRIVE OR RANDOM AC CESS MEMORY OR MAKING AN ARCHIVAL COPY IS AN ESSENTIAL STEP IN UTI LIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS OF COPY ING, WHERE THEY DO NO MORE THAN ENABLE THE EFFECTIVE OPERATION OF THE PRO GRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR 29 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 TAX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSACTIO NS WOULD BE DEALT WITH AS COMMERCIAL INCOME IN ACCORDANCE WITH ARTICL E 7.' 166. WE MAY ALSO USEFULLY REFER TO THE PROPOSED AME NDMENTS TO THE REGULATIONS OF THE INTERNAL REVENUE SERVICE (IRS) I N THE USA. AGAIN THESE REGULATIONS MAY NOT BE BINDING ON US BU T THEY HAVE A PERSUASIVE VALUE AND THROW LIGHT ON THE QUESTION BE FORE US, NAMELY THE DIFFERENCE BETWEEN A COPYRIGHT RIGHT AN D A COPYRIG HTED ARTICLE. THESE REGULATIONS HAVE BEEN PLACED AT PAGES 136 TO 157 OF PAPER BOOK NO. II. THE ACTUAL REGULATIONS AS WELL AS THE EXPLANATORY N OTE EXPLAINING THE OBJECT AND THE PURPOSE OF THE PROPOSED REGULATIONS HAVE ALSO BEEN GIVEN. IN PARAGRAPH 1 OF THE NOTE TITLED 'BACKGROUN D', IT HAS BEEN STATED THAT THE PROPOSED REGULATIONS REQUIRE THAT A TRANSACTION INVOLVING A COMPUTER PROGRAMME MAY BE TREATED AS BE ING ONE OF THE FOUR POSSIBLE CATEGORIES. TWO SUCH CATEGORIES ARE T HE TRANSFER OF COPYRIGHT RIGHTS AND THE TRANSFER OF A COPYRIGHTED ARTICLE. THE U.S. REGULATIONS DISTINGUISHED BETWEEN TRANSFER OF COPYR IGHT RIGHTS AND TRANSFER OF COPYRIGHTED ARTICLES BASED ON THE TYPE OF RIGHTS TRANSFERRED TO THE TRANSFEREE. BRIEFLY STATED, IF THE TRANSFERE E ACQUIRES A COPY OF A COMPUTER PROGRAMME BUT DOES NOT ACQUIRE ANY OF THE RIGHTS IDENTIFIED IN CERTAIN SECTIONS (OF THE U.S. REGULATIONS), THE REGULATION CLASSIFIED THE TRANSACTION AS THE TRANSFER OF A COPYRIGHTED AR TICLE. PARAGRAPH 3 OF THE EXPLANATORY NOTE SAYS THAT IF A TRANSFER OF A C OMPUTER PROGRAMME RESULTS IN THE TRANSFEREE ACQUIRING ANY ONE OR MORE OF THE LISTED RIGHTS, IT IS A TRANSFER OF A COPYRIGHT RIGHT. 167. PARAGRAPH 4 SAYS THAT IF A PERSON ACQUIRES A C OPY OF A COMPUTER PROGRAMME BUT DOES NOT ACQUIRE ANY OF THE FOUR LIST ED COPYRIGHT RIGHTS, HE GETS ONLY A COPYRIGHTED ARTICLE BUT NO COPYRIGHT . 168. THE ACTUAL REGULATIONS BRING OUT THE DISTINCTI ON VERY CLEARLY BETWEEN THE COPYRIGHT RIGHT AND A COPYRIGHTED ARTIC LE. THEY ALSO SPECIFY THE FOUR RIGHTS WHICH, IF ACQUIRED BY THE T RANSFEREE, CONSTITUTE HIM THE OWNER OF A COPYRIGHT RIGHT. THEY ARE: (A) THE RIGHT TO MAKE COPIES OF THE COMPUTER PROGRA MME FOR PURPOSES OF DISTRIBUTION TO THE PUBLIC BY SALE OR OTHER TRANSFE R OF OWNERSHIP, OR BY RENTAL, LEASE, OR LENDING. (II) THE RIGHT TO PREPARE DERIVATIVE COMPUTER PROGR AMMES BASED UPON THE COPYRIGHTED COMPUTER PROGRAMME (III) THE RIGHT TO MAKE A PUBLIC PERFORMANCE OF THE COMPUTER PROGRAMME. (IV) THE RIGHT TO PUBLICALLY DISPLAY THE COMPUTER P ROGRAMME. 30 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 169. A COPYRIGHTED ARTICLE HAS BEEN DEFINED IN THE REGULATION (PAGE 147 OF THE PAPER BOOK) AS INCLUDING A COPY OF A COMPUTER P ROGRAMME FROM WHICH THE WORK CAN BE PERCEIVED, REPRODUCED OR OTHERWISE COMMUNICATED EITHER DIRECTLY OR WITH THE AID OF A MACHINE OR DEVICE. TH E COPY OF THE PROGRAMME MAY BE FIXED IN THE MAGNETIC MEDIUM OF A FLOPPY DIS C OR IN THE MAIN MEMORY OR HARD DRIVE OF A COMPUTER OR IN ANY OTHER MEDIUM. 170. SO FAR AS THE TRANSFER OF COPYRIGHTED ARTICLES AND COPYRIGHT RIGHTS ARE CONCERNED, THE REGULATION GOES ON TO SAY (PAGE 148 OF THE PAPER BOOK) THAT THE QUESTION WHETHER THERE WAS A TRANSFER OF A COPY RIGHT RIGHT OR ONLY OF A COPYRIGHTED ARTICLE MUST BE DETERMINED TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE BENEFITS AND BURDEN OF OWNERSHIP WHICH HAVE BEEN TRANSFERRED. SEVERAL EXAMPLES HAVE BEEN GIVEN BELOW THESE REGULATIONS TO FIND OUT WHETHER A PARTICULAR TRANSFER IS A TRANSFER OF A COPYRIGHT RIGHT OR A TRANSFER OF A COPYRIGHTED ARTI CLE. 171. THE COMMENTARY OF 'CHARL P. DU TOIT' ON THIS Q UESTION HAS BEEN PLACED AT PAGES 202 TO 204 OF PAPER BOOK NO. II. TH E COMMENTARY IS TITLED 'BENEFICIAL OWNERSHIP OF ROYALTIES IN BILATERAL TAX TREATIES.' HE HAS OPINED THAT ARTICLES SUCH AS BOOKS AND RECORDS ARE COPYRIG HTED ARTICLES AND IF THEY ARE SOLD, THE USER DOES NOT OBTAIN THE RIGHT T O USE ANY SIGNIFICANT RIGHTS IN THE UNDERLYING COPYRIGHT ITSELF, WHICH IS WHAT SHOULD DETERMINE THE CHARACTERIZATION OF THE REVENUE AS SALE PROCEED S RATHER THAN ROYALTIES. HE HAS FURTHER OPINED THAT CONSIDERATION RELATING T O SALE OF SOFTWARE CAN AMOUNT TO ROYALTY ONLY IN LIMITED CIRCUMSTANCES. 172. FOR THE ABOVE REASONS, WE ARE OF THE VIEW THAT THE PAYMENT BY THE CELLULAR OPERATOR IS NOT FOR ANY COPYRIGHT IN THE S OFTWARE BUT IS ONLY FOR THE SOFTWARE AS SUCH AS A COPY RIGHTED ARTICLE. IT FOLL OWS THAT THE PAYMENT CANNOT BE CONSIDERED AS ROYALTY WITHIN THE MEANING OF EXPLANATION 2 BELOW SECTION 9(1) OF THE INCOME- TAX ACT OR ARTICL E ARTICLE OF THE DTAA WITH SWEDEN. -------- 184. IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD T HAT THE SOFTWARE SUPPLIED WAS A COPYRIGHTED ARTICLE AND NOT A COPYRI GHT RIGHT, AND THE PAYMENT RECEIVED BY THE ASSESSEE IN RESPECT OF THE SOFTWARE CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME-TAX A CT OR THE DTAA.' 67. THE HON BLE HIGH COURT WHILE REFERRING TO THE DECISION OF T RIBUNAL IN MOTOROLA INC VS. DCIT (SUPRA) IN THE SAID CASE NOTE D THAT THE TRIBUNAL HAD HELD AND RIGHTLY SO, THAT THE QUESTION WHETHER THER E WAS A TRANSFER OF A COPYRIGHT RIGHT OR ONLY OF A COPYRIGHTED ARTICLE MU ST BE DETERMINED TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE BENEFITS AND BURDEN OF OWNERSHIP WHICH HAVE BEEN TRANSFERRED .' 31 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 11. THE TRIBUNAL IN FINAL ANALYSIS HELD AS UNDER:- '90. IN CONCLUSION, WE HOLD THAT PURCHASE OF SOFTWA RE BY THE ASSESSEE BEING COPYRIGHTED ARTICLE IS NOT COVERED B Y THE TERM ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. WHERE THE ASSES SEE DID NOT ACQUIRE ANY COPYRIGHT IN THE SOFTWARE, IS NOT C OVERED UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. WE FU RTHER HOLD THAT AMENDED DEFINITION OF ROYALTY UNDER THE DOMESTIC LAW CANNOT BE EXTENDED TO THE DEFINITION OF ROYALTY UNDER DTAA, WHERE THE TERM ROYALTY ORIGINALLY DEFINED HAS NOT BEEN AMENDED. AS PER DE FINITION OF ROYALTY UNDER DTAA, IT IS PAYMENT RECEIVED IN CONSIDERATIO N FOR USE OR RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTI STIC OR SCIENTIFIC WORK, ETC.; THUS, PURCHASE OF COPYRIGHTED ARTICLE D OES NOT FALL IN REALM OF ROYALTY . WE ALSO HOLD THAT SINCE THE PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF INCOME TAX ACT AND ARE MORE BENEFICIAL AND THE DEFINITION OF ROYALTY HAVING NOT UNDERGONE ANY AMENDMENT IN DTAA, THE ASSESSEE WAS NOT LIABLE TO D EDUCT TAX FOR PAYMENTS MADE FOR PURCHASE OF SOFTWARE. IN SUCH SCE NARIO, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND THE DE MAND CREATED UNDER SECTION 201(1) AND INTEREST CHARGED UNDER SEC TION 201(1A) OF THE ACT IS THUS, CANCELLED.' 12. THE TRIBUNAL THUS, IN THE HANDS OF RECIPIENT HA D HELD THAT WHERE THE PURCHASE OF SOFTWARE WAS COPYRIGHTED ARTICLE, THEN THE SAME WAS NOT COVERED BY THE TERM 'ROYALTY' UNDER SECTION 9(1)(VI ) OF THE ACT AND IT WAS FURTHER HELD THAT THE AMENDED DEFINITION OF 'ROYALT Y' UNDER THE DOMESTIC LAW COULD NOT BE EXTENDED TO THE DEFINITION OF 'ROY ALTY' UNDER DTAA, WHERE THE TERM ORIGINALLY DEFINED HAD NOT BEEN AMENDED. A PPLYING THE SAID RATIO TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT IN T HE HANDS OF ASSESSEE, THE CONSIDERATION RECEIVED ON SALE OF SOFTWARE IS NOT ' ROYALTY' UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AND IS ALSO NOT COVERED BY THE DEFINITION OF 'ROYALTY' UNDER DTAA BETWEEN INDIA AN D USA. ACCORDINGLY, THE ASSESSEE IS NOT EXIGIBLE TO TAX ON THE SAID CONSIDE RATION RECEIVED IN ITS HANDS. WE REVERSE THE ORDERS OF AUTHORITIES BELOW I N THIS REGARD. 14. THE ISSUE RAISED IN THE PRESENT APPEAL IS SIMIL AR TO THE ISSUE RAISED IN THE DECISION OF HONBLE HIGH COURT IN INFRASOFT LTD. (S UPRA) AND SISTER CONCERN OF THE ASSESSEE IN SYMANTEC CORPORATION (SUPRA) AND AL SO IN THE CASE OF THE NAGRAVISION S.A. (SUPRA). THE HONBLE HIGH COURT O F DELHI IN DIT VS NOKIA NETWORKS OY [2013] 358 ITR 259 (DELHI) HAD HELD THA T EXPLANATION 4 WAS 32 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 ADDED TO SECTION 9(1)(VI) OF THE ACT BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.06.1976 TO PROVIDE THAT ALL CONSIDER ATION FOR USE OF SOFTWARE SHALL BE ASSESSABLE AS ROYALTY. HOWEVER, THE DEFINITIO N IN THE DTAA HAS BEEN LEFT UNCHANGED. IT IS AN ADMITTED FACT THAT THOUGH EXPL ANATION 5 HAS BEEN INSERTED IN SECTION 9(1)(VI) OF THE ACT BUT NO AMENDMENT HAS BEEN MADE TO THE DEFINITION UNDER THE DTAA AND SINCE THE PROVISIONS OF THE DTAA ARE BENEFICIAL TO THE ASSESSEE, THEN THE SAID PROVISIONS WOULD BE APPLIED . THUS, WE HOLD THAT THE AMENDED DEFINITION OF ROYALTY UNDER THE DOMESTIC LA W EVEN IF AMENDED WITH RETROSPECTIVE EFFECT CANNOT BE EXTENDED TO THE DEFI NITION OF ROYALTY UNDER THE DTAA SINCE THE TERM ROYALTY UNDER THE DTAA HAS NO T BEEN AMENDED. AS THE PROVISION OF DTAA OVER-RIDE THE PROVISION OF INCOME TAX ACT, 1961 AND BEING MORE BENEFICIAL SHALL APPLY AND SINCE THE DEFINITIO N OF ROYALTY HAS NOT BEEN AMENDED IN THE DTAA, RECEIPTS BY THE ASSESSEE ON SA LE OF COPYRIGHT ARTICLE WAS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. BEFORE P ARTING, WE MAY ALSO POINT OUT THAT THERE IS NO MERIT IN THE PLEA OF THE LD. DR FO R THE REVENUE THAT WHETHER THE COPYRIGHTED ARTICLE WAS PROCESSED OR NOT. WE R EITERATE THAT AS PER THE PROVISIONS OF DTAA HAS NOT BEEN AMENDED AND THE SAM E BEING MORE BENEFICIAL, THE SAME ARE TO BE APPLIED AND THE CONSIDERATION RE CEIVED BY THE ASSESSEE ON SALE OF COPYRIGHTED LICENSE IS NOT TAXABLE IN THE H ANDS OF THE ASSESSEE. GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS ALLOW ED. 15. GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS BEING ALTERNATE PLEA, DOES NOT SURVIVE. 33 ITA NO.1000/DEL/2017 ASSESSMENT YEAR 2013-14 16. GROUND OF APPEAL NO.3 IS PRE-MATURE AND THE SAM E IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2020. SD/- SD/- (N.K.BILLAIYA) ( SUSHMA CHOWLA) )* / ACCOUNTANT MEMBER ! / VICE PRESIDENT / DATED : 31 ST AUGUST, 2020 *AMIT KUMAR* 720,489:94; COPY OF THE ORDER IS FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT 3. <4 = > / THE CIT(A) 4. ? <4 / THE PR. CIT 5. 6. 9@A 0,4, ( ( / DR, ITAT, DELHI A-B; GUARD FILE. 7 / BY ORDER , 1940,4 // TRUE COPY // CDE*F , ( ASSISTANT REGISTRAR, ITAT, DELHI
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