M/s Select Software (I)(P) Ltd., Bangalore V. ITO, Bangalore

ITA 1005/BANG/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7754 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 04-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: FARAHAT HUSSAIN QURESHI
• Assessee Lawyers: B P SACHIN KUMAR
• Keywords: Double taxation relief; Question of law; Competent authority
• Section: 143(3); 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 1005/BANG/2011 (ASST. YEAR 2007-08) M/S SELECT SOFTWARE (I) PVT. LTD., NO.2710, I DIAGONAL ROAD, 7 TH MAIN, LIC COLONY, JEEVAN BHEEMA NAGAR, BANGALORE-560 075. . APPELLANT VS. THE INCOME-TAX OFFICER, WARD 12(2), BANGALORE. . RESPONDENT APPELLATE BY : SHRI B.P SACHIN KUMAR, C.A RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT DATE OF HEARING : 16-05-2012 DATE OF PRONOUNCEMENT : 12-06-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : BOTH THESE ARE CROSS APPEALS FILED BY THE ASSESSEE . THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME- TAX (APPEALS) III AT BANGALORE DATED 10.2.2011. THE CROSS APPEALS ITA NO.1005/B/011 2 ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED AS MANY A S SIX GROUNDS OF APPEAL. THE MAIN GRIEVANCE IS AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE AO IN TREATING THE PAYM ENT MADE TOWARDS PURCHASE OF SOFTWARE AS ROYALTY AN DISALLOWING TH E PAYMENT U/S 40(A)(IA) OF THE INCOME-TAX ACT FOR NON-DEDUCTION O F TAX AT SOURCE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WHICH IS TRADING IN SOFTWARE. IT FILED ITS RETURN OF INC OME ON 31-10-2007 DELCARING AN AMOUNT OF RS.4,25,610/-. DURING THE A SSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, 1961, THE ASSESSEE WAS REQUIRED TO PRODUCE THE DETAILS RELATING TO ITS BUS INESS OF TRADING IN SOFTWARE. THE AO OBSERVED THAT DURING THE YEAR THE ASSESSEE HAS PURCHASED VARIOUS SOFTWARE ON BEHALF OF ITS CLIENTS AMOUNTING TO RS.3,07,85,471/-. THE AO OBSERVED THAT THE ASSESSE E HAS NOT DEDUCTED TDS U/S 195 OF THE I.T ACT 1961 WHILE MAKI NG PAYEMTNS IN RESPECT OF IMPORT OF SOFTWARE AND U/S 194J WHILE MA KING PAYMENT SUBSEQEUNT TO 13-07-2006 IN RESPECT OF PURCHASE OF SOFTWARE FROM INDIAN MARKET. THE ASSESSEE SUBMITTED THAT THE ASS ESSEE WAS NOT ITA NO.1005/B/011 3 REQUIRED TO DEDUCT TAX AT SOURCE AS THE ASSESSEE WA S ONLY PURCHASING SOFTWARE ON BEHALF OF ITS CLIENT CUSTOMERS WHO ARE ULTIMATELY GIVEN THE LICENSE TO OPERATE THE SOFTWARE AND THE ASSESSEE WA S NOT THE END USER. THE AO HOWEVER, OBSERVED THAT THE SOFTWARE, WHEN IT IS PROCURED EITHER I SHRINK WRAP OR DOWNLOAD VERSION, THE END U SER MODIFIED THE SOFTWARE PROCURED ACCORDING TO ITS REQUIREMENTS AND THE CONSIDERATION PAID IS FOR USAGE OF SUCH LICENSE AND NOT FOR OWNE RSHIP OF SUCH PRODUCT. HE ALSO CONSIDERED THE DEFINITION TO THE TERM ROYALTY AS GIVEN IN ARTICLE-12 OF DTAA AND HELD THAT BOTH UNDE R THE DTAA AS WELL AS THE IT ACT, 1961 THE MEANING OF ROYALTY I S THE SAME. THUS, HE CAME TO THE CONCLUSION THAT THE PAYMENTS MADE BY THE ASSESSEE WAS FOR PROCUREMENT OF THE SOFTWARE AND IS THUS ROYALT Y AND THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I T ACT 1961. HE, THEREFORE, MADE DISALLOWANCE U/S 40A(I) AND 40A(IA) OF THE IT ACT 1961. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. ITA NO.1005/B/011 4 5. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND A LSO FILED A PAPER BOOK CONTAINING THE SUBMISSIONS MADE BY THE ASSESSE E TO THE EFFECT THAT THE PROCUREMENT OF SOFTWARE IN SHRINK WRAP OR DOWNLOAD VERSION WILL NOT AMOUNT TO IMPORT OF SOFTWARE AND THE PAYME NT MADE FOR SUCH PROCUREMENT IS NOT ROYALTY. 6. THE LEARNED COUNSEL FOR THE ASSESSEE FILED A PAP ER BOOK CONTAINING THE SAMPLES OF PURCHASE ORDERS PLACED BY THE ASSESSEE ON VARIOUS COMPANIES FOR THE PROCUREMENT OF SOFTWARE. 6. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AO AND THE CIT(A) AND SUBMITTED THAT THIS ISSUE IS NOW COV ERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBLE KARNATAK A HIGH COURT IN THE CASE OF M/S SAMSUNG ELECTRONICS IN ITA NO.2808/ BANG/2005 ORDER DATED 15.10.2011. 7. IN THE REJOINDER THE LEARNED COUNSEL FOR THE ASS ESSEE PLACED RELIANCE UPON THE DECISION OF THE TRIBUNAL AT BANGA LORE IN THE CASE OF M/S BODHI PROFESSIONAL SOLUTIONS PVT. LTD., IN ITA NO.419/BANG/2011 FOR THE ASSESSMENT YEAR 2007-08 DATED 13.3.2012 AND SUBMITTED THAT ITA NO.1005/B/011 5 THE MATTER SHOULD BE SENT BACK TO THE AO TO CONSIDE R WHETHER THE PAYMENTS MADE FOR PROCUREMENT OF SOFTWARE WOULD AMO UNT TO ROYALTY. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THIS ISSUE OF WHETHER THE PAYMENT ON PROCUREMENT OF SOFTWARE IN SHRINK WRAP OR DOWNLOAD VERSION IS ROYALTY OR NOT IS SETTLED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE (CITED SUP RA) WHEREIN IT WAS HELD AS UNDER :- 20. HAVING REGARD TO THE ABOVE SAID DEFINITION OF 'ROYALTY', WE HAVE TO CONSIDER THE CONTENTS OF SOFT WARE LICENCE AGREEMENT ENTERED INTO BY NON-RESIDENT WITH SAMSUNG ELECTRONICS AND ALSO RESPONDENTS IN THE CAS E REPRESENTED BY SRI GANESH, LEARNED SENIOR COUNSEL A ND SRI ARAVIND DATTAR, WHEREIN IT IS A CASE OF PURCHASE, S ALE OR DISTRIBUTION OR OTHERWISE OF THE OFF-THE-SHELF SOFT WARE. IT IS DESCRIBED AS A 'SOFTWARE LICENCE AGREEMENT', WHEREI N IT IS AVERRED THAT CUSTOMER ACCEPTS AN INDIVIDUAL, NON- TRANSFERABLE AND NON-EXCLUSIVE LICENCE TO USE THE L ICENSED SOFTWARE PROGRAM(S) PROGAM(S) ON THE TERMS AND COND ITIONS ENUMERATED IN THE AGREEMENT. IT IS FURTHER AVERRED THAT THE CUSTOMER - SAMSUNG ELECTRONICS SHALL PROTECT CONFID ENTIAL INFORMATION AND SHALL NOT REMOVE ANY COPYRIGHT, CONFIDENTIALITY OR OTHER PROPRIETARY RIGHTS PROVIDE D BY THE ITA NO.1005/B/011 6 NON-RESIDENT. HOWEVER, WHAT IS GRANTED UNDER THE SA ID LICENCE IS ONLY A LICENCE TO USE THE SOFTWARE FOR I NTERNAL BUSINESS WITHOUT HAVING ANY RIGHT FOR MAKING ANY AL TERATION OR REVERSE ENGINEERING OR CREATING SUB-LICENCES. WH AT IS TRANSFERRED UNDER THE SAID LICENCE IS THE LICENCE T O USE THE SOFTWARE AND COPYRIGHT CONTINUE TO BE WITH THE NON- RESIDENT AS PER THE AGREEMENT. EVEN AS PER THE AGREEMENT ENT ERED INTO WITH THE OTHER DISTRIBUTORS AS ALSO THE END-US ER LICENCE AGREEMENT, IT IS CLEAR THAT THE DISTRIBUTOR WOULD G ET EXCLUSIVE NON-TRANSFERABLE LICENCE WITHIN THE TERRI TORY FOR WHICH HE IS APPOINTED AND HE HAS GOT RIGHT TO DISTR IBUTE VIA RESELLERS THE SOFTWARE, UPON PAYMENT OF THE LICENSE S SET FORTH IN EXHIBIT A TO THE AGREEMENT ONLY TO END USE RS PURSUANT TO A VALID ACTUATE SHRINKWRAP OR OTHER ACT UATE LICENSE AGREEMENT AND EXCEPT AS EXPRESSLY SET FORTH IN THE SAID AGREEMENT, DISTRIBUTOR MAY NOT RENT, LEASE, LO AN, SELL OR OTHERWISE DISTRIBUTE THE SOFTWARE THE DOCUMENTATION OR ANY DERIVATIVE WORKS BASED UPON THE SOFTWARE OR DOCUMENTATION IN WHOLE OR IN PART. DISTRIBUTOR SHAL L NOT REVERSE ENGINEER, DECOMPILE, OR OTHERWISE ATTEMPT T O DERIVE OR MODIFY THE SOURCE CODE FOR THE SOFTWARE. DISTRIB UTOR SHALL HAVE NO RIGHTS TO THE SOFTWARE OTHER THAN THE RIGHTS EXPRESSLY SET FORTH IN THE AGREEMENT. DISTRIBUTOR S HALL NOT MODIFY OR COPY ANY PART OF THE SOFTWARE OR DOCUMENT ATION. DISTRIBUTOR MAY NOT USE SUB-DISTRIBUTORS FOR FURTHE R DISTRIBUTION OF THE SOFTWARE AND DOCUMENTATION WITH OUT THE PRIOR CONSENT OF ACTUATE. WHAT IS CHARGED IS THE LI CENCE FEE TO BE PAID BY THE DISTRIBUTOR OF THE SOFTWARE AS EN UMERATED IN EXHIBIT A TO THE AGREEMENT. FURTHER, CLAUSE 6.01 OF THE AGREEMENT DEALING WITH TITLE STATES THAT THE DISTRI BUTOR ITA NO.1005/B/011 7 ACKNOWLEDGES THAT ACTUATE AND ITS SUPPLIERS RETAIN ALL RIGHT, TITLE AND INTEREST IN AND TO THE ORIGINAL, AND ANY COPIES (BY WHOMEVER PRODUCED), OF THE SOFTWARE OR DOCUMENTATIO N AND OWNERSHIP OF ALL PATENT COPYRIGHT, TRADEMARK, T RADE SECRET AND OTHER INTELLECTUAL PROPERTY RIGHTS PERTA INING THERETO, SHALL BE AND REMAIN THE SOLE PROPERTY OF A CTUATE. DISTRIBUTOR SHALL NOT BE AN OWNER OF ANY COPIES OF, OR ANY INTEREST IN, THE SOFTWARE, BUT RATHER IS LICENCED P URSUANT TO THE AGREEMENT TO USE AND DISTRIBUTE SUCH COPIES. AC TUATE REPRESENTS THAT IT HAS THE RIGHT TO ENTER INTO THE AGREEMENT AND GRANT THE LICENCES PROVIDED THEREIN AND CONFIDE NTIALITY IS PROTECTED. THEREFORE, ON READING THE CONTENTS OF THE RESPECTIVE AGREEMENT ENTERED INTO BY THE RESPONDENT S WITH THE NON-RESIDENT, IT IS CLEAR THAT UNDER THE AGREEM ENT, WHAT IS TRANSFERRED IS ONLY A LICENCE TO USE THE COPYRIG HT BELONGING TO THE NON-RESIDENT SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT AS REFERRED TO ABOVE AN D THE NON-RESIDENT SUPPLIER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND ALL OTHER INTELLECTUAL PROPERTY RIGHT S. IT IS WELL SETTLED THAT COPYRIGHT IS A NEGATIVE RIGHT. IT IS A N UMBRELLA OF MANY RIGHTS AND LICENCE IS GRANTED FOR MAKING USE O F THE COPYRIGHT IN RESPECT OF SHRINK WRAPPED SOFTWARE/OFF -THE- SHELF SOFTWARE UNDER THE RESPECTIVE AGREEMENT, WHIC H AUTHORIZES THE END USER I.E., THE CUSTOMER TO MAKE USE OF THE COPYRIGHT SOFTWARE CONTAINED IN THE SAID SOFTWARE, WHICH IS PURCHASED OFF THE SHELF OR IMPORTED AS SHRINK WRAPP ED SOFTWARE AND THE SAME WOULD AMOUNT TO TRANSFER OF P ART OF THE COPYRIGHT AND TRANSFER OF RIGHT TO USE THE COPY RIGHT FOR INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS O F THE AGREEMENT. THEREFORE, THE CONTENTION OF THE LEARNED SENIOR ITA NO.1005/B/011 8 COUNSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRANSFER OF COPYRIGHT OR ANY PART THEREOF UNDER THE AGREEMENTS ENTERED INTO BY THE RESPONDENT WITH THE NON- RESIDENT SUPPLIER OF SOFTWARE CANNOT BE ACCEPTED. 21. IT IS FURTHER CONTENDED BY THE LEARNED SENIOR COUN SEL APPEARING FOR THE RESPONDENTS THAT IN VIEW OF THE F ACT THAT WHAT IS SUPPLIED BY THE NON-RESIDENT TO THE RESPOND ENT IN INDIA IS ONLY A SHRINK WRAPPED SOFTWARE/OFF-THE-SHE LF SOFTWARE, WHICH IS NOT CUSTOMISED TO SUIT THE NEEDS OF THE RESPONDENT, THE SAID SOFTWARE IS TO BE TREATED AS G OODS AND THERE IS SALE OF THE SOFTWARE AND COPY OF THE SOFTW ARE. THEREFORE, THE QUESTION OF PAYING ANY ROYALTY WOULD NOT ARISE. IN SUPPORT OF THE SAID CONTENTION, THE LEARN ED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS HAS STRONGLY RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN T ATA CONSULTANCY SERVICES' CASE (SUPRA) (HEREINAFTER REF ERRED TO AS THE TCS'S CASE), WHEREIN THE HON'BLE SUPREME COU RT WAS CONSIDERING THE QUESTION AS TO WHETHER THE CANNED S OFTWARE SOLD BY THE APPELLANTS CAN BE TERMED TO BE 'GOODS' AND AS SUCH ASSESSABLE TO SALES TAX UNDER THE ANDHRA PRADE SH GENERAL SALES TAX ACT, 1957. HAVING REGARD TO THE B ROAD DEFINITION OF 'GOODS' UNDER SECTION 2(H) OF THE SAI D ACT AND ALSO THE PROVISIONS OF ARTICLE 366(12) OF THE CONST ITUTION OF INDIA, THE HON'BLE SUPREME COURT WAS PLEASED TO ANS WER THE SAID QUESTION FOR DETERMINATION BY HOLDING THAT ONCE THE 'INFORMATION' OR 'KNOWLEDGE' IS TRANSFORMED INTO PH YSICAL EXISTENCE AND RECORDED IN PHYSICAL FORM, IT IS CORP OREAL PROPERTY. THE PHYSICAL RECORDING OF THE SOFTWARE IS NOT AN INCORPOREAL RIGHT TO BE COMPREHENDED AND ACCORDINGL Y, ITA NO.1005/B/011 9 HELD THAT THE SOFTWARE MARKETED BY THE APPELLANTS T HEREIN INDISPUTABLY WAS CANNED SOFTWARE AND THUS, SALE OF THE SAME WOULD ATTRACT THE PROVISIONS OF THE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. 22. THE QUESTION AS TO WHETHER THE PAYMENT MADE FOR IMP ORT OF SOFTWARE OR SUPPLY OF SOFTWARE BY THE NON-RESIDE NT COMPANIES WAS ROYALTY OR NOT WAS NOT AT ALL IN ISSU E IN TCS'S CASE AND THE QUESTION WAS WHETHER CANNED SOFT WARE SOLD BY THE APPELLANTS THEREIN AMOUNTED TO SALE OF GOODS UNDER THE ANDHRA PRADESH GENERAL SALES TAX ACT. FUR THER, THE ISSUE OF TRANSFER OF RIGHT TO USE THE GOODS AS PER THE EXPANDED DEFINITION OF 'SALE' DID NOT COME UP FOR CONSIDERATION IN THAT CASE. ON THE OTHER HAND THE I SSUE IN THE PRESENT CASE IS AS TO WHETHER THE PAYMENT WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF INCOME TAX ACT A ND DTTA. IN THE SAID TCS'S CASE, IT HAS BEEN HELD THAT COPYRIGHT IN COMPUTER PROGRAM MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAM, BUT, THE MOMENT COPIES A RE MADE AND MARKETED, IF BECOMES GOODS, WHICH ARE SUSCEPTIB LE TO TAX. THE CONTENTION OF THE ASSESSEE THAT THE CONSID ERATION RECEIVED BY THE NON-RESIDENT SUPPLIER TOWARDS THE S OFTWARE PRODUCTS WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANI NG OF DTAA WITH RESPECTIVE COUNTRY WAS NOT AT ALL CONSIDE RED IN THE SAID CASE. THEREFORE, THE SAID DECISION IN TCS' S CASE IS NOT HELPFUL TO THE RESPONDENTS IN THE PRESENT CASES . IT IS WELL SETTLED THAT THE INTENT OF THE LEGISLATURE IN IMPOS ING SALES TAX AND INCOME TAX ARE ENTIRELY DIFFERENT AS INCOME TAX IS A DIRECT TAX AND SALES TAX IS AN INDIRECT TAX AND W HEREFORE, MERE FINDING THAT THE COMPUTER SOFTWARE WOULD BE IN CLUDED ITA NO.1005/B/011 10 WITHIN THE TERM 'SALES TAX' WOULD NOT PRECLUDE THIS COURT FROM HOLDING THAT THE SAID PAYMENTS MADE BY THE RESPONDENTS TO THE NON-RESIDENT COMPANY IN THE PRES ENT CASES WOULD AMOUNT TO 'ROYALTY' UNLESS THE RESPONDE NTS ARE ABLE TO PROVE THAT THE SAID PAYMENT IS FOR THE SALE OF COMPUTER SOFTWARE, WHEREIN THE INCOME WOULD BE FROM THE BUSINESS AND IN THE ABSENCE OF ANY PERMANENT ESTABL ISHMENT OF THE NON-RESIDENT SUPPLIER, THERE IS NO OBLIGATIO N ON THE PART OF THE PAYEE TO MAKE DEDUCTION UNDER SECTION 1 95(1) OF THE ACT. 23. IT IS WELL SETTLED THAT IN THE ABSENCE OF ANY DEFI NITION OF 'COPYRIGHT' IN THE INCOME TAX ACT OR DTAA WITH THE RESPECTIVE COUNTRIES, IN VIEW OF CLAUSE 3 OF THE DT AA, REFERENCE IS TO BE MADE TO THE RESPECTIVE LAW REGAR DING DEFINITION OF 'COPYRIGHT', NAMELY, COPYRIGHT ACT, 1 957, IN INDIA, WHEREIN IT IS CLEARLY STATED THAT 'LITERARY WORK' INCLUDES COMPUTER PROGRAMMES, TABLES AND COMPILATIO NS INCLUDING COMPUTER [DATABASES]. SECTION 16 OF THE COPYRIGHT ACT, 1957 STATES THAT NO PERSON SHALL BE ENTITLED TO COPYRIGHT OR ANY SIMILAR RIGHT IN ANY WORK, WHET HER PUBLISHED OR UNPUBLISHED, OTHERWISE THAN UNDER AND IN ACCORDANCE WITH THE PROVISIONS OF THE SAID ACT OR O F ANY OTHER LAW FOR THE TIME BEING IN FORCE, BUT NOTHING IN THIS SECTION SHALL BE CONSTRUED AS ABROGATING ANY RIGHT OR JURISDICTION TO RESTRAIN A BREACH OF TRUST OR CONFI DENCE. SECTION 14 OF THE SAID ACT DEALING WITH MEANING OF 'COPYRIGHT' READS AS FOLLOWS:- '14. MEANING OF COPYRIGHT. - FOR THE PURPOSES OF THIS ACT, 'COPYRIGHT' MEANS THE EXCLUSIVE RIGHT ITA NO.1005/B/011 11 SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORISE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY: - (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAMME,- (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORD ING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK: (VI) TO MAKE ANY ADAPTATION OF THE WORK, (VII)TO DO, IN RELATION TO A TRANSLATION OR AN ADAP TATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSES (I) TO (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME,- (I) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A); (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMME: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. (C) IN THE EASE OF AN ARTISTIC WORK,- (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCL UDING DEPICTION IN THREE DIMENSIONS OF A TWO- DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE-DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC: (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; ITA NO.1005/B/011 12 (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB- CLAUSES (I) TO (IV); (D) IN THE CASE OF A CINEMATOGRAPH FILM,- (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGR APH OF ANY IMAGE FORMING PART THEREOF; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; ( III ) TO COMMUNICATE THE FILM TO THE PUBLIC; (E) IN THE CASE OF A SOUND RECORDING,- (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; (II) TO SELL OR GIVE ON HIRE, ON OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE SOUND RECORDING TO THE PUB LIC. EXPLANATION.- FOR THE PURPOSES OF THIS SECTION, A C OPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALREADY IN CIRCULATION. IT MAY ALSO BE NOTED THAT UNDER SECTION 51 OF THE A CT DEALING WITH 'WHEN COPYRIGHT INFRINGED' STATES THAT COPYRIGHT IN A WORK SHALL BE DEEMED TO BE INFRINGED - WHEN ANY PERSON, WITHOUT A LICENCE GRANTED BY THE OWNER OF THE COPYRIGHT OR THE REGISTRAR OF COPYRIGHTS UNDER THE ACT OR IN CONTRAVENTION OF THE CONDITIONS OF A LICENCE SO GRANTED OR OF ANY CONDIT ION IMPOSED BY A COMPETENT AUTHORITY UNDER THE ACT: DOES ANYTHING, THE EXCLUSIVE RIGHT TO DO WHICH IS B Y ITA NO.1005/B/011 13 THE ACT CONFERRED UPON THE OWNER OF THE COPYRIGHT. SECTION 52 OF THE ACT DEALING WITH CERTAIN ACTS NOT TO BE INFRINGEMENT OF COPYRIGHT STATES THAT THE FOLLOW ING ACTS SHALL NOT CONSTITUTE AN INFRINGEMENT OF COPYRI GHT, NAMELY- XXXX ( AA ) THE MAKING OF COPIES OR ADAPTATION OF A COMPUTER PROGRAMME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FROM SUCH COPY. ( I ) IN ORDER TO UTILISE THE COMPUTER PROGRAMME FOR TH E PURPOSE FOR WHICH IT WAS SUPPLIED; OR ( II ) TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE IN O RDER ONLY TO UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED.' 24. IT IS CLEAR FROM THE ABOVE SAID PROVISIONS OF THE COPYRIGHT ACT THAT THE RIGHT TO COPYRIGHT WORK WOULD ALSO CON STITUTE EXCLUSIVE RIGHT OF THE COPYRIGHT HOLDER AND ANY VIO LATION OF THE SAID RIGHT WOULD AMOUNT TO INFRINGEMENT UNDER S ECTION 51 OF THE ACT. HOWEVER, IF SUCH COPYING OF COMPUTER PR OGRAM IS DONE BY A LAWFUL POSSESSOR OF A COPY OF SUCH COMPUT ER PROGRAMME, THE SAME WOULD NOT CONSTITUTE INFRINGEME NT OF COPYRIGHT AND WHEREFORE, BUT FOR THE LICENCE GRANTE D IN THESE CASES TO THE RESPONDENT TO MAKE COPY OF THE SOFTWAR E CONTAINED IN SHRINK-WRAPPED/OFF-THE-SHELF SOFTWARE INTO THE HARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE, A COPY FOR BACKUP PURPOSES, THE END USER HAS NO OTHER RIGHT AN D THE SAID TAKING BACKUP WOULD HAVE CONSTITUTED AN INFRINGEMEN T, BUT FOR THE LICENCE. THEREFORE, LICENCE IS GRANTED FOR TAKI NG COPY OF THE SOFTWARE AND TO STORE IT IN THE HARD DISK AND T O TAKE A BACK UP COPY AND RIGHT TO MAKE A COPY ITSELF IS A PART O F THE ITA NO.1005/B/011 14 COPYRIGHT. THEREFORE, WHEN LICENCE TO MAKE USE OF T HE SOFTWARE BY MAKING COPY OF THE SAME AND TO STORE IT IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE BA CK UP COPY OF THE SOFTWARE, IT IS CLEAR THAT WHAT IS TRAN SFERRED IS RIGHT TO USE THE SOFTWARE, AN EXCLUSIVE RIGHT, WHIC H THE OWNER OF THE COPYRIGHT I.E., THE RESPONDENT-SUPPLIER OWNS AND WHAT IS TRANSFERRED IS ONLY RIGHT TO USE COPY OF THE SOF TWARE FOR THE INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS O F THE AGREEMENT. THE DECISION OF THE DELHI HIGH COURT IN DYNAMIC VERITCAL SOFTWARE INDIA (P.) LTD.'S CASE (SUPRA) RE LIED UPON BY SRI ARAVIND DATTAR, LEARNED SENIOR COUNSEL APPEARIN G FOR THE RESPONDENTS IN SOME OF THE CASES IN SUPPORT OF HIS CONTENTION THAT BY NO STRETCH OF IMAGINATION, PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT SUPPLIERS CAN BE TR EATED AS 'ROYALTY' IS NOT HELPFUL TO THE RESPONDENTS IN THE PRESENT CASES AS IN THE SAID CASE, DELHI HIGH COURT WAS CONSIDERI NG THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT AND THE O RDER OF THE HIGH COURT READS AS FOLLOWS :- 'WHAT IS FOUND, AS A MATTER OF FACT, IS THAT THE AS SESSEE HAS BEEN PURCHASING THE SOFTWARE FROM MICROSOFT AND SOLD IT FURTHER IN INDIAN MARKET BY NO STRETCH OF IMAGINATION, IT WOUL D BE TERMED AS ROYALTY.' THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COU NSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRAN SFER OF ANY PART OF COPYRIGHT OR COPYRIGHT UNDER THE IMPUGNED AGREEMENTS OR LICENSES CANNOT BE ACCEPTED. ACCORDIN GLY, WE HOLD THAT RIGHT TO MAKE A COPY OF THE SOFTWARE AND USE IT FOR INTERNAL BUSINESS BY MAKING COPY OF THE SAME AND ST ORING THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AN D TAKING ITA NO.1005/B/011 15 BACK UP COPY WOULD ITSELF AMOUNT TO COPYRIGHT WORK UNDER SECTION 14(1) OF THE ACT AND LICENCE IS GRANTED TO USE THE SOFTWARE BY MAKING COPIES, WHICH WORK, BUT FOR THE LICENCE GRANTED WOULD HAVE CONSTITUTED INFRINGEMENT OF COPY RIGHT AND LICENCEE IS IN POSSESSION OF THE LEGAL COPY OF THE SOFTWARE UNDER THE LICENCE. THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS THAT T HERE IS NO TRANSFER OF ANY PART OF COPYRIGHT OR COPYRIGHT AND TRANSACTION ONLY INVOLVES SALE OF COPY OF THE COPYRIGHT SOFTWAR E CANNOT BE ACCEPTED. IT IS ALSO TO BE NOTED THAT WHAT IS SUPPL IED IS THE COPY OF THE SOFTWARE OF WHICH THE RESPONDENT-SUPPLI ER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND WHAT IS GRANTED UNDER THE LICENCE IS ONLY RIGHT TO COPY THE SOFTWARE AS PER THE TERMS OF THE AGREEMENT, WHICH, BUT FOR THE LICENCE WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT AND IN VI EW OF THE LICENCE GRANTED, THE SAME WOULD NOT AMOUNT TO INFRI NGEMENT UNDER SECTION 52 OF THE COPYRIGHT ACT AS REFERRED T O ABOVE. THEREFORE, THE AMOUNT PAID TO THE NON-RESIDENT SUPP LIER TOWARDS SUPPLY OF SHRINK-WRAPPED SOFTWARE, OR OFF-T HE-SHELF SOFTWARE IS NOT THE PRICE OF THE C.D. ALONE NOR SOF TWARE ALONE NOR THE PRICE OF LICENCE GRANTED. THIS IS A COMBINA TION OF ALL AND IN SUBSTANCE, UNLESS LICENCE IS GRANTED PERMITT ING THE END USER TO COPY AND DOWNLOAD THE SOFTWARE, THE DUMB C. D. CONTAINING THE SOFTWARE WOULD NOT IN ANY WAY BE HEL PFUL TO THE END USER AS SOFTWARE WOULD BECOME OPERATIVE ONL Y IF IT IS DOWNLOADED TO THE HARDWARE OF THE DESIGNATED COMPUT ER AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT AND T HAT MAKES THE DIFFERENCE BETWEEN THE COMPUTER SOFTWARE AND CO PYRIGHT IN RESPECT OF BOOKS OR PRERECORDED MUSIC SOFTWARE A S BOOK AND PRERECORDED MUSIC C.D. CAN BE USED ONCE THEY AR E ITA NO.1005/B/011 16 PURCHASED, BUT SO FAR AS SOFTWARE STORED IN DUMB C. D. IS CONCERNED, THE TRANSFER OF DUMB C.D. BY ITSELF WOUL D NOT CONFER ANY RIGHT UPON THE END USER AND THE PURPOSE OF THE C.D. IS ONLY TO ENABLE THE END USER TO TAKE A COPY OF THE SOFTWARE AND TO STORE IT IN THE HARD DISK OF THE DE SIGNATED COMPUTER IF LICENCE IS GRANTED IN THAT BEHALF AND I N THE ABSENCE OF LICENCE, THE SAME WOULD AMOUNT TO INFRIN GEMENT OF COPYRIGHT, WHICH IS EXCLUSIVELY OWNED BY NON-RESIDE NT SUPPLIERS, WHO WOULD CONTINUE TO BE THE PROPRIETOR OF COPYRIGHT. THEREFORE, THERE IS NO SIMILARITY BETWEE N THE TRANSACTION OF PURCHASE OF THE BOOK OR PRERECORDED MUSIC C.D. OR THE C.D. CONTAINING SOFTWARE AND IN VIEW OF THE SAME, THE LEGISLATURE IN ITS WISDOM, HAS TREATED THE LITE RARY WORK LIKE BOOKS AND OTHER ARTICLES SEPARATELY FROM 'COMP UTER' SOFTWARE WITHIN THE MEANING OF THE 'COPYRIGHT' AS R EFERRED TO ABOVE UNDER SECTION 14 OF THE COPYRIGHT ACT. 25. IT IS ALSO CLEAR FROM THE ABOVE SAID ANALYSIS OF T HE DTAA INCOME TAX ACT, COPYRIGHT ACT THAT THE PAYMENT WOUL D CONSTITUTE 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12(3) OF THE DTAA AND EVEN AS PER THE PROVISIONS OF 9(1)(VI) OF THE ACT AS THE DEFINITION OF 'ROYALTY' UNDER CLAUSE 9(1)(VI) O F THE ACT IS BROADER THAN THE DEFINITION OF 'ROYALTY' UNDER THE DTAA AS THE RIGHT THAT IS TRANSFERRED IN THE PRESENT CASE IS TH E TRANSFER OF COPYRIGHT INCLUDING THE RIGHT TO MAKE COPY OF SOFTW ARE FOR INTERNAL BUSINESS, AND PAYMENT MADE IN THAT REGARD WOULD CONSTITUTE 'ROYALTY' FOR IMPARTING OF ANY INFORMATI ON CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL AS PER CLAUSE (IV) O F EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. IN AN Y VIEW OF THE ITA NO.1005/B/011 17 MATTER, IN VIEW OF THE PROVISIONS OF SECTION 90 OF THE ACT, AGREEMENTS WITH FOREIGN COUNTRIES DTAA WOULD OVERRI DE THE PROVISIONS OF THE ACT. ONCE IT IS HELD THAT PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT COMPANIES WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12 OF TH E DTAA WITH THE RESPECTIVE COUNTRY, IT IS CLEAR THAT THE PAYMEN T MADE BY THE RESPONDENTS TO THE NON-RESIDENT SUPPLIER WOULD AMOUNT TO ROYALTY. IN VIEW OF THE SAID FINDING, IT IS CLEAR T HAT THERE IS OBLIGATION ON THE PART OF THE RESPONDENTS TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT AND CONSEQUENCE S WOULD FOLLOW AS HELD BY THE HON'BLE SUPREME COURT WHILE REMANDING THESE APPEALS TO THIS COURT. ACCORDINGLY, WE ANSWER THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY HOLDING THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT WAS NOT JUSTIFI ED IN HOLDING THAT THE AMOUNT(S) PAID BY THE RESPONDENT(S ) TO THE FOREIGN SOFTWARE SUPPLIERS WAS NOT 'ROYALTY' AND TH AT THE SAME DID NOT GIVE RISE TO ANY 'INCOME' TAXABLE IN INDIA AND WHEREFORE, THE RESPONDENT(S) WERE NOT LIABLE TO DED UCT ANY TAX AT SOURCE AND PASS THE FOLLOWING ORDER:- ALL THE APPEALS ARE ALLOWED. THE ORDER PASSED BY TH E INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH 'A' IMPUGNE D IN THESE APPEALS IS SET ASIDE AND THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ORDER PASSED BY THE ASSESSING OFFICER (TDS)-I IS RESTORED . (EMPHASIS SUPPLIED). ITA NO.1005/B/011 18 9. THE LEARNED COUNSEL FOR THE ASSESSEES PLACEING RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S BODHI P ROFESSIONAL SOLUTIONS PVT. LTD., IS MISPLACED. IN THE CASE OF M/S BODHI PROFESSIONAL SOLUTIONS PVT. LTD., THIS BENCH (BOTH OF US ARE SIGNATORY TO THE SAID ORDER) WHILE UPHOLDING THE FINDINGS THA T PAYMENTS FOR THE PURCHASE OF SHRINK WRAP OR OFF THE SHELF SOFTWARE W OULD AMOUNT TO ROYALTY, HAS REMANDED THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO RECONSIDER AND VERIFY THE ISSUE AS TO WHETHER TH E PAYMENT FOR HARDWARE AND SERVICES WOULD BE REGARDED AS ROYALTY BECAUSE IN THE CASE, ALONG WITH PURCHASE OF SOFTWARE, THE ASSESSEE HAD ALSO IMPORTED HARDWARE AND PAYMENTS WERE ALSO MADE FOR SERVICES W HICH WERE ALSO CONSIDERED AS ROYALTY. FURTHER, IN THE SAID CASE, NEITHER THE AO NOR THE CIT(A) HAD CONSIDERED THE DEFINITION OF ROYALTY I N TERMS OF THE DTAA AND, THEREFORE, THE TRIBUNAL DEEMED IT FIT AND PROPER TO REMAND THE ISSUE FOR FRESH CONSIDERATION. HOWEVER, IN THE CASE BEFORE US, THE AO HAS ALREADY CONSIDERED THE DEFINITION OF ROYALT Y IN DTAA AS WELL AS IN THE IT ACT 1961 AND HAS FOUND THAT THE M EANING GIVEN IN THE DTAA AS WELL AS IN THE IT ACT 1961 IS ONE AND THE S AME. IN VIEW OF THE SAME, THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S BODHI PROFESSIONAL SOLUTIONS PVT. LTD., IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE D ECISION OF THE ITA NO.1005/B/011 19 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF S AMSUNG ELECTRONICS (CITED SUPRA), WE DISMISS THE APPEAL OF THE ASSESSE E. 10. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE , 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 12/06/2012 COPY TO : 1.THE ASSESSEE 2.THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.