THE DDIT(IT)-2(1), MUMBAI V. M/S. RELIANCE INDUSTRIES LTD, MUMBAI

ITA 1133/MUM/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6371 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 06-10-2010
• Assessment Year: misc
• Appeal Filed On: 14-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER 1. I.T.A. NO. 1133/MUM/2008 2. I.T.A. NO. 1186/MUM/2008 3. I.T.A.NO. 1189/MUM/2008 4. I.T.A.NO. 3474/MUM/2008 DY. DIRECTOR OF INCOME TAX, M/S RELIANCE INDUSTRIES LTD., (INTERNATIONAL TAXATION)-2(1), VS. 3 RD FLOOR, MAKER CHAMBERS-IV, MUMBAI. 222, NARIMAN POINT, MUMBAI-400021. PAN AAACR5055K APPELLANT. RESPONDENT. APPELLANT BY : SHRI NARENDRA SINGH RESPONDENT BY : SHRI ARVIND SONDE. O R D E R PER J. SUDHAKAR REDDY, A.M. THESE ARE APPEALS FILED BY THE REVENUE DIRECT ED AGAINST THE ORDER OF THE CIT(APPEALS)-XXXI, MUMBAI. AS THE ISSUES ARI SING IN THESE APPEALS ARE COMMON AND AS THEY RELATE TO THE SAME ISSUE OF PURC HASE/USE OF SOFTWARE, FROM DIFFERENT PARTIES, WHO ARE RESIDENTS OF U.K. AND AS ALL THESE AGREEMENTS OF PURCHASE/USE OF SOFTWARE ARE COVERED BY THE DOUBLE TAXATION AVOIDANCE 2 AGREEMENT ENTERED INTO BY INDIA WITH U.K., FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMM ON ORDER. 2. THE SOLE ISSUE THAT ARISES FOR OUR CONSIDERATI ON IN THESE APPEALS IS WHETHER THE ASSESSEE IS REQUIRED TO WITHHOLD TAX U/ S 195 OF THE ACT, FOR PURCHASE/USE OF SOFTWARE FROM PARTIES WHO ARE RESID ENT OF U.K.. THE SOFTWARE IN QUESTION ARE UNDISPUTEDLY OPERATIONAL SOFTWARES, PU RCHASED FOR THE INTERNAL USE OF THE ASSESSEE. THE ASSESSEE WAS GRANTED NON-EXCLUSIV E , PERPETUAL, IRREVOCABLE, ROYALTY FREE, WORLDWIDE LICENSE TO USE THE NUMBER O F COPIES OF THE SOFTWARE ENUMERATED IN THE AGREEMENT SOLELY FOR INTERNAL OPE RATION, INCLUDING USE OF SOFTWARE FOR ASP SERVICES AND WEB HOUSING SERVICES. THE PARTIES FROM WHOM THE ASSESSEE ACQUIRED THE SOFTWARE DO NOT HAVE A PERM ANENT ESTABLISHMENT IN INDIA. 3. WE LIST OUT HEREIN APPEAL-WISE, THE PARTY FROM WHOM THE ASSESSEE HAS PURCHASED THE SOFTWARE AND THE NATURE OF SOFTWARE. SR. NO. ITA NO. NAME OF THE PARTY NAME OF THE COUNTRY BRIEF DESCRIPTION OF SOFTWARE SUPPLIED 1 1133/MUM/2008 M/S PETROLEUM EXPERTS LTD.. UK SUPPLY OF PROPRIETARY SOFTWARE WHICH CAN BE USED TO ACCURATELY PERFORM MATERIAL BAALANCE ANALYSIS RELATED TO.. 2. 1186/MUM/2008 M/S INDEPENDENT TECHNOLOGY SYSTEMS LTD. UK ACQUISITION OF INTER CONNECT V6.06, INTERMEDIATE 3.3.7 AND MAXI-ROUTE E V1.2 SOFTWARE WHICH CAN BE USED IN INTERCONNECTION AND MEDIATION IN THE SYSTEM. 3. 1189/MUM/2009 M/S PETREL SOFTWARE LTD. UK SOFTWARE TO BE USED FOR ACCURATELY PERFORM RESERVE MODELING AND CHARACTERIZATION CALCULATION AND ANALYSIS FOR O &G BUSINESS. 4. 3474/MUM/2008 SOFIBITS CONSULTANTS LTD. UK FLARE RADIATION & NOISE ANALYSIS SOFTWARE FOR O & G DIVISION. 3 4. THE LEARNED CIT(APPEALS) IN ORDER DATED 01-11-2 007, HAS CONSIDERED AN AGREEMENT FOR PURCHASE WITH PETROLEUM EXPERTS L TD., UK (PEL) FOR SUPPLY OF PROPRIETARY SOFTWARE FOR USE IN ACCURATELY PERFORMI NG MATERIAL BALANCE ANASYSIS RELATED TO OIL AND GAS EXPLORATION PROJECTS. THE FA CTS ARE BROUGHT OUT AT PARA 1.1 TO 1.5 OF HER ORDER WHICH ARE EXTRACTED BELOW FOR READ Y REFERENCE : 1.1 M/S. RELIANCE INDUSTRIES LIMITED (APPELLANT), IS A PUBLIC LIMITED COMPANY. THE APPELLANT HAS ENTERED INTO SPECIAL TERMS OF PURCHAS E WITH PETROLEUM EXPERTS LTD., UK (PEL) FOR SUPPLY OF PROPRIETARY SOFTWARE FOR USE IN ACCURATELY PERFORMING MATERIAL BALANCE ANALYSIS RELATED TO OIL AND GAS EXPLORATION PROJECTS. THE AR HAS SUBMITTED THAT M/S. PEL HAD PL ACED PURCHASE ORDER NO. 2001-GENL-E1-GG-S-112-MB DATED 03/05/2002 FOR SUPPL Y OF PROPRIETARY SOFTWARE FOR USE IN OIL & GAS EXPLORATION PROJECTS. 1.2 A COPY OF THE SPECIAL TERMS OF PURCHASE WAS FILED B Y THE APPELLANT BEFORE THE AO ALONG WITH THE APPLICATION U/S. 195 SEEKING REMI TTANCE OF US$ 11,114 WITHOUT DEDUCTION OF TAX. MBAL HAS GRANTED PROPRIET ARY SOFTWARE TOOL WHICH CAN BE USED TO ACCURATELY PERFORM MATERIAL BALANCE ANALYSIS (RESERVOIR ENGINEERING) RELATED TO OIL & GAS EXPLORATION PROJ ECTS. THIS SOFTWARE RUNS ON PROPRIETARY PROVIDED BY PEL ONLY. 1.3 THE AR HAS SUBMITTED THAT M/S. PEL IS A COMPANY REG ISTERED IN UK AND TAX RESIDENT OF UK. AS PER THE SPECIAL TERMS OF PURCHAS E, APPELLANT DID NOT ACQUIRE ANY COPYRIGHT AND ACCORDINGLY WITHIN THE MEANING OF ARTICLE 13 OF INDO-UK DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA), THE P AYMENT MADE BY APPELLANT DID NOT AMOUNT TO ROYALTY. PEL DOES NOT H AVE A PERMANENT ESTABLISHMENT (PE) IN INDIA AND ACCORDINGLY ITS B USINESS INCOME IS NOT TAXABLE IN INDIA AS PER ARTICLE 7 AND 5 OF THE DTAA . THE AR HAS SUBMITTED THAT M/S. PEL, BEING A TAX RESIDENT OF UK, PROVISIO N OF THE INCOME-TAX ACT, 1961 WOULD APPLY, IF THEY ARE MORE FAVOURABLE TO IT OVER THE PROVISIONS OF THE DTAA AS PER SECTION 90(2) OF THE I.T. ACT, 1961. 1.4 THE AR HAS SUBMITTED THAT THE AO HAS EXAMINED THE S PECIAL TERMS OF PURCHASE AND HAS REFERRED TO PARA 2 OF THE SPECIAL TERMS AND HAS CONCLUDED THAT FOR THE REASONS GIVEN BY HIM IN THE ORDER THAT THE PAYMENT MADE BY THE 4 APPELLANT TO M/S. PEL IS ROYALTY WITHIN THE MEANI NG OF ARTICLE 13 OF THE DTAA AND ALSO U/S.9(1)(VI) OF THE I.T. ACT, 1961. 1.5 THE AR HAS ALSO SUBMITTED THAT THE SAME HAS BEEN EX AMINED BY ME IN MY ORDER NO. CIT(A)XXXI/DDIT(IT)2(1)/IT-303/02-03/06-0 7, DATED 29/10/2007 IN THE APPELLANTS OWN CASE. THE AR HAS SUBMITTED H IS WRITTEN SUBMISSIONS DT.23/10/2007 AND HAS REITERATED ALL THE ARGUMENT T AKEN BY HIM IN THAT APPEAL WHICH HAVE BEEN CONSIDERED IN MY ABOVE STATED ORDER . THE AR HAS SUBMITTED IN CONCLUSION THAT THE ABOVE PAYMENT MADE FOR PURCH ASE OF SOFTWARE IS NO ROYALTY BUT ONLY BUSINESS INCOME AND IS ACCORDING LY TAXABLE IN INDIA, ONLY IF M/S. PEL, HAS A PE. 5. THE TERMS AND CONDITIONS OF PURCHASE ARE BROUGHT OUT AT PARA 1.6 OF THE ORDER OF THE CIT(APPEALS) WHICH ARE EXTRACTED BELOW FOR READY REFERENCE : 1.6 ON THE OTHER HAND, THE AO HAS EXAMINED THE ISSU E. HE HAS REFERRED TO PARA 2 OF THE SPECIAL TERMS OF PURCHASE AND HAS H ELD THAT THE APPELLANT HAS ONLY GOT A LICENSE AND HAS NOT PURCHASED THE SOFTWA RE AND THUS THE TRANSACTION DOES NOT AMOUNT TO SALE. I FIND THAT TH E AO HAS TAKEN THE SAME ARGUMENTS AS TAKEN BY HIM IN RESPECT OF APPEAL NO. CUT(A)XXXI/DDIT(IT)2(1)/IT-303/02-03/06-07, DATED 2 9/10/2007 IN THE APPELLANTS OWN CASE. I HAVE ALSO EXAMINED THE LICE NSE AGREEMENT BETWEEN THE APPELLANT AND M/S PEL. THE APPELLANT HAS ENTERE D INTO AN AGREEMENT FOR SALE AND PURCHASE OF SOFTWARE WITH M/S PEL, SPECI AL TERMS AND CONDITIONS OF PURCHASE ARE PRESCRIBED IN THE AGREEMENT. CLAUSE 2 & 5 OF THE AGREEMENT PROVIDE FOR THE SOFTWARE LICENSE AND INTELLECTUAL P ROPERTY. THE SAME READS AS UNDER : SCOPE OF SUPPLY 2.1 MBAL (SOFTWARE) LICENSORS PROPRIETARY SOFTWARE TOOL WHICH CAN BE U SED TO ACCURATELY PERFORM MATERIAL BALANCE ANALYSIS (RESERVOIR ENGIN EERING) RELATED TO OIL & GAS EXPLORATION PROJECTS. 5 2.2 LICENSE & AGREEMENT UNDER EACH LICENSE, LICENSOR SHALL SUPPLY SOFTWARE USERS KIT THAT COMPRISES A SOFTWARE CD WITH EXECUTABLE CODE, DOCUM ENTATION AND ONE SET OF USER MANUALS ON CD AND ONE SECURITY DONGLE/LICEN SE KEY. THE LICENSE KEY WILL ALLOW THE SOFTWARE TOOLS TO BE INSTALLED ON AN Y PC MACHINE (WINDOWS 98) IN CASE OF STANDALONE LICENSE, OR ON SPECIFIED NETWORK SERVER (WIDOWS 98) IN CASE OF SINGLE USER NETWORK LICENSE. THE STA NDALONE LICENSE CAN BE ACCESSED FROM THE MACHINE WHERE THE SOFTWARE IS INS TALLED AND SECURITY DONGLE IS ATTACHED. THE SINGLE USER NETWORK LICENSE CAN BE ACCESSED CONCURRENTLY FROM ANY ONE MACHINE ON THE NETWORK CO NNECTED TO THE SERVER. TO USE THE LICENSE ACROSS A NETWORK A SEPARATE LICE NSE OF HARDLOCK IS REQUIRED. THE SOFTWARE SUPPLIED UNDER EACH LICENSE SHALL BE FULLY FUNCTIONAL PERMANENTLY. THE LICENSE SHALL PROVIDE AUTHORIZATION TO LICENSEE OR AUTHORIZED USER IS PERMITTED TO MAKE ONE (1) COPY FOR BACKUP AND ARCHI VAL PURPOSES. THE LICENSEE MAY BE HELD LEGALLY RESPONSIBLE FOR ANY IN FRINGEMENT, WHICH IS CAUSED OR ENCOURAGED BY ITS FAILURE TO ABIDE BY THE TERMS OF THIS LICENSE. 2.2.1 COPY RESTRICTION UNAUTHORIZED COPYING OF THE SOFTWARE, INCLUDING SOF TWARE WHICH HAVE BEEN MODIFIED, OR INCLUDED WITH OTHER SOFTWARE, OR OF TH E WRITTEN MATERIALS IS EXPRESSLY FORBIDDEN EXCEPT THAT THE LICENSEE OR AUTHORIZED USER IS PERMITTED TO MAKE ONE (1) COPY FOR BACKUP AND ARCHI VAL PURPOSES. THE LICENSEE MAY BE HELD LEGALLY RESPONSIBLE FOR ANY IN FRINGEMENT, WHICH IS CAUSED OR ENCOURAGED BY ITS FAILURE TO ABIDE BY THE TERMS OF THIS LICENSE. THE LICENSOR WILL DISTRIBUTE THE SOFTWARE LICENSES AND RELEVANT TECHNICAL DOCUMENTATION (USER MANUALS) ON ELECTRONIC MEDIA. T HE DOCUMENTATION WILL BE IN A READABLE FORMAT. THE LICENSEE AND AUTHORISE D USER ARE ENTITLED TO MAKE ELECTRONIC OR PRINTED COPIES (HARD COPIES) OF THE DOCUMENTATION AS IS REASONABLY REQUIRED FOR THE INTERNAL USE OF THE LIC ENSE. 6 2.2.2. OWNERSHIP OF THE SOFTWARE THE LICENSOR RETAINS TITLE AND OWNERSHIP OF THE SOF TWARE RECORDED ON THE ORIGINAL DISK COPY(IES) AND ALL SUBSEQUENT COPIES O F THE SOFTWARE, REGARDLESS OF THE FORM OR MEDIA IN OR ON WHICH THE ORIGINAL OR THE OTHER COPIES MAY EXIST. THIS LICENSE IS NOT A SALE OF THE ORIGINAL S OFTWARE OR ANY COPY. 2.2.3. LIABILITY THE LICENSOR WILL AT ITS SOLE EXPENSE DEFEND AND HO LD THE LICENSEE AND AUTHORIZED USER HARMLESS FROM ANY CLAIMS INCLUDING LEGAL FEES WHICH MAY BE MADE AGAINST THE LICENSEE. AUTHORIZED USER AND/O R THE LICENSOR BY ANY THIRD PARTY CLAIMING INFRINGEMENT OF A PATENT OR AN Y OTHER PROPRIETARY RIGHTS TO THE LICENSED SOFTWARE. 2.2.4 USE RESTRICTION THE LICENSOR GRANTS THE LICENSEE A PERPETUAL, NON-E XCLUSIVE, NON- TRANSFERABLE RIGHT AND LICENSE TO USE THE OBJECT VE RSION OF THE SOFTWARE LISTED SOLELY FOR THE BENEFIT OF THE LICENSEE AND AFFILIAT ES IN WHICH THE LICENSEE PARTICIPATES WITH USE LIMITED TO (I) THE LICENSEES EMPLOYEES, (II) THE LICENSEES CONTRACTORS, AND (III) THE AFFILIATES EM PLOYEES. EMPLOYEES OF THE LICENSE WHO ARE SECONDED TO THIRD PARTIES FOR A LIM ITED PERIOD ARE SPECIFICALLY AUTHORIZED TO USE THE SOFTWARE, HOWEVE R THIS RIGHT DOES NOT EXTEND TO THE THIRD PARTY ORGANIZATION UNLESS THEY ARE AFFILIATES. THIS LICENSE EXPLICITLY EXCLUDED PARTNERS OR CO-VENTURES FROM IN DEPENDENT USE OF THE SOFTWARE UNLESS CONFORMING TO THE DEFINITION OF AFF ILIATES AS SET OUT IN THIS AGREEMENT. BOTH CONTRACTORS AND AFFILIATES WORKERS ARE SUBJECT TO CONFIDENTIALITY REQUIREMENTS SET OUT IN THIS AGREEM ENT BELOW, FOR THE LICENSED PERIOD. THE LICENSEE MAY: I) INSTALL AND USE THE SOFTWARE ON THE LICENSE CONTROL LED SYSTEMS. THIRD PARTIES AND CONTRACTORS MAY EXCLUSIVELY USE THE LIC ENSES IN THE 7 LICENSEES PREMISES AND ON THE LICENSEES CONTROLLE D COMPUTERS SYSTEMS, PROVIDED THAT THE SOFTWARE IS BEING USED E XCLUSIVELY FOR THE BUSINESS OF THE LICENSEE. II) IF THE SOFTWARE INCLUDES FUNCTIONALITY THAT ENABLES THE LICENSEES SERVER, A GROUP OF SERVERS OR A SINGLE COMPUTER TO ACT AS A NETWORK SERVER, A.Y. NUMBER OF COMPUTERS OR WORKSTATIONS MA Y ACCESS OR OTHERWISE UTILIZE THE SOFTWARE OVER THE LICENSEES NETWORK FOR EACH GEOGRAPHICAL LICENSEES SITE, SO LONG AS THE NUMBER OF CONCURRENT USERS DOES NOT EXCEED THE NUMBER OF LICENSES HELD B Y THE LICENSEE. III) THE LICENSEE MAY NOT MODIFY, ADAPT, TRANSLATE, REVE RSE ENGINEER, DE- COMPILE, DISASSEMBLE, OR CREATE DERIVATIVE WORKS BA SED ON THE SOFTWARE. THIS DOES NOT RESTRICT THE LICENSEE FROM USING THE LICENSED SOFTWARE IN ASSOCIATION WITH THIRD PARTY PRODUCTS T HOUGHT THE OPEN ARCHITECTURE SYSTEM OF THE LICENSORS SOFTWARE KNOW N AS OPEN SERVER. 2.2.5 TRANSFER RESTRICTIONS THIS SOFTWARE IS LICENSED ONLY TO THE LICENSEE AND MAY NOT BE TRANSFERRED TO ANYONE WITHOUT THE PRIOR WRITTEN CONSENT OF THE LICENSOR. ANY AUTHORIZED TRANSFEREE OF THE SOFTWARE SHALL BE BOUN D BY THE TERMS AND CONDITIONS OF THIS AGREEMENT. IN NO EVENT MAY THE L ICENSEE TRANSFER, ASSIGN, RENT LEASE, SELL OR OTHERWISE DISPOSE OFF T HE SOFTWARE ON A TEMPORARY OR PERMANENT BASIS EXCEPT AS EXPRESSLY PROVIDED THE REIN. 6. THE GENERAL TERMS AND CONDITIONS OF AGREEMENT OF PURCHASE CAN BE SUMMARIZED AS UNDER: I) THE ASSESSEE IS NOT ENTITLED TO USE THE SOFTWAR E FOR ASP SERVICES ON BEHALF OF THIRD PARTY. II) THE ASSESSEE HAS NO RIGHT TO USE, COPY, DUPLICA TE OR DISPLAY THE SOFTWARE EXCEPT AS SPECIFICALLY PROVIDED IN THE AGR EEMENT. 8 III) THE ASSESSEE CANNOT MAKE MORE COPIES OF THE SO FTWARE THAN WHAT IS SPECIFIED IN THE AGREEMENT. IV) THE ASSESSEE CANNOT PROVIDE ACCESS TO THE SOFTW ARE TO ANY ONE, OTHER THAN ASSESSEES EMPLOYEES, CONTRACTORS OR CONSULTAN TS UNDER A WRITTEN CONTRACT BY WHICH ALL OF THEM WOULD BE BOUND BY THE TERMS AND CONDITIONS AS ARE APPLICABLE TO THE ASSESSEE ON PURCHASE OF SOFTW ARE. V) THE ASSESSEE CANNOT SELL LICENSE, DISTRIBUTE, PL EDGE, LEASE, RENT OR COMMERCIALLY SHARE (INCLUDING TIMESHARE) THE ABOVE SOFTWARE OR ANY RIGHTS THEREIN. VI) THE ASSESSEE CANNOT USE THE SOFTWARE FOR PURPOS ES OF PROVIDING A SERVICE BUREAU, INCLUDING WITHOUT LIMITATION, FOR P ROVIDING THIRD PARTY HOSTING OR THIRD PARTY APPLICATION, INTEGRATION OR APPLICATION SERVICE PROVIDER OR ANY OTHER SIMILAR SERVICE. VII) THE ASSESSEE CANNOT MODIFY, TRANSLATE, REVERSE , ENGINEER, DECRYPT, DECOMPILE, DISASSEMBLE, CREATE DIRECTIVE WORKS BAS ED ON, OR OTHERWISE ATTEMPT TO DISCOVER THE ABOVE MENTIONED SOFTWARE SO URCE CODE OR UNDERLYING IDEAS OR ALGORITHMS. 7. ANOTHER IMPORTANT FACT IS THAT THE SOFTWARE HAS BEEN SUPPLIED TO THE ASSESSEE ON A COMPUTER DISK, FROM A PLACE OUTSIDE INDIA, ON FOB BASIS. NONE OF THE PARTIES INVOLVED HAVE A PERMANENT ESTABLISHMENT IN INDIA. T HE FIRST APPELLATE AUTHORITY IN HER ORDER IN APPEAL NO. CIT(A)XXXI/DDIT(IT)2(1)IT -303/02-03/07-08 DATED 29-10-2007 WHILE CONSIDERING THE PURCHASE FROM A N ON-RESIDENT WHO IS A RESIDENT OF USA WHERE THE TERMS AND CONDITIONS OF PURCHASE ARE ALMOST SIMILAR TO THE TERMS AND CONDITIONS OF PURCHASE IN THE CASE ON HAND, AS ADMITTED BY BOTH THE PARTIES, AT PARA 2.4 OBSERVED AS FOLLOWS : 9 A PERUSAL OF THE AGREEMENT REVEALS THAT THE APPEL LANT HAS NOT RECEIVED ANY RIGHT FOR TRANSFERRING OR MODIFYING THE SOFTWAR E LICENSE OR DECOMPILING, REVERSE ENGINEERING, OR DISASSEMBLING IT. THE APPEL LANT HAS ALSO GOT NO POWER TO DECODE THE MACHINE CODE OF SOFTWARE. THE APPELLA NT HAS GOT NO POWER TO MAKE COPIES OF SOFTWARE EXCEPT FOR BACKUP PURPOSES. FROM A PERUSAL OF THE TERMS OF THE AGREEMENT REPRODUCED ABOVE, IT IS VERY APPARENT THAT THE APPELLANT HAS ACQUIRED THE RIGHT SOLELY IN CONNECTI ON WITH ITS INTERNAL OPERATIONS AND RIGHT TO USE THE SOFTWARE IS CONFINE D FOR THE EXPRESS PURPOSE OF ITS BUSINESS. WITH THESE FACTS IN MIND THE TAXAB ILITY OF PAYMENT RECEIVED BY M/S TIBCO IS EXAMINED. 8. SHE FURTHER OBSERVED AT PARA 1.11 OF THE IMPUGNE D ORDER AS FOLLOWS : 1.11 A CLOSE PERUSAL OF THE DEFINITION OF ROYALTY IN BOTH THESE TREATIES REVEAL THAT SO FAR AS PURCHASE OF COMPUTER SOFTWAR E IS CONCERNED, THE DEFINITION OF ROYALTY REGARDING THE COPY RIGHT OR TRADEMARK OR SECRET FORMULA IS SAME. THE DEFINITION OF INDO USA DTAA IS PRIMARILY EXPANDING THE DEFINITION OF ROYALTY IN INDO-USA DTAA. ACCORDI NGLY I HOLD THAT MY DECISION IN THE CASE OF APPELLANT IN APPEAL NO. CIT(A)XXXI/DDIT(IT)2(1)/IT303/02-03/06-07 DATED 29/ 10/2007, IS SQUARELY APPLICABLE TO THIS CASE AS WELL. THEREFORE , FOLLOWING MY ORDER IN THAT APPEAL, I HOLD THAT THE PAYMENT MADE BY THE AP PELLANT TO M/S PEL IS ONLY BUSINESS INCOME OF M/S PEL AND NOT ROYALTY. IN THE ABSENCE OF ANY PE IN INDIA, BUSINESS PROFIT IS NOT TAXABLE IN INDIA A S PER ARTICLE-5 & 7 OF DTAA. IN VIEW OF THIS APPEAL ON GROUND NO. 1 TO 7 I S ALLOWED. 9. THIS BENCH OF THE TRIBUNAL, ON SIMILAR ISSUE, IN THE CASE OF PURCHASE OF SOFTWARE FROM USA IN ASSESEES OWN CASE IN ITA NOS.116,119,1123,1125,1126,1127,1129,1131,1134,1181 ,1183,1184,1185,1187, 1188 & 1190/MUM/2008 VIDE ITS ORDER DATED 29 TH OCT., 2010 HAS HELD AS FOLLOWS 10 12. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CAS E OF SAMSUNG ELECTRONIC COMPANY LTD. VS. ITO REPORTED IN 276 ITR (AT) 1 HELD AS FOLLOWS : HELD, ALLOWING THE APPEALS, THAT THE PROVISIONS O F THE INCOME-TAX ACT WOULD BE APPLICABLE TO THE EXTENT THEY WERE MORE BE NEFICIAL TO THE ASSESSEE. OTHERWISE, THE PROVISIONS OF THE DOUBLE TAXATION A VOIDANCE AGREEMENT HAD TO BE FOLLOWED. THEREFORE, THE PROVISIONS OF TH E DOUBLE TAXATION AVOIDANCE AGREEMENT HAD TO BE FOLLOWED FOR THE PUR POSE OF DECIDING THE ISSUE WHETHER PAYMENTS MADE BY THE ASSESSEE WAS RO YALTY OR NOT. THE PRIMARY CONDITION FOR BRINGING WITHIN THE DEFINITIO N OF ROYALTY IN THE DOUBLE TAXATION AVOIDANCE AGREEMENT IS PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE ANY CO PYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC. THE RIGHT TO USE A COPYRIG HT IS TOTALLY DIFFERENT FROM THE RIGHT TO USE THE PROGRAMME EMBEDDED IN A CASSET TE OR CD OR IT MAY BE A SOFTWARE. IN THIS CASE, WHAT THE ASSESSEE HAD ACQUI RED WAS ONLY A COPY OF THE COPYRIGHTED ARTICLES, THAT IS SOFTWARE, WHEREAS THE COPYRIGHT REMAINED WITH THE OWNER, THAT IS THE FOREIGN PARTIES. NO RIGHT WA S GRANTED TO THE ASSESSEE TO UTILIZE THE COPYRIGHT OF THE COMPUTER PROGRAMME. TH E ASSESSEE HAD MERELY PURCHASED A COPY OF THE COPYRIGHTED ARTICLE, NAMELY , A COMPUTER PROGRAMME WHICH WAS CALLED SOFTWARE . THEREFORE, THE REMITT ANCE MADE BY THE APPELLANT FOR PURCHASE OF SOFTWARE WAS NOT AN INCOM E IN INDIA, HENCE NO TAX WAS TO BE DEDUCTED IN INDIA UNDER SECTION 195 OF TH E ACT. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MOTO ROLA INC VS. DCIT 95 ITD 269 IN THE FOLLOWING PARAS HELD AS FOLLOWS : 155. IT APPEARS TO US FROM A CLOSE EXAMINATION OF THE MANNER IN WHICH THE CASE HAS PROCEEDED BEFORE THE INCOME-TAX AUTHORITIE S AND THE ARGUMENTS ADDRESSED BEFORE US THAT THE CRUX OF THE ISSUE IS W HETHER THE PAYMENT IS FOR A COPYRIGHT OR FOR A COPYRIGHTED ARTICLE. IF IT IS FO R COPYRIGHT, IT SHOULD BE CLASSIFIED AS ROYALTY BOTH UNDER THE INCOME-TAX ACT AND UNDER THE DTAA AND IT WOULD BE TAXABLE IN THE HANDS OF THE ASSESSE E ON THAT BASIS. IF THE PAYMENTS IS REALLY FOR A COPYRIGHTED ARTICLE, THEN IT ONLY REPRESENTS THE PURCHASE PRICE OF THE ARTICLE AND THEREFORE, CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE ACT OR UNDER THE DTAA. THIS ISSUE REALLY IS THE KEY TO THE ENTIRE CONTROVERSY AND WE MAY NOW PROCEED TO ADDRES S THIS ISSUE. 156 WE MUST LOOK INTO THE MEANING OF THE WORD COPY RIGHT AS GIVEN IN THE COPYRIGHT ACT, 1957 SECTION 14 OF THIS ACT DEFINES COPYRIGHT AS THE 11 EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS A CT, TO DO OR AUTHORIZE 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 INCL UDING 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 ADA PTATION 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 CL. (A); (II) TO SELL OR GIVE ON COMMERCIAL RENTAL FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E; PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ES SENTIAL OBJECT OF THE RENTAL, 12 (C) IN THE CASE 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; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-C LAUSE (I) TO (IV); (D) IN THE CASE OF 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 H AS 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, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER S UCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCA SIONS; (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 CIRCUL ATION. 13 IT IS CLEAR FROM THE ABOVE DEFINITION THAT A COMPUT ER PROGRAMME MENTIONED IN CLAUSE (B) OF THE SECTION HAS ALL THE RIGHTS MEN TIONED IN CLAUSE (A) AND IN ADDITION ALSO THE RIGHT TO SELL OR GIVE ON COMMERCI AL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROG RAMME. THIS ADDITIONAL RIGHT WAS SUBSTITUTED W.E.F. 15.1.200. THE DIFFEREN CE BETWEEN THE EARLIER PROVISION AND THE PRESENT ONE IS NOT OF ANY RELEVAN CE. WHAT IS TO BE NOTED IS THAT THE RIGHT MENTIONED IN SUB-CLAUSE (II) OF CLAU SE (B) OF 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 TH AT IT DOES NOT HAVE ANY RIGHT IN A COPYRIGHT. IN THAT CASE, THE PAYMENT MAD E 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 I S WHETHER ANY OF THE OPERATORS CAN EXERCISE ANY OF THE RIGHTS MENTIONED IN THE ABOVE PROVISIONS WITH REFERENCE TO THE SOFTWARE SUPPLIED BY THE ASSE SSEE. FURTHER, THE DELHI SPECIAL BENCH OF ITAT IN PARAS 1 62, 168 AND 169 HELD AS FOLLOWS: 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 HOLDE R 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 CONSIDERE D AS A COPYRIGHT. IN THAT CASE, IT CAN ONLY BE SAID THAT HE HAS ACQUIRED A CO PYRIGHTED ARTICLE. A SMALL EXAMPLE MAY CLARIFY THE POSITION. THE PURCHASER OF A BOOK ON INCOME-TAX ACQUIRES ONLY A COPYRIGHTED ARTICLE. ON THE OTHER H AND, A RECORDING COMPANY WHICH HAS RECORDED A VOCALIST HAS ACQUIRED THE COPY RIGHT IN THE MUSIC RENDERED AND IS, THEREFORE, PERMITTED TO EXPLOIT TH E RECORDING COMMERCIALLY. IN THIS CASE THE MUSIC RECORDING COMPANY HAS NOT ME RELY ACQUIRED A COPYRIGHTED ARTICLE IN THE FORM OF A RECORDING, BUT HAS ACTUALLY ACQUIRED A COPYRIGHT TO REPRODUCE THE MUSIC AND EXPLOIT THE SA ME COMMERCIALLY. IN THE 14 PRESENT CASE WHAT JTM OR ANY OTHER CELLULAR OPERATO R HAS ACQUIRED UNDER THE SUPPLY CONTRACT IS ONLY THE COPYRIGHTED SOFTWARE, W HICH IS AN ARTICLE BY ITSELF AND NOT ANY COPYRIGHT THEREIN. 168. THE ACTUAL REGULATIONS BRING OUT THE DISTINCTI ON VERY CLEARLY BETWEEN THE COPYRIGHT RIGHT AND A COPYRIGHTED ARTICLE. THEY ALS O SPECIFY THE FOUR RIGHTS WHICH, IF ACQUIRED BY THE TRANSFEREE, CONSTITUTE HI M 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 TRAN SFER 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. 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. FINALLY, THE SPECIAL BENCH OF ITAT, DELHI, IN PARA NO. 184 CONCLUDED AS FOLLOWS : 184. IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD T HAT THE SOFTWARE SUPPLIED WAS A COPYRIGHTED ARTICLE AND NOT A COPYRIGHT RIGHT , AND THE PAYMENT RECEIVED BY THE ASSESSEE IN RESPECT OF THE SOFTWARE CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME-TAX ACT OR THE DTAA . (EMPHASIS SUPPLIED) 15 THE BANGALORE A-BENCH OF TRIBUNAL IN THE CASE OF H EWLETT-PACKARD (INDIA)(P) LTD. VS. ITO 5 SOT 660 (BANG) HELD AS FO LLOWS : SECTION 9(1)(VI) PROVIDES THAT ROYALTY RECEIVABLE BY A NON-RESIDENT FROM A PERSON IN INDIA IS DEEMED TO ACCRUE OR ARISE IN IND IA. FURTHER, SECTION 90(2) PROVIDES THAT IF THE PROVISIONS OF TAX TREATY BETWE EN INDIA AND THE COUNTRY OF THE NON-RESIDENT ARE MORE BENEFICIAL TO SUCH NON -RESIDENT, THEN THE PROVISIONS OF TAX TREATY SHALL OVERRIDE THE PROVISI ONS OF THE ACT [PARA 6). ARTICLE 12(3) OF THE INDIA-USA DTAA DEFINES THE TER M ROYALTY. AS PER THE INDIA-USA DTAA ROYALTY IN RESPECT OF THE SUBJECT-MA TTER OF A COPYRIGHT INCLUDES ONLY THE PAYMENTS FOR THE USE I.E., EXPLOI TATION OF THE COPYRIGHT OF SUCH LITERARY/ARTISTIC OR SCIENTIFIC WORK. THEREFOR E, IN ORDER TO BE CLASSIFIED AS ROYALTY, THE RIGHT OF THE PERSON IN POSSESSION OF T HE SUBJECT-MATTER OF A COPYRIGHT SHOULD BE TO UTILIZE SUCH COPYRIGHT IN TH E MANNER WHICH IS OTHERWISE PROTECTED BY THE RESPECTIVE COPYRIGHT LAW IN FAVOUR OF THE OWNER OF THE COPYRIGHT. THE USE OF A COPYRIGHT OF A COPYR IGHTED WORK IS DIFFERENT FROM USE OF SUCH WORK ITSELF. THE ACQUISITION OF A PRODUCT, WHEREIN THE SUBJECT-MATTER OF COPYRIGHT IS EMBEDDED, WITHOUT RI GHT TO EXPLOIR THE COPYRIGHT, DOES NOT AMOUNT TO USE OR RIGHT TO USE T HE COPYRIGHT OF SUCH LITERARY/ARTISTIC/SCIENTIFIC I.E., COPYRIGHTED WORK [PARA 6]. FURTHER, AS PER CLAUSE 13.1 OF THE OECD MODEL COMME NTARY, PAYMENTS MADE FOR ACQUISITION OF PARTIAL RIGHTS IN COPYRIGHT WOUL D REPRESENT A ROYALTY WHERE THE CONSIDERATION IS FOR THE RIGHT TO USE THE PROGR AMMES IN A MANNER THAT WOULD, WITHOUT SUCH LICENSE, CONSTITUTE AN INFRINGE MENT OF THE COPYRIGHT. IN OTHER WORDS, THE PAYMENT CAN CONSTITUTE ROYALTY ONL Y IF THE TRANSFEROR GRANTS TO THE TRANSFEREE THE RIGHT TO USE THE COPYRIGHT OF THE PRODUCT. IF, ON THE OTHER HAND, THE USE OF THE PROGRAMMES BY THE TRANSFEREE ( BY ACQUIRING A COPY OF SUCH PROGRAMME) IS IN A MANNER WHICH DOES NOT CONST ITUTE INFRINGEMENT OF THE COPYRIGHT, THE PAYMENT THEREFOR WOULD NOT AMOUN T TO ROYALTY. THEREFORE, UNDER THE OECD MODEL COMMENTARY ALSO PAY MENTS FOR ACQUIRING A COPY OF A COMPUTER PROGRAMME WOULD NOT BE TREATED AS PAYMENTS FOR RIGHT TO USE THE COPYRIGHT IN THE COMPUTER PROGRAMMES. AC CORDINGLY SUCH PAYMENTS ARE TO BE CONSIDERED S COMMERCIAL INCOME U NDER ARTICLE 7 AND NOT AS ROYALTY UNDER ARTICLE 12 OF THE INDIA-USA DTAA [ PARAS 6.2 AND 6.3]. 16 FURTHER, THE COMPUTER PROGRAMME MAY BE COPYRIGHT AS INTELLECTUAL PROPERTY DOES NOT ALTER THE FACT THAT ONCE IN THE FORM OF A FLOPPY DISC OR OTHER MEDIUM, THE PROGRAMME IS TANGIBLE, MOVABLE AND AVAILABLE IN THE MARKET PLACE. THE FACT THAT SOME PROGRAMMES MAY BE TAILORED FOR SPECI FIC PURPOSES NEED NOT ALTER THEIR STATUS AS GOODS BECAUSE THE CODE DEFI NITION INCLUDED SPECIALLY MANUFACTURED GOODS. IN THE CASE OF TATA CONSULTAN CY SERVICES V. STATE OF ANDHRA PRADESH [2004] 271 ITR 401 / 141 TAXMAN 132 THE APEX COURT AFTER CITING SEVERAL DECISIONS OF THE COURTS OF THE USA H AS NOTED THAT ACQUISITION OF A COPY OF COMPUTER PROGRAMMES, WHICH IS A COPYRI GHTED ARTICLE, AMOUNTS TO SALE OF SUCH ARTICLE [PARA 6.7]. THEREFORE, THE PAYMENT MADE BY THE ASSESSEE TO H WAS NOT IN THE NATURE OF ROYALTY BUT WAS SUBJECT-MATTER OF ARTICLE 7 OF THE INDIA-USA DTAA. FURTHER IT WAS AN ADMITTED FACT THAT H, DID NOT HAVE ANY PE RMANENT ESTABLISHMENT IN INDIA. THEREFORE, THE ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX AT SOURCE ON SUCH PAYMENTS MADE TO H, USA. THEREFORE, THE CLAIM OF THE ASSESSEE WAS LIABLE TO BE ALLOWED.[PARA 6.8]. 10. NOW WE EXTRACT THE RELEVANT PROVISION UNDER THE INDO-UK DTA : THE DEFINITION OF ROYALTY AS PER INDO-UK DTA READS AS UNDER : 12(3) (A) THE TERM ROYALTY AS USED IN THIS ART ICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLA N SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. (B) THE TERM FEES FOR TECHNICAL SERVICES MEANS P AYMENT OF ANY KIND IN CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES INCLUDING THE PROVISION OF SERVICES BY TEC HNICAL OR OTHER PERSONNEL BUT DOES NOT INCLUDE PAYMENTS FOR SERVICES MENTIONE D IN ARTICLE 14 AND 15 OF THIS CONVENTION. 17 11. THE DEFINITION OF ROYALTY IS SIMILAR TO THE DEF INITION OF ROYALTY IN THE INDO- US DTAA. IN ANY EVENT, WE DO NOT GO INTO IT, AS THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. VS. DCIT (SUPRA) HELD THAT SECTION 9(1)(VII) IS NOT ATTRACTED IN SUCH CASES, WHERE THERE IS A TRANSFER OF COPYRIGHTED ARTICLE AND NOT A TRANSFER OF THE COPY WRITE ITSELF. ON FACTS WE CONC LUDE THAT WHAT IS TRANSFERRED IN THIS CASE IS A COPYRIGHTED ARTICLE ONLY. HENCE SEC. 9(1)(VII) IS NOT ATTRACTED. 12 APPLYING THE PROPOSITIONS TO THE FACTS OF THE CA SE, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY WHEREIN IT IS HELD THAT : A) IT IS NOW ESTABLISHED LAW THAT COMPUTER SOFTWARE AF TER BEING PUT ON TO A MEDIA AND THEN SOLD, BECOMES GOODS LIKE ANY OTHER A UDIO CASSETTE OR PAINTING ON CANVAS OR A BOOK AND THAT THE AO IS WRO NG IN HOLDING THAT COMPUTER SOFTWARE ON A MEDIA, CONTINUES TO BE AN IN TELLECTUAL PROPERTY RIGHT. B) THAT THE ASSESSEE HAS PURCHASED A COPYRIGHTED ARTIC LE AND NOT THE COPYRIGHT ITSELF. THERE IS NO TRANSFER OF ANY PART OF COPYRIGHT. C) THE PRESENT COMPUTER SOFTWARE CANNOT BE TREATED AS A PATENT OR AN INVENTION. 13. IN VIEW OF THE ABOVE DISCUSSION, WE RESPECTFULL Y FOLLOW THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTORO LA INC. (SUPRA) AND HOLD THAT THE SOFTWARE SUPPLIED WAS A COPY RIGHTED ARTICLE AND NO T A COPY RIGHT AND THAT THE PAYMENT RECEIVED BY THE ASSESSEE IN RESPECT OF THE SOFTWARE CANNOT BE CONSIDERED AS ROYALTY UNDER THE INCOME-TAX ACT. ONCE IT IS NO T ROYALTY UNDER THE INCOME-TAX ACT, THE QUESTION OF EXAMINING WHETHER IT IS ROYAL TY UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT WITH UK DOES NOT ARISE ONCE IT IS NOT ROYALTY, IT IS BUSINESS INCOME AND AS THE ASSESSEE DOES NOT HAVE A P.E. IN INDIA IT IS NOT TAXABLE IN INDIA. IT IS WELL SETTLED THAT WHEN A PARTICULAR TRANSACTI ON IS TAXABLE AS ROYALTY UNDER THE 18 INDIAN INCOME-TAX ACT, THEN ONLY, WE HAVE TO EXAMIN E WHETHER THE DOUBLE TAXATION AVOIDANCE AGREEMENT GIVES AN EXEMPTION OR BENEFIT. WHEN A TRANSACTION CANNOT BE BROUGHT TO TAX AS ROYALTY UNDER THE INC OME-TAX ACT ITSELF, THE QUESTION OF EXAMINING THE POSITION UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT DOES NOT ARISE. HENCE WE LEAVE THAT ISSUE OPEN. THUS, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY FOR THE REASONS GIVEN HEREIN AB OVE AND DISMISS THE APPEALS OF THE REVENUE. 14. IN THE RESULT, THE APPEALS FILED BY THE REVENU E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH NOV. , 2010. SD/- SD/- (R.V. EASWAR) (J. S UDHAKAR REDDY) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 26 TH NOV., 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, L-BENCH (TRUE COPY) BY ORDER ASSTT. R EGISTRAR, ITAT, MUMBAI B ENCHES, MUMBAI.