ACIT COMPANY CIRCLE VI(1), CHENNAI V. SAIPEM INDIA PROJECTS PRIVATE LIMITED, CHENNAI

ITA 1210/CHNY/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0723 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 24-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: J PAVITHRAN KUMAR
• Keywords: Business income; Double taxation relief; Retrospective amendment; Permanent establishment; Advance ruling; Wholly owned subsidiary; Non-deduction of tax; TDS; Set aside; Capital Gains
• Section: 143(3); 201(1); 195; 201; 48; 9(1); 9(1); 9(1); 13; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , ! , & BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA NO.1210/CHNY/2019 ' ' /ASSESSMENT YEAR: 2014-15 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-6(1), CHENNAI. V . M/S.SAIPEM INDIA PROJECTS PVT. LTD., YARLAGADDA TOWERS, 4, FOURTH FLOOR, NUNGAMBAKKAM MAHATAMA GANDHI ROAD, CHENNAI-600 034. [PAN: AAACI 7915 F ] ( * /APPELLANT) ( +,* /RESPONDENT) DEPARTMENT BY : MR. J.PAVITHRAN KUMAR, JCIT ASSESSEE BY : MR.PRANITH GOLECHA, CA / MR.N.ANANTHAKRISHNAN, CA . /DATE OF HEARING : 30.09.2019 . /DATE OF PRONOUNCEMENT : 23.12.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL FILED BY REVENUE IS DIRECTED AGAINST A PPELLATE ORDER DATED 30.01.2019 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI (HEREINAFTER CALLED THE CIT( A)), IN ITA NO.601/2016-17/CIT(A)-15 FOR ASSESSMENT YEAR (AY) 2014-15, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) HAD ARI SEN FROM ASSESSMENT ORDER DATED 17.11.2017 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER ITA NO.1210/CHNY/2019 :- 2 -: CALLED THE AO) U/S.143(3) READ WITH SECTION 92CA (3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY REVENUE IN MEMO OF APPEAL FILED WITH INCOME-TAX APPELLATE TRIBUNAL, CHENNAI (HEREIN AFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF DEDUCTION U/S 40(A)(I) OF THE ACT OF RS.5.59 CRORES BY RELYING ON THE DECISION OF THE HO N'BLE TRIBUNAL VIDE ITA NO.1862 TO 1868/MDS/2017 DATED 23-10-2017 FOR AYS 2009-10 TO 201 5-16 IN THE ASSESSEE'S OWN CASE, DECIDED IN FAVOUR OF THE ASSESSEE. 2.1. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT P AYMENT TOWARDS SOFTWARE WAS FOR THE PURPOSE OF OBTAINING LICENCE AND WOULD THEREFORE CO NSTITUTE ROYALTY. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND TH AT OF THE ASSESSING OFFICER BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN BUSINESS OF ENGINEERING AND PROCUREMENT ASSISTANCE SERVICES, DESIGN AND EXECUTION OF LARGE SCALE OIL & GAS ONSHORE AND OFFSHORE PROJE CTS, CRYOGENIC TANKS, ETC. THE ASSESSEE HAD PURCHASED CERTAIN SOFTWARE L ICENSES FROM M/S.SAIPEM SPA, ITALY, WHICH WERE USED BY ASSESSEE FOR PROVIDING SERVICES TO CUSTOMERS FOR VARIOUS SUPPORT FUNCTIONS IN ACCOUNTING, REPORTING, ETC. . THE AO MADE DISALLOWANCE OF AFORE SAID EXPENSES CLAIMED BY ASSESSEE BY INVOKING PROVISIONS OF SECTION 40(A) (I) OF THE 1961 ACT AS THE ASSESSEE HAD NOT DEDUCTED INCOME-TAX AT SOURCE AS REQUIRED U/S 195 OF THE 1961 ACT WHILE MAKING PAYMENT TO M/S SAIPEM SPA, ITALY, BY HOLDING THAT THE AFORESAID PAYMENTS ARE ROYALTY PA YMENT U/S 9(1)(VI) OF THE 1961 ACT AND ARTICLE 13(3) OF INDIA-ITALY DTAA WHICH WERE SUBJECT TO INCOME-TAX DEDUCTION AT SOURCE U/S 195 OF THE 1961 ACT, VIDE ASSESSMENT ITA NO.1210/CHNY/2019 :- 3 -: ORDER DATED 17.11.2017 PASSED BY AO U/S 143(3) READ WITH SECTION 92CA(3) OF THE 1961 ACT , IS REPRODUCED HEREUNDER: 3. DISALLOWANCE U/S.40(A)(I): 3.1 DURING THE COURSE OF SCRUTINY PROCEEDINGS THE A SSESSEE WAS REQUESTED TO FURNISH DETAILS OF AMOUNT DEBITED UNDER THE HEAD 'SOFTWARE SUPPORT CHARGES' OF RS.18,63,35,391/- AND THE ASSESSEE WAS ALSO REQUESTED TO FURNISH THE DETAILS OF TDS DONE ALONG WITH COPY OF AGREEMENT, INVOICES ETC. THE ASSESSEE FURNISHED ELA BORATE SUBMISSIONS IN THIS REGARD ALONG WITH COPY OF AGREEMENT FOR MAKING SUCH PAYMENTS. PR IMA FACIE, IT IS SEEN THAT THESE PAYMENTS WERE MADE BY THE COMPANY TO M/S.SAIPEM, SPA , ITALY, FOR ACQUIRING SOFTWARE LICENSES WHICH WERE USED BY THE ASSESSEE FOR PROVID ING SERVICES TO CUSTOMERS FOR VARIOUS SUPPORT FUNCTIONS IN ACCOUNTING, REPORTING ETC. IN THIS CONNECTION, IT APPEARS THAT THE COMPANY HAD ALSO DIRECTLY PURCHASED SIMILAR SOFTWARE / LICENSES FROM OVERSEAS THIRD PARTY VENDOR S WHERE IT HAS DEDUCTED TAX AT SOURCE ON SUCH PAYMENTS. HOWEVER, WHEN IT COMES TO THE QUE STION OF MAKING PAYMENTS TO ITS GROUP CONCERN, M/S.SAIPEM, SPA, ITALY, THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. ON QUESTIONED AS TO WHY THE AMOUNT CLASSIFIED AS 'SOFT WARE SUPPORT CHARGES' SHOULD NOT BE DISALLOWED IN TERMS OF SECTION 40(A)(I), THE ASSESSE E SUMMARISED ITS OBJECTIONS AS UNDER: 'THE PAYMENT MADE TOWARDS THE PURCHASE OF SOFTWARE WOULD NOT BE TAXABLE AS ROYALTY UNDER THE PROVISIONS OF DTAA BETWEEN INDIA - ITALY IN THE ABSENCE OF ANY AMENDMENTS TO THE DTAA, THE P AYMENTS CANNOT BE HELD TO BE ROYALTY EVEN AFTER THE RETROSPECTIVE AMENDMENTS TO SECTION 9(L)(VI) OF THE ACT. THE RECEIPTS CANNOT BE TREATED AS ROYALTY IN VIEW O F THE DECISIONS OF VARIOUS TRIBUNAL, HIGH COURT AND AUTHORITY FOR ADVANCE RULI NGS AS SUBMITTED ABOVE. IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDI A, BUSINESS PROFITS OF THE NON- RESIDENT SELLER ARE ALSO NOT CHARGEABLE TO TAX IN I NDIA. THEREFORE THE OBLIGATION TO DEDUCT TAXES UNDER SECT ION 195 OF THE ACT DOES NOT RISE.' IN THIS CONNECTION, IT IS FELT THAT THE ASSESSEE'S STAND IS INCONSISTENT AS WHEN IT COMES TO THE PURCHASE OF SOFTWARE FROM ITS PARENT COMPANY, T HE ASSESSEE CLAIMS THAT NO TDS IS WARRANTED AND ON THE OTHER HAND WHEN IT IS PURCHASE D FROM OVERSEAS NON AE VENDORS THE ASSESSEE HAS DEDUCTED TAX AT SOURCE. 3.2 IT IS ALSO A POINT TO BE NOTED IN THIS CASE T HAT VIDE ORDER U/S.201(1)(1A) OF THE ACT, PASSED BY THE DCIT (INTL. TAXATION)-1(1), CHENNAI, IT IS HELD THAT THE PAYMENTS FOR SOFTWARE AND LICENSING FEES ARE TAXABLE AS ROYALTY AS PER SE CTION 9(1)(VI) OF THE ACT AND AS PER ARTICLE 12(3) OF DTAA, ITALY. IN THIS REGARD, A SHOW CAUSE NOTICE DATED 02.11.2017 WAS GIVEN TO THE ASSESSES WHICH IS REPRODUCED 1. IT IS SEEN FROM THE FINANCIAL STATEMENTS FOR THE AY 2014-15, YOU HAVE CLAIMED A RS.18,63,35,391/- AS SOFTWARE SUPPORTING CHARGE S. BUT THE SOFTWARE EXPENSES OF RS.20,45,26,180/- CLAIMED BY THE ASSESSEE IS TREATE D AS ROYALTY VIDE ORDER U/S.201(1)(1A) OF THE INCOME TAX ACT 1961 DATED 31.12.2016. 2. HENCE YOU ARE ASKED TO SHOW CAUSE WHY THE SOFTWA RE SUPPORTING CHARGES OF RS.18,63,35,391/- SHOULD NOT BE TREATED AS ROYALTY PAYMENT. 3. IN THIS CONNECTION YOU ARE REQUIRED TO APPEAR BEFORE THE UNDERSIGNED EITHER PERSONALLY OR THROUGH AUTHORIZED REPRESENTATIVE ON 07.11.2017 AT 11.00 AM PRODUCE, OR ITA NO.1210/CHNY/2019 :- 4 -: CAUSE TO BE PRODUCED ANY EVIDENCE OR PARTICULARS ON WHICH YOU RELY IN SUPPORT OF YOUR CLAIM. 3.3 IN REPLY THE ASSESSEE SUBMITTED VIDE LETTER 7.11.2017 THAT AT THE OUTSET, WE WISH TO SUBMIT THAT THE ASSESSEE APPEALED AGAINST THE ABOVE ORDER AND THE HON'BFE ITAT, CHENNAI IN ITS ORDER DATED 23.10. 2017 HAD SET ASIDE THE ABOVE ORDER HOLDING THAT THE PAYMENTS WOULD NOT CONSTITUTE ROYA LTY AS PER THE DTAA BETWEEN INDIA AND ITALY. IT IS PERTINENT TO NOTE THAT THE ABOVE ORDER OF THE ITAT COVERS SEVERAL AYS STARTING FROM AY 2009-10 TO AY 2015-16 WHICH ALSO INCLUDES T HE SUBJECT AY 2014-15. FROM THE ABOVE ORDER, YOUR GOODSELF WOULD BE ABLE TO UNDERST AND THAT THE SOFTWARE SUPPORT CHARGES ARE NOT IN THE NATURE OF ROYALTY PAYMENTS. 3.4. THE ASSESSEE'S SUBMISSION IS DULY CONSIDERED: SINCE THE DEPARTMENT HAS NOT ACCEPTED THE ORDER AND FURTHER APPEAL IS PENDING, THE SUBMIS SION MADE BY THE ASSESSEE IS NOT ACCEPTABLE. IT IS FURTHER SUBMITTED THAT SAIPEM IND IA PERIODICALLY SUBMITS THE NUMBER OF LICENSE REQUIRED, TO SAIPEM, ITALY WHICH IN TURN AC QUIRE THESE LICENSES AND ALLOTS TO THE ASSESSEE. AS STATED EARLIER, THE NATURE OF SOFTWARE IS STRUCTURE CALCULATION SOFTWARE, PDMS- 3D MODELING SOFTWARE, P & ID DEVELOPMENT 3D MODEL R EVIEW SOFTWARE ETC. PAYMENT FOR WHICH ORDINARILY ATTRACTS TDS PROVISIONS SINCE IT A MOUNTS TO PAYMENT OF ROYALTY. IN FACT, WHEN ASSESSEE MODE SIMILAR TRANSACTIONS WITH OTHER UNRELATED NON-RESIDENTS, IT MADE TDS. THE CLAIM OF REIMBURSEMENT OF EXPENSES AND ELIGIBIL ITY OF TDS PROVISIONS WAS EXAMINED BY KARNATAKA HIGH COURT IN CIT VS CGI INFORMATION SYST EMS & MANAGEMENT CONSULTANTS (P) LTD, (KAR) 226 TAXMAN 319. IN THAT CASE THE CANADIAN COMPANY OBTAINED INTELLECTUAL PROPERTY RIGHTS BY WAY OF LICENSE FROM MICROSOFT AN D LICENSE FEE WAS PAID. SAID FACILITY WAS PERMITTED TO BE USED BY ITS GROUP MEMBERS INCLUDING ASSESSEE, AN INDIAN COMPANY. FOR USING THE SAID FACILITIES, THE USERS WERE ASKED TO SHARE THE COST ON AN AGREED BASIS. THOUGH ASSESSEE MADE PAYMENT AS PER THE AGREEMENT, IT DID NOT HAVE ONLY RIGHT TO THE INTELLECTUAL PROPERTY RIGHTS THOUGH IT IS STYLED AS 'COST SHARIN G AGREEMENT'. SINCE ASSESSEE WAS MAKING PAYMENT TO USE THE SAID FACILITY AND WITHOUT ENTERI NG THE AGREEMENT, IT WAS NOT PERMITTED OR ALLOWED TO USE THE FACILITY WHICH EXCLUSIVELY BE LONGS TO THE CANADIAN COMPANY. HON'BLE HIGH COURT HELD THAT MERELY BECAUSE THE AGREEMENT P ROVIDES THAT THE TERM 'COST' DOES NOT INCLUDE ANY MARK-UP AND IS LIMITED TO THE ACTUAL CO ST, MAKES NO DIFFERENCE IN THE EYES OF LAW. SINCE THE ULTIMATE TRANSACTION IS OBTAINING LI CENSE TO GET THE RIGHT TO USE THE SOFTWARE THOUGH IT IS STYLED AS 'COST SHARING AGREEMENT', IT IS PAYMENT TOWARDS ROYALTY BOTH AS PER THE PROVISIONS OF I.T. ACT AS WELL AS DTAA. SIMILAR VIEW WAS HELD IN AMD RESEARCH & DEVELOPMENT CENTRE INDIA (P) LTD. VS DCIT (ITAT, HYD ) 115 DTR 273 AND ITO VS F.L SMIDTH LTD. (ITAT, CHENNAI) 51 TAXMANN.COM 90. CONSI DERING THE ABOVE JUDICIAL PRONOUNCEMENTS, CLAIM OF THE ASSESSEE IS REJECTED O N THIS GROUND ALSO. 3.5 THEREFORE, FOR THE ELABORATE REASONS MENTIONED ABOVE IT IS HELD THAT DISALLOWANCE U/S.40(A)(I) IS CALLED FOR ON THE PAYMENT MADE TO M/S.S AIPEM, ITALY UNDER THE HEAD 'SOFTWARE SUPPORT CHARGES SINCE TDS WAS NOT MADE U/S .195. ACCORDINGLY, THE AMOUNT OF 30% OF RS.18,63,35,391/- IS HEREBY DISALLOWED. (DIS ALLOWANCE: RS.5,59,00,617/-) 4. AGGRIEVED BY AN ASSESSMENT ORDER DATED 17.11.201 7 PASSED BY AO U/S 143(3) READ WITH SECTION 92CA(3) OF THE 1961 ACT, T HE ASSESSEE FILED FIRST APPEAL WITH LD.CIT(A) WHO WAS PLEASED TO ALLOW APPE AL OF THE ASSESSEE BY FOLLOWING DECISION OF CHENNAI-TRIBUNAL IN ASSESSEE S OWN CASE FOR IMPUGNED ASSESSMENT YEAR 2014-15 ITSELF , VIDE COMM ON ORDER DATED 23.10.2017 PASSED BY CHENNAI-TRIBUNAL IN ITA NOS. 1862-1868/MDS/2017 FOR AY:2009-10 TO 2015-16 RESPECTIVELY , WHEREIN TH E TRIBUNAL HELD THAT NO ITA NO.1210/CHNY/2019 :- 5 -: INCOME-TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE BE FORE MAKING AFORESAID PAYMENTS U/S 195 OF THE 1961 ACT KEEPING IN VIEW DEFINITION OF ROYALTY UNDER ARTICLE 13(3) OF INDIA-ITALY DTAA , A ND PROVISIONS OF ARTICLE 13(3) OF INDIA-ITALY DTAA BEING MORE BENEFICIAL VIS --VIS PROVISIONS OF SECTION 9(1)(VI) OF THE 1961 ACT, SHALL APPLY, BY HOLDING AS UNDER: 4.3. CIT (A)S REMARKS AND DECISION : I HAVE CAREFULLY GONE THROUGH THE OBSERVATION OF TH E AO IN THE ASSESSMENT ORDER AS MENTIONED ABOVE UNDER PARA 4.1 AND THE APPELLANT'S SUBMISSION BEFORE THE CIT(A) UNDER PARA 4.2. 4.3.1 IN THE RELEVANT P.Y., THE APPELLANT MADE A PA YMENT FOR PURCHASE OF SOFTWARE TO M/S. SAIPEM SPA ITALY, BEING THE PARENT COMPANY AND THE SOFTWARE LICENCE WAS USED BY THE APPELLANT. THE AO TREATED THE AFORESAID PAYMENT AS R OYALTY AND DISALLOWED THE SAID PAYMENT UNDER SECTION 40 (A) (I) BY HOLDING THAT INCO ME ACCRUED TO THE NON-RESIDENT PAYEE AS PER SECTION 9(1)(VI) AS TDS WAS NOT DONE. BEFORE T HE CIT(A) THE APPELLANT'S AR HAS CONTENDED THAT THE AFORESAID PAYMENT IS NOT ROYALTY . IN THIS REGARD, THE AR HAS RELIED ON THE DECISION OF HON'BLE ITAT, CHENNAI IN THE APPELL ANT'S CASE FOR THE ASSESSMENT YEAR 2014- 2015 IN WHICH THE HONBLE ITAT HAS HELD THAT THE AF ORESAID PAYMENT DOES NOT AMOUNT TO ROYALTY, AND NO TDS OBLIGATION ARISES. IN THE SAID ORDER, THE ITAT HAS RELIED ON CERTAIN DECISIONS AND DTAA WHILE DISPOSING OF THE APPEAL ON THE ORDER OF TDS AUTHORITIES U/S.201(1) OF THE IT ACT. 4.3.2 I HAVE PERUSED THE ITAT'S ORDER IN THE APPELL ANT'S CASE IN ASSESSMENT ORDERS FROM 2009-10 TO 2015-16 DATED 23.10.2017. THE RELEVANT P ORTION OF THE ITATS DECISION IS REPRODUCED HEREUNDER FOR READY REFERENCES: 'PROVISIONS OF DTAA BEING MORE BENEFICIAL TO THE AS SESSE. ASSESSEE WAS IN OUR OPINION JUSTIFIED IN RELYING ON DTAA AND TAKING A V IEW THAT PAYMENTS EFFECTED BY IT DID NOT WARRANT DEDUCTION OF TAX AT SOURCE U/S 195 O F THE ACT. IN OUR OPINION, ASSESSE WAS JUSTIFIED IN HARBOURING A VIEW THAT PAY MENTS MADE BY IT DID NOT FALL WITHIN THE MEANING OF THE TERM 'ROYALTY' AS USED IN THE DTAA. THIS BEING SO, ASSESSE COULD NOT BE SADDLED WITH A LIABILITY FOR F AILURE TO DEDUCT TAX AT SOURCE. ORDERS OF THE LOWER AUTHORITIES FOR ALL THE YEARS AR E SET ASIDE. IN THE RESULT, THE APPEALS OF THE ASSESSE ARE ALLOW ED.' 4.3.3 RESPECTFULLY FOLLOWING THE DECISION OF HONBL E ITAT, CHENNAI IN THE APPELLANT'S CASE IN A.Y. 2014-15, THE AO'S DISALLOWANCE IS DELETED AND T HE APPELLANT'S GROUND IS ALLOWED. THUS, AS COULD BE SEEN THAT WHILE ALLOWING APPEAL O F THE ASSESSEE, THE LEARNED CIT(A) FOLLOWED THE DECISION OF CHENNAI-TRI BUNAL IN ASSESSEES OWN CASE FOR IMPUGNED AY 2014-15,DATED 23.10.2017 , WHE REIN IN CONTEXT OF ORDERS PASSED BY AO U/S 201(1) / (1A) OF THE 1961 A CT, THE TRIBUNAL HAD ITA NO.1210/CHNY/2019 :- 6 -: HELD THAT NO INCOME-TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE U/S 195 OF THE 1961 ACT BY ASSESSEE WHILE MAKING THESE PAYMENT S TO SAIPEM SPA, ITALY AS THESE PAYMENTS DO NOT CONSTITUTE ROYALTY UNDER ARTICLE 13(3) OF INDO-ITALY DTAA AND PROVISIONS OF DTAA BEING MORE B ENEFICIAL VIS--VIS PROVISIONS OF SECTION 9(1)(VI) OF THE 1961 ACT SHAL L APPLY TO ASSESSEE, VIDE APPELLATE ORDER DATED 30.01.2019 PASSED BY LEARNED CIT(A). 5 AGGRIEVED BY AN APPELLATE ORDER DATED 30.01.2019 PASSED BY LEARNED CIT(A) , THE REVENUE HAS FILED THIS APPEAL WITH TRI BUNAL AND LD.COUNSEL FOR THE ASSESSEE AT THE OUTSET BROUGHT TO THE NOTIC E OF THE BENCH, DECISION OF CHENNAI-TRIBUNAL IN ASSESSEES OWN CASE FOR IMPU GNED ASSESSMENT YEARS, VIDE COMMON ORDER DATED 23.10.2017 IN ITA N OS.1862 TO 1868/MDS/2017 FOR AY: 2009-10 TO 2015-16 IN ASSESSE ES OWN CASE WHEREIN TRIBUNAL HAS GRANTED RELIEF TO THE ASSESSEE IN CONTEXT OF PROVISIONS OF SECTION 201(1)/(1A) OF THE 1961 ACT BY HOLDING T HAT THESE PAYMENTS ARE NOT ROYALTY PAYMENTS AND NO INCOME-TAX WAS REQU IRED TO BE DEDUCTED AT SOURCE U/S 195 OF THE 1961 ACT BEFORE MAKING AFO RESAID PAYMENT TO SAIPEM SPA, ITALY . THUS, IT IS CONTENDED THAT LEAR NED CIT(A) HAS RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLL OWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR IMPUGNED AY: 20 14-15 ALBEIT THE SAID DECISION WAS RENDERED IN CONTEXT OF SECTION 201(1) /(1A) OF THE 1961 ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PURCHASED COPYRIGHTED ARTICLE AND NOT COPYRIGHT IN SOFTWARE. THE LEARNED COUNSEL FOR THE ASSESSEE RELY ON DECISION OF HONBL E MADRAS HIGH COURT IN ITA NO.1210/CHNY/2019 :- 7 -: THE CASE OF CIT V. VINZAS SOLUTIONS INDIA PRIVATE L IMITED REPORTED IN (2017) 77 TAXMANN.COM 279(MAD.) . THE LD.COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO THE NOTICE OF THE BENCH DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S.ZYLOG SYSTEMS LTD. V. THE ITO, INTERNATIONAL TAXATION-II, CHENNAI, IN TCA NOS.2184 & 2185 OF 200 6 , JUDGMENT DATED 23.04.2019, WHEREIN, THE TAX-PAYER WAS GIVEN RIGHT TO USE THE TRADEMARK BY FOREIGN COMPANY FOR WHICH PAYMENTS WERE MADE BY TAX-PAYER AND FURTHER, THE TAXPAYER PAID FOR A TRANSFERABLE LICE NSE TO COPY, INSTALL, TEST AND USE THE LICENSED PRODUCTS AT THE AUTHORIZED LOC ATION TO DEVELOP, REPRODUCE, MARKET, LICENSE AND SUPPORT THE APPLICAT IONS AND HENCE THE SAID CASE WAS DISTINGUISHABLE AS IN THE INSTANT CAS E BEFORE THE BENCH, IT WAS EXPLAINED THAT THERE WAS NO RIGHT GRANTED TO CO PY OR REPRODUCE THE SAID SOFTWARE FOR RESALE PURPOSES . OUR ATTENTION W AS ALSO BROUGHT BY LEARNED COUNSEL FOR THE ASSESSEE TO DECISION OF HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. VINZAS SOLUTIONS INDIA (P) LT D., IN TCA NO.861 OF 2016 , JUDGMENT DATED 04.01.2017 REPORTED IN (2017) 392 ITR 155 (MADRAS), WHEREIN, IT HAS BEEN HELD THAT WHEN PAYME NTS WERE MADE FOR PURCHASE OF COPYRIGHTED ARTICLE, THERE IS NO ROYALT Y PAYMENT AND IT IS ONLY WHEN THE COPYRIGHT ITSELF IS ACQUIRED, THEN PAYMENT IS TO BE HELD TO BE ROYALTY . THUS, IT IS SUBMITTED THAT ASSESSEE HAS ONLY PURCH ASED SOFTWARE, WHICH IS A COPYRIGHTED ARTICLE THERE IS NO RIGHT T O REPRODUCE OR COPY THE SAID SOFTWARE FOR COMMERCIAL PURPOSES ALTHOUGH THE SAID SOFTWARE CAN BE REPRODUCED AND COPIES MADE BUT TO BE USED ONLY FOR INTERNAL USAGE/PURPOSES. THUS, IT IS CLAIMED THAT THE SAME CANNOT BE TREATED AS ITA NO.1210/CHNY/2019 :- 8 -: ROYALTY PAYMENTS. THE ASSESSEE REFERRED TO ARTICLE 13(3) OF THE INDIA-ITALY DTAA AND SUBMITTED THAT BENEFICIAL PROVISION WILL B E APPLICABLE AND AS PER ARTICLE 13(3) OF DTAA , THE SAID PAYMENT WILL NOT C ONSTITUTE TO BE ROYALTY PAYMENT AND HENCE NO LIABILITY CAN BE FASTENED ON A SSESSEE U/S 195 READ WITH SECTION 40(A)(I) AND SECTION 9(1)(VI) OF THE 1 961 ACT. THE LD.DR, ON THE OTHER HAND, RELIED UPON ASSESSMENT ORDER PASSED BY THE AO. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. WE HAVE OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF ENGINEERING AND PROCUREM ENT ASSISTANCE SERVICES, DESIGN AND EXECUTION OF LARGE SCALE OIL & GAS ONSHORE AND OFFSHORE PROJECTS, CRYOGENIC TANKS, ETC. THE ASSES SEE HAD PURCHASED CERTAIN SOFTWARE LICENSES FROM M/S.SAIPEM SPA, ITAL Y, WHICH WERE USED BY ASSESSEE FOR PROVIDING SERVICES TO CUSTOMERS FOR VA RIOUS SUPPORT FUNCTIONS IN ACCOUNTING, REPORTING, ETC. . THE AO MADE DISAL LOWANCE OF AFORESAID EXPENSES CLAIMED BY ASSESSEE BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE 1961 ACT AS THE ASSESSEE HAD NOT DEDUCTED IN COME-TAX AT SOURCE AS REQUIRED U/S 195 OF THE 1961 ACT WHILE MAKING PAYME NT TO M/S SAIPEM SPA, ITALY, BY HOLDING THAT THE AFORESAID PAYMENT S ARE ROYALTY PAYMENT U/S 9(1)(VI) OF THE 1961 ACT AND ARTICLE 13(3) OF I NDIA-ITALY DTAA WHICH WERE SUBJECT TO INCOME-TAX DEDUCTION AT SOURCE U/S 195 OF THE 1961 ACT, VIDE ASSESSMENT ORDER DATED 17.11.2017 PASSED BY AO U/S 143(3) READ WITH SECTION 92CA(3) OF THE 1961 ACT. THE LEARNED C IT(A) IN FIRST APPEAL FILED BY ASSESSEE HAS HELD IN FAVOUR OF ASSESSEE BY FOLLOWING DECISION OF ITA NO.1210/CHNY/2019 :- 9 -: CHENNAI TRIBUNAL IN ASSESSEES OWN CASE FOR IMPUGNE D ASSESSMENT YEAR 2014-15 VIDE COMMON ORDER DATED 23.10.2017 PASSED B Y TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.1862 TO 1868/MDS/201 7 FOR AY: 2009-10 TO 2015-16 WHEREIN TRIBUNAL HAS GRANTED RELIEF TO T HE ASSESSEE IN CONTEXT OF SECTION 201(1)/(1A) OF THE 1961 ACT BY HOLDING T HAT THESE PAYMENTS ARE NOT ROYALTY PAYMENTS AND NO INCOME-TAX WAS REQU IRED TO BE DEDUCTED AT SOURCE U/S 195 OF THE 1961 ACT BEFORE MAKING AFO RESAID PAYMENT TO SAIPEM SPA, ITALY. THIS APPEAL IS FILED AT THE INST ANCE OF REVENUE. BEFORE WE PROCEED FURTHER, IT IS IMPORTANT TO MENTION AT T HIS STAGE THAT THE ASSESSEE COMPANY IS WHOLLY OWNED SUBSIDIARY OF SAIP EM SA, FRANCE . THE SAID HOLDING COMPANY OF ASSESSEE NAMELY SAIPEM SA, FRANCE IS A WHOLLY OWNED SUBSIDIARY OF SAIPEM SPA, ITALY. BEFORE WE PR OCEED FURTHER, IT IS IMPORTANT TO REPRODUCE THE ORDER OF CHENNAI-TRIBUNA L IN ASSESSEES OWN CASE FOR IMPUGNED AY VIDE COMMON ORDER DATED 23.10. 2017 FOR AY: 2009- 10 TO 2015-16, WHEREIN TRIBUNAL HAS ELABORATELY DIS CUSSED THE FACTUAL MATRIX OF THE ACQUISITION OF THESE SOFTWARE BY ASSE SSEE, WHICH IS REPRODUCED HEREUNDER:- 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE ORDERS OF THE AUTHORITIES BELOW. WHILE UPHOLDING THE ORDER OF THE LD. ASSESSI NG OFFICER, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD MAINLY RELIED ON THE JUDGME NT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SYNOPSIS INTERNATIONAL OLD LTD. (SUP RA). LD. ASSESSING OFFICER, APART FROM THE CASE OF SYNOPSIS INTERNATIONAL OLD LTD (SUPRA) H AS ALSO RELIED ON THE JUDGMENT OF THE VERY SAME COURT IN THE CASE OF CGI INFORMATION SYST EMS & MANAGEMENT CONSULTANTS (P) LTD (SUPRA). LD. ASSESSING OFFICER ALSO CONSIDERED A CO -ORDINATE BENCH DECISION IN THE CASE OF F.L. SMIDTH LTD (SUPRA). THERE CAN BE NO QUARREL TH AT HONBLE KARNATAKA HIGH COURT IN THE CASE OF SYNOPSIS INTERNATIONAL OLD LTD (SUPRA) AFTER ANALYZING THE DTAA HELD THAT EVEN GRANT OF A LICENCE FOR NON-EXCLUSIVE, NON-TRANSFERA BLE USE, WITHOUT RIGHT OF SUB LICENCING WOULD FALL WITHIN THE MEANING OF ROYALTY. AS PER TH IS JUDGMENT, IN ORDER TO CONSTITUTE ROYALTY TRANSFER OF AN EXCLUSIVE RIGHT IN THE CO PYRIGHT WAS NOT NECESSARY. TRANSFER OF THE RIGHT TO USE CONFIDENTIAL INFORMATION IN THE FORM O F COMPUTER PROGRAMME ITSELF CONSTITUTED ROYALTY. HOWEVER, AS AGAINST THIS, HONBLE DELHI H IGH COURT IN THE CASE OF INFRASOFT LTD (SUPRA) HAS HELD THAT RECEIPTS FOR LICENCING A SOFT WARE COULD NOT BE CONSIDERED AS ROYALTY. HONBLE DELHI HIGH COURT WAS SEIZED OF AN ISSUE, WH EREIN CUSTOMIZED SOFTWARE USED FOR ITA NO.1210/CHNY/2019 :- 10 -: DESIGNING HIGHWAYS, RAILWAYS, AIRPORTS, PORTS ETC W AS LICENCED TO AN INDIAN CUSTOMER WHO USED SUCH SOFTWARE IN ITS BUSINESS. THEIR LORDSHIPS HELD THAT SUCH SOFTWARE, BY VIRTUE OF THE RELEVANT AGREEMENTS, COULD BE USED ONLY FOR ASSESS EES OWN BUSINESS AND COULD NOT BE LOANED, RENTED, SOLD, SUB-LICENCED OR TRANSFERRED TO A THIRD PARTY. THEIR LORDSHIPS THEREFORE HELD THAT MERE TRANSFER OF RIGHT TO USE A COPYRIGHT ED MATERIAL DID NOT GIVE RISE TO ANY ROYALTY INCOME IN TERMS OF ARTICLE 12(3) OF INDIA U S DTAA. THUS, THERE SEEMS TO BE AN APPARENT CONTRADICTION IN THE VIEW REGARDING RIGHT TO USE COPYRIGHTED SOFTWARE BETWEEN HONBLE KARNATAKA HIGH COURT AND HONBLE DELHI HIGH COURT. ASSESSEE IN SUCH A SITUATION, IN OUR OPINION CAN ALWAYS FALL BACK ON THE JUDGMENT IN THEIR FAVOUR, SO LONG AS THERE IS NO JURISDICTIONAL HIGH COURT JUDGMENT ON THE ISSUE. H OWEVER, WE HAVE TO SEE WHETHER ASSESSEES CASE FALLS WITHIN THE SAME PARAMETER OF FACTS AS THEY WERE THERE BEFORE HONBLE DELHI HIGH COURT. ANNEX 1 OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH ITS ITALIAN PRINCIPAL HAS BEEN REPRODUCED BY THE LD. COMMISSION ER OF INCOME TAX (APPEALS) IN ITS ORDER AND THIS IS ONCE AGAIN REPRODUCED HEREUNDER FOR BRE VITY. ANNEX 1 LICENSES' USE, SOFTWARE DISTRIBUTION AND FEES 1. LICENSE'S USE FOR AND DURING THE TERM OF THIS AGREEMENT, LNTERGRA PH ITALY LLC. (HEREINAFTER ,REFERRED TO AS PP&M) GRANTS TO SAIPEM S.P.A. HEADQU ARTERS IN SAN DONATO (MI) - ITALY - (HEREINAFTER. REFERRED TO AS SAIPEM), SAIPE M PERSONNEL LOCATED IN WHATEVER SAIPEN PROJECT SITE (HEREINAFTER REFERRED TO AS SAI PEM), A PERSONAL, NON-EXCLUSIVE, NON-TRANSFERABLE LICENSE FOR SALPERN AND THE AFFILI ATES INCLUDED IN THE LIST OF ANNEX 2 (HEREINAFTER REFERRED TO AS AFFILIATES) TO U SE THE LICENSED SOFTWARE, THIRD PARTY SOFTWARE, DOCUMENTATION, AND THIRD PARTY SOFT WARE DOCUMENTATION FOR THEIR INTERNAL BUSINESS USE INCLUDED IN THE LIST OF ANNEX 3. PURSUANT TO SAID LICENSE PP&M SHALL PROVIDE THE LIC ENSED SOFTWARE, DOCUMENTATION AND THIRD PARTY SOFTWARE AND THIRD PARTY SOFTWARE D OCUMENTATION (VERSIONS AND UPDATES) BY MASTER COS AND SAIPEM, AND THE AFFILIATES SHALL HAVE THE RIGHT TO MAKE UNLIMITED COPIES OF THE LICENSED SOFTWARE AND THIRD PARTY SOFTWARE. SAIPEM ACKNOWLEDGES AND AGREES THAT IT IS RESPONSIB LE TO ENSURE THAT ANY PERSONNEL OF SAIPEM, THE AFFILIATES, ALLOWED ACCESS TO THE LICENSED SOFTWARE, THIRD PARTY SOFTWARE, DOCUMENTATION, OR THIRD PARTY SOFTW ARE DOCUMENTATION SHALL BE MADE AWARE OF ALL APPROPRIATE PROVISIONS OF THIS AG REEMENT AND SOFTWARE LICENSE CONTAINED HEREIN. SAIPEM AGREES TO COMMIT ITS BEST EFFORTS TO PREVENT ANY VIOLATION BY SAIPEM'S, THE AFFILIATES' PERSONNEL OF EITHER TH E LICENSED RIGHTS GRANTED HEREIN OR PP&M'S APPLICABLE COPYRIGHTS OR TRADE SECRETS AND T O ENSURE COMPLIANCE WITH THE PROVISIONS OF THE THIS AGREEMENT. SAIPEM FURTHER AC KNOWLEDGES AND AGREES THAT SAIPEM TAKES LIABILITY FOR ANY SUCH VIOLATION BY SA IPEM, THE AFFILIATES' PERSONNEL AS IF SUCH VIOLATION RESULTED DIRECTLY FROM THE ACTION , NEGLIGENCE OR MISCONDUCT OF SAIPEM. THIS LICENSE CANNOT BE SUBLICENSED, ASSIGNE D, OR TRANSFERRED. IT IS AGREED BETWEEN THE PARTIES THAT SAIPEM S.P.A ICT DEPARTMENT WILL BE THE ONLY SAIPEM DIVISION ENTITLED TO CUT SOFTWARE KEYS AS PR OVIDED FOR BY THIS AGREEMENT AND TO SEND PURCHASE ORDERS TO PP&M. UPON TERMINATION OF THIS AGREEMENT, ANY LICENSE GRA NTED HEREUNDER SHALL TERMINATE AND SAIPEM AND THE AFFILIATES SHALL DESTROY ALL COP IES OF THE LICENSED SOFTWARE AND THIRD PARTY SOFTWARE PROVIDED UNDER THIS AGREEMENT, WITH THE EXCEPTION THAT SAIPEM AND THE AFFILIATES SHALL RETAIN THE NUMBER O F PERPETUAL LICENSES, IN THEIR LATEST VERSION, OF THE LICENSED SOFTWARE LISTED ON ANNEX 3 AT THE TIME OF TERMINATION OF THE AGREEMENT PURSUANT TO THE TERMS AND CONDITIO NS OF THE EXISTING LICENSE AGREEMENT FOR SUCH LICENSED SOFTWARE AND THIRD PART Y SOFTWARE. ITA NO.1210/CHNY/2019 :- 11 -: READING OF THE RIGHTS GIVEN THROUGH THE ABOVE AGRE EMENT CLEARLY SHOW THAT, THOUGH ASSESSEE AND ITS PRINCIPAL COULD MAKE UNLIMITED COP IES OF THE LICENCED SOFTWARE/THIRD PARTY SOFTWARE, IT COULD BE USED ONLY FOR ASSESSEES IN TERNAL BUSINESS USE. ASSESSEE COULD NOT SUB-LICENCE, ASSIGN OR TRANSFER SUCH SOFTWARE. IT W AS A NON-EXCLUSIVE AND NON-TRANSFERABLE LICENCE. RIGHT TO MAKE COPIES WAS ONLY FOR ASSESSE ES OWN USE AND NOT FOR SALE OR TRANSFER. OBVIOUSLY, ASSESSEE ONLY HAD A RIGHT TO USE COPYRIG HTED SOFTWARE. ASSESSEE DID NOT GET ANY RIGHT IN THE COPYRIGHT IN THE SOFTWARE. COPYRI GHT IN THE SOFTWARE CONTINUED TO VEST WITH INTERGRAPH, ITALY. ASSESSEE WAS EFFECTIVELY G IVEN ONLY THE RIGHT TO USE THE COPYRIGHTED SOFTWARE FOR A LIMITED TERM. 13. A DISTINCTION HAS TO BE MADE BETWEEN THE ACQUIS ITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED ARTICLE.' COPYRIGHT IS DISTINCT FROM T HE MATERIAL OBJECT, COPYRIGHTED. COPYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE. COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM THE SALE CONSIDERATION PAID FOR A 'COPYRIGHTED' ARTICLE . THIS SALE CONSIDERATION IS FOR THE PURCHASE OF GOODS AND IS NOT ROYALTY. THE TRANSFER OF RIGHTS IN OR OVER COPYRIGHT OR THE CONFERMENT OF THE RIGHT OF USE OF COPYRIGHT IMPLIES THAT THE CUSTOMER SHOULD ACQUIRE RIGHTS EITHER IN ENTIRETY OR PARTIALLY, CO-EXTENSIVE WITH THE OWNER WHO DIVESTS HIMSELF OF THE COPYRIGHTS THAT HE POSSESSES.. A NON-EXCLUSIVE AND NON-TRANSFERABLE LICENSE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN THE TREATY. THE ENJO YMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACH ED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE CUSTOMER TRIGGERS ROYALTY CHARACTERIZATION UNDE R THE TREATY. MERELY AUTHORIZING OR ENABLING A CUSTOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY D OES NOT AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT. 14. NOW THE QUESTION IS WHETHER THE PAYMENTS EFFECT ED BY THE ASSESSEE FOR THE RIGHT TO USE THE COPYRIGHTED SOFTWARE FOR A LIMITED TERM COU LD BE CONSIDERED AS INCOME ACCRUING OR ARISING IN INDIA TO ITS FOREIGN PRINCIPAL, CONSIDER ING EXPLANATIONS 4 TO 6 ADDED TO SECTION 9(1) (VI) OF THE ACT WITH RETROSPECTIVE EFFECT FROM 0 1.06.1976. NO DOUBT THESE EXPLANATIONS DO WIDEN THE AMBIT OF THE TERM ROYALTY TO INCLUDE THEREIN TRANSFER OF ALL RIGHT OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE INCLUDI NG GRANTING OF A LICENCE. HOWEVER, ADMITTEDLY, THERE HAS BEEN NO AMENDMENT WHATSOEVER IN INDIAS DTAA WITH ITALY IN SO FAR AS DEFINITION OF THE TERM ROYALTY IS CONCERNED. CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DASAULT SYSTEMES SIMULIA CORPORATION (SUPRA ) HAD CONSIDERED A SIMILAR ISSUE WHERE SOFTWARE PRODUCTS WERE ACQUIRED BY THE ASSESS EE FROM A PARTY ABROAD FOR DISTRIBUTION IN INDIA. CO-ORDINATE BENCH HELD AT PA RA 6 OF ITS ORDER DATED 30.11.2016 AS UNDER:- 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTED BY THE REVEN UE THAT PAYMENTS RECEIVED BY THE ASSESSEE FROM DSSPL WERE BASED ON SAME REGIONAL SUP PORT AGREEMENTS BETWEEN ASSESSEE AND DSSPL WHICH WAS CONSIDERED BY THE CO-O RDINATE BENCH OF THIS TRIBUNAL IN ITA NOS.1698 TO 1702/MDS/2010, IN ITS O RDER DATED 16.09.2011. SO THE PAYMENTS RECEIVED BY THE ASSESSEE DURING THE R ELEVANT ASSESSMENT YEAR FROM DSSPL WAS OF THE SAME NATURE AS WHAT WERE RECEIVED BY IT FROM THE SAID CONCERN IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEARS 2002 -03 TO 2006-2007. IN ITS ORDER DATED 16.09.2011, THIS TRIBUNAL HAD FOLLOWED THE DE CISION OF SPECIAL BENCH IN THE CASE OF MOTORALA INC. VS. DCIT 95 ITD 269 AND HAD HELD AS UNDER:- 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, WE FIND THAT NO SPECIFIC ERROR IN THE ORDER OF THE LD. CIT(A) COULD BE POINTED OUT BY THE LD. D.R. WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTORALA INC. VS. DCIT 95 ITD 269. WE FIND THAT FOLLOWING THE ABOVE D ECISION OF THE MUMBAI ITA NO.1210/CHNY/2019 :- 12 -: E BENCH OF THE TRIBUNAL IN THE CASE OF ADIT VS. T II TEAM TELECOM INTERNATIONAL ITA NOS. 3939/MUM/2010 ORDER DATED 26.8 .2011 HAS HELD AS UNDER: 17. IT IS NOT EVEN REVENUE'S CASE THAT ANY OF THES E RIGHTS HAVE BEEN TRANSFERRED BY THE ASSESSEE, ON THE FACTS OF T HIS CASE, AND, FOR THIS REASON, THE PAYMENT FOR SOFTWARE CANNOT BE TRE ATED AS PAYMENT FOR USE OF COPYRIGHT IN THE SOFTWARE. AS WE HOLD SO, WE MAY MENTION THAT IN THE CASE OF GRACEMAC (SUPRA), A CONTRARY VIEW HAS BEEN TAKEN BUT THAT CONCLUSION IS ARRIVED AT IN THE LIGHT OF THE PROVISIONS OF CLAUSE (V) IN EXPLANATION 2 TO SECTION 9(1)(VI) WHICH ALSO COVERS CONSIDERATION FOR 'TRANSFER OF ALL OR A NY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIG HT, LITERARY, ARTISTIC OR SCIENTIFIC WORK' - A PROVISION WHICH IS CLEARLY LARGER IN SCOPE THAN THE PROVISION OF ARTICLE 12(3) OF THE IND O ISRAEL TAX TREATY. THE WORD 'OF' BETWEEN 'COPYRIGHT' AND 'LITE RARY, ARTISTIC OR SCIENTIFIC WORK' IS ALSO MISSING IN THE STATUTORY P ROVISION. THE TREATY PROVISION THAT WE ARE DEALING WITH ARE THUS CERTAIN LY NOT IN PARI MATERIA WITH THIS STATUTORY PROVISION, AND, BY THE VIRTUE OF SECTION 90(2) OF THE ACT, THE PROVISIONS OF INDIA ISRAEL TAX TREATY CLEARLY OVERRIDE THIS STATUTORY PROVISION. IN GRACEMAC DECI SION (SUPRA), THE COORDINATE BENCH WAS OF THE VIEW THAT THE PROVISION S OF THE APPLICABLE TAX TREATY AND THE INCOME TAX ACT ARE 'I DENTICAL' - A POSITION WHICH DOES NOT PREVAIL IN THE SITUATION BE FORE US. WE, THEREFORE, SEE NO REASONS TO BE GUIDED BY GRACEMAC DECISION (SUPRA). THE NEXT ISSUE THAT WE NEED TO CONSIDER IS WHETHER A PAYMENT FOR SOFTWARE CAN BE SAID TO BE A PAYMENT FO R 'PROCESS' AS A COMPUTER PROGRAM IS A NOTHING BUT A SET OF INSTRU CTION LYING IN THE PASSIVE STATE AND THIS EXECUTION OF INSTRUCTIONS IS ' A PROCESS' OR' A SERIES OF PROCESSES'. NO DOUBT, IN TERMS OF THE PRO VISIONS OF SECTION 2 (FFC) OF THE INDIAN COPYRIGHT ACT, 1957, A COMPUTE R PROGRAM, I.E. SOFTWARE, HAS BEEN DEFINED AS 'A SET OF INSTRUCTION S EXPRESSED IN WORDS, CODES, SCHEMES OR IN ANY OTHER FORM, INCLUDI NG A MACHINE READABLE MEDIUM, CAPABLE OF CAUSING A COMPUTER TO P ERFORM A PARTICULAR TASK OR ACHIEVE A PARTICULAR RESULT', BU T THE MOOT QUESTION IS AS TO WHAT IS THAT A CUSTOMER PAYS FOR WHEN HE B UYS, OR TO PUT IT IN TECHNICAL TERMS 'OBTAINS LICENCE TO USE THE SOFT WARE FOR THE PROCESS OF EXECUTING THE INSTRUCTIONS IN THE SOFTWA RE, OR FOR THE RESULTS ACHIEVED ON ACCOUNT OF USE OF THE SOFTWARE. TO DRAW AN ANALOGY, IT IS AKIN TO A SITUATION IN WHICH A PERSO N HIRES A VEHICLE, AND THE QUESTION COULD BE AS TO WHAT DOES HE PAY FO R - FOR THE USE OF THE TECHNICAL KNOWHOW ON THE BASIS OF WHICH VEHI CLE OPERATES, OR FOR THE USE OF A PRODUCT WHICH CARRIES PASSENGERS OR GOODS FROM ONE PLACE TO ANOTHER. THE ANSWER IS OBVIOUS. WHEN Y OU PAY FOR USE OF VEHICLE, YOU ACTUALLY PAY FOR A PRODUCT WHICH CA RRIES THE PASSENGERS OR GOODS FROM ONE PLACE TO ANOTHER AND N OT THE TECHNICAL KNOWHOW ON THE BASIS OF WHICH SUCH A PROD UCT OPERATES. SAME IS THE CASE WITH THE SOFTWARE, WHEN SOMEONE PA YS FOR THE SOFTWARE, HE ACTUALLY PAYS FOR A PRODUCT WHICH GIVE S CERTAIN RESULTS, AND NOT THE PROCESS OF EXECUTION OF INSTRUCTIONS EM BEDDED THEREIN. AS A MATTER OF FACT, UNDER STANDARD TERMS AND CONDI TIONS FOR SALE OF SOFTWARE, THE BUYER OF SOFTWARE IS NOT EVEN ALLOWED TO TINKER WITH THE PROCESS ON THE BASIS OF WHICH SUCH SOFTWARE RUN S OR TO EVEN WORK AROUND THE TECHNICAL LIMITATIONS OF THE SOFTWA RE. IN ASIA SATELLITE TELECOMMUNICATIONS LTD VS DCIT (78 TTJ 48 9), A COORDINATE BENCH OF THIS TRIBUNAL DID TAKE THE VIEW THAT WHEN AN ASSESSEE PAYS FOR TRANSPONDER HIRE, HE ACTUALLY PAY S FOR THE A PROCESS INASMUCH AS TRANSPONDER AMPLIFIES AND SHIFT S THE FREQUENCY OF EACH SIGNAL, AND, THEREFORE, PAYMENT FOR USE OF TRANSPONDER IS INFACT A PAYMENT FOR PROCESS LIABLE TO BE TREATED A S 'ROYALTY' WITHIN MEANINGS OF THAT EXPRESSION UNDER EXPLANATION 2 TO SECTION 9 (L)(VI) OF THE INCOME TAX ACT. HOWEVER, WHEN THIS DECISION CAME UP FOR ITA NO.1210/CHNY/2019 :- 13 -: SCRUTINY OF HON'BLE DELHI HIGH COURT, IN THE CASE R EPORTED AS ASIA SATELLITE TELECOMMUNICATIONS CO LTD VS DIT (332 ITR 340), THEIR LORDSHIPS, AFTER A VERY ERUDITE AND DETAILED DISCUS SION, CONCLUDED THAT 'WE ARE UNABLE TO SUBSCRIBE TO THE VIEW TAKEN BY THE TRIBUNAL IN THE IMPUGNED JUDGMENT ON THE INTERPRETATION OF S ECTION 9(1)(VI) OF THE ACT'. IT CANNOT, THEREFORE, BE OPEN TO US TO APPROVE THE STAND OF THE REVENUE TO THE EFFECT THAT THE PAYMENT FOR S OFTWARE IS DE FACTO A PAYMENT FOR PROCESS. THAT IS A HYPER TECHNI CAL APPROACH TOTALLY DIVORCED FROM THE GROUND BUSINESS REALITIES . IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT THAT THE EXPRESS ION 'PROCESS' APPEARS IMMEDIATELY AFTER, AND IN THE COMPANY OF, E XPRESSIONS 'ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SEC RET FORMULA OR PROCESS'. WE FIND THAT THESE EXPRESSIONS ARE USED T OGETHER IN THE TREATY AND AS IT IS WELL SETTLED, AS NOTED BY MAXWE LL IN INTERPRETATION OF STATUTES AND WHILE ELABORATING ON THE PRINCIPLE OF NOSCITUR A SOCIIS, THAT WHEN TWO OR MORE WORDS WHIC H ARE SUSCEPTIBLE TO ANALOGOUS MEANING ARE USED TOGETHER THEY ARE DEEMED TO BE USED IN THEIR COGNATE SENSE. THEY TAKE , AS IT WERE, THEIR COLOURS FROM EACH OTHER, THE MEANING OF MORE GENERAL BEING RESTRICTED TO A SENSE ANALOGOUS TO THAT OF LESS GEN ERAL. THIS PRINCIPLE OF INTERPRETATION OF STATUTES, IN OUR CON SIDERED VIEW, HOLDS EQUALLY GOOD FOR INTERPRETATION OF A TREATY PROVISI ON. EXPLAINING THIS PRINCIPLE IN MORE GENERAL TERMS, A VERY DISTINGUISH ED FORMER COLLEAGUE OF OURS HON'BLE SHRI M.K. CHATURVEDI, HAD , IN AN ARTICLE 'INTERPRETATION OF TAXING STATUTES' (AIFTP JOURNAL: VOL. 4 NO.7, JULY, 2002, AT P. 7), PUT IT IN HIS INIMITABLE WORDS AS F OLLOWS: 'LAW IS NOT A BROODING OMNIPOTENCE IN THE SKY. IT I S A PRAGMATIC TOOL OF THE SOCIAL ORDER. THE TENETS OF L AW BEING ENACTED ON THE BASIS OF PRAGMATISM. SIMILARLY, THE RULES RELATING TO INTERPRETATION ARE ALSO BASED ON COMMON SENSE APPROACH. SUPPOSE A MAN TELLS HIS WIFE TO GO OUT AN D BUY BREAD, MILK OR ANYTHING ELSE-SHE NEEDS, HE WILL NOT NORMALLY BE UNDERSTOOD TO INCLUDE IN THE TERMS 'ANYTHING ELS E SHE NEEDS' A NEW CAR OR AN ITEM OF JEWELLERY. THE DICTU M OF EJUSDEM GENERIS REFERS TO SIMILAR SITUATION. IT MEA NS OF THE SAME KIND, CLASS OR NATURE. THE RULE IS THAT WHEN G ENERAL WORDS FOLLOW PARTICULAR AND SPECIFIC WORDS OF THE S AME NATURE, THE GENERAL WORDS MUST BE CONFINED TO THE T HINGS OF SAME KIND AS SPECIFIED. NOSCITUR A SOCIIS IS A BROA DER VERSION OF THE MAXIM EJUSDEM GENERIS. A MAN MAY BE KNOWN BY THE COMPANY HE KEEPS AND A WORD MAY BE INTERPRETED WITH REFERENCE TO THE ACCOMPANYING WORD S. WORDS DERIVE COLOUR FROM THE SURROUNDING WORDS.' 16. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE SOLD COPY RIGHTED SOFTWARE AND NOT COPYRIGHT IN THE SOFTWARE. THEREFORE, WE DO NOT FIN D ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). IT IS CONFIRMED. GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE DISMISSED. IN A LATER DECISION DATED 09.01.2014 IN ITA NO.1024 TO 1027/MDS/2013 AND 1177/MDS/2013 (SUPRA), THIS TRIBUNAL HAD FOLLOWED ABO VE MENTIONED ORDER AND HELD AS UNDER:- 6. THIS ISSUE HAD ALREADY BEEN DECIDED BY THE ITA T, CHENNAI B-BENCH IN THE CASE OF DASSAULT SYSTEMS SIMULIA P. LTD (FORMERLY K NOWN AS ABACUS ENGINEERING PVT. LTD) THROUGH THEIR ORDER DATED 16TH SEPTEMBER, 2011 (2011- TII-143-ITAT- MAD-ITNL). AFTER CONSIDERING THE ISSUE AND FOLLOWING THE DECISION OF ITAR, DELHI SPECIAL BENCH IN THE CASE OF MOTORALA INC. VS. DCIT (2005-TII-10-ITAT-DEL-SB- INTL), THE TRIBUNALHAS HELD THAT THE PAYMENT IS NOT IN THE NATURE OF INCOME ARISING OR ACCRUING IN INDIA WITHIN THE MEANING OF SECTION 9(1)(VI) AND THEREFORE, NO ITA NO.1210/CHNY/2019 :- 14 -: TAXABILITY ARISES IN INDIA ON SUCH PAYMENTS. THE T RIBUNAL HELD THAT IT IS A CASE OF OUTRIGHT PURCHASE AND NO INCOME ARISES IN INDIA. CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE B EFORE US IS THAT THERE WAS AN AMENDMENT TO SEC. 9(1) (VI) BY FINANCE ACT, 2012 WHIC H RETROSPECTIVELY BROUGHT IN EXPLANATION 4 THEREBY EXPANDING THE MEANING OF THE TERM ROYALTY TO INCLUDE TRANSFER OF ANY RIGHT WHETHER IT WAS THROUGH A COP Y RIGHTED SOFTWARE, OR A COPY RIGHT IN SOFTWARE. IN OTHER WORDS, AS PER LD. DEP ARTMENTAL REPRESENTATIVE ROYALTY WOULD BE PAYABLE IRRESPECTIVE OF WHETHER THE ITEM S OLD WAS SHRINK WRAPPED SOFTWARE OR NOT. HOWEVER, WE FIND THAT CO-ORDINATE BENCH HAD IN ITS ORDERS FOR THE EARLIER YEARS RELIED ON THE DTAA BETWEEN INDIA AND USA FOR CONSTRUING THE MEANING OF THE TERM ROYALTY WHICH WAS AVAILABLE IN ARTICLE 12(3). IT IS NOT DISPUTED THAT THE SAID DEFINITION HAD NOT UNDERGONE ANY CHANGE DESPIT E THE AMENDMENT TO SEC. 9(1)(VI) BROUGHT IN THROUGH FINANCE ACT, 2012. IT IS TRITE LAW THAT AN ASSESSEE CAN FALL BACK ON THE DTA WHEN IT IS MORE ADVANTAGEOUS T O IT. HONBLE DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD (SUPRA) HAD CLEARLY HELD T HAT SUBSEQUENT AMENDMENT TO SEC. 9(1)(VI) OF THE ACT IN SO FAR AS IT RELATES TO DEFINITION OF ROYALTY WAS NOT RELEVANT WHEN AN ASSESSEE RELIED ON DTAA PROVISIONS WHICH WERE MORE BENEFICIAL TO IT. IN THE CIRCUMSTANCES, FOLLOWING DECISIONS OF C O-ORDINATE BENCH OF EARLIER YEARS, WE ARE OF THE OPINION THAT THE RECEIPTS OF THE ASSE SSEE FROM DSSPL COULD NOT HAVE BEEN CONSIDERED AS ROYALTY IN THE HANDS OF THE ASSE SSEE LIABLE FOR TAXATION IN INDIA. ADDITION MADE STANDS DELETED. THUS, ASSESSEE COULD FALL BACK ON THE DEFINITION O F ROYALTY AS GIVEN IN DTAA IF IT WAS MORE ADVANTAGEOUS TO IT. 15. THE HONBLE DELHI HIGH COURT IN THE CASE OF INF RASOFT LTD (SUPRA) HAD CONSIDERED AN ISSUE WHETHER MERE TRANSFER OF RIGHT TO USE COPYRIG HTED MATERIAL LIKE SOFTWARE PROGRAMME, GAVE RISE TO ANY ROYALTY INCOME IN TERMS OF ARTICLE 12(4) OF THE INDIA USA DTAA. THEIR LORDSHIP HELD THAT MERE TRANSFER OF RIGHT TO USE A COPYRIGHTED MATERIAL DID NOT GIVE RISE TO ANY ROYALTY INCOME UNDER THE SAID ARTICLE. ARTICLE 12(4) OF THE DTAA BETWEEN INDIA AND USA IS REPRODUCED HEREUNDER:- 'ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TA XED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES OR FEES FOR TECHNICAL SE RVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE, AND ACCORDIN G TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR T ECHNICAL SERVICES IS A RESIDENT OF THE OTHER CONTRACTING STATE THE TAX SO CHARGED SHAL L NOT EXCEED 10 PER CENT. OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES. 3. THE TERM 'ROYALTIES ' AS USED IN THIS ARTICLE ME ANS: (A) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION F OR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIE NTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRO DUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCE RNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVIT Y, USE OR DISPOSITION THEREOF; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION F OR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIP MENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARA 1 OF ART . 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARA 2(C) OR 3 OR ART. 8. AS AGAINST THE ABOVE, ARTICLE 13 OF INDIAS DTAA WITH ITALY READS AS UNDER:- ITA NO.1210/CHNY/2019 :- 15 -: ROYALTIES AND FEES FOR TECHNICAL SERVICES. 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISIN G IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL S ERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT SATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALT IES, OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EXCEED 20 PERCENT OF T HE GROSS AMOUNT OF THE ROYALTIES OF FEES FOR TECHNICAL SERVICES. 3. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEA NS 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 CINEMATOGRAP H FILM OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR TH E RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMAT ION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. TERM ROYALTY HAS BEEN DEFINED IN THE SAME LANGUA GE IN BOTH DTAAS. THEREFORE IN OUR OPINION, THE JUDGMENT OF HONBLE DELHI HIGH COURT I N THE CASE OF INFRASOFT LTD (SUPRA) WILL SQUARELY APPLY ON FACTS HERE ALSO. THERE IS NO CASE FOR THE REVENUE THAT ASSESSEES PRINCIPAL HAD ANY PERMANENT ESTABLISHMENT IN INDIA. WHAT WAS HELD BY THEIR LORDSHIPS IN PARAS 85 TO 96 IS REPRODUCED HEREUNDER:- 85. THE LICENSING AGREEMENT SHOWS THAT THE LICENS E IS NON-EXCLUSIVE, NON- TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACC ORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE LICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT I S ALSO STIPULATED THAT THE COPY SO MADE SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOF T. THE SOFTWARE INCLUDES A LICENCE AUTHORISATION DEVICE, WHICH RESTRICTS THE U SE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS D EFINED WITHIN THE INFRASOFT LICENCE SCHEDULE. WITHOUT THE CONSENT OF THE ASSESS EE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUBLICENSED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENTITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSING. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVERSE-EN GINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWA RE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. 86. THE LICENSING AGREEMENT SHOWS THAT THE LICENSE IS NON-EXCLUSIVE, NON- TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACC ORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE LICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT I S ALSO STIPULATED THAT THE COPY SO MADE SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOF T. THE SOFTWARE INCLUDES A LICENCE AUTHORISAT ION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS D EFINED WITHIN THE INFRASOFT LICENCE SCHEDULE. WITHOUT THE CONSENT OF THE ASSESS EE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUBLICENSED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENTITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSING. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVERSE-EN GINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWA RE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. ITA NO.1210/CHNY/2019 :- 16 -: ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS N ECESSARY 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 SCIENTIFIC WOR K. IN ORDER TO TREAT THE CONSIDERATION PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABL ISHED THAT THE LICENSEE, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT R IGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED ARTICLE'. COPYRIGHT IS DISTINCT FROM T HE MATERIAL OBJECT, COPYRIGHTED. 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 NOT FOLLOW THAT ON E HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INC LUDING 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 PROGRAM. THE RIGHTS TRANSFE RRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COM PUTER'S HARD DRIVE OR RANDOM ACCESS MEMORY OR MAKING AN ARCHIVAL 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 PROGRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANS ACTION FOR TAX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DE ALT WITH AS BUSINESS INCOME IN ACCORDANCE WITH ART. 7. 89. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY PA ID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTIC LES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRODUCT WITH THE OWNER RETAINING HIS COP YRIGHT, IS NOT THE SAME THING AS TRANSFERRING 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 ANGLE, A NON EXCLUSIVE AND NON-TRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN ART. 12 OF DTAA. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY T O RESTRICT USE OF THE COPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPYRIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHEREN T IN AND ATTACHED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT I S CONTEMPLATED BY THE TREATY. MERELY AUTHORIZING OR ENABLING A CUSTOMER TO HAVE T HE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, AMOUNT TO TRANSFER OF RIGHT S IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE COPYRIGHT. THE TRANSFER OF RIGHTS IN OR OVER COPYRIGHT OR THE 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 WHO DIVESTS HIMSELF OF TH E RIGHTS HE POSSESSES PRO TANTO. 90. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN THE COMPUTER FOR HIS OW N USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF TH E COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECE SSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITAT IVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PARA BECAUSE IT IS ONLY IN TEGRAL TO THE USE OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE L ICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITIO N 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 COPYRIGHTED ARTICLE . THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRESENTS THE PURCHASE PRICE OF AN ART ICLE AND CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE IT ACT OR UNDER THE DTAA. ITA NO.1210/CHNY/2019 :- 17 -: 92. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE CO MPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LICENCE AGREEMENT, ONLY TH E COPY RIGHTED SOFTWARE WHICH BY ITSELF IS AN ARTICLE AND THEY HAVE NOT ACQUIRED ANY COPYRIGHT IN THE SOFTWARE. IN THE CASE OF THE ASSESSEE COMPANY, THE LICENSEE TO W HOM THE ASSESSEE COMPANY HAS SOLD/LICENSED THE SOFTWARE WERE ALLOWED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPO SES WITH A CONDITION THAT SUCH COPYRIGHT SHALL INCLUDE INFRASOFT COPYRIGHT AND ALL COPIES OF THE SOFTWARE SHALL BE EXCLUSIVE PROPERTIES OF INFRASOFT. LICENSEE WAS ALL OWED TO USE THE SOFTWARE ONLY FOR ITS OWN BUSINESS AS SPECIFICALLY IDENTIFIED AND WAS NOT PERMITTED TO LOAN/RENT/SALE/SUB LICENCE OR TRANSFER THE COPY OF SOF TWARE TO ANY THIRD PARTY WITHOUT THE CONSENT OF INFRASOFT. 93. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DECOMPILING, DEASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WITHOUT THE WRITTE N CONSENT OF INFRASOFT. THE LICENCE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOMERS STIPULATES THAT ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE OWNED BY INFRASOFT AND ONLY INFRA SOFT HAS THE POWER TO GRANT LICENCE RIGHTS FOR USE OF THE SOFTWARE. THE LICENCE AGREEMENT STIPULATES THAT UPON TERMINATION OF THE AGREEMENT FOR ANY REASON, THE LI CENCEE SHALL RETURN THE SOFTWARE INCLUDING SUPPORTING INFORMATION AND LICENCE AUTHOR IZATION DEVICE TO INFRASOFT. 94. THE INCORPOREAL RIGHT TO THE SOFTWARE I.E. COPY RIGHT REMAINS WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED BY THE ASSESSEE. THE R IGHT TO USE A COPYRIGHT IN A PROGRAMME IS TOTALLY DIFFERENT FROM THE RIGHT TO US E A PROGRAMME EMBEDDED IN A CASS ETTE OR A CD WHICH MAY BE A SOFTWARE AND THE P AYMENT MADE FOR THE SAME CANNOT BE SAID TO BE RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE OF ANY COPYRIGHT TO BRING IT WITHIN THE DEFINITION OF ROYA LTY AS GIVEN IN THE DTAA. WHAT THE LICENSEE HAS ACQUIRED IS ONLY A COPY OF THE COPYRIG HT ARTICLE WHEREAS THE COPYRIGHT REMAINS WITH THE OWNER AND THE LICENSEES HAVE ACQUI RED A COMPUTER PROGRAMME FOR BEING USED IN THEIR BUSINESS AND NO RIGHT IS GR ANTED TO THEM TO UTILIZE THE COPYRIGHT OF A COMPUTER PROGRAMME AND THUS THE PAYM ENT FOR THE SAME IS NOT IN THE NATURE OF ROYALTY. 95. WE HAVE NOT EXAMINED THE EFFECT OF THE SUBSEQUE NT AMENDMENT TO S. 9(1)(VI) OF THE ACT AND ALSO WHETHER THE AMOUNT RECEIVED FOR USE OF SOFTWARE WOULD BE ROYALTY IN TERMS THEREOF F OR THE REASON THAT THE A SSESSEE IS COVERED BY THE DTAA, THE PROVISIONS OF WHICH ARE MORE BENEFICIAL. 96. THE AMOUNT RECEIVED BY THE ASSESSEE UNDER THE L ICENCE AGREEMENT FOR ALLOWING THE USE OF THE SOFTWARE IS NOT ROYALTY UNDER THE DT AA. PROVISIONS OF DTAA BEING MORE BENEFICIAL TO THE ASS ESSEE. ASSESSEE WAS IN OUR OPINION JUSTIFIED IN RELYING ON DTAA AND TAKING A VIEW THA T PAYMENTS EFFECTS BY IT DID NOT WARRANT DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT. IN OUR OPINION ASSESSEE WAS JUSTIFIED IN HARBOURING A VIEW THAT PAYMENTS MADE BY IT DID NOT FALL WITHIN THE MEANING OF THE TERM ROYALTY AS USED IN THE DTAA. THIS BEI NG SO, ASSESSEE COULD NOT BE SADDLED WITH A LIABILITY FOR FAILURE TO DEDUCT TAX AT SOURCE. ORDERS OF THE LOWER AUTHORITIES FOR ALL THE YEARS ARE SET ASIDE. THUS, AS COULD BE SEEN FROM AFORESAID ORDER DATED 2 3.10.2017 PASSED BY CHENNAI TRIBUNAL IN ASSESSEES OWN CASE THAT ASSE SSEE HAS MADE PAYMENTS TO SAIPEM SPA, ITALY TOWARDS SOFTWARE LICE NSES/PURCHASE OF SOFTWARE , A PERSONAL , NON EXCLUSIVE , NON TRANSFE RABLE LICENSE WITH A RIGHT ITA NO.1210/CHNY/2019 :- 18 -: TO MAKE UNLIMITED COPIES BUT HOWEVER THE SAID SOFTW ARE CAN ONLY BE USED FOR INTERNAL PURPOSES AND THERE COULD NOT BE SUB-LI CENSE, ASSIGNMENT OR TRANSFER OF SUCH LICENSES/SOFTWARE. THE CHENNAI TRI BUNAL WHILE PASSING THE ORDER IN FAVOUR OF THE ASSESSEE TOOK NOTE OF THE DE CISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SYNOPSIS INTERNATIONAL OLD LIMITED REPORTED IN (2012) 28 TAXMANN.COM 162(KAR.) WHICH WAS DECIDED IN FAVOUR OF REVENUE WHEREIN UNDER SIMILAR CIRCUMST ANCES SUCH PAYMENTS WERE HELD TO BE ROYALTY PAYMENT BY HONBLE KARNATAK A HIGH COURT BOTH UNDER DTAA ENTERED INTO BY INDIA WITH IRELAND AS WE LL UNDER PROVISIONS OF SECTION 9(1)(VI) OF THE 1961 ACT , BUT SINCE HONBL E DELHI HIGH COURT HAS DECIDED THE SAME ISSUE IN FAVOUR OF THE TAXPAYER IN THE CASE OF DIT V. INFRASOFT LIMITED(SUPRA), THE CHENNAI-TRIBUNAL HELD IN FAVOUR OF ASSESSEE BY HOLDING THAT A VIEW IN FAVOUR OF THE ASSESSEE IS TO BE TAKEN IN THE ABSENCE OF DECISION OF JURISDICTIONAL HIGH COURT. T HE CHENNAI TRIBUNAL ALSO TOOK NOTE OF THE DECISION OF HONBLE MADRAS HIGH CO URT IN THE CASE OF CIT V. VINZAS SOLUTIONS INDIA PRIVATE LIMITED REPORTED IN (2017) 392 ITR 155(MADRAS) WHILE DECIDING IN FAVOUR OF THE ASSESSE E.HOWEVER, NOW HONBLE JURISDICTIONAL HIGH COURT IN A VERY RECENT DECISION IN THE CASE OF ZYLOG SYSTEMS LIMITED V. ITO IN TCA NO. 2184 AND 21 85 OF 2006, VIDE JUDGMENT DATED 23.04.2019 ( REPORTED IN (2019) 415 ITR 311(MAD.) HAS AFFIRMED THE VIEW HELD BY HONBLE KARANATAKA HIGH C OURT IN THE CASE OF SYNOPSIS INTERNATIONAL OLD LIMITED(SUPRA), WHILE AD JUDICATING APPEAL IN FAVOUR OF REVENUE IN THE CASE OF, WHEREIN HONBLE M ADRAS HIGH COURT CONCLUDED AS AS UNDER: ITA NO.1210/CHNY/2019 :- 19 -: 8. HAVING GONE THROUGH THE JUDGMENT OF THE KARNATAK A HIGH COURT AND THE ORDER IMPUGNED OF THE LEARNED INCOME TAX APPELLATE TRIBUN AL, WE AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT ON THE ISSUE THAT THE PAYM ENTS MADE BY THE ASSESSEE COMPANY TO THE US COMPANY FOR USER OF ITS SOFTWARE, LOGO AN D TRADE MARKS WERE IN THE NATURE OF ROYALTY COVERED UNDER ARTICLE 12 OF THE DOUBLE TAX AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND USA AND THEREFORE, THE ASSESSEE, INDIAN C OMPANY WAS LIABLE TO DEDUCT TAX AT SOURCE AND PAY THE SAME TO THE STATE. ON ACCOUNT OF ITS FAILURE TO DO SO, IT WAS ALSO LIABLE TO PAY INTEREST THEREON UNDER SECTION 201(IA) OF THE ACT. 9. THUS, WE DO NOT FIND ANY MERIT IN THE PRESENT AP PEALS FILED BY THE ASSESSEE AND THE SAME ARE LIABLE TO BE DISMISSED AND ACCORDINGLY, TH E SAME ARE DISMISSED. THE QUESTIONS FRAMED, AS QUOTED ABOVE, ARE HTTP://WWW.JUDIS.NIC.IN JUDGT. DT. 23.4.19 IN T.C.2184/2006 M/S.ZYLOG SYSTEMS LIMITED V. ITO ANSWERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. NO ORDER AS TO COSTS. IT IS PERTINENT TO MENTION THAT DEFINITION OF ROYAL TY UNDER ARTICLE 13(3) OF INDIA-ITALY DTAA IS PARAMETRIA WITH DEFINITION OF R OYALTY IN ARTICLE 12(3) OF INDIA-IRELAND DTAA EXCEPT EXCLUSION OF APPLICABILIT Y TO AIRCRAFT IN INDIA- IRELAND DTAA, WHICH IS REPRODUCED HEREUNDER: INDIA-ITALY DTAA ARTICLE 13(3) READS AS UNDER: 13(3) THE TERM 'ROYALTIES' AS USED IN THIS ARTICL E MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTI FIC WORK, INCLUDING CINEMATOGRAPH FILM OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMAT ION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. INDIA-IRELAND DTAA-ARTICLE 12(3) READ AS UNDER: 12(3) (A) THE TERM 'ROYALTIES' AS USED IN THIS AR TICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTIST IC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILM OR FILMS OR TAPES FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS OR FOR THE USE OF OR THE RIGHT T O USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OTHER THAN AN AIRCRAFT , OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE; ITA NO.1210/CHNY/2019 :- 20 -: THE AFORESAID DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF ZYLOG IS A RECENT JUDGMENT PRONOUNCED ON 23.04.2019 AND WE A RE BOUND BY DECISION OF HONBLE JURISDICTIONAL HIGH COURT AFFIR MING RATIO OF DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SYNOPIS (SUPRA) WHICH WAS DECIDED IN FAVOUR OF REVENUE . FOR THE SAKE OF COMP LETENESS, WE ARE REPRODUCING THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SYNOPSIS INTERNATIONAL OLD LIMITED(SUPRA) WH EREIN THE HONBLE KARANATAKA HIGH COURT DECIDED THE ISSUE IN FAVOUR O F REVENUE. IN THIS CASE ALSO DECIDED BY HONBLE KARNATAKA HIGH COURT T HE TAXPAYER HAS GRANTED NON-EXCLUSIVE , NON TRANSFERABLE LICENSES FOR INTERNAL USAGE WITH RIGHT TO MAKE COPIES/BACK UP, BUT THE KARANATAKA H IGH COURT AFTER GOING THROUGH THE AMENDED PROVISIONS OF SECTION 9(1)(VI) AND PROVISIONS OF ARTICLE 12(3) OF INDIA-IRELAND DTAA APPLICABLE FOR ROYALTY HELD IN FAVOUR OF REVENUE BY HOLDING THAT PAYMENTS TOWARDS GRANT O F LICENSE/SOFTWARE ARE TAXABLE AS ROYALTY BOTH UNDER DTAA AS WELL UNDE R PROVISIONS OF SECTION 9(1)(VI) OF THE 1961 ACT , BY HOLDING AS UN DER:- 9. IN THE LIGHT OF THE AFORESAID FACTS AND THE RIV AL CONTENTIONS, THE POINT THAT ARISES FOR CONSIDERATION IN THIS APPEALS ARE: 'WHETHER THE CONSIDERATION PAID BY THE INDIAN CUSTO MERS OR END-USERS, TO THE ASSESSEE FOR TRANSFER OF THE RIGHT TO USE THE SOFTW ARE/COMPUTER PROGRAMME IS IN RESPECT OF THE COPYRIGHT AND FALLS WITHIN THE MISCH IEF OF 'ROYALTY' AS DEFINED UNDER SUB-CLAUSE (V) TO EXPLANATION 2 TO CLAUSE (VI) OF SE CTION 9(1) OF THE ACT?' 10. IT IS NOT IN DISPUTE THAT THE SYNOPSYS INC. HAS ENTERED INTO THE DESIGN, MANUFACTURE, DISTRIBUTION AND MARKETING OF CERTAIN 'EDA' TOOLS A ND SOFTWARE AND TO PROVIDE ALL SERVICES RELATED THERETO. THE SAID COMPANY HOLDS ALL RIGHT, TITLE AND INTEREST, AS A LICENSEE TO THE INTELLECTUAL PROPERTY INCLUDING THE COPYRIGHTS. THE ASSESSEE IS A SUBSIDIARY OF THE AFORESAID COMPANY. SYNOPSYS CORPORATION HAS GRANTED A NON EXC LUSIVE LICENSE IN THE TERRITORY WHICH IS GEOGRAPHICAL, AS DESCRIBED IN THE SAID AGREEMENT TO USE AND COMMERCIALLY EXPLOIT THE INTELLECTUAL PROPERTY, MANUFACTURE, MARKET, DISTRIB UTE, SUB-LICENSE AND MAINTAIN THE ITA NO.1210/CHNY/2019 :- 21 -: PRODUCTS AND PROVIDE AIL SERVICES TO CUSTOMERS DURI NG THE TERM OF 'TLA' UNDER AN AGREEMENT DATED 31/10/1999, FOR A PERIOD OF ONE YEAR TO BE CONT INUED THEREAFTER, AFTER MUTUAL AGREEMENT, AS PER THE DISCRETION OF THE SYNOPSYS IN C. IN PURSUANCE OF THE RIGHTS ACQUIRED UNDER THE SAID AGREEMENT, THE ASSESSEE HAS ENTERED INTO 'EULA' WITH VARIOUS INDIAN CUSTOMERS. ONE SUCH AGREEMENT IS DATED 30/5/2002 ENTER ED INTO WITH M/S. ATHENA SEMI- CONDUCTORS PRIVATE LIMITED, BANGALORE. 11. IN PURSUANCE OF THE AFORESAID AGREEMENT, THE AS SESSEE HAS GRANTED THE INDIAN CUSTOMERS A NON-EXCLUSIVE, NON-TRANSFERABLE LICENSE , WITHOUT RIGHT OF SUB-LICENSE, TO USE THE LICENSED SOFTWARE AND DESIGN TECHNIQUES ONLY IN THE QUANTITY AUTHORISED BY THE LICENSEE, IN ACCORDANCE WITH THE DOCUMENTATION AND IN THE USE AREA WITH A RIGHT TO LICENSEE TO MAKE A REASONABLE OPPORTUNITY OF COPIES OF THE LICENSED SOFTWARE FOR BACKUP AND STORAGE OR ARCHIVAL PURPOSES ONLY. FOR GRANT OF SUCH LICENSE F OR USE OF THE SOFTWARE, FOR A PERIOD OF 20 YEARS, THE INDIAN CUSTOMERS, HAVE PAID CONSIDERATIO N IN LUMP SUM. THE SAID AGREEMENT IS FOR A PERIOD OF 20 YEARS. IT IS ON RECEIPT OF THE S AID CONSIDERATION, THE ASSESSEE HAS NOT PAID TAX UNDER SECTION 9 OF THE ACT, ON THE GROUND THAT THE SAID CONSIDERATION IS NOT 'ROYALTY' AS DEFINED UNDER SECTION 9 OF THE ACT. IN SUPPORT OF T HEIR CONTENTION THAT IT IS NOT A 'ROYALTY', WHICH IS LIABLE TO TAX, THEY RELY PRINCIPALLY ON TW O JUDGMENTS. FIRST IN THE CASE OF MOTOROLA INC. (SUPRA). THE QUESTION WHICH WAS REFERRED TO TH E SPECIAL BENCH WAS AS UNDER:- 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES, TH E REVENUES EARNED BY THE APPELLANT FROM SUPPLY OF EQUIPMENT AND SOFTWARE TO INDIAN TELECOM OPERATORS WERE TAXABLE IN INDIA'? AFTER REFERRING TO THE ARGUMENTS OF THE LEARNED COU NSEL AND REFERRING TO THE TAX PROVISIONS OF THE INCOME-TAX ACT, THE SPECIAL BENCH OF THE TRI BUNAL WAS OF THE VIEW THAT 'THE CRUX OF THE ISSUE IS 'WHETHER THE PAYMENT IS FOR COPYRIGHT OR FOR A COPYRIGHTED ARTICLE'. IF IT IS FOR 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 AS SESSEE ON THAT BASIS. IF THE PAYMENT IS REALLY FOR A COPYRIGHTED ARTICLE, THEN IT ONLY REPR ESENTS THE PURCHASE PRICE OF THE ARTICLE AND, THEREFORE, CANNOT BE CONSIDERED AS ROYALTY EITHER U NDER THE ACT OR UNDER THE DTAA. THIS ISSUE REALLY IS THE KEY TO THE ENTIRE CONTROVERSY A ND THEY PROCEEDED TO ADDRESS THE ISSUE. AFTER NOTICING THE DEFINITION OF COPYRIGHT AS GIVEN IN THE COPYRIGHT ACT, 1957 IN SECTION 14 OF THE SAID ACT AND REFERRING TO THE VARIOUS CLAUSES I N THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES AND AFTER REFERRING TO THE VARIOUS JUDGMENT S RELIED ON, ON BEHALF OF THE PARTIES, IT WAS HELD THAT THE PAYMENT BY THE CELLULAR OPERATOR IS NOT FOR ANY COPYRIGHT IN THE SOFTWARE BUT IS ONLY FOR THE SOFTWARE, AS SUCH, AS A COPYRIG HTED ARTICLE. IT FOLLOWS THAT THE PAYMENT CANNOT BE CONSIDERED AS ROYALTY WITHIN THE MEANING OF EXPLANATION 2 BELOW SECTION 9(1) OF THE ACT. FURTHER, THEY HELD THAT THE SOFTWARE SUPPL IED WAS A COPYRIGHTED ARTICLE AND NOT A COPYRIGHT AND THE PAYMENT RECEIVED BY THE ASSESSEE IN RESPECT OF THE SOFTWARE CANNOT BE CONSIDERED AS 'ROYALTY' EITHER UNDER THE ACT OR DTA A. 12. SIMILAR QUESTION AROSE FOR CONSIDERATION BEFORE THE AUTHORITY FOR ADVANCE RULINGS IN CASE OF DASSAULT SYSTEMS K.K., (SUPRA) IN PARA.8 OF THE SAID ORDER, THE QUESTION FOR CONSIDERATION IS FORMULATED IN THE FOLLOWING MANNER :- 'THE FIRST AND FOREMOST QUESTION IS WHETHER THE PAY MENTS RECEIVED BY THE APPLICANT FROM THE VARS REPRESENT CONSIDERATION FOR THE USE O F, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY/SCIENTIFIC WORK. GOING BY THE LANGUAGE OF THE ACT, THE QUESTION IS WHETHER THERE IS TRANSFER OF ALL OR ANY RIGHTS I N RESPECT OF THE COPYRIGHT OF LITERARY OR SCIENTIFIC WORK.' 13. AFTER REFERRING TO THE FACTS OF THAT PARTICULAR CASE AND THE LAW ON THE POINT, IT IS OBSERVED AS UNDER AT PARA 17 AND 17.1:- '17. CAN IT BE SAID THAT THE ONE TIME PAYMENT BASED ON STANDARD PRICE MINUS DISCOUNT PAID BY VAR TO THE APPLICANT IS IN THE NATURE OF ROYALTY ? IT DEPENDS ON THE QUESTION WHETHER ANY RIGHTS THAT THE APPLICANT GRANTED TO THE LICENSEE/EN D-USER INCLUDE THE RIGHT OF USING THE COPYRIGHT ALTERNATIVELY, GOING BY THE LANGUAGE OF I T ACT, THE QUESTION IS WHETHER ANY RIGHT IN RESPECT OF COPYRIGHT HAS BEEN TRANSFERRED. IT IS HERE THE DISTINCTION BETWEEN THE USE OF ITA NO.1210/CHNY/2019 :- 22 -: COPYRIGHTED ARTICLE AND THE USE OF COPYRIGHT HAS BE EN STRESSED. THE COPYRIGHT WHICH IS A SPECIES OF INTELLECTUAL PROPERTY RIGHTS BELONGS TO THE OWNER OR US ASSIGNEE IF ANY. THE OWNERSHIP THEREOF CARRIES WITH IT A BUNDLE OF RIGHT S WHICH ARE BY AND LARGE' DIRECTED TOWARDS COMMERCIAL EXPLOITATION OF THIS INTANGIBLE PROPERTY RIGHT. THOSE RIGHTS ATTACHED TO COPYRIGHT ARE ENUMERATED IN S. 14 OF THE COPYRIGHT ACT, 1957. IF ANY OF THESE RIGHTS ARE PARTED WITH IN FAVOUR OF ANOTHER SO THAT THE OTHER PERSON CAN E NJOY THAT RIGHT IN THE SAME MANNER IN WHICH THE OWNER CAN, IT CAN THEN BE SAID THAT THOSE SPECIFIC RIGHTS CONCERNING THE USE OF COPYRIGHT HAVE BEEN CONFERRED ON HIM. ** ** ** 17.1 PASSING ON A RIGHT TO USE AND FACILITATING THE USE OF A PRODUCT FOR WHICH THE OWNER HAS A COPYRIGHT IS NOT THE SAME THING AS TRANSFERRING O R ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO TRIGGER THE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON-EXCLUSIVE AND NON-TRANSFERABLE LICENCE ENABLING THE USE OF A COPY RIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL THE ENUMERATED RIG HTS INGRAINED IN A COPYRIGHT WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY T O ESTABLISH ACCESS TO THE COPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPYRIGHT ITSELF HAS BEEN TRANSFERRED TO ANY EXTENT . IT DOES NOT MAKE ANY DIFFERENCE EVEN IF THE COMPUTER PROGRAMME PASSED ON TO THE USER IS A H IGHLY SPECIALIZED ONE. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACH ED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENCEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE DEF INITION CLAUSE IN THE ACT AS WELL AS THE TREATY. AS OBSERVED EARLIER, THOSE RIGHTS ARE INCOR PORATED IN S.14. MERELY AUTHORIZING OR ENABLING A CUSTOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY D OES NOT, IN OUR VIEW, AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE COPYRIGHT. HOWEVER, WHERE, FOR EXAMPLE, THE OWNER OF COPYRIGHT OVER A L ITERARY WORK GRANTS AN EXCLUSIVE LICENSE TO MAKE OUT COPIES AND DISTRIBUTE THEM WITHIN A SPE CIFIED TERRITORY, THE GRANTEE WILL PRACTICALLY STEP INTO THE SHOES OF THE OWNER/GRANTOR AND HE ENJOYS THE COPYRIGHT TO THE EXTENT OF ITS GRANT TO THE EXCLUSION OF OTHERS. AS THE RIGHT ATTACHED TO COPYRIGHT IS CONVEYED TO SUCH LICENCEE, HE HAS THE AUTHORITY TO COMMERCIA LLY DEAL WITH IT. IN CASE OF INFRINGEMENT OF COPYRIGHT, HE CAN MAINTAIN A SUIT TO PREVENT IT. DIFFERENT CONSIDERATIONS WILL ARISE IF THE GRANT IS NON-EXCLUSIVE THAT TOO CONFINED TO THE USE R PURELY FOR IN-HOUSE OR INTERNAL PURPOSE.' 14. ULTIMATELY, IT WAS RULED THAT PAYMENT WAS RECEI VED BY THE VARS ('THIRD PARTY RESELLERS') ON ACCOUNT OF SUPPLIES OF SOFTWARE PRODUCTS TO THE END-CUSTOMERS (FROM WHOM THE LICENCE FEE IS COLLECTED AND APPROPRIATED BY VAR) DOES NOT R ESULT IN INCOME IN THE NATURE OF ROYALTY TO THE APPLICANTS. 15. IT WAS CONTENDED RELYING ON THESE TWO JUDGMENTS THAT UNDER THE 'EULA' NO RIGHT IN THE COPYRIGHT AS SUCH IS TRANSFERRED. AS SUCH, THE CONS IDERATION PAID IN THE AFORESAID AGREEMENT IS NOT A 'ROYALTY' AND NO TAX IS LEVIABLE UNDER SEC TION 9 OF THE ACT. 16. RELIANCE IS ALSO PLACED ON THE JUDGMENT OF THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI, IN THE CASE OF FACTSET RESEARCH SY STEMS INC., IN RE [2009] 182 TAXMAN 268 (AAR - NEW DELHI) WHERE THE APPLICANT SOUGHT ADV ANCE RULING ON THE FOLLOWING QUESTIONS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, FACTSET RESEARCH SYSTEMS INC. ('FACTSET' OR 'THE APPLICANT') WILL NOT BE TAXA BLE IN INDIA UNDER THE INCOME-TAX ACT, 1961, WITH RESPECT TO THE SUBSCRIPTION FEES? 2. WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE APPLICANT WILL NOT BE TAXABLE UNDER THE DOUBLE TAXATION AVOIDANCE AGREEME NT ENTERED INTO BETWEEN THE ITA NO.1210/CHNY/2019 :- 23 -: GOVERNMENT OF INDIA AND THE GOVERNMENT OF UNITED ST ATES OF AMERICA WITH RESPECT TO THE SUBSCRIPTION FEES? 3. WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, IF THE APPLICANT IS NOT TAXABLE IN INDIA FOR THE SUBSCRIPTION FEES, ITS CUS TOMERS IN INDIA WILL BE REQUIRED TO WITHHOLD TAXES UNDER SECTION 195 OF THE ACT ON SUBS CRIPTION FEES PAID TO THE APPLICANT? 4. ASSUMING THAT THE APPLICANT HAS NO OTHER TAXABLE INCOME IN INDIA, WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPLIC ANT WILL BE ABSOLVED FROM FILING A TAX RETURN IN INDIA, UNDER THE PROVISIONS OF SECTIO N 139 OF THE ACT WITH RESPECT TO THE SUBSCRIPTION FEES? 17. WHILE CONSIDERING THE SAID QUESTION, AT PARA 3 IT WAS HELD AS UNDER : - '3. BROADLY, THE CONTENTION OF THE APPLICANT IS THA T NO TAX LIABLE TO BE PAID ON THE SUBSCRIPTION FEES RECEIVED FROM THE CUSTOMERS IN IN DIA AS IT DOES NOT CONSTITUTE 'ROYALTY' OR FEES FOR TECHNICAL SERVICES' EITHER UN DER THE PROVISIONS OF THE INCOME-TAX ACT, 1961 OR THE DTAA (TREATY) BETWEEN INDIA AND USA , MOREOVER, AS THE APPLICANT DOES NOT HAVE PERMANENT ESTABLISHMENT (PE) IN INDIA, THE SUBSCRIPTION FEES CANNOT BE TAXED AS BUSINESS INCOME IN VIEW OF ARTICLE 7 OF INDIA-USA TREATY'. 18. AFTER REFERRING TO THE VARIOUS CLAUSES IN THE A GREEMENT BETWEEN THE PARTIES IT WAS HELD AS UNDER : - '9. NOW, COMING TO THE GRIPS OF THE FIRST QUESTION BEARING ON THE DEFINITION OF 'ROYALTY', AS NOTICED EARLIER, THE APPLICANT'S DATA BASE IS A SOURCE OF INFORMATION ON VARIOUS COMMERCIAL AND FINANCIAL MATTERS OF COMPANI ES AND SIMILAR ENTRIES. WHAT THE APPELLANT DOES IS TO COLLECT AND COLLATE THE SA ID INFORMATION/DATA WHICH IS AVAILABLE IN PUBLIC DOMAIN AND PUT THEM ALL IN ONE PLACE IN A PROPER FORMAT SO THAT THE CUSTOMER (LICENSEE) CAN HAVE EASY AND QUICK ACCE SS TO THIS PUBLICLY AVAILABLE INFORMATION. THE APPLICANT HAS TO BESTOW ITS EFFORT , EXPERIENCE AND EXPERTISE TO PRESENT THE INFORMATION/DATA IN A FOCUSED MANNER SO AS FACILITATE EASY AND CONVENIENT REFERENCE TO THE USER. FOR THIS PURPOSE, THE APPLICANT IS CALLED UPON TO DO COLLATION, ANALYSIS, INDEXING AND NOTING WHEREVE R NECESSARY. THESE VALUE ADDITIONS ARE THE PRODUCT OF THE APPLICANT'S EFFORT S AND SKILLS AND THEY ARE OUTSIDE THE PUBLIC DOMAIN. IN THAT SENSE, THE DATABASE IS T HE INTELLECTUAL PROPERTY OF THE APPLICANT AND COPYRIGHT ATTACHES TO IT; BUT, THE QU ESTION IS WHETHER IN MAKING THIS CENTRALIZED DATA AVAILABLE TO THE CUSTOMER-LICENSEE FOR A CONSIDERATION, CAN IT BE SAID THAT ANY RIGHTS WHICH THE APPLICANT HAS AS A H OLDER OF COPYRIGHT IN DATABASE ARE BEING PARTED IN FAVOUR OF THE CUSTOMER? THE ANSWER, IN OUR VIEW, MUST BE IN THE NEGATIVE. NO PROPRIETARY RIGHT AND NO EXCLUSIVE RIG HT WHICH THE APPLICANT HAS, HAS BEEN MADE OVER TO THE CUSTOMER. THE COPYRIGHT OR TH E PROPRIETARY RIGHTS OVER THE 'LITERARY WORK' REMAINS INTACT WITH THE APPLICANT N OTWITHSTANDING THE FACT THAT THE RIGHT TO VIEW AND MAKE USE OF THE DATA FOR INTERNAL PURPOSES OF THE CUSTOMER IS CONFERRED. SEVERAL RESTRICTIONS ARE PLACED ON THE L ICENSEE SO AS TO ENSURE THAT LICENSEE CANNOT VENTURE ON A BUSINESS OF HIS OWN BY DISTRIBUTING THE DATA DOWNLOADED BY IT OR PROVIDING ACCESS TO OTHERS (VID E CLAUSE 2.A & 2.C OF THE AGREEMENT). THE LICENSEE HAS NOT BEEN GIVEN THE EXCL USIVE RIGHT TO REPRODUCE OR ADAPT THE WORK OR TO DISTRIBUTE THE CONTENTS OF DAT ABASE TO OTHERS. THE GRANT OF LICENSE IS ONLY TO AUTHORIZE THE LICENSEE TO HAVE A CCESS TO THE COPYRIGHTED DATABASE RATHER THAN GRANTING ANY RIGHT IN OR OVER THE COPYR IGHT AS SUCH. THE CONSIDERATION PAID IS FOR A FACILITY MADE AVAILABLE TO THE LICENS EE. THE LICENSE, IT MUST BE NOTED IS A NON-EXCLUSIVE LICENSE. THE TERM 'EXCLUSIVE LICENS E' CONFERS ON THE LICENSEE AND PERSONS AUTHORIZED BY HIM, TO THE EXCLUSIVE OF ALL OTHER PERSONS, INCLUDING THE OWNER OF THE COPYRIGHT, ANY RIGHT COMPRISED IN THE COPYRIGHT IN A WORK'. THE EXPRESSION 'GRANTING OF LICENSE' PLACED WITHIN BRAC KETS TAKES COLOUR FROM THE PRECEDING EXPRESSION 'TRANSFER OF ALL OR ANY RIGHTS '. IT IS NOT USED IN THE WIDER SENSE ITA NO.1210/CHNY/2019 :- 24 -: OF GRANTING A MERE PERMISSION TO DO A CERTAIN THING NOR DOES THE GRANT OF LICENCE DENUDE THE OWNER OF COPYRIGHTS ALL OR ANY OR ANY OR HIS RIGHTS. A LICENSE GRANTING SOME RIGHTS AND ENTITLEMENTS ATTACHED TO THE COPYRI GHT SO AS TO ENABLE THE LICENSEE TO COMMERCIALLY EXPLOIT THE LIMITED RIGHTS CONFERRE D ON HIM IS WHAT IS CONTEMPLATED BY THE EXPRESSION 'GRANTING OF LICENSE' IN CLAUSE ( V) OF EXPLANATION 2.' 9.1 ..... THE EXPRESSION 'EXCLUSIVE RIGHT' IN THE O PENING PART OF SECTION 14 IS VERY IMPORTANT AND IT QUALIFIES ALL THE COMPONENTS OF CL AUSE (A). THE APPLICANT IS NOT CONFERRED WITH THE EXCLUSIVE RIGHT TO REPRODUCE THE WORK (INCLUDING THE STORING OF IT IN ELECTRONIC MEDIUM), AS CONTEMPLATED BY SUB-CLAUS E (I) OF SECTION 14(A). THE EXCLUSIVE RIGHT REMAINS WITH THE APPLICANT BEING TH E OWNER OF THE COPYRIGHT AND BY PERMITTING THE CUSTOMER TO STORE AND USE THE DATA I N THE COMPUTER FOR ITS INTERNAL BUSINESS PURPOSE, NOTHING IS DONE TO CONFER THE EXC LUSIVE RIGHT TO THE CUSTOMER. SUCH ACCESS IS PROVIDED TO ANY PERSON WHO SUBSCRIBE S, SUBJECT TO LIMITATIONS. THE COPYRIGHT OF THE APPLICANT HAS NOT BEEN ASSIGNED OR OTHERWISE TRANSFERRED SO AS TO ENABLE THE SUBSCRIBER TO HAVE CERTAIN EXCLUSIVE RIG HTS OVER THE APPLICANT'S WORK IN SBI V. COLLECTOR OF CUSTOMS, BOMBAY', THE SUPREME C OURT HELD THAT 'COUNTRYWIDE USE OF THE SOFTWARE AND REPRODUCTION OF SOFTWARE AR E TWO DIFFERENT THINGS AND LICENCE FEE FOR COUNTRYWIDE USE CANNOT BE CONSIDERE D AS THE CHARGES FOR THE RIGHT TO REPRODUCE THE IMPORTED GOODS.' THAT WAS ALSO A CASE IN WHICH THE PROPERTY IN THE SOFTWARE REMAINED WITH THE SUPPLIER-A FOREIGN COMPA NY AND THE LICENCE FEE WAS PAYABLE BY SBI FOR USING THE SOFTWARE IN A LIMITED WAY AT ITS OWN CENTERS FOR A LIMITED PERIOD. 19. FROM THE AFORESAID JUDGMENTS IT IS CLEAR, A DIS TINCTION HAS BEEN MADE BETWEEN A TRANSFER OF A RIGHT IN A COPYRIGHT AND TRANSFER OF A RIGHT IN A COPYRIGHTED ARTICLE. IN VIEW OF THE LANGUAGE EMPLOYED IN SUB-CLAUSE (V) TO EXPLANATI ON 2, THE QUESTION IS NOT WHETHER WHAT IS TRANSFERRED IS A RIGHT IN A COPYRIGHT OR A COPYRIGHTED ARTICLE. THE REAL QUESTION IS WHETHER THE CONSIDERATION PAID TO THE OWNER OR A LI CENSOR OF A COPYRIGHT, FOR PERMISSION TO USE THE SOFTWARE/COMPUTER PROGRAMME IS A CONSIDERATI ON FOR TRANSFER OF ANY RIGHT IN RESPECT OF A COPYRIGHT AND FALLS WITHIN THE MISCHIE F OF THE DEFINITION OF 'ROYALTY'. THIS IS CLEAR FROM THE WORDINGS IN SECTION 9 OF THE ACT, WHICH RE ADS AS UNDER :- '(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA:- .................................. (VI) INCOME BY WAY OF ROYALTY PAYABLE BY- (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE ROY ALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED F OR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED, ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; .................................. [PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CL AUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SU M PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR THE TRANSFER OF ALL OR ANY RIGHTS (IN CLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MAN UFACTURER ALONG WITH A COMPUTER OR COMPUTER-BASED EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWARE EXPORT, SOFTWARE DEVELOPMENT AND TRAINING, 1986 OF THE GOVERNMENT OF INDIA] EXPLANATION 2 - FOR THE PURPOSES OF THIS CLAUSE, 'R OYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSID ERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GA INS') FOR- (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK IN CLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONN ECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OF EXHIBITION OF CINEMATOGRAPHIC FILMS; OR ITA NO.1210/CHNY/2019 :- 25 -: (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WIT H THE ACTIVITIES REFERRED TO IN SUB-CLAUSE (I) TO (IV), (IVA) AND (V) [EXPLANATION 3. FOR THE PURPOSES OF THIS CLAUSE, 'C OMPUTER SOFTWARE' MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED ME DIA OR OTHER INFORMATION STORAGE DEVICE AND INCLUDES ANY SUCH PROGRAMME OR ANY CUSTO MIZED ELECTRONIC DATA] .................................. [EXPLANATION - FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED T O ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB-SECTION (1) A ND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RESIDENT, WHETHER OR NOT,- (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUS INESS OR BUSINESS CONNECTION IN INDIA: OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA .' 20. INCOME BY WAY OF 'ROYALTY' IS LIABLE TO TAX. TH E SECOND PROVISO TO CLAUSE (VI) MAKES IT CLEAR THAT ANY LUMP SUM PAYMENT MADE BY A RESIDENT FOR THE TRANSFER OF ALL OR ANY LIGHTS INCLUDING GRANTING OF A LICENCE IN RESPECT OF COMPU TER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFACTURER ALONG WITH A COMPUTER OF COMPUTER BASE D EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWARE EXPO RT, SOFTWARE DEVELOPMENTS AND TRAINING, 1986 OF THE GOVT., OF INDIA, WOULD NOT CO NSTITUTE 'ROYALTY'. FOR THE PURPOSE OF THE SAID SECTION, THE COMPUTER SOFTWARE SUPPLIED BY A N ON-RESIDENT TO A RESIDENT FALLS WITHIN THE DEFINITION OF 'ROYALTY'. IF THE CASE FALLS UNDER TH E PROVISO IT IS OUT OF THE DEFINITION OF THE 'ROYALTY'. THEREFORE, IT IS CLEAR THAT THE CONSIDER ATION PAID FOR SUPPLY OF A SOFTWARE BY A NON-RESIDENT TO A RESIDENT IS A SOFTWARE (SIC. ROYA LTY) UNLESS IT FALLS WITHIN THE SECTION PROVISO. 21. THEREFORE, ANY COMPUTER SOFTWARE SOLD ON THE SH ELF FALLS UNDER THE; SECOND PROVISO AND THE CONSIDERATION PAID THEREON FALLS WITHIN THE MIS CHIEF OF 'ROYALTY' AS DEFINED IN THE SAID PROVISO. IT IS IN THIS BACKGROUND, WE HAVE TO LOOK INTO CLAUSE (V) OF EXPLANATION 2. UNDER EXPLANATION 2, FOR THE PURPOSE OF CLAUSE (V), 'ROYA LTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERAT ION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' ). IN OTHER WORDS, ONE OF THE TESTS TO BE APPLIED IS WHETHER THE CONSIDERATION : PAID WOULD F ALL WITHIN THE DEFINITION OF CAPITAL GAINS. IF THE CONSIDERATION PAID DO NOT FALL WITHIN THE DE FINITION OF CAPITAL GAINS AND DO NOT FALL WITHIN THE SECOND PROVISO, THEN THE SAID CONSIDERAT ION WOULD BE 'ROYALTY' FOR THE PURPOSE OF THIS CLAUSE, AS DEFINED IN EXPLANATION 2. 22. SIMILARLY, CLAUSE (V) DEALS WITH COPYRIGHT, LITE RARY, ARTISTIC OR SCIENTIFIC WORK AND THE CONSIDERATION FOR THE TRANSACTION OF ALL OR ANY RIG HTS (INCLUDING GRANTING OF LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCI ENTIFIC WORK AS 'ROYALTY'. SIMILARLY, WHAT IS EXCLUDED FROM THE DEFINITION OF ROYALTY' ARE CONSID ERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS. WHEREAS, IT EX PRESSLY STATES THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV). (IVA) AND (V) ALSO CONSTITUTES 'ROYALTY'. FOR THE PURPOSE OF THIS PROVISION, ANY RIGHTS INCLUDES GRANTING OF A LICENCE, IT SHOULD BE IN RESPECT OF ANY COPYRIGHT . IT IS NOT A RIGHT IN COPYRIGHT. THEREFORE, THE WORDS 'IN RESPECT OF ASSUMES IMPORTANCE FOR THE PROPER UNDERSTANDING OF WHAT THE LEGISLATURE MEANT IN DEFINING 'ROYALTY' AS THEY HAV E DONE IN EXPLANATION 2. THE ARGUMENT IS THAT IT IS ONLY THE CONSIDERATION PAID FOR TRANSFER OF A RIGHT IN THE COPYRIGHT, WHICH WOULD CONSTITUTE 'ROYALTY' AND ANY CONSIDERATION PAID FOR THE TRANSFER OF A COPYRIGHTED ARTICLE DO NOT INVOLVE ANY TRANSFER OR RIGHT AND THEREFORE, IT IS OUTSIDE THE SCOPE OF 'ROYALTY' AS APPEARED IN EXPLANATION 2. THE SAID ARGUMENT IS BAS ED ON THE AFORESAID TWO DECISIONS REFERRED TO SUPRA. IN THE ENTIRE DISCUSSIONS IN THE AFORESAID TWO CASES, THE WORDS USED IN CLAUSE 5 NAMELY, 'IN RESPECT OR, IS NOT NOTICED AND NOT DISCUSSED. IT IS WELL SETTLED LAW THAT THE LEGISLATURE IS DEEMED NOT TO WASTE ITS WORDS OR TO SAY ANYTHING IN VAIN. A CONSTRUCTION WHICH ATTRIBUTES REDUNDANCY TO THE LEGISLATURE IS N OT ACCEPTABLE EXCEPT FOR COMPELLING REASONS. THE COURTS ALWAYS PRESUME THAT THE LEGISLA TURE INSERTED EVERY WORD THEREOF FOR A PURPOSE AND THE LEGISLATIVE INTENTION IN THAT EVERY WORD OF THE STATUTE SHOULD HAVE EFFECT. THE INTENTION OF THE LEGISLATURE IS PRIMARILY TO BE GATHERED FROM THE WORDS USED. THE WORDS ITA NO.1210/CHNY/2019 :- 26 -: OF A STATUTE ARE FIRST UNDERSTOOD IN THEIR NATURAL, ORDINARY OR POPULAR SENSE AND PHRASES AND SENTENCES ARE CONSTRUED ACCORDING TO THEIR GRAMMATI CAL MEANING, UNLESS THAT LEADS TO SOME ABSURDITY OR UNLESS IS SOME THING IN THE CONTEXT, O R IN THE OBJECT OF THE STATUTE TO SUGGEST THE CONTRARY. THE RIGHT WAY IS TO TAKE THE WORDS AS THE LEGISLATURE HAS GIVEN THEM, AND TO TAKE THE MEANING WHICH THE WORDS GIVEN NATURALLY IM PLY, UNLESS WHERE THE CONSTRUCTION OF THOSE WORDS IS. EITHER BY THE PREAMBLE OR BY THE CO NTEXT OF THE WORDS IN QUESTION CONTROLLED OR ALTERED. IN THIS CONTEXT IT IS NECESSARY TO KNOW THE MEANING OF THE WORDS 'IN RESPECT OF USED IN THE AFORESAID PROVISION. IN FACT THIS PHRAS E HAS BEEN THE SUBJECT MATTER OF INTERPRETATION BY THE APEX COURT AS WELL AS THE HIG H COURT. 23. THE APEX COURT IN THE CASE OF SHAHDARA (DELHI) SAHARANPUR LIGHT RAILWAY CO. LTD. V. UPPER DOAB SUGAR MILLS LTD. AIR 1960 SC 695, HELD A S UNDER:- 'WE DO NOT PROPOSE, HOWEVER, TO REST OUR DECISION O N THIS NARROW QUESTION OF HAULAGE FROM THE STATION PLATFORM TO POINT A, AS IN OUR VIEW THE ASSUMPTION MADE ABOVE AS REGARDS THE DEFINITION OF TERMINALS IN S. 3(14) IS NOT JUSTIFIED. THE DEFINITION AS HAS ALREADY BEEN STATED IS IN THESE W ORDS. 'TERMINALS' INCLUDES ''CHARGES IN RESPECT OF STATIONS, SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS, AND OF ANY SERVICE RENDERED THEREAT'. THUS TWO CLASSES OF CHARGES ARE INCLUDED IN THE DEFINITION. THE FIRST I S 'CHARGES IN RESPECT OF STATIONS, SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OT HER SIMILAR MATTERS.' THE SECOND IS 'CHARGES IN RESPECT OF ANY SERVICES RENDE RED THEREAT'. WHETHER OR NOT THEREFORE ANY SERVICES HAVE BEEN RENDERED 'THREAT' THAT IS, AT THE STATIONS SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OTHER SIMIL AR MATTERS THE OTHER CLASS OF TERMINALS IN RESPECT OF THESE STATIONS, SIDINGS, WH ARVES, DEPOTS, WAREHOUSES, CRANES AND SIMILAR OTHER MATTERS REMAIN. A FURTHER QUESTION THUS ARISES AS REGARDS THE INTERPRETATION OF THE PHRASE 'IN RESPECT OF'. D OES IT MEAN CHARGES FOR THE MERE PROVISION AND MAINTENANCE OF STATIONS, SIDINGS, DEP OTS, WHARVES, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS ARE THE TERMINALS OR DOES IT CONTEMPLATE CHARGES ONLY FOR USE OF SIDINGS, STATIONS, WHARVES DEPOTS, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS? THE WORDS 'IN RESPECT OF' ARE WIDE ENOUGH TO PERMIT CHARGES BEING MADE AS TERMINALS SO LONG AS ANY OF THESE THINGS, V IZ., STATIONS, SIDINGS, WHARVES, DEPOTS WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS HAVE BEEN PROVIDED AND ARE BEING MAINTAINED. THE QUESTION IS WHETHER THE IMPOR T OF THIS GENERALITY OF LANGUAGE SHOULD BE CUT DOWN FOR ANY REASON. IT IS WELL SETTL ED THAT A LIMITED INTERPRETATION HAS TO BE MADE ON WORDS USED BY THE LEGISLATURE IN SPITE OF THE GENERALITY OF THE LANGUAGES USED WHERE THE LITERAL INTERPRETATION IN THE GENERAL SENSE WOULD BE SO UNREASONABLE OR ABSURD THAT THE LEGISLATURE SHOULD BE PRESUMED NOT TO HAVE INTENDED THE SAME. IS THERE ANY SUCH REASON FOR CUT TING DOWN THE RESULT OF THE GENERALITY OF THE LANGUAGE USED PRESENT HERE? THE A NSWER IN OUR OPINION MUST BE IN THE NEGATIVE. IT IS TRUE THAT IN MANY CASES STATION S, SIDINGS, WHARVES, DEPOTS WAREHOUSES, CRANES AND OTHER SIMILAR THINGS WILL BE USED AND IT IS ARGUABLE THAT IN USING THE WORDS 'IN RESPECT OF' THE LEGISLATURE HAD SUCH USER IN MIND. IT IS WELL TO NOTICE HOWEVER THAT THE LEGISLATURE MUST HAVE BEEN EQUALLY AWARE THAT WHEREAS IN SOME CASES ACCOMMODATION PROVIDED BY STATIONS WILL HE USED, IN, SOME CASES SIDINGS WILL BE USED, IN OTHER WHARVES, IN OTHERS W AREHOUSES AND IN OTHER CASES CRANES, AND IN CERTAIN CASES SEVERAL OF THESE MAY B E USED, IN MOST CASES THERE WILL BE NO USE OF ALL OF THESE. FROM THE PRACTICAL POINT OF VIEW IT IS IMPOSSIBLE TO REGULATE TERMINATE CHARGES SEPARATELY IN RESPECT OF USER OF EACH OF THESE SEVERAL THINGS MENTIONED. WHEN THEREFORE THE LEGISLATURE AU THORISED THE CENTRAL GOVERNMENT TO FIX TERMINALS AS DEFINED IN S. 3(14), THE INTENTION MUST HAVE BEEN THAT THE TERMINALS LEVIABLE WOULD NOT DEPEND ON HOW MANY OF THESE THINGS WOULD BE USED. IT IS ALSO WORTH NOTICING THAT THE USER OF A DEPOT, WAREHOUSE AND CRANES WOULD NECESSARILY MEAN SOME SERVICE RENDERED 'THREA T'. IF TERMINALS DID NOT INCLUDE CHARGES IN RESPECT OF THE PROVISIONS OF DEPOTS, WAR EHOUSES, CRANES UNLESS THESE WERE USED, THERE WOULD BE NO NEED OF INCLUDING THES E IN THE FIRST PORTION AS THEY WOULD BE COVERED BY THE SECOND PART OF THE DEFINITI ON VIZ., 'OF ANY SERVICES RENDERED THREAT'. FOR FROM BEING THERE ANY REASON T O CUT DOWN, THE CONSEQUENCE OF THE GENERALITY OF LANGUAGE USED VIZ., 'IN RESPECT O F, THERE IS THUS GOOD GROUND FOR THINKING THAT THE LEGISLATURE USED THIS LANGUAGE DE LIBERATELY TO CUT ACROSS THE DIFFICULTY OF DISTINGUISHING IN A PARTICULAR CASE A S TO WHICH OF THESE THINGS HAD BEEN USED OR WHETHER ANY OF THEM HAD BEEN USED AT ALL. I NNUMERABLE PEOPLE CORRY GOODS ITA NO.1210/CHNY/2019 :- 27 -: OVER THE RAILWAYS AND MANY OF THEM FOR THE PURPOSE OF THE CARRIAGE MAKE USE OF THE STATIONS, SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS, WHILE MANY DO NOT. THOUGH AT FIRST SIGHT I T MIGHT SEEM UNREASONABLE THAT THOSE WHO HAD NOT USED WOULD HAVE TO PAY THE SAME C HARGE AS THOSE WHO HAD MADE USE OF THESE, IT IS OBVIOUS ' THAT THE INTERMI NABLE DISPUTES THAT WOULD ARISE BETWEEN THE RAILWAY ADMINISTRATION AND THE RAILWAY USERS, IF THE FACT OF USER OF STATIONS, SIDINGS AND OTHER THINGS MENTIONED HAD TO DETERMINE THE AMOUNT PAYABLE, WOULD BE UNHELPFUL NOT ONLY TO THE RAILWAY ADMINIST RATION BUT ALSO TO THE USING PUBLIC. THE SENSIBLE, WAY WAS THEREFORE TO MAKE A C HARGE LEVIABLE FOR THE MERE PROVISION OF THESE THINGS IRRESPECTIVE OF WHETHER A NY USE WAS MADE THEREOF. THAT WAS THE REASON WAY SUCH WIDE WORDS 'IN RESPECT OF W AS USED. WE ARE THEREFORE OF OPINION THAT THE WORDS 'IN RESPECT OF' USED IN SECT ION 3(14) MEAN FOR THE PROVISION OF AND NOT 'FOR THE USER OF.' 24. THE HIGH COURT OF BOMBAY IN THE CASE OF ANUSYA VITHAL V. J.H. MEHTA, ADDL. AUTHORITY UNDER PAYMENT OF WAGES ACT AIR 1960 BOM. 201 HELD A S UNDER : '4. ANOTHER REQUIREMENT OF A PAYMENT TO FALL WITHIN THE TERM 'WAGES' IS THAT IT MUST BE 'IN 'RESPECT OF EMPLOYMENT OR WORK DONE IN SUCH EMPLOYMENT.' THE EXPRESSION 'IN RESPECT OF' MEANS 'ATTRIBUTABLE TO' [SEE ASHER V. SEOFORD COURT ESTATES LTD. [1950 A.C. 508, 5261 OR, IF IT IS GIVE N A WIDER MEANING, 'RELATING TO OR WITH REFERENCE TO' [SEE TOLARAM RELUMAL V. STATE OF BOMBAY [1955] 1 SCR 158 AT P. 165: (AIR 1954 466 AT P.499). THE PAYMENT MUST, T HEREFORE, BE ATTRIBUTABLE TO EMPLOYMENT, THAT IS, ENGAGEMENT IN WORK, OR TO WORK DONE. DURING THE PERIOD OF LAY-OFF, THE EMPLOYER IS NOT IN A POSITION TO PROVI DE WORK AND THE EMPLOYEE CANNOT INSIST ON WORK BEING PROVIDED OR WAGES BEING PAID T O HIM. THE EMPLOYEE IS ALSO NOT WIDER ANY DUTY TO WORK FOR HIS MASTER OR EVEN TO PR ESENT HIMSELF FOR WORK. HE HAS TO PRESENT HIMSELF FOR WORK IF HE DESIRES TO CLAIM COMPENSATION (SEE S. 25E OF THE INDUSTRIAL DISPUTES ACT). BUT HE HAS AN OPTION IN TH E MATTER. IF HE REMAINS ABSENT, HE WILL NOT BE ENTITLED TO COMPENSATION, BUT HE WIL L NOT LOSE THE RIGHT, WHICH HE POSSESSES UNDER THE STANDING ORDERS, OF REINSTATEME NT WHEN THE NORMAL WORKING IS RESUMED. THE EMPLOYER CANNOT INSIST, ON HIS ATTENDA NCE AND THERE IS ALSO NO OBLIGATION UPON 1DM TO PROVIDE WORK OR TO PAY WAGES EVEN IF THE WORKER PRESENTS HIMSELF FOR WORK. IN ORDER TO ESCAPE LIABILITY FOR COMPENSATION, THE EMPLOYER MAY PROVIDE THE WORKER WITH ALTERNATIVE EMPLOYMENT, BUT THE WORKER IS NOT BOUND TO ACCEPT IT. IF HE DOES NOT ACCEPT IT, HE WILL NOT BE ENTITLED TO CLAIM LAY-OFF COMPENSATION, BUT HE WILL NOT LOSE HIS RIGHT OF REI NSTATEMENT WHEN THE LAY-OFF ENDS. THE COMPENSATION FOR LAY-OFF IS, THEREFORE, PAID IN RESPECT OF A PERIOD WHEN NO WORK IS DONE AND WHEN IN FACT THERE IS NO LIABILITY ON T HE EMPLOYER TO PROVIDE WORK AND ON THE EMPLOYEE TO DO WORK. IT IS NOT PAID AS ADDIT IONAL REMUNERATION FOR WORK DONE PREVIOUSLY. IT CANNOT, THEREFORE, BE SAID TO B E ATTRIBUTABLE TO THE EMPLOYMENT OF A WORKER OR TO THE WORK DONE BY HIM. IT IS MADE PAYABLE IN ORDER TO MITIGATE OR REDUCE THE HARDSHIP CAUSED BY REASON OF UNEMPLOYMEN T OR TEMPORARY LOSS OF EMPLOYMENT. CONSEQUENTLY, IT CANNOT BE SAID TO BE A PAYMENT 'IN RESPECT OF EMPLOYMENT OR WORK DONE IN SUCH EMPLOYMENT.' 25. THE HIGH COURT PATNA IN THE CASE OF CIT V. CHUN NILAL RAMESHWAR LAL AIR 1968 PAT. 364 HELD AS UNDER : 'IT IS WELL KNOWN THAT THE EXPRESSION 'IN RESPECT O F IS OF WIDER CONNOTATION THAN THE WORD 'IN' OR 'ON'. HENCE, A CLASS OF MUNICIPAL TAX, THOUGH NOT A TAX ON THE PREMISES OR BUILDINGS, MAY NEVERTHELESS BE A TAX IN RESPECT OF THE PREMISES OR BUILDING USED FOR THE BUSINESS. HENCE, THE PAYMENT OF THE IMPUGNE D AMOUNT OF RS. 125 AS PROFESSIONAL TAX UNDER SECTION 150A READ WITH (SECT ION 82(1)(FF) OF THE MUNICIPAL ACT IS IN SUBSTANCE A MUNICIPAL TAX IN RESPECT OF T HE BUSINESS PREMISES, AND IS COVERED BY CLAUSE (IX) OF SUB-SECTION (2) OF SECTION 10 OF THE INCOME-TAX ACT. THE ASSESSEE IS ENTITLED TO GET ALLOWANCE FOR THE SAME UNDER SECTION 10(1) OF THE INDIAN INCOME-TAX ACT, 1922. THE APPELLATE TRIBUNAL WAS RI GHT IN GIVING ALLOWANCE TO THE ITA NO.1210/CHNY/2019 :- 28 -: ASSESSEE FOR A SUM OF RS. 125 PAID BY HIM UNDER THE BIHAR AND ORISSA MUNICIPAL ACT, 1922.' 26. THE APEX COURT IN THE CASE OF UNION OF INDIA V. VIJAY CHAND JAIN AIR 1977 SC 1302 HELD AS UNDER:- '4. THE CONTRAVENTION ALLEGED IS OF SECTION 4(1) WHI CH PROHIBITS, INTER ALIA, SALE OF ANY FOREIGN EXCHANGE. FOREIGN EXCHANGE AS DEFINED I N SECTION 2(D) MEANS FOREIGN CURRENCY. UNDER SECTION 23(1B) ANY CURRENCY, SECURIT Y, GOLD OR SILVER, OR GOODS OR ANY OTHER MONEY OR PROPERTY 'IN RESPECT OF WHICH' T HE CONTRAVENTION HAS TAKEN PLACE IS LIABLE TO BE CONFISCATED TO THE CENTRAL GO VERNMENT. THE CURRENCY CONFISCATED THIS CASE WAS INDIAN CURRENCY. THE QUES TION IS WHETHER THE INDIAN CURRENCY CONSTITUTING THE SALE PROCEEDS OF FOREIGN EXCHANGE SEIZED FROM THE RESPONDENT WAS CURRENCY IN RESPECT OF WHICH THE CON TRAVENTION HAD TAKEN PLACE. THE WORDS 'IN RESPECT OF' ADMIT OF A WIDE CONNOTATI ON; LORD GREENE M.R. IN CUNARD'S TRUSTEES V. INLAND REVENUE COMMISSIONERS [ 1946] 174 LT 133 CALLS THEM COLOURLESS WORDS. THIS COURT IN S.S. LIGHT RAILWAY CO. LTD. V. UPPER DOAB SUGAR MILLS LTD. [1960] 2 SCR 926 AIR 1960 SC 695 CONSTRUI NG THESE WORDS IN SECTION 3(14) OF THE INDIAN RAILWAYS ACT, 1890 HAS HELD THAT THEY ARE VERY WIDE. IT SEEMS TO US THAT IN THE CONTEXT OF SECTION 23(1B) 'IN RESP ECT OF' HAS BEEN USED IN THE SENSE OF BEING 'CONNECTED WITH' AND WE HAVE NO DIFF ICULTY IN HOLDING THAT THE CURRENCY IN RESPECT OF WHICH THERE HAS BEEN CONTRAV ENTION COVERS THE SALE PROCEEDS OF FOREIGN CURRENCY, SALE OF WHICH IS PROHIBITED UN DER SECTION 4(1). THE INTENTION OF THE LEGISLATURE IS CLEAR FROM THE EXPLANATION TO SU B-SECTION (1B) OF SECTION 23 WHICH PROVIDES THAT 'FOR THE PURPOSES OF THE SUB-SECTION PROPERLY IN RESPECT OF WHICH CONTRAVENTION HAS TAKEN PLACE SHALL INCLUDE DEPOSIT S IN A BANK WHERE SUCH PROPERTY IS CONVERTED INTO SUCH DEPOSITS.' IF FOR THIS SUB-S ECTION ANY PROPERTY IN RESPECT OF WHICH A CONTRAVENTION HAS TAKEN PLACE INCLUDES DEPO SITS INTO WHICH THE PROPERTY MAY BE CONVERTED AND CAN BE REACHED EVEN WHERE THE DEPOSITS ARE IN A BANK, IT IS NOT REASONABLE TO THINK THAT THE SALE PROCEEDS IN I NDIAN CURRENCY OF ANY FOREIGN EXCHANGE WOULD BE OUTSIDE THE SCOPE OF SECTION 23(1 B) AND THEREFORE NOT LIABLE TO BE CONFISCATED. IN OUR OPINION THE HIGH COURT WAS W RONG IN QUASHING THE ORDER OF CONFISCATION WHICH WE CONSIDER VALID AND LAWFUL' 27. THE WORDS 'IN RESPECT OF' DENOTES THE INTENTION OF THE PARLIAMENT TO GIVE A BROADER MEANING. THE WORDS 'IN RESPECT OF ADMIT OF A WIDE C ONNOTATION, THAN THE WORD 'IN' OR 'ON'. THE EXPRESSION 'IN RESPECT OF' 'MEANS ATTRIBUTABLE TO' IF IT IS GIVEN A WIDER MEANING 'RELATING TO OR WITH REFERENCE TO', IT HAS BEEN USE D IN THE SENSE OF BEING 'CONNECTED WITH'. WHETHER IT IS A FISCAL LEGISLATION OR ANY LEGISLATI ON FOR THAT MATTER, THE GOLDEN RULE OF INTERPRETATION EQUALLY APPLIES TO ALL OF THEM. I.E. , THE WORDS IN A STATUTE SHOULD BE GIVEN ITS LITERAL MEANING. IN RESPECT OF FISCAL LEGISLATION T HOSE WORDS SHOULD BE STRICTLY CONSTRUED. IF THOSE WORDS ARE CAPABLE OF TWO MEANINGS THAT MEANIN G WHICH IS BENEFICIAL TO AN ASSESSEE SHOULD BE GIVEN. HOWEVER, WHEN THE MEANING OF THE W ORDS USED ARE CLEAR, UNAMBIGUOUS, MERELY BECAUSE IT IS A FISCAL LEGISLATION, THE MEAN ING CANNOT BE NARROWED DOWN AND IT CANNOT BE INTERPRETED SO AS TO GIVE BENEFIT TO THE ASSESSEE ONLY. THEN IT WOULD BE RE-WRITING THE SECTION, UNDER THE GUISE OF INTERPRETING A FISC AL LEGISLATION, WHICH IS TOTALLY IMPERMISSIBLE IN LAW. WHEN THE LEGISLATURE HAS ADVI SEDLY USED THE WORDS 'IN RESPECT OF', THE INTENTION IS CLEAR AND MANIFEST. THE SAID PHRASE BE ING CAPABLE OF A BROADER MEANING, THE SAME IS USED IN THE SECTION TO BRING WITHIN THE TAX NET ALL THE INCOMES FROM THE TRANSFER OF ALL OR ANY OF THE RIGHTS IN RESPECT OF A COPYRIGHT. IN A TAXING STATUTE PROVISIONS ENACTED TO PREVENT TAX EVASION ARE TO BE GIVEN A LIBERAL CONST RUCTION TO EFFECTUATE THE PURPOSE OF SUPPRESSING TAX EVASION, ALTHOUGH PROVISIONS IMPOSI NG A CHARGE ARE CONSTRUED STRICTLY THERE BEING NO APRIORI LIABILITY TO PAY A TAX AND THE PUR POSE OF CHARGING SECTION BEING ONLY TO LEVY A CHARGE ON PERSONS AND ACTIVITIES BROUGHT WITHIN I TS CLEAR TERMS. THEREFORE, THE SPECIFIC WORDS USED IN A TAXING STATUTE, CHARGING TAX CANNOT BE IGNORED. IT IS NOT THE CONSIDERATION FOR TRANSFER OF ALL OR ANY OF THE RIGHTS IN THE COP YRIGHT. WITHOUT TRANSFERRING A RIGHT IN THE COPYRIGHT IT IS POSSIBLE TO RECEIVE CONSIDERATION F OR THE USE OF THE INTELLECTUAL PROPERTY FOR WHICH THE OWNER POSSESS A COPYRIGHT. ULTIMATELY, TH E CONSIDERATION PAID IS FOR THE USEFULNESS OF THE MATERIAL OBJECT IN RESPECT OF WHI CH THERE EXISTS A COPYRIGHT. THEREFORE, THE INTENTION WAS NOT TO EXCLUDE THE CONSIDERATION PAID FOR THE USE OF SUCH MATERIAL OBJECT WHICH IS POPULARLY CALLED AS COPYRIGHTED ARTICLE. E VEN IN RESPECT OF A COPYRIGHTED ARTICLE THE SAME IS TRANSFERRED, NO DOUBT THE RIGHT IN THE COPY RIGHT IS NOT TRANSFERRED, BUT A RIGHT IN ITA NO.1210/CHNY/2019 :- 29 -: RESPECT OF A COPYRIGHT CONTAINED IN THE COPYRIGHTED ARTICLE IS TRANSFERRED. THEREFORE, THE PARLIAMENT THOUGHT IT FIT TO USE THE PHRASE 'IN RES PECT OF' AS CONTRA DISTINCT FROM THE WORD 'IN' COPYRIGHT. THE MEANING IS CLEAR, INTENTION IS CLEAR, THERE IS NO AMBIGUITY. THEREFORE, THERE IS NO SCOPE FOR INTERPRETATION OF THIS EXPRES SED TERM INASMUCH AS IN THE CONTEXT IN WHICH IT IS USED IN THE PROVISION. ANY OTHER INTERP RETATION WOULD LEAD TO THE AFORESAID PROVISION BECOMING OTIOSE. 28. THE CLASSIC TREATISE OF COPINGER AND SKONE JAME S ON COPYRIGHT (1999 EDN.) GIVES THE MEANING OF COPYRIGHT AS UNDER : 'COPYRIGHT GIVES THE OWNER OF THE COPYRIGHT IN A WO RK OF ANY DESCRIPTION THE EXCLUSIVE RIGHT TO AUTHORIZE OR PROHIBIT THE EXPLOI TATION OF THE COPYRIGHT WORK BY THIRD PARTIES. THIS INCLUDES THE RIGHT TO COPY THE WORK ITSELF AND ALSO TO USE THE WORK IN OTHER WAYS PROTECTED UNDER THE LAW', (P.26) COPYR IGHT IS OFTEN DESCRIBED AS A NEGATIVE RIGHT. THIS IDEA IS CONVEYED BY COPINGER I N THE FOLLOWING WORDS. 'COPYRIGHT, HOWEVER, DOES NOT ESSENTIALLY MEAN A RI GHT TO DO SOMETHING, BUT RATHER A RIGHT TO RESTRICT OTHERS FROM DOING CERTAIN ACTS, AND, WHEN COPYRIGHT IS REFERRED TO AS 'AN EXCLUSIVE RIGHT,' THE EMPHASIS IS ON THE WOR D 'EXCLUSIVE'.' THE EXPRESSION 'COPYRIGHT' IS NOT DEFINED IN THE IN COME-TAX ACT. IT MUST BE UNDERSTOOD IN ACCORDANCE WITH THE LAW GOVERNING COP YRIGHT IN INDIA VIZ., COPYRIGHT ACT, 1957. IN STATE OF MADRAS V. GANNON DUNKERLEY & CO. AIR 1958 SC 560 THE SUPREME COURT HELD THAT THE EXPRESSION 'SALE OF GOO DS' IN ENTRY 48 OF LIST II (VII SCHEDULE) OF THE GOVT. OF INDIA ACT IS A NOMEN JURIS AND SHALL BE CONSTRUED IN ITS LEGAL SENSE. THE LEGAL SENSE CAN ONLY BE WHAT IT HA S IN THE LAW RELATING TO SALE OF GOODS AND THEREFORE THE SAID EXPRESSION SHALL BEAR THE SAME MEANING AS IT HAS IN INDIAN SALE OF GOODS ACT. WHEN THE TERM IS NOT DEFI NED IN THE TAXATION LAW (I.T. ACT), THE DEFINITION' IN THE LAW GOVERNING THE SUBJ ECT-MATTER CAN BE ADOPTED, IF THERE IS NO BASIC DIFFERENCE BETWEEN THE STATUTORY DEFINITION AND THE ORDINARY LEGAL CONCEPT. 29. THE COPYRIGHT ACT, ALSO DO NOT DEFINE THE WORD COPYRIGHT IN THE DEFINITION SECTION 2. HOWEVER, SECTION 14, GIVES THE MEANING OF 'COPYRIGH T'. THIS SECTION WAS SUBSTITUTED FOR THE PREVIOUS ONE BY THE COPYRIGHT (AMENDMENT) ACT OF 199 4. SECTION 14 INSOFAR AS IT IS RELEVANT IS EXTRACTED HEREUNDER: '14. FOR THE PURPOSES OF THIS ACT 'COPYRIGHT' MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORIZE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREO F NAMELY: (A) IN THE CASE OF LITERARY, DRAMATIC OR MUSICAL WOR K, NOT BEING A COMPUTER PROGRAMME - (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLU DING THE STORING OF IT IN ANY MEDIUM BY ELECTRONICS MEANS, (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT B EING 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 RECORDI NG IN RESPECT OF 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-C LAUSE (I) TO (VI).' ITA NO.1210/CHNY/2019 :- 30 -: 30. THE OBJECT OF A DEFINITION IS TO AVOID THE NECE SSITY OF FREQUENT REPETITIONS IN DESCRIBING ALL THE SUBJECT-MATTER TO WHICH THE WORD OR EXPRESS ION SO DEFINED IS INTENDED TO APPLY. THE LEGISLATURE HAS POWER TO DEFINE A WORD EVEN ARTIFIC IALLY. SO THE DEFINITION OF A WORD IN THE DEFINITION SECTION MAY EITHER BE RESTRICTIVE OF ITS ORDINARY MEANING OR IT MAY BE EXTENSIVE OF THE SAME. WHEN A WORD IS DEFINED TO 'MEAN' SUCH AND SUCH, THE DEFINITION IS PRIMA FACIE RESTRICTIVE AND EXHAUSTIVE WHEREAS THE WORD DEFINED IS DECLARED TO 'INCLUDE' SUCH AND SUCH, THE DEFINITION IS PRIMA FACIE EXTENSIVE. ALTHOUGH I T IS NORMALLY PRESUMED THAT THE LEGISLATURE WILL BE SPECIALLY PRECISE AND CAREFUL I N ITS CHOICE OF LANGUAGE IN A DEFINITION SECTION, AT TIMES THE LANGUAGE USED IN SUCH A SECTI ON ITSELF REQUIRES INTERPRETATION. A DEFINITION IS NOT TO BE READ IN ISOLATION. IT MUST BE READ IN THE CONTEXT OF THE PHRASE WHICH IT DEFINES, REALISING THAT THE FUNCTION OF A DEFINITIO N IS TO GIVE PRECISION AND CERTAINTY TO A WORD OR PHRASE WHICH WOULD OTHERWISE BE VAGUE AND UNCERT AIN BUT NOT TO CONTRADICT IT OR SUPPLANT IT ALTOGETHER. AN INTERPRETATION CLAUSE IS NOT MEANT TO PREVENT THE WORD RECEIVING ITS ORDINARY, POPULAR AND NATURAL SENSE WHENEVER TH AT WOULD BE PROPERLY APPLICABLE BUT TO ENABLE THE WORD AS USED IN THE ACT WHEN THERE IS NO THING IN THE CONTEXT OR THE SUBJECT MATTER TO THE CONTRARY TO BE APPLIED TO SOME THINGS TO WHICH IT WOULD NOT ORDINARILY BE APPLICABLE. EVEN WHEN THE DEFINITION CLAUSE USES WO RDS OF VERY WIDE CONNOTATION A LINE MAY HAVE TO BE DRAWN SO AS TO EXCLUDE CATEGORIES OBVIOU SLY NOT INTENDED TO BE INCLUDED. 31. WHEN A WORD HAS BEEN DEFINED IN THE INTERPRETAT ION CLAUSE, PRIMA FACIE THAT DEFINITION GOVERNS WHENEVER THAT WORD IS USED IN THE BODY OF T HE STATUTE. IF PARLIAMENT IN A STATUTORY ENACTMENT DEFINES ITS TERMS WHETHER BY ENLARGING OR BY RESTRICTING THE ORDINARY MEANING OF A WORD OR EXPRESSION, IT MUST INTENDED THAT, IN THE ABSENCE OF A CLEAR INDICATION TO THE CONTRARY, THOSE TERMS AS DEFINED SHALL GOVERN WHAT IS PROPOSED, AUTHORISED OR DONE UNDER OR BY REFERENCE TO THAT ENACTMENT. BUT, WHERE THE C ONTEXT MAKES THE DEFINITION GIVEN IN THE INTERPRETATION CLAUSE INAPPLICABLE, A DEFINED WORD WHEN USED IN THE BODY OF THE STATUTE MAY HAVE TO BE GIVEN A MEANING DIFFERENT FROM THAT CONT AINED IN THE INTERPRETATION CLAUSE. ALL DEFINITIONS GIVEN IN AN INTERPRETATION CLAUSE ARE T HEREFORE NORMALLY ENACTED SUBJECT TO THE QUALIFICATION 'UNLESS THERE IS ANYTHING REPUGNANT I N THE SUBJECT OR CONTEXT, OR UNLESS THE CONTEXT OTHERWISE REQUIRES'. EVEN IN THE ABSENCE OF AN EXPRESS QUALIFICATION TO THAT EFFECT SUCH A QUALIFICATIONS IS ALWAYS IMPLIED. HOWEVER, I T IS INCUMBENT ON THOSE WHO CONTEND THAT THE DEFINITION GIVEN IN THE INTERPRETATION CLAUSE D OES NOT APPLY TO A PARTICULAR SECTION TO SHOW THAT THE CONTEXT IN FACT SO REQUIRES. 32. IN THIS BACKGROUND IT IS PERTINENT TO NOTE THE OPENING WORDS OF SECTION 14. IT EXPRESSLY STATE THAT 'FOR THE PURPOSES OF THIS ACT'. THE INTE NTION OF THE PARLIAMENT IN EXPRESSING THE MEANING OF THE WORD IN THAT MANNER AND NOT DEFINING THE SAID TERM IN THE DEFINITION SECTION CANNOT BE LOST SIGHT OF. FURTHER, THE LEGISLATURE H AS CHOSEN TO EMPLOY THE WORD 'MEANS' IN DEFINING THE MEANING OF THE WORD 'COPYRIGHT' WHICH AGAIN MAKES THE INTENTION VERY CLEAR THAT THE SAID MEANING TO THE WORD 'COPYRIGHT' IS RE STRICTIVE AND EXHAUSTIVE. THEN THE FURTHER WORDS, 'EXCLUSIVE RIGHT SUBJECT TO THE PROV ISIONS OF THIS ACT' FURTHER IMPOSES A RIDER ON THE MEANING OF THE WORD 'COPYRIGHT'. THOUGH THE WORD USED IS 'EXCLUSIVE RIGHT', IN SECTION 30 OF THE ACT, THE PARLIAMENT HAS PROVIDED WHAT ARE THE RIGHTS WHICH THE OWNERS OF A COPYRIGHT MAY PART WITH. IT EXPRESSLY STATES THE OWNER OF THE COPYRIGHT IN ANY EXISTING WORK MAY GRANT ANY INTEREST IN THE RIGHT BY LICENCE IN WRITING SIGNED BY HIM OR BY HIS DULY AUTHORISED AGENT. THEREFORE, WHEN IF COMES TO THE Q UESTION OF GRANTING LICENCE IT NEED NOT NECESSARILY BE THE EXCLUSIVE RIGHT, A MAY BE ANY IN TEREST IN THE RIGHT. THEREFORE, WHEN THE WORD 'COPYRIGHT' HAS NOT BEEN DEFINED IN THE DEFINI TION SECTION OF THE ACT AND THE MEANING OF THE WORD 'COPYRIGHT' IS TO BE FOUND IN SECTION 1 4 OF THE ACT. IT IS ONLY FOR THE PURPOSES OF THE ACT. EVEN THOUGH UNDER SECTION 14 COPYRIGHT MEA NS THE EXCLUSIVE RIGHT, THAT IS ALSO SUBJECT TO THE PROVISIONS OF THE ACT. THE INTENTION OF THE LEGISLATURE IS UNAMBIGUOUS, CLEAR. THE MEANING OF THE WORD 'COPYRIGHT' CANNOT BE READ IN ISOLATION. IT MOST BE UNDERSTOOD IN THE CONTEXT OF THE AFORESAID RESTRICTIONS, LIMITATI ONS IMPOSED BY THE PARLIAMENT BY EXPRESS WORDS. THEREFORE, IF WOULD NOT BE PROPER TO ASSIGN THE SAME MEANING AS FOUND IN SECTION 14 TO THE WORD 'COPYRIGHT' WHEN IT IS USED IN ANOTHER ENACTMENT. THE INTERPRETATION CLAUSE IS NOT MEANT TO PREVENT THE WORD RECEIVING ITS ORDINAR Y, POPULAR AND NATURAL SENSE WHENEVER THAT WOULD BE PROPERLY APPLICABLE, BUT TO ENABLE TH E WORD AS USED IN THE ACT, WHEN THERE IS NOTHING IN THE CONTEXT OR THE SUBJECT MATTER TO THE CONTRARY TO BE APPLIED TO SOME THINGS TO WHICH IT WOULD NOT ORDINARILY BE APPLICABLE. THEREF ORE, WHILE UNDERSTANDING THE MEANING OF THE WORD 'ROYALTY' USED IN THE INCOME-TAX ACT AS DE FINED IN EXPLANATION (2) TO SECTION 9(1) ITA NO.1210/CHNY/2019 :- 31 -: OF THE INCOME-TAX ACT THE MEANING ASSIGNED TO THE W ORD 'COPYRIGHT' CANNOT BE LITERALLY SUPERIMPOSED IN THAT PROVISION. IT HAS TO BE UNDERS TOOD IN THE CONTEXT IN WHICH IT IS USED AS WELL AS IT HAS TO BE UNDERSTOOD IN THE ORDINARY, PO PULAR AND NATURAL SENSE IN WHICH IT IS UNDERSTOOD. MOREOVER THE COPYRIGHT ACT IS CONCERNED WITH PROTECTION OF AN INTELLECTUAL PROPERTY RIGHT WHICH IS VESTED IN THE OWNER OF THE COPYRIGHT AND PREVENTION OF ITS INFRINGEMENT. THAT IS WHY WHILE DEFINING THE MEANIN G OF THE WORD 'COPYRIGHT' IT IS DEFINED AS MEANING 'EXCLUSIVE RIGHT' TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS OR TO ISSUE COPIES OF THE WORK TO THE PUBLIC POT BEING COPIES ALREADY IN CIRCULATION OR TO SELL OR G IVE ON COMMERCIAL RENTAL OR OTHER THAN FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPU TER PROGRAMME. THE REPRODUCTION WHICH IS SOUGHT TO BE PROHIBITED BY THE ACT BUT FOR WHICH THE OWNER OF THE COPYRIGHT COULD BE PUT TO AN ENORMOUS LOSS. THE SAID DEFINITION DOE S NOT DEAL WITH THE ORDINARY MEANING OF THE WORD 'COPYRIGHT' WHICH INCLUDES THE RIGHT TO US E THE WORK. IT IS A NEGATIVE RIGHT. IF IS NOT A RIGHT TO DO SOMETHING BUT RATHER A RIGHT TO RESTR ICT OTHERS FROM DOING CERTAIN ACTS. IT IS IN THIS CONTEXT THE WORD 'EXCLUSIVE' HAS TO BE UNDERST OOD. WHEN IN THE ACT ITSELF AFTER USING THE WORD EXCLUSIVE RIGHT IN SECTION 14, WHEN IT COM ES TO THE QUESTION OF LICENCE OF A COPYRIGHT, IF NEED NOT NECESSARILY BE AN EXCLUSIVE RIGHT, BUT ANY INTEREST IN THE RIGHT, THE WORD EXCLUSIVE HAS TO BE RESTRICTED FIRSTLY TO THE ACT ITSELF AND SECONDLY TO SITUATIONS WHICH FALL OUTSIDE THE SCOPE OF SECTION 30 OF THE ACT. TH EREFORE, THE EXPRESSION 'COPYRIGHT' USED IN THE ACT CANNOT BE THE SAME AS USED IN THE INCOME-TA X ACT. IN THE INCOME-TAX ACT, WHEN THE LEGISLATURE ADVISEDLY USED THE WORD 'IN RESPECT OF A COPYRIGHT' IT CANNOT BE CONSTRUED AS A RIGHT IN THE COPYRIGHT AND ASSIGN THE MEANING ASS IGNED IN THE COPYRIGHT ACT TO THE SECOND EXPLANATION, LINE LANGUAGE IN EXPLANATION (2) EXPLIC ITLY MAKES IT CLEAR FOR THE PURPOSE OF CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9 ROYALTY M EANS CONSIDERATION FOR TRANSFER OF ALL OR ANY RIGHTS INCLUDING THE GRANTING OF A LICENCE IN R ESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK. THEREFORE, THE WORD EXCLUSIVE RIGH T USED IN SECTION 14 OF THE ACT DO NOT FIT INTO THE MEANING OF THE WORD 'ROYALTY' IN EXPLANATI ON 2 BECAUSE ROYALTY MEANS THE CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS INCLUDING THE GRANTING OF A LICENCE WHICH IS CERTAINLY NOT AN EXCLUSIVE RIGHT OR TRANSFER OF ALL RIGHTS IN THE COPYRIGHT OR LITERARY WORK. PAYMENTS MADE FOR THE ACQUISITION OF PARTIAL RIGHTS IN THE COPYRIGHT WITHOUT THE TRANSFER FULLY ALIENATING THE COPYRIGHT RIGHTS WILL REPRESEN T A ROYALTY WHERE THE CONSIDERATION IS FOR GRANTING OF LIGHTS TO USE THE PROGRAME IN A MANNER THAT WOULD, WITHOUT SUCH LICENSE, CONSTITUTE AN INFRINGEMENT OF COPYRIGHT. IN THESE C IRCUMSTANCES, THE PAYMENTS ARE FOR THE RIGHT TO USE THE COPYRIGHT IN THE PROGRAM I.E., TO EXPLOIT THE RIGHTS THAT WOULD OTHERWISE BE THE SOLE PREROGATIVE OF THE COPYRIGHT HOLDER. THERE FORE, TO CONSTITUTE ROYALTY UNDER THE INCOME-TAX ACT IT IS NOT NECESSARY THAT THERE SHOUL D BE TRANSFER OF EXCLUSIVE RIGHT IN COPYRIGHT, IT IS SUFFICIENT IF THERE IS TRANSFER OF ANY INTEREST, IN THE RIGHT, AND ALSO A LICENCE AND CONSIDERATION PAID FOR GRANT OF A LICENCE CONST ITUTES ROYALTY FOR THE PURPOSE OF THE SAID CLAUSE IN THE INCOME-TAX ACT. IT IS IN THIS BACKGRO UND, THE DISCUSSION WHETHER THE PAYMENT IS FOR A COPYRIGHT OR FOR A COPYRIGHT ARTICLE WOULD BE TOTALLY IRRELEVANT. HE CRUX OF THE ISSUE IS WHETHER ANY CONSIDERATION IS PAID FOR ANY RIGHT, OR FOR GRANTING OF LICENCE IN RESPECT OF A COPYRIGHT. THE WORD 'IN RESPECT OF GIVES A BROADER MEANING. IT HAS BEEN USED IN THE SENSE OF BEING CONNECTED WITH. WHEN THE LEGISLATURE HAS A DVISEDLY USED THE WORDS 'IN RESPECT OF'. THE INTENTION IS CLEAR AND MANIFEST. THE SAID PHRAS E BEING CAPABLE OF A BROADER MEANING, THE SAME IS USED IN THE SECTION TO BRING WITHIN THE TAX NET ALL THE INCOMES FROM THE TRANSFER OF ALL OR ANY OF THE RIGHTS IN RESPECT OF THE COPYR IGHT. 33. IN THE IT ACT, COMPUTER SOFTWARE IS DEFINED IN EXPLN. 3 TO S. 9(L)(VI) TO MEAN ANY COMPUTER PROGRAMME RECORDED ON ANY DISK, TAPE, PERF ORATED MEDIA OR OTHER INFORMATION STORAGE DEVICES AND INCLUDES ANY SUCH PROGRAMME OR ANY CUSTOMIZED ELECTRONIC DATA. THOUGH THIS DEFINITION HOLDS GOOD FOR THE PURPOSES OF SECOND PROVISO TO S. 9(L)(VI), THE ORDINARY MEANING AND UNDERSTANDING OF COMPUTER SOFT WARE IS NO DIFFERENT. COMPUTER PROGRAMME AS SUCH IS NOT DEFINED UNDER THE I.T. ACT . HOWEVER, COMPUTER PROGRAMME IS DEFINED IN THE COPYRIGHT ACT AS FOLLOWS: 'COMPUTER PROGRAMME MEANS A SET OF INSTRUCTIONS EXP RESSED IN WORDS, CODES, SCHEMES OR IN ANY OTHER FORM INCLUDING A MACHINE RE ADABLE MEDIUM, CAPABLE OF CAUSING A COMPUTER TO PERFORM A PARTICULAR TASK OR ACHIEVE A PARTICULAR RESULT.' 34. IT IS ALSO WORTH MENTIONING THAT SOME ROUTINES MAY BE WRITTEN IN ASSEMBLY CODE, ESSENTIALLY A SET OF MEMORIES FOR OBJECT CODE WHICH ANOTHER PROGRAM TRANSLATES DIRECTLY INTO THAT CODE. THIS IS NORMALLY DONE WHEN THE PROGRAMME R NEEDS TO DRIVE THE HARDWARE ITA NO.1210/CHNY/2019 :- 32 -: DIRECTLY, OR WHERE SPEED IS REQUIRED, AS IT GIVES V ERY PRECISE CONTROL OVER THE PROGRAM'S OPERATION. ONCE ALL SECTIONS ARE COMPLETE, THEY ARE FITTED TOGETHER TO PRODUCE A COMPLETE VERSION IN SOURCE CODE, I.E., IN HUMAN-READABLE FOR M THAT GIVES THE USER AS LITTLE INFORMATION AS POSSIBLE ABOUT THE DETAILS OF THE PR OGRAM (THUS REDUCING THE DANGER OF COPYING), THE SOURCE CODE IS USED AS INPUT FOR ANOT HER PROGRAM, THE COMPILER. THIS COMPILES THE PROGRAM INTO OBJECT CODE, A MACHINE-READABLE FO RM WHICH WILL HAVE LINKED TO IT THE STANDARD PIECES OF CODE FOR THE PROGRAM TO RUN AS A STAND-ALONE OR EXECUTABLE FILE. THIS VERSION WILL BE RUN TO TEST IT, AND ANY ERRORS WHIC H ARE DISCOVERED WILL BE FIXED IN THE SOURCE CODE AND THE WHOLE RECOMPILED. THE FINAL PROCESS IS TO PRODUCE THE DOCUMENTATION WHICH THE USER WILL NEED TO OPERATE THE PROGRAM. THE COMP LETED PRODUCT IS THE PACKAGE OF OBJECT CODE VERSION AND DOCUMENTATION. A COMPLEX PIECE OF SOFTWARE MAY WELL CONSIST OF A NUMBER OF PROGRAMS WHICH ARE CALLED BY A MASTER PROGRAM AS DIFFERENT FUNCTIONS ARE REQUIRED. SOME WRITERS DISTINGUISH BETWEEN PROGRAMS (THE SPEC IFIC EXECUTABLE CODE MODULES) AND SOFTWARE (THE COMPLETE SET OF PROGRAMS PLUS DOCUMEN TATION), 'SOFTWARE' IS THUS USED INTERCHANGEABLY FOR BOTH OF THESE UNLESS THE CONTEX T OTHERWISE MAKES CLEAR. 35. THE COPYRIGHT SUBSISTS IN A COMPUTER PROGRAM. I T IS NOT ONLY UNAUTHORISED REPRODUCTION BUT ALSO THE STORAGE OF A PROGRAM IN A COMPUTER CON STITUTES COPYRIGHT INFRINGEMENT. COPYING A LITERARY WORK (SUCH AS A COMPUTER PROGRAM ) INCLUDES STORING THE WORK IN ANY MEDIUM BY ELECTRONIC MEANS. COPYING INCLUDES THE MA KING OF COPIES WHICH ARE TRANSIENT OR SOME OTHER USE OF THE WORK. SINCE IN VIRTUALLY EVER Y CASE THE OPERATION OF A PROGRAM IN A COMPUTER INVOLVES THE COPYING OF THE PROGRAM WITHIN THE COMPUTER, THIS WILL CONSTITUTE REPRODUCTION. WHENEVER AN OBJECT PROGRAM IS RUN ON A COMPUTER, IT IS THEREBY COPIED; AND WHENEVER A SOURCE PROGRAM IS COMPILED IN A COMPUTER , IT IS THEREBY COPIED OR ADAPTED. A SOFTWARE LICENCE CAN, THEREFORE, BE LEGITIMATELY CO NSIDERED TO BE A COPYRIGHT LICENCE. A MAJOR DIFFICULTY ARISING OUT OF THE LICENCE CLAUSE FOR USERS IS THAT IT WILL ALMOST INVARIABLY RESTRICT THE LICENSEE FROM TRANSFERRING THE SOFTWAR E TO ANY THIRD PARTY. THIS MAY RESULT IN DIFFICULTIES IF, FOR EXAMPLE, THE LICENSEE WISHES T O TRANSFER HIS COMPUTER OPERATIONS TO A FACILITIES MANAGEMENT COMPANY THE TRANSFER WILL REQ UIRE THE CONSENT OF THE LICENSOR AND WILL PROVIDE AN OPPORTUNITY FOR THE CHARGING OF AN ADDIT IONAL FEE. LICENCES HAVE UP TO HOW NORMALLY PROHIBITED ANY COPYING OF THE PROGRAM, EXC EPT AS NECESSARY FOR USE. THIS HAD THE CONSEQUENCE THAT THE USER COULD NOT MAKE BACKUP COP IES OF THE PROGRAM FOR SECURITY PURPOSES, ALTHOUGH SOME LICENSES SPECIFICALLY CONFE RRED A LIMITED RIGHT TO MAKE BACKUP COPIES. 36. ULTIMATELY, WHAT THE END-USER, WHO PAYS THE CON SIDERATION REQUIRES IS, THE BENEFIT OF THE USER OF THE INTELLECTUAL PROPERTY, WHETHER FOR HIS PERSONAL USE OR FOR COMMERCIAL USE. MERELY BECAUSE THE END-USER IS NOT PERMITTED TO MAK E COMMERCIAL USE OF A COPYRIGHTED ARTICLE BY MEANS OF RE-PRODUCTION OF COPYRIGHTED AR TICLE, IT WOULD NOT TAKE THE CASE OUT OF THE PROVISION. THE USER MAY BE FOR PERSONAL USE OR FOR COMMERCIAL USE. THE ESSENCE OF THE COPYRIGHT IS THE USEFULNESS OF INTELLECTUAL PROPERT Y EMBEDDED IN SUCH COPYRIGHT. ONE OF THE WAYS OF EXPLOITING A COPYRIGHT IS BY RE-PRODUCTION FOR COMMERCIAL USE. BUT THAT IS NOT THE ONLY USE TO WHICH A COPYRIGHT COULD BE MADE USE OF. IT COULD BE USED FOR THEIR PERSONAL USE AND THAT IS THE REASON WHY CONSIDERATION IS STIPULA TED EVEN FOR SUCH PERSONAL USE. THOUGH THE RIGHTS THAT ARE TRANSFERRED IN SUCH A TRANSACTI ON MAY BE LIMITED AS COMPARED TO TRANSFER OF A COPYRIGHT FOR COMMERCIAL USE. IN PARTICULAR, A SOFTWARE OR A COMPUTER PROGRAMME IS SUCH A SOPHISTICATED GOODS THAT IT MAY BE SOLD OF T HE SHELF, IT MAY BE SOLD LOOKING INTO THE NEEDS OF THE CUSTOMER, IT MAY BE EVEN PREPARED KEEP ING THE REQUIREMENT OF END-USER IN MIND. IN ALL THESE CASES COPYRIGHT AS SUCH IS NOT T RANSFERRED. IT IS NOT NECESSARY FOR THE END-USER ALSO. THE END-USER WANTS PERMISSION TO HAV E THE BENEFIT OF SUCH INTELLECTUAL PROPERTY IN CARRYING ON HIS BUSINESS WHICH IS A COM MERCIAL VENTURE. IT FACILITATES HIS BUSINESS. IT IS FOR THAT HE PAYS CONSIDERATION. WIT HOUT SUCH TRANSFER OR PERMISSION, THE END- USER CANNOT USE THE SAID INTELLECTUAL PROPERTY. IF HE DOES IT AMOUNTS TO INFRINGEMENT. THEREFORE, THE RIGHT TO USE THE INTELLECTUAL PROPER TY IN RESPECT OF WHICH THE OWNER OR THE LICENSOR POSSESS A COPYRIGHT IS ALSO A RIGHT IN RES PECT OF A COPYRIGHT, THOUGH NOT IN THE COPYRIGHT ITSELF. THEREFORE, THE WORDS USED IN THE PROVISION THAT TRANSFER OF ALL OR ANY OF THE RIGHTS INCLUDES THE RIGHT TO GRANT LICENSE IN RESPE CT OF COPYRIGHT INCLUDES SUCH RIGHT TO USE THE INTELLECTUAL PROPERTY IN RESPECT OF WHICH THE O WNER OR THE LICENSOR POSSESS COPYRIGHT. IT FALLS WITHIN THE MISCHIEF OF THE WORD 'ROYALTY' AS DEFINED UNDER SECTION 9(L)(VI) OF THE ACT. ITA NO.1210/CHNY/2019 :- 33 -: 37. IT IS SUBMITTED DURING THE ASSESSMENT YEARS 200 0-01 AND 2001-02, THERE WAS NO DOUBLE TAXATION AVOIDANCE AGREEMENT/CONVENTION BETWE EN THE GOVERNMENT OF THE REPUBLIC OF INDIA AND THE GOVERNMENT OF IRELAND AND THEREFORE, THE SAID TRANSACTION FOR THE SAID YEARS ARE GOVERNED BY THE PROVISIONS OF THE IN COME-TAX ACT. HOWEVER, DTAA WAS ENTERED INTO ON 11.1.2002 WITHIN TWO COUNTRIES DESI RING TO CONCLUDE A CONVENTION FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS AND WITH A VIEW TO PROMOTI NG ECONOMIC CO-OPERATION BETWEEN THE TWO COUNTRIES. THIS CONVENTION SHALL APPLY TO PERSO NS WHO ARE RESIDENTS OF ONE OR BOTH OF THE CONTRACTING STATES. ARTICLE 2 DEALT WITH TAXES COVERED AND ONE SUCH TAX HAS COVERED IN INDIA IS THE INCOME-TAX ACT. ARTICLE 3 IS THE GENER AL DEFINITIONS. ARTICLE 4 STATES ABOUT THE RESIDENTS. WHAT IS A PERMANENT ESTABLISHMENT IS DEF INED IN ARTICLE 5 ARTICLE 6 DEALS WITH INCOME FROM IMMOVABLE PROPERTY, ARTICLE, DEALS WITH BUSINESS PROFITS, ARTICLE 8 DEALS WITH SHIPPING AND AIR TRANSPORT, ARTICLE 9 DEALS WITH AS SOCIATED ENTERPRISES. DIVIDENDS ARE COVERED UNDER ARTICLE 10, WHEREAS INTEREST IS COVER ED UNDER ARTICLE 11 AND ARTICLE 12 DEALS WITH ROYALTIES AND FEES FOR TECHNICAL SERVICES. THE RELEVANT PORTION READS AS UNDER: (1) ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TA XED IN THAT OTHER STATE. (2) HOWEVER, SUCH ROYALTIES OR FEES FOR TECHNICAL SE RVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE, AND ACCORDIN G TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALT IES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES. (3) (A) THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE 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 CIN EMATOGRAPH FILMS OR FILMS OR TAPES FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS OR FOR THE USE OF OR THE RIGHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OTHER THAN AN AIRCRAFT, OR FOR INFORMATION, CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE; (B) THE TERM 'FEES FOR TECHNICAL SERVICES' MEANS PAY MENT OF ANY KIND IN CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES INCLUDING THE PROVISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL BUT DOES NOT INCLUDE PAYMENTS FOR SERVICES MENTIONED IN ARTICLES 14 AND 15 OF THIS CONVENTION. (4) THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT A PPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE THROUGH A PERMANENT ESTABL ISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL S ERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT OR PROPERTY IN RESP ECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONN ECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE THE PROVI SIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. (5) ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN ME PAYER IS THAT STATE ITSELF, A POLITIC AL, SUB-DIVISION, A LOCAL AUTHORITY OR A RESIDENT OF THAT STATE. WHERE HOWEVER, THE PER SON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT HAS IN A CONTRACTING STATE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FO R TECHNICAL SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES S HALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. (6) WHERE, BY REASON OF A SPECIAL RELATIONSHIP BETWE EN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME OTHER PERSON , THE AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, HAVING REGARD TO TH E USE, RIGHT OR INFORMATION FOR ITA NO.1210/CHNY/2019 :- 34 -: WHICH THEY ARE PAID, EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN AGREED UPON BY THE PAYER AND THE BENEFICIAL OWNER IN THE ABSENCE O F SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY ONLY TO THE LAST MENTIONED AMOUNT IN SUCH CASE THE EXCESS PART OF THE PAYMENTS SHALL REMAIN TAXABL E ACCORDING TO THE LAWS OF EACH CONTRACTING STATE, DUE REGARD BEING HAD TO THE OTHE R PROVISIONS OF THIS CONVENTION. 38. IT WAS CONTENDED THAT ONCE INDIA IS A PARTY TO THIS AGREEMENT, THE DEFINITION OF THE ROYALTIES CONTAINED IN ARTICLE 12 WOULD HAVE THE EF FECT OF SUPERCEDING THE DEFINITION OF ROYALTY IN THE INCOME-TAX ACT. IF THE CASE OF THE A SSESSEE DO NOT FALL WITHIN THE TERM 'ROYALTY' AS PER THE DEFINITION UNDER ARTICLE 12 OF THE AGREEMENT. AS THE AGREEMENT IS SUPERCEDING THE DEFINITION OF TERM 'ROYALTY' UNDER THE ACT, THE CONSIDERATION PAID TO HIM IS NOT LIABLE TO BE TAXED IN INDIA. IT IS SUBMITTED TH AT AS THE ARTICLE WHICH IS LICENCED IN THIS CASE AND THE CONSIDERATION PAID TO THE SAME DOES NO T FALL WITHIN THE DEFINITION OF ROYALTY, UNDER ARTICLE 12 THE ASSESSEE IS NOT LIABLE TO PAY TAX. 39. IT IS NO DOUBT TRUE THE PROVISIONS OF THE DTAA OVERRIDES THE PROVISIONS OF THE INCOME- TAX ACT. IN THE DTAA THE TERM 'ROYALTY' MEANS PAYME NTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OR THE RIGHT TO USE ANY C OPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK WHEREAS IN THE INCOME-TAX ACT, ROYALTY MEANS C ONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS INCLUDING THE GRANTING OF A LICENCE. THE REFORE, UNDER THE DTAA TO CONSTITUTE ROYALTY THERE NEED NOT BE ANY TRANSFER OF OR ANY RI GHTS IN RESPECT OF ANY COPYRIGHT. IT IS SUFFICIENT IF CONSIDERATION IS RECEIVED FOR USE OF OR THE RIGHT TO USE ANY COPYRIGHT. THEREFORE, IF THE DEFINITION OF ROYALTY IN THE DTAA IS TAKEN I NTO CONSIDERATION IT IS NOT NECESSARY THERE SHOULD BE A TRANSFER OF ANY EXCLUSIVE RIGHT. A MERE RIGHT TO USE OR THE USE OF A COPYRIGHT FALLS WITHIN THE MISCHIEF OF EXPLANATION (2) TO CLAU SE (V) OF SUB-SECTION (1) OF SECTION 9 AND IS LIABLE TO TAX. THEREFORE, WE DO NOT SEE ANY SUBS TANCE IN THE SAID CONTENTION. WHAT IS A LICENSE? 40. A LICENCE IS A GRANT OF AUTHORITY TO DO A PARTI CULAR THING. IT ENABLES A PERSON TO DO LAWFULLY WHAT HE COULD NOT OTHERWISE LAWFULLY DO. A LICENCE DOES NOT, IN LAW, CONFER A RIGHT. IT ONLY PREVENTS THAT FROM BEING UNLAWFUL WHICH, BU T FOR THE LICENCE, WOULD BE UNLAWFUL. IT AMOUNTS TO A CONSENT OR PERMISSION BY AN OWNER OF C OPYRIGHT THAT ANOTHER PERSON SHOULD DO AN ACT WHICH, BUT FOR THAT LICENCE, WOULD INVOLV E AN INFRINGEMENT OF THE COPYRIGHT OF LICENSOR. A LICENCE GIVES NO MORE THAN THE RIGHT TO DO THE THING ACTUALLY LICENSED TO BE DONE. IT TRANSFERS AN INTEREST TO A LIMITED EXTENT, WHERE BY THE LICENSEE ACQUIRES AN EQUITABLE RIGHT ONLY IN THE COPYRIGHTED ARTICLE. 41. LICENCES MAY BE EXCLUSIVE, OR NON-EXCLUSIVE. NO N-EXCLUSIVE LICENCE IS NOT DEFINED IN THE ACT. THE TERM 'EXCLUSIVE LICENCE' IS DEFINED IN SEC TION 2, CLAUSE (J). IT CONFERS ON THE LICENSEE AND PERSONS AUTHORISED BY HIM, TO THE EXCLUSION OF ALL, OTHER PERSONS, INCLUDING THE OWNER OF THE COPYRIGHT, ANY RIGHT COMPRISED IN THE COPYRI GHT IN A WORK. A NON-EXCLUSIVE LICENCE IS THE GRANT OF AUTHORITY TO DO A PARTICULAR THING WIT H NO RIGHT OF EXCLUSION WHATSOEVER. IT NEVER CONVEYS, BY ITSELF, AN INTEREST IN PROPERTY. IT MERELY ENABLES A PERSON TO DO THAT WHICH HE COULD NOT OTHERWISE DO, EXCEPT UNLAWFULLY. 42. THE OWNER OF THE COPYRIGHT IN ANY EXISTING WORK MAY GRANT ANY INTEREST IN THE RIGHT BY LICENCE IN WRITING SIGNED BY HIM OR BY HIS DULY AUT HORISED AGENT. COPYRIGHT IS DIFFERENT FROM THE MATERIAL OBJECT WHICH IS THE SUBJECT OF THE COP YRIGHT. SO, A TRANSFER OF THE MATERIAL OBJECT DOES NOT NECESSARILY INVOLVE A TRANSFER OF T HE COPYRIGHT. THE COPYRIGHT IN A BOOK, PICTURE OR OTHER WORK IS DISCONNECTED AND DISTINCT FROM THE GENERAL PROPERTY IN THE MATERIAL BOOK, PICTURE OR OTHER OBJECT. HENCE, THE SALE OR O THER TRANSFER OF THE MATERIAL OBJECT DOES NOT, OF ITSELF, CONSTITUTE A TRANSFER OF THE COPYRI GHT THEREIN. AN ASSIGNMENT CARRIES WITH IT THE WHOLE INTEREST IN THE THING ASSIGNED, INCLUDING THE RIGHT OF REASSIGN, WHILE A LICENCE IS PERSONAL AND NOT ASSIGNABLE WITHOUT THE GRANTOR'S C ONSENT. AN EXCLUSIVE LICENCE IS A LEAVE TO DO A THING, AND A CONTRACT NOT TO GIVE LEAVE TO ANYBODY ELSE TO DO THE SAME THING, FT CONFERS NO INTEREST, OR PROPERTY IN THE THING BUT O NLY MAKES AN ACTION LAWFUL, WHICH, WITHOUT IT, WOULD HAVE BEEN UNLAWFUL. ITA NO.1210/CHNY/2019 :- 35 -: 43. A LICENCE IS A PERMISSION TO DO SOMETHING THAT WOULD OTHERWISE BE UNLAWFUL. THE QUESTION ARISES, THEREFORE, AS TO WHAT LEGAL PERMIS SION IS GRANTED BY A SOFTWARE LICENCE. THE ANSWER IS, BRIEFLY, THAT IN SOME CASES THE LICENCE WILL BE A PERMISSION TO USE CONFIDENTIAL INFORMATION, AND IN VIRTUALLY IN ALL CASES IT WILL BE A PERMISSION TO COPY A COPYRIGHT WORK. IF THE SOFTWARE HAS BEEN KEPT SECRET BY THE PRODUCER, OR ONLY SUPPLIED ON CONDITIONS OF CONFIDENTIALITY AND HAS NOT BEEN PUBLISHED TOO WIDE LY, THEN THE SOFTWARE LICENCE WILL BE AKIN TO A LICENCE OF CONFIDENTIAL INFORMATION OR KNOW-HO W. THE OWNER OR LICENSOR OF A COPYRIGHT, HAS A RIGHT TO GRANT PERMISSION TO USE THE SOFTWARE OR A COMPUTER PROGRAMME, IN RESPECT OF WHICH THEY HAVE A COPYRIGHT, WITHOUT TRANSFERRING T HE RIGHT IN COPYRIGHT. IT IS ONE OF THE RIGHT OF A COPYRIGHT. OWNER OR LICENSOR. WITHOUT SU CH RIGHT BEING TRANSFERRED, THE END-USER HAS NO RIGHT TO USE THE SOFTWARE OR COMPUTER PROGRA MME. IF HE USES IT, IT AMOUNTS TO INFRINGEMENT OF COPYRIGHT. FOR TRANSFER OF SUCH RIG HT IF CONSIDERATION IS PAID, IT IS NOT A CONSIDERATION FOR TRANSFER OF A COPYRIGHT BUT FOR U SE OF INTELLECTUAL PROPERTY EMBEDDED IN THE COPYRIGHT, AND THEREFORE IT IS FOR TRANSFER OF ONE OF THOSE RIGHTS OF THE OWNER OF THE COPYRIGHT. IT IS NOT A RIGHT IN COPYRIGHT BUT IT IS IN RESPECT OF A COPYRIGHT. WHEN A COPYRIGHTED ARTICLE IS SOLD ALSO, THE END-USER GETS THE RIGHT TO USE THE INTELLECTUAL PROPERTY EMBEDDED IN THE COPYRIGHT AND NOT A RIGHT IN THE CO PYRIGHT AS SUCH. THEREFORE THE MODE ADOPTED OR THE TERMINOLOGY GIVEN IS NOT DECISIVE TO DECIDE THE NATURE OF TRANSFER. ULTIMATELY, IT IS THE SUBSTANCE WHICH HAS TO BE LOO KED INTO. 44. THEREFORE, IT IS NECESSARY TO LOOK INTO THE TER MS OF THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES, AS IT WOULD BE PURELY QUESTION OF FACT TO BE DECIDED ON THE BASIS OF THE INTENTION OF THE PARTIES AS COULD BE GATHERED FROM THE WRITTEN WORDS USED IN THE AGREEMENT. THE RELEVANT TERMS IN THE AGREEMENT BETWEEN THE PAR TIES IS AS UNDER:- 'END USER SOFTWARE LICENSE AGREEMENT BETWEEN SYNOPSYS INTERNATIONAL LIMITED UNIT 1, BLANCHARDSTOWN CORPORATE PARK BLANCHARDSTOWN, DUBLIN 15 IRELAND AND ATHENA, SEMICONDUCTORS PRIVATE LIMITED NO. 1081, 12TH MAIN INDIRANAGAR BANGALORE - 560 038, INDIA 1.3 'CONFIDENTIAL INFORMATION' MEANS (I) THE LICENSED PRODUCT, IN OBJECT AND SOURCE CODE FORM, AND ANY RELATED TECHNOLOGY, IDEA, ALGORITHM OR INFORMATION CONTAINED THEREIN, INCLUDI NG WITHOUT LIMITATION DESIGN TECHNIQUES, AND ANY TRADE SECRETS RELATED TO ANY OF THE FOREGOI NG. (II) SYNOPSYS'S PROPRIETARY KNOWLEDGE DATABASE PRODU CT SOLVNET; (III) DESIGNS; (IV) EITHER PARTY'S PRODUCT PLANS, COSTS, PRICES AND NAMES; NON-PUBLISHED FINANCIAL INFORMATION; MARKETING PLANS; BUSINESS OPPORTUNITIE S; PERSONNEL; RESEARCH; DEVELOPMENT OR KNOW-HOW; ITA NO.1210/CHNY/2019 :- 36 -: (V) ANY INFORMATION DESIGNATED BY THE DISCLOSING PAR TY AS CONFIDENTIAL IN WRITING, OR, IF DISCLOSED ORALLY, DESIGNATED AS CONFIDENTIAL AT THE TIME OF DISCLOSURE AND DEDUCED TO WRITING AND DESIGNATED AS CONFIDENTIAL IN WRITING WITHIN TH IRTY (30 DAYS; AND (VI) THE TERMS AND CONDITIONS OF THIS AGREEMENT; PRO VIDED, HOWEVER THE 'CONFIDENTIAL INFORMATION' WILL NOT INCLUDE INFORMATION THAT; (A) IS OR BECOMES GENERALLY KNOWN OR AVAILABLE BY PU BLICATION, COMMERCIAL USE OR OTHERWISE THROUGH NO FAULT TO THE RECEIVING PARTY; (B) IS KNOWN AND HAS BEEN REDUCED TO TANGIBLE FORM B Y THE RECEIVING PARTY AT THE TIME OF DISCLOSURE AND IS NOT SUBJECT TO RESTRICTION; (C) IS INDEPENDENTLY DEVELOPED BY THE RECEIVING PART Y WITHOUT USE OF THE DISCLOSING PARTY'S CONFIDENTIAL INFORMATION; (D) IS LAWFULLY OBTAINED FROM A THIRD PARTY WHO HAS THE RIGHT TO MAKE SUCH DISCLOSURE OR; (E) IS RELEASED FOR PUBLICATION BY THE DISCLOSING PA RTY IN WRITING 1.4 'DESIGN' MEANS THE REPRESENTATION OF AN ELECTRO NIC CIRCUIT OR DEVICE(S), DERIVED OR CREATED BY LICENSE THROUGH THE USE OF THE LICENSED PRODUCT IN THEIR VARIOUS FORMATS INCLUDING, BUT NOT LIMITED TO, EQUATIONS, TRUTH TAB LES, SCHEMATIC DIAGRAMS, TEXTUAL DESCRIPTIONS, HARDWARE DESCRIPTION LANGUAGES AND NE TLISTS. 1.5 'DESIGN TECHNIQUES' MEANS THE SYNOPSYS-SUPPLIED DATA CIRCUIT AND LOGIC ELEMENTS, LIBRARIES, ALGORITHMS, SEARCH STRATEGIES, RULE BASE D AND TECHNICAL INFORMATION INCORPORATED IN THE LICENSED PRODUCT AND EMPLOYED IN THE PROCESS OF CREATING DESIGNS. 1.7 'DOCUMENTATION' MEANS ANY USER MANUALS, REFEREN CE MANUALS, RELEASE, APPLICATION AND METHODOLOGY NOTES, WRITTEN UTILITY PROGRAMS AND OTH ER MATERIALS IN ANY FORM PROVIDED FOR USE WITH THE LICENSED PRODUCT. 1.8 'END USER(S)' MEANS THE AUTHORIZED PERSON(S) WHO ACCESS AND USE THE CLIENT. 1.13 'INTELLECTUAL PROPERTY RIGHTS' MEANS ALL PATEN TS, PATENT RIGHTS, COPYRIGHTS, (INCLUDING COPYRIGHT IN COMPUTER SOFTWARE), DESIGN RIGHTS, DAT ABASE RIGHTS, SEMI-CONDUCTOR TOPOGRAPHY RIGHTS, TRADE SECRETS SERVICE MARKS, MAS KWORKS AND TRADEMARKS, WHETHER OR NOT REGISTERED OR CAPABLE OF REGISTRATION, AND ANY APPL ICATIONS FOR ANY OF THE FOREGOING, IN ALL COUNTRIES IN THE WORLD. 1.15 'LICENSE KEY' MEANS A DOCUMENT (IN PHYSICAL OR ELECTRONIC FORMAT) PROVIDED BY SYNOPSYS TO LICENSEE WHICH REFLECTS THE APPLICABLE LICENSEE PURCHASE ORDER AND LISTS: (I) THE LICENSED PRODUCT, INCLUDING VERSION NUMBER AND QUAN TITY, LICENSED TO LICENSEE; (II) THE KEY SERVER(S); AND (III) THE CODES WHICH LICENSEE MUST IN PUT TO INITIALIZE USE OF THE KEY SERVER(S). 1.16 'LICENSED PRODUCT(S)' MEANS COLLECTIVELY DESIGN WARE AND THE LICENSED SOFTWARE. 1.17 'LICENSED SOFTWARE' MEANS' THE SYNOPSYS COMPUT ER SOFTWARE PROGRAM(S), EXCLUSIVE OF DESIGN WARE, WHICH ARE LICENSED BY LICENSE IN OBJEC T CODE FORM AND IDENTIFIED IN THE APPLICABLE LICENSE KEY, INCLUDING ANY BUG FIX RELEA SE AND MINOR ENHANCEMENT RELEASES PROVIDED BY SYNOPSYS PURSUANT TO THE TERMS OF THE S UPPORT AGREEMENT AND THIS AGREEMENT AND ANY SOFTWARE UPGRADE WHICH MAY BE LICENSED BY S YNOPSYS TO LICENSEE. 1.18 'MINOR ENHANCEMENT RELEASE' MEANS AN EMBODIMEN T OF THE LICENSED PRODUCT THAT DELIVERS MINOR IMPROVEMENT, INCREMENTAL FEATURES OR ENHANCEMENTS OF EXISTING FEATURES, AND/OR FUNCTIONALITY TO THE LICENSED PRODUCT. 1.19 'SOFTWARE UPGRADE' MEANS AN EMBODIMENT OF THE LICENSED PRODUCT THAT DELIVERS SUBSTANTIAL PERFORMANCE IMPROVEMENTS, ARCHITECTURAL CHANGES OR NEW FEATURES AND/OR ITA NO.1210/CHNY/2019 :- 37 -: FUNCTIONALITY TO THE 'LICENSED PRODUCT FOR WHICH SY NOPSYS MAY CHARGE A SEPARATE LICENSE FEE. 1.20 'USE AREA' MEANS THE KEY SERVER(S), CLIENT(S) A ND END-USER(S) ALL LOCATED WITHIN THE SAME FIVE (5) MILE RADIUS. GRANT OF RIGHTS 2.1 SOFTWARE LICENSE SYNOPSYS HEREBY GIANTS LICENSE E A NON-EXCLUSIVE, NON-TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICENSE, OF USE THE L ICENSED SOFTWARE AND DESIGN TECHNIQUES ONLY: (I) IN THE QUANTITY AUTHORIZED BY A LICENSE KEY; (II) IN ACCORDANCE WITH THE DOCUMENTATION; AND (III) IN THE USE AREA. LICENSEE MAY MAKE A REASONABL E NUMBER OF COPIES OF THE LICENSED SOFTWARE FOR BACKUP AND/OR ARCHIVAL PURPOSES ONLY. 2.1.1 TERM OF LICENSE THE TERM OF THE LICENSE GRANT ED HEREIN SHALL BE CONTINUOUS UNTIL NON- RENEWAL OF THE SUPPORT AGREEMENT, (UNLESS THE LICEN SE IS SOONER TERMINATED IN ACCORDANCE WITH SECTION 8 OF THIS AGREEMENT), WHEREUPON LICENS EE SHALL BE GRANTED A TWENTY-(20) YEAR KEY TO USE THE LICENSED SOFTWARE AT THE LAST SUPPOR TED LEVEL, PROVIDED THAT IF LICENSEE AND SYNOPSYS HAVE AGREED THAT LICENSEE MAY OBTAIN TIME- BASED LICENSES FOR THE LICENSED PRODUCTS, AS INDICATED IN THE APPLICABLE QUOTE, PUR CHASE ORDER AND/OR LICENSE KEY, THE TERM OF THE LICENSE SHALL BE AS SET FORTH IN THE APPLICA BLE LICENSEE KEY. 2.2 DESIGN WARE LICENSE IF LICENSEE HAS PURCHASED A LICENSE TO DESIGN WARE, SYNCPSYS HEREBY GRANTS LICENSEE THE FOLLOWING NON-EXCLUSIVE, NON-TRANSFERABLE RIGHTS TO DESIGN WARE, WITH NO RIGHT TO SUB-LICENSE (EXCEPT AS PROVI DED BELOW): (I) LICENSEE MAY USE DESIGN WARE IN THE QUANTITY AUT HORIZED BY THE DESIGN WARE LICENSE KEY, IN ACCORDANCE WITH THE DOCUMENTATION, IN THE U SE AREA (II) LICENSEE MAY IMPLEMENTATION IP INTO LICENSEE'S DESIGNS TO CREATE INTEGRATED DESIGNS; (III) LICENSEE MAY MAKE, HAVE MADE, USE AND DISTRIBU TE PRODUCTS THAT ARE PHYSICAL IMPLEMENTATIONS OF THE INTEGRATED DESIGNS; AND (IV) IF LICENSEE HAS PURCHASED FROM SYNOPSYS THE RIG HT TO USE CERTAIN IMPLEMENTATION IP IN SUPPORT OF LICENSEE'S DEVELOPMENT OF INTEGRATED DES IGNS. LICENSEE MAY MAKE A REASONABLE NUMBER OF COPIES OF DESIGN WARE FOR BACKUP AND/OR ARCHIVAL PURPOSES ONLY. 2.3 DOCUMENTATION LICENSE SYNOPSYS HEREBY GRANTS LI CENSEE A NON-EXCLUSIVE, NON- TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICENSE, TO USE THE DOCUMENTATION AND TO MAKE A REASONABLE NUMBER OF COPIES OF THE DOCUMENTATION SO LELY FOR ITS OWN INTERNAL BUSINESS PURPOSES TO SUPPORT LICENSEE'S USE OF THE LICENSED PRODUCT. 2.4 EVALUATION LICENSE IN THE EVENT LICENSEE OBTAIN S EVALUATION COPIES (WHICH EXCLUDES ANY COPY OF THE LICENSED PRODUCTS ISSUED PURSUANT TO LI CENSEE'S PURCHASE ORDER) OF THE LICENSED PRODUCT THE TERMS AND CONDITIONS OF THIS AGREEMENT SHALL GOVERN, EXCEPT AS FOLLOWS: (I) LICENSEE MAY USE SUCH LICENSED PRODUCT ONLY FOR INTERNAL, NON-PRODUCTION EVALUATION FOR THE PURPOSE OF DECIDING WHETHER TO PURCHASE A LICEN SE FOR SUCH LICENSED PRODUCT FROM SYNOPSYS; (II) THE TERN OF THE EVALUATION LICENSE WILL BE AS S PECIFIED IN THE APPLICABLE LICENSE KEY; AND (III) SECTION 9 IS AMENDED SUCH THAT THE LICENSED PR ODUCTS IS PROVIDED 'AS IS' ITA NO.1210/CHNY/2019 :- 38 -: 2.7 PROPRIETARY NOTICES. LICENSEE MUST REPRODUCE AN D INCLUDE THE COPYRIGHT NOTICE AND ANY OTHER NOTICES THAT APPEAR ON THE ORIGINAL COPY OF T HE LICENSED PRODUCT AND DOCUMENTATION ON ANY COPIES MAY THEREOF BY LICENSEE IN ANY MEDIA. 2.8 LICENSE RESTRICTIONS. LICENSEE ACKNOWLEDGES THA T THE SCOPE OF THE LICENSES GRANTED HEREUNDER DO NOT PERMIT LICENSEE {AND LICENSEE SHAL L NOT ALLOW ANY THIRD PARTY TO: (I) SAVE AS EXPRESSLY PERMITTED BY AND IN ACCORDANCE WITH THE PROVISIONS OF REGULATION 6(2), 6(3) AND 7 OF THE EC (LEGAL PROTECTION OF COMPUTER P ROGRAMS) REGULATIONS 1993, COPY, ADAPT, DECOMPILE, DISASSEMBLE, REVERSE ENGINEER OR ATTEMPT TO RECONSTRUCT, IDENTIFY OR DISCOVER ANY SOURCE CODE, UNDERLYING IDEAS, UNDERLY ING USER INTERFACE TECHNIQUES OR ALGORITHMS OF THE LICENSED PRODUCT BY ANY MEANS WHA TEVER, OR DISCLOSE ANY OF THE FOREGOING; (II) DISTRIBUTE, LEASE, LEND, USE FOR TIMESHARING, S ERVICE BUREAU, AND/OR APPLICATION SERVICE PROVIDER PURPOSES THE LICENSED PRODUCT; (III) USE THE LICENSED PRODUCT FOR THE BENEFIT OF TH IRD PARTIES, OR ALLOW THIRD PARTIES TO USE THE LICENSED PRODUCT; (IV) MODIFY, INCORPORATE INTO OR WITH OTHER SOFTWARE , OR CREATE A DERIVATIVE WORK OF ANY PART OF THE LICENSED PRODUCT; (V) DISCLOSE THE RESULTS OF ANY BENCHMARKING OF THE LICENSED PRODUCT (WHETHER OR NOT OBTAINED WITH SYNOPSYS' ASSISTANCE) TO THIRD PARTIES ; (VI) USE THE LICENSED PRODUCT TO DEVELOP OR ENHANCE ANY PRODUCT THAT COMPETES WITH A LICENSED PRODUCT; OR (VII) EMPLOY THE LICENSED PRODUCT IN, OR IN THE DEVE LOPMENT OF, LIFE CRITICAL APPLICATIONS OR IN ANY OTHER APPLICATION WHERE FAILURE OF THE LICENSED PRODUCT OR ANY RESULTS FROM THE USE THEREOF CAN REASONABLY BE EXPECTED TO RESULT IN PER SONAL INJURY. 3. OWNERSHIP 3.1 SYNOPSYS OWNERSHIP. SYNOPSYS AND/OR ITS LICENSORS OWN AND SHALL RETAIN ALL RIGHTS, TITLE AND INTEREST IN AND TO THE LICENSED PRODUCT, DESIGN TECHNIQUES AND DOCUMENTATION, INCLUDING ALL INTELLECTUAL PROPERTY RIGHTS EMBODIED THEREIN, AND LICENSEE SHALL HAVE NO RIGHTS WITH RESPECT THERETO OTHER THAN THE RIGHTS E XPRESSLY SET FORTH IN THIS AGREEMENT. RISK IN THE MEDIA ONLY, PASSES UPON SYNOPSYS' DELIVERY O F THE LICENSED PRODUCT TO A COMMON CARRIER, OR FOR INTERNATIONAL SHIPMENTS, DELIVERY T O THE FOREIGN PORT OF ENTRY. TITLE, IN THE MEDIA ONLY, PASSES TO THE LICENSEE ON PAYMENT OF TH E LICENSE FEES. THIRD PARTY PROPRIETARY INFORMATION MAY HAVE BEEN USED IN THE DEVELOPMENT O F CERTAIN LICENSED PRODUCTS, AND ANY THIRD PARTY LICENSORS OF SUCH PRODUCTS MAY ENFORCE THEIR RIGHTS UNDER THIS SECTION AS THIRD PARTY BENEFICIARIES. SUCH THIRD PARTIES ARE LISTED IN THE APPLICABLE DOCUMENTATION. 3.2 LICENSEE DESIGNS. LICENSEE SHALL RETAIN ALL RIG HT, TITLE AND INTEREST IN AND TO DESIGNS, INTEGRATED DESIGNS AND ALL COPIES AND PORTIONS THER EOF, SUBJECT TO SYNOPSYS' UNDERLYING RIGHTS IN ANY DESIGN WARE INCORPORATED IN SUCH DESI GNS AND INTEGRATED DESIGNS. 5. DELIVERY TERMS 5.1 PURCHASE ORDER. IN ORDER TO OBTAIN PRODUCTS AND SERVICES FROM SYNOPSYS, LICENSEE MUST FIRST SUBMIT A PURCHASE ORDER. AS PART OF A PURCHAS E ORDER, LICENSEE MUST IDENTIFY THE LICENSED PRODUCT IT WISHES TO LICENSE, THE IDENTITY (BY MACHINE ID NUMBER) OF THE KEY SERVER(S) AND THE LOCATION OF SUCH KEY SERVER(S). AL L PURCHASE ORDERS ARE SUBJECT TO ACCEPTANCE BY SYNOPSYS, IN ITS SOLE DISCRETION. LIC ENSEE'S RECEIPT AND USE OF ALL LICENSED PRODUCT AND DOCUMENTATION SHALL BE GOVERNED BY: (I) THE TERMS AND CONDITIONS OF THIS AGREEMENTS; AND ITA NO.1210/CHNY/2019 :- 39 -: (II) ANY AGREEMENT SUPPLEMENT(S) WHICH ARE EXECUTED B Y BOTH PARTIES. NOTHING CONTAINED IN ANY PURCHASE ORDER, PURCHASE ORDER ACKNOWLEDGMEN T, OR INVOICE SHALL IN ANY WAY MODIFY SUCH TERMS OR ADD ANY ADDITIONAL TERMS OR CONDITION S; PROVIDED, HOWEVER, THAT SUCH STANDARD VARIABLE TERMS AS PRICE, QUANTITY, DELIVER Y DATA, SHIPPING INSTRUCTIONS AND THE LIKE, AS WELL AS TAX EXEMPT STATUS, IF APPLICABLE SHALL B E SPECIFIED ON EACH PURCHASE ORDER OR ACKNOWLEDGMENT LICENSEE'S PURCHASE ORDER WILL INCLU DE, THE LICENSEE FEE AND PAYMENT TERMS AS SET FORTH IN THE APPLICABLE SYNOPSYS QUOTA TION. LICENSEE AGREES TO PAY SYNOPSYS THE LICENSE FEES, PLUS APPLICABLE TAXES AS SET FORT H BELOW, IN ACCORDANCE WITH THE PAYMENT TERMS SPECIFIED IN THE APPLICABLE SYNOPSYS QUOTATIO N AND/OR INVOICE. 5.3 DELIVERY. UPON THE ACCEPTANCE OF AN ORDER BY SY NOPSYS AND THE SATISFACTION OF ALL SYNOPSYS PREREQUISITES PRIOR TO DELIVERY, SYNOPSYS SHALL DELIVER TO LICENSEE, AT SYNOPSYS EXPENSE, THE LICENSED PRODUCT, LICENSE KEY AND/OR DO CUMENTATION, AS APPROPRIATE. 6. SUPPORT SERVICES SUPPORT SERVICES SHALL BE PROVIDED BY SYNOPSYS UNDE R THE TERMS AND CONDITIONS SET FORTH HEREIN AND OF THE SUPPORT AGREEMENT. 7. CONFIDENTIALITY EACH PARTY WILL PROTECT THE OTHER'S CONFIDENTIAL IN FORMATION FROM UNAUTHORISED DISSEMINATION AND USE WITH THE SAME DEGREE OF CARE THAT EACH SUCH PARTY USES TO PROTECT ITS OWN LIKE INFORMATION. NEITHER PARTY WILL USE TH E OTHER'S CONFIDENTIAL INFORMATION FOR PURPOSES OTHER THAN THOSE NECESSARY TO DIRECTLY FUR THER THE PURPOSES OF THIS AGREEMENT. NEITHER PARTY WILL DISCLOSE TO THIRD PARTIES THE OT HER'S CONFIDENTIAL INFORMATION WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY. 8. TERMINATION OF LICENSE 8.1 TERMINATION. EITHER PARTY HAS THE RIGHT TO TERM INATE THIS AGREEMENT IF THE OTHER PARTY BREACHES OR IS IN DEFAULT OF ANY OBLIGATION HEREUND ER, WHICH DEFAULT IS INCAPABLE OF CURE OR WHICH, BEING CAPABLE OF CURE, HAS NOT BEEN CURED WI TH FIFTEEN (15) BUSINESS DAYS AFTER RECEIPT OF WRITTEN NOTICE FROM THE NON-DEFAULTING P ARTY OR WITHIN SUCH ADDITIONAL CURE PERIOD AS THE NON-DEFAULTING PARTY MAY AUTHORIZE, EXCEPT T HAT THE LICENSED PRODUCT'S FAILURE TO SUBSTANTIALLY CONFORM TO THE SPECIFICATIONS IN THE LICENSED PRODUCE DOCUMENTATION SHALL NOT BE DEEMED A DEFAULT UNDER THIS SECTION 8.1 BUT SHAL L BE SUBJECT TO THE EXCLUSIVE REMEDIES PROVIDED IN SECTION 9.1. 8.3 EFFECT OF TERMINATION. UPON TERMINATION, LICENS EE SHALL IMMEDIATELY CEASE ALL USE OF THE LICENSED PRODUCT (OTHER THAN DESIGN WARE INCORPORAT ED INTO DESIGNS PRIOR TO TERMINATION, FOR WHICH LICENSEE'S LICENSE SHALL CONTINUE ACCORDI NG TO ITS TERMS), DESIGN TECHNIQUES AND DOCUMENTATION AND RETURN OR DESTROY ALL SUCH COPIES AND ALL PORTIONS OF THE LICENSED PRODUCT (OTHER THAN DESIGN WARE INCORPORATED INTO D ESIGNS PRIOR TO TERMINATION) AND SO CERTIFY IN WRITING IN SYNOPSYS TERMINATION WILL NOT RELIEVE LICENSEE OR SYNOPSYS FROM ANY LIABILITY GRISING FROM ANY BREACH OF THIS AGREEMENT . NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR DAMAGES OF ANY SORT SOLELY AS A RESULT OF TERMI NATING THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS, AND TERMINATION OF THIS AGREEMENT WILL B E WITHOUT PREJUDICE TO ANY OTHER RIGHT OR REMEDY OF EITHER PARTY. THE PROVISIONS OF SECTIONS 3, 7, 8.2, 8.3, 11, 12 AND 13 SHALL SURVIVE ANY TERMINATION OR EXPIRATION OF THIS AGREE MENT. 10. PATENT AND COPYRIGHT INFRINGEMENT 10.1 INDEMNITY. SYNOPSYS AGREES, AT ITS OWN EXPENSE , TO DEFEND OR, AT ITS OPTION, TO SETTLE, ANY CLAIM OR ACTION BROUGHT AGAINST LICENSEE TO THE EXTENT IT IS BASED ON A CLAIM THAT THE LICENSED SOFTWARE AS SUED WITHIN THE SCOPE OF THIS AGREEMENT INFRINGES OR VIOLATES ANY UNITED STATES OR EUROPEAN PATENT, COPYRIGHT, TRADEM ARK, TRADE SECRET OR OTHER PROPRIETARY LIGHT OF A THIRD PARTY, AND SYNOPSYS WILL INDEMNIFY AND HOLD LICENSEE HARMLESS FROM AND AGAINST ANY DAMAGES, COSTS AND FEES REASONABLY INCU RRED (INCLUDING REASONABLE ATTORNEYS' FEES) THAT ARE ATTRIBUTABLE TO SUCH CLAIM OR ACTION AND WHICH ARE ASSESSED AGAINST LICENSEE IN A FINAL JUDGMENT. LICENSEE AGREES THAT SYNOPSYS SHALL BE RELEASE FROM THE FOREGOING ITA NO.1210/CHNY/2019 :- 40 -: OBLIGATION UNLESS LICENSEE PROVIDES SYNOPSYS WITH: (I) PROMPT WRITTEN NOTIFICATION OF THE CLAIM OR ACTI ON; (II) SOLE CONTROL AND AUTHORITY OVER THE DEFENSE OR SETTLEMENT THEREOF; AND (III) ALL AVAILABLE INFORMATION, ASSISTANCE AND AUTH ORITY TO SETTLE AND/OR DEFEND ANY SUCH CLAIM OR ACTION. 13.3 ASSIGNMENT. THIS AGREEMENT MAY NOT BE ASSIGNED BY LICENSEE WITHOUT THE PRIOR WRITTEN CONSENT OF SYNOPSYS. 13.6 INDEPENDENT CONTRACTORS. THE RELATIONSHIP OF S YNOPSYS AND LICENSEE ESTABLISHED BY THIS AGREEMENT IS THAT OF INDEPENDENT CONTRACTORS, AND NOTHING CONTAINED IN THIS AGREEMENT SHALL BE CONSTRUED (I) TO GIVE EITHER PARTY THE POWE R TO DIRECT OR CONTROL THE DAY-TO-DAY ACTIVITIES OF THE OTHER OR (II) TO CONSTITUTE THE PA RTIES AS PARTNERS, JOINT VENTURES, CO-OWNERS OR OTHERWISE AS PARTICIPANTS IN A JOINT A COMMON UN DERTAKING. 13.9. INJUNCTIVE RELIEF. THE PARTIES AGREE THAT A M ATERIAL BREACH OF THIS AGREEMENT ADVERSELY AFFECTING SYNOPSYS' INTELLECTUAL PROPERTY RIGHTS IN THE LICENSED PRODUCT, DESIGN TECHNIQUES OR DOCUMENTATION WOULD CAUSE IRREPARABLE INJURY TO SYNOPSYS FOR WHICH MONETARY DAMAGES WOULD NOT BE AN ADEQUATE REMEDY AN D SYNOPSYS SHALL BE ENTITLED TO EQUITABLE RELIEF IN ADDITION TO ANY REMEDIES IT MAY HAVE HEREUNDER OR AT LAW.' 45. AS IS CLEAR FROM THE DESCRIPTION OF THE AGREEME NT IT IS AN END-USER SOFTWARE LICENCE AGREEMENT. CLAUSE 2.1 DEALS WITH GRANT OF RIGHTS. IT PROVIDES, SOFTWARE LICENSE SYNOPSYS HEREBY GRANTS LICENCEE A NON-EXCLUSIVE, NON-TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICENCE OF USE THE LICENSED SOFTWARE AND DESIGN TECHNIQUES ONLY IN THE QUANTITY AUTHORIZED BY A LICENSEE IN ACCORDANCE WITH THE DOCUMENTATION IN THE USE AREA. LICENSEE MAY MAKE A REASONABLE NUMBER OF COPIES OF THE LICENSED SOFTWARE FOR BACKUP AND/OR ARCHIVAL PURPOSES ONLY. M ERELY BECAUSE THE WORDS NON-EXCLUSIVE AND NON-TRANSFERABLE IS USED IN THE SAID LICENCE IT DOE S NOT TAKE AWAY THE SOFTWARE OUT OF THE DEFINITION OF THE COPYRIGHT. THE WORD LICENCED SOFTWARE HAS BE EN DEFINED. SIMILARLY, THE WORDS DESIGN, DESIGN TECHNIQUE IS ALSO DEFINED. THE WORD DOCUMENTATION I S ALSO DEFINED AND IT IS NOT IN DISPUTE WHAT IS GRANTED IS A LICENSE. EVEN IF IT IS NOT TRANSFER OF EXCLUSIVE RIGHT IN THE COPYRIGHT, THE RIGHT TO USE THE CONFIDENTIAL INFORMATION EMBEDDED IN THE SOFTWARE I N TERMS OF THE AFORESAID LICENCE MAKES IT ABUNDANTLY CLEAR THAT THERE IS TRANSFER OF CERTAIN RIGHTS WHICH THE OWNER OF COPYRIGHT POSSESS IN THE SAID COMPUTER SOFTWARE/PROGRAMME IN RESPECT OF THE COPYRIGHT OWNED. IN TERMS OF THE DTAA THE CONSIDERATION PAID FOR THE USE OR RIGHT TO USE THE SAID CONFIDENTIAL INFORMATION IN THE FORM OF COMPUTER PROGRAMME SOFTWARE ITSELF CONSTITUTES ROYA LTY AND ATTRACTS TAX. IT IS NOT NECESSARY THAT THERE SHOULD BE A TRANSFER OF EXCLUSIVE RIGHT IN TH E COPYRIGHT AS CONTENDED BY THE ASSESSEE. THE CONSIDERATION PAID IS FOR RIGHTS IN RESPECT OF THE COPYRIGHT AND FOR THE USER OF THE CONFIDENTIAL INFORMATION EMBEDDED IN THE SOFTWARE/COMPUTER PROGRA MME. THEREFORE, IT FALLS WITHIN THE MISCHIEF OF EXPLANATION (2) OF CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9 OF THE ACT AND THERE IS A LIABILITY TO PAY THE TAX. 46. IF THERE WAS ANY DOUBT REGARDING THE TAXABILITY OF THIS INCOME THE PARLIAMENT BY FINANCE ACT, 2010 HAS SUBSTITUTED THE EXPLANATION TO SECTION 9 W HICH GIVES A CLEAR INTENTION OF THE LEGISLATURE INSOFAR AS THE LIABILITY OF TAX UNDER THIS PROVISIO N IS CONCERNED. A PERUSAL OF THE SAID EXPLANATION MAKES IT CLEAR THAT AS THERE WAS A DOUBT EARLIER, T HEY WANT TO REMOVE THE DOUBTS BY INTRODUCING THIS EXPLANATION. BY THE EXPLANATION THEY HAVE DECL ARED THAT FOR THE PURPOSE OF SECTION 9 WHICH DEALS WITH INCOME DEEMED TO ACCRUE OR ARISE IN INDI A, UNDER CLAUSES (V), (VI) AND (VII) OF SUB- SECTION (1), SUCH INCOME SHALL BE INCLUDED IN THE T OTAL INCOME OF THE NON-RESIDENT, WHETHER OR NOT (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUS INESS OR BUSINESS CONNECTION IN INDIA, (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. THEREF ORE, THE OBJECT IS TO LEVY TAX ON THE INCOME OF A NON-RESIDENT, IF IT HAS ACCRUED OR ARISEN IN INDIA AND ONE SUCH INCOME IS THE INCOME FROM ROYALTY. IN THE RESULT, WE PASS THE FOLLOWING :- ORDER ITA NO.1210/CHNY/2019 :- 41 -: (A) ALL THE APPEALS ARE ALLOWED. (B) IMPUGNED ORDERS PASSED BY THE INCOME TAX APPELLA TE TRIBUNAL, BANGALORE BENCH, IS HEREBY SET ASIDE. (C) THE ORDER PASSED BY THE COMMISSIONER OF INCOME T AX (APPEALS) AFFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 19 (1), BANGALORE, WITH MODIFICATION IS RESTORED. (D) NO COSTS. THUS, AS COULD BE SEEN FROM AFORESAID DECISION OF H ONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SYNOPSIS INTERNATIONAL OLD LIMITED(SUPRA) WHICH DECISION WAS RENDERED IN CONTEXT OF ROYALTY AS DEFI NED IN INDIA-IRELAND DTAA WHEREIN DEFINITION OF ROYALTY IS PARAMATERIA T O DEFINITION OF ROYALTY AS USED IN INDIA-ITALY DTAA(EXCEPT EXCLUSION TO AIR CRAFT IN CASE OF INDIA- IRELAND DTAA AS DETAILED ABOVE BY US IN THIS ORDER BY REPRODUCING RELEVANT ARTICLE OF BOTH THE TREATIES) WITH WHICH WE ARE SEI ZED OF AND HONBLE KARNATAKA HIGH COURT HAS HELD THAT GRANT OF NON-EXC LUSIVE NON TRANSFERABLE LICENSE IN COMPUTER SOFTWARE WITH NO R IGHT TO SUB-LEASE OR TRANSFER SHALL FALL WITHIN ROYALTY BOTH UNDER DTAA AS WELL U/S 9(1)(VI) OF THE 1961 ACT READ WITH EXPLANATIONS AND SHALL BE CH ARGEABLE TO INCOME- TAX UNDER THE PROVISIONS OF THE 1961 ACT. HONBLE J URISDICTIONAL HIGH COURT HAS AFFIRMED THE RATIO OF DECISION OF HONBLE KARNA TAKA HIGH COURT IN THE CASE OF SYNOPSIS INTERNATIONAL OLD LIMITED, IN A RE CENT JUDGMENT DATED 23.04.2019 IN THE CASE OF ZYLOG SYSTEMS LIMITED(SUP RA). WE ARE BOUND BY AFORESAID DECISION OF HONBLE JURISDICTIONAL HIGH C OURT DECISION AND RESPECTFULLY FOLLOWING THE DECISION OF HONBLE MADR AS HIGH COURT IN THE CASE OF ZYLOG, WE ALLOW APPEAL OF REVENUE. WE ORDER ACCORDINGLY. ITA NO.1210/CHNY/2019 :- 42 -: 7. IN THE RESULT, THE APPEAL FILED BY REVENUE IN IT A NO.1210/CHNY/2019 FOR AY: 2014-15 IS ALLOWED. ORDER PRONOUNCED ON THE 23 RD DAY OF DECEMBER, 2019 IN CHENNAI. SD/- SD/- ( . . . ) ( N.R.S. GANESAN ) /JUDICIAL MEMBER ( ! ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 23 RD DECEMBER, 2019. TLN . +!1 21 /COPY TO: 1. * /APPELLANT 4. 3 /CIT 2. +,* /RESPONDENT 5. 1 + /DR 3. 3 ( ) /CIT(A) 6. ' /GF