M/s. AB Sandvik Materials Technology, Pune V. Deputy Commissioner of Income tax,

ITA 192/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3361 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 27-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NANDITA KANCHAN
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3); 234B; 148

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NOS.192 TO 194/PUN/2017 / ASSESSMENT YEAR : 2010-11 M/S. AB SANDVIK MATERIALS TECHNOLOGY, (C/O.SANDVIK ASIA PRIVATE LIMITED, MUMBAI PUNE ROAD, DAPODI, PUNE 411 012. PAN :AADCA5374K . / APPELLANT V/S DEPUTY COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION) I, PUNE. . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI NANDITA KANCHAN. / ORDER PER ANIL CHATURVEDI, AM : 1. THESE THREE APPEALS FILED BY THE ASSESSEE ARE EMANA TING OUT OF SEPARATE ORDERS OF DY.COMMISSIONER OF INCOME TAX (INTERN ATIONAL TAXATION) 1, PUNE DT.23.11.2016 FOR THE ASSESSMENT YEAR S 2010-11 TO 2012-13. 2. BEFORE US, AT THE OUTSET, BOTH THE PARTIES SUBMITTE D THAT THOUGH THE APPEALS FILED BY THE ASSESSEE ARE FOR THREE DIFFERENT A SSESSMENT YEARS BUT THE FACTS AND ISSUES INVOLVED IN ALL THE APPEALS ARE IDE NTICAL EXCEPT FOR THE ASSESSMENT YEARS AND THE AMOUNTS INVOLVED AND THE REFORE THE SUBMISSIONS MADE BY THEM WHILE ARGUING ONE APPEAL WOULD BE EQUALLY / DATE OF HEARING : 11.02.2019 / DATE OF PRONOUNCEMENT: 19.02.2019 2 ITA NOS.192 TO 194/PUN/2017 APPLICABLE TO THE OTHER APPEALS ALSO AND THUS, ALL THE THR EE APPEALS CAN BE HEARD TOGETHER. IN VIEW OF THE AFORESAID SUBMISSIONS OF B OTH THE PARTIES, WE, FOR THE SAKE OF CONVENIENCE, PROCEED TO DISPOSE OF ALL THE THREE APPEALS BY A CONSOLIDATED ORDER BUT HOWEVER, PROCEED WITH NARRATING THE FACTS IN ITA NO.192/PUN/2017 FOR ASSESSMENT YEAR 2010-11. 3. ASSESSEE IS A NON-RESIDENT COMPANY INCORPORATED IN SWEDEN. IT IS STATED THAT IT DOES NOT HAVE ITS OFFICE IN INDIA AND IS TAX RESIDENT OF SWEDEN AS PER THE TAX TREATY BETWEEN INDIA AND SWEDE N. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. ON 2010-11 ON 01.10.2011 DECLARING TOTAL INCOME OF RS.21,83,650/-. NOTICE U/S 148 OF THE ACT DATED 27.03.2015 WAS ISSUED AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE NOTICE U/S 148 OF THE ACT ASSESSEE VID E LETTER DT.29.04.2015 SUBMITTED THAT ORIGINAL RETURN OF INCOME FOR A.Y . 2010-11 FILED ON 01.10.2010 MAY BE CONSIDERED AS RETURN OF INCOME IN RESPONSE TO NOTICE U/S 148 OF THE ACT. THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY AND SUBSEQUENTLY DRAFT ASSESSMENT ORDER WAS PASSED U/S 144C(1) R.W.S. 143(3) R.W.S 147 OF THE ACT VIDE ORDER DT. 18.03.2016 WHEREIN THE TOTAL INCOME WAS DETERMINED AT RS.42,41,214/-. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER OF AO DATED 18.03.2016, AS SESSEE CARRIED THE MATTER BEFORE THE DISPUTE RESOLUTION PANEL (DRP), WHO V IDE DIRECTIONS PASSED U/S 144C(5) OF THE ACT DATED 28.09.2016 HELD THE R E-OPENING OF ASSESSMENT TO BE LEGALLY VALID. DRP ALSO DIRECTED AO TO SEGREGATE THE AMOUNTS RECEIVED BY ASSESSEE FROM SANDVIK ASIA PVT. LTD (SAPL) TOWARDS THE LICENSE FEES FOR GRANTING USER ACCESS TO SOFTWARE APP LICATIONS, FEES FOR PROVIDING CONNECTED IT SUPPORT SERVICES, FEES FOR APPLICATIO N DEVELOPMENT SERVICES AND FEES FOR PROVIDING OTHER IT SUPPORT SERVICES ON THE BASIS OF ANALYSIS OF INVOICES RAISED BY ASSESSEE ON SAPL. IT FURTH ER DIRECTED THE 3 ITA NOS.192 TO 194/PUN/2017 AO TO ASSESS THE LICENSE FEE RECEIPT AS ROYALTY AND THE FEE FO R IT SUPPORT SERVICES AND FEE FOR DEVELOPMENT SERVICE AS FEE FOR TECHN ICAL SERVICES. AO WAS FURTHER DIRECTED NOT TO TAX FEES FOR IT SUPPORT SERVICES AS EITHER OF ROYALTY OR FEE FOR TECHNICAL SERVICES. PURSUANT TO THE DIRECTIONS OF DRP, AO PASSED ORDER U/S 144C R.W.S. 143(3) R.W.S. 147 OF THE ACT ON 23.11.2016 AND DETERMINED THE TOTAL INCOME AT RS.20,57,564 /-. AGGRIEVED BY THE ORDER OF AO PASSED PURSUANT TO DIREC TIONS OF DRP, ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. GROUND 1: ON THE FACTS AND CIRCUMSTANCES OF THE CASE , AND IN LAW , THE HON ' BLE DISPUTE RESOLUT I ON PANE L ( ' HON ' BLE . DRP ' ) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER ( ' LD . AO ' ) I N REOPENING THE ASSESSMENT PROCEEDINGS BY INVOKING THE PROVISIONS OF SECTION 1 47 OF THE INCOME-TAX ACT, 1961 IT IS PRAYED THAT THE REASSESSMENT INITIATED BY THE LD . AO AND CONFIRMED BY THE HON ' BLE DRP I S INVALID AND VOID AND HENCE BE QUASHED . 2. GROUND 2: WITHOUT PREJUDICE TO GROUND 1 ABOVE, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE , AND I N LAW , LD . DRP HAVE ERRED IN UPHOLD I NG THE ACTION OF THE LD . AO TO T AX RECEIPT OF RS . 20 , 57 , 564 AS ' ROYALTY ' WITHIN THE MEANING OF ARTICLE 12 OF THE INDIA-SWEDEN DOUBLE T AXATION AVO I DANCE AGREEMENT ( ' DTAA ' OR ' THE TREA T Y ' ) . IT IS PRAYED THAT THE ADDITION MADE BY THE LD . AO AND CONFIRMED BY THE LD . DRP BE DELETED . 3. GROUND 3: WITHOUT PREJUDICE TO ABOVE GROUNDS AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW , SHOULD THE ADDITION BE ' UPHELD, THE LD . AO HAS ERRED IN LEVYING INTEREST UNDER SECT I ON 234B OF THE INCOME TAX ACT, 1961 ('THE ACT') WHILE COMPUTING THE TAX AND INTEREST L I ABIL I TY O N INCOME OF THE ASSESSEE FOREIGN COMPANY . IT IS PRAYED THAT THE INTEREST UNDER SECTION 234B B E DELETED . 4. SIMILAR GROUNDS ARE RAISED BY ASSESSEE IN ITA NOS.193 AND 194/PUN/2017 FOR A.YS.2011-12 & 2012-13, RESPECTIVELY. 5. ALL THE GROUNDS BEING INTER-CONNECTED ARE CONSIDERED TOGETH ER. 4 ITA NOS.192 TO 194/PUN/2017 6. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT ASSESSEE HAS RECEIVED RS.20,57,564/- AS LICENSE FEE FROM SA NDVIK ASIA PVT. LTD., (SAPL) WHICH WAS NOT OFFERED TO TAX. AO NOTED THAT THERE WAS AMENDMENT BY THE FINANCE ACT, 2012 IN THE PROVISIONS RELA TED TO DEFINITION OF ROYALTY IN SEC.9(1)(VI) OF THE ACT. HE NOTED THAT EXPLANATION 4 WAS INSERTED W.E.F. 01.06.1976 WHEREBY IT WAS CLARIFIED TH AT THE CONSIDERATION FOR USE OR RIGHT TO USE OF COMPUTER SOFTWAR E IS ROYALTY AND VIDE EXPLANATION 4 & 5, IT WAS CLARIFIED THAT TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF RIGHT, PROPERTY OR INFORMATION INCLUDED RIGHT FOR USE AND RIGHT TO USE A COMPUTER SOFTWARE. AO WAS THEREFORE OF THE V IEW THAT THE AMOUNTS RECEIVED BY THE ASSESSEE AS LICENSE FEE FROM S APL CONSTITUTES ROYALTY AS PER DEFINITION OF SEC.9(1)(VI) OF THE I.T. ACT AND ACCORDINGLY, TAXABLE. HE ALSO HELD THAT IT SUPPORT SERVICES PROVIDED BY THE ASSESSEE. TO THE INDIAN ENTITIES TO BE IN THE NATURE OF TECHNICAL SERVICES AS PER THE PROVISIONS OF SEC.9(1)(VII) OF THE ACT AND AS PER ARTICLE 12 O F DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND SW EDEN. HE THEREFORE HELD THAT AMOUNT OF RS.20,57,564/- RECEIVED BY THE ASSESSEE TOWARDS IT SUPPORT SERVICES FROM SAPL IS TO BE TAXED AS FTS @ 10% UNDER ARTICLE 12(2) OF DTAA BETWEEN INDIA AND SWEDEN. A DRAFT ASSESSMENT ORDER WAS ACCORDINGLY PASSED U/S 144C(1) R .W.S. 143(3) R.W.S 147 OF THE ACT VIDE ORDER DT.18.03.2016. AGGRIEVED WITH THE DRAFT ASSESSMENT ORDER, ASSESSEE FILED OBJECTIONS BEFORE DRP. THE DRP VIDE ORDER DT.28.09.2016 DIRECTED THE AO TO ASSESS THE LICENS E FEE RECEIPT AS ROYALTY AND THE FEE FOR IT CONNECTED SUPPORT SERVIC ES AND FEE FOR DEVELOPMENT SERVICES AS FEE FOR TECHNICAL SERVICES. T HE DIRECTIONS OF DRP WAS FOLLOWED BY AO WHILE PASSING THE ORDER DATED 23.11 .2016 PASSED U/S 143(3) R.W.S. 147 OF THE ACT. AGGRIEVED BY THE ORDER PASSED PURSUANT TO THE DIRECTIONS OF DRP, ASSESSEE IS NOW IN APPEAL BEFORE US. 5 ITA NOS.192 TO 194/PUN/2017 7. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT IDENTICA L ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2008-09. HE SUBMITT ED THAT CO- ORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DT.24.03.2017 IN ITA NO.1719/PUN/2011 AND AFTER RELYING ON THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LIMITED REPOR TED IN (2013) 39 TAXMANN.COM 88 (DEL) AND FOLLOWING THE ORDER IN THE CASE O F SANDVIK AUSTRALIA PTY. LTD. VS. DDIT (ITA NO.93/PN/2011 ORDER DT .31.01.2013) OF PUNE TRIBUNAL HELD THAT AMOUNT RECEIVED BY THE ASSES SEE CANNOT BE CONSIDERED TO BE ROYALTY OR FTS AND THEREFORE NOT TAX ABLE IN INDIA. HE PLACED ON RECORD THE COPY OF THE AFORESAID DECISIONS. HE THEREFORE SUBMITTED THAT THE FACTS IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF ASSESSEES OWN CASE IN A.Y. 2008-09 AND THEREFOR E FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2008-09 , THE ISSUE BE DECIDED ACCORDINGLY. LD.D.R. ON THE OTHER HAND, SUPPORTE D THE ORDER OF LOWER AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL IS WITH RESPEC T TO TAXABILITY OF AMOUNT RECEIVED BY ASSESSEE FROM SANDVIK ASIA PVT. LTD. (S APL). IT IS AN UNDISPUTED FACT THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD RECEIVED FEES TOWARDS GRANTING USER ACCESS TO SOFTWARE APPLICATION AND FOR PROVIDING IT SUPPORT FROM SAPL. BEFORE US, BOTH THE PA RTIES HAVE ADMITTED THAT THE FACTS OF THE CASE IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF ASSESSEES OWN CASE IN A.Y. 2008-09 . WE FIND THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE ISSUE ON IDENTICAL FACTS IN ASSESSEES OWN CASE IN A.Y. 2008-09 HELD THAT THE PAYMENTS RECEIVED BY ASSESSEE FROM SAPL CANNOT BE CONSIDERED T O BE AS ROYALTY OR FTS AND NOT TAXABLE IN INDIA. THE RELEVANT OBSERVATIONS ARE AS UN DER : 6 ITA NOS.192 TO 194/PUN/2017 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS AS TO WHE THER THE PAYMENT OF RS.5,04,070/- RECEIVED BY THE ASSESSEE FROM SANDVIK ASIA PRIVATE LIMITED IS TAXABLE IN THE HANDS OF ASSESSEE. IT IS AN UNDISPU TED FACT THAT ASSESSEE IS NON-RESIDENT COMPANY INCORPORATED IN SWEDEN AND IT IS THE CONTENTION OF THE ASSESSEE THAT IT IS NOT HAVING ANY PERMANENT ESTABL ISHMENT IN INDIA AND HENCE THE SAID INCOME IS NOT TAXABLE IN INDIA. THE SUBMISSION OF THE ASSESSEE OF NOT HAVING PERMANENT ESTABLISHMENT IN IN DIA IS NOT CONTROVERTED BY THE REVENUE. AS PER THE AGREEMENT DATED 01.01.2 013 ENTERED BETWEEN THE ASSESSEE AND SANDVIK ASIA PRIVATE LIMITED THE NA TURE OF SERVICES IS AS UNDER: ABSS IS PROVIDING APPLICATION DEVELOPMENT SERVICES FOR VARIOUS IT-PLATFORMS. THE SERVICES INCLUDE PROJECT PLANNING AND CONTROL, ANALYSIS, SYSTEMS ANALYSIS, TEST AND DOCUMENTATION. SERVICES ARE PERFORMED BOTH AS NEW DEVELOPMENT AND AS MAINTENANC E AND FURTHER DEVELOPMENT/ENHANCEMENTS. THE CUSTOMER HAS THE RIGHT TO ACQUIRE DEVELOPMENT S ERVICES. IF NOT OTHERWISE AGREED THE CUSTOMER IS THE OWNER O F THE ACQUIRED SYSTEMS/PERFORMED DEVELOPMENT. THE CUSTOMER IS RESPONSIBLE FOR APPOINTING A SYSTEM OWNER WHO IS RESPONSIBLE FOR SEEING TO THAT HIS APPLICATI ONS HAVE THE REQUIRED QUALITY, SECURITY LEVEL, FUNCTIONALITY , LEGAL ADHERENCE AND USER INSTRUCTIONS. THE CUSTOMER/SYST EM OWNER IS ALSO RESPONSIBLE FOR SEEING TO THAT THE ES TABLISHED USER INSTRUCTIONS ARE FOLLOWED. ABSSS IS RESPONSIBLE FOR SEEING TO THAT THE APPLICA TION DEVELOPMENT SERVICES ACQUIRED IS MEETING AGREED REQUIREMENTS. THE SYSTEM OWNER RESPONSIBILITIES ARE DEFINED IN DE TAIL ON THE SANDVIK GROUP INTRANET. THE APPLICATION DEVELOPMENT IS MOSTLY CHARGED VIA A YEARLY LICENSE FEE ACCORDING TO ABOVE. IF EXTERNAL RES OURCES ARE UTILIZED THESE ARE CHARGED ACCORDING TO THEIR COST WITH A MARK-UP FOR INTERNAL ADMINISTRATION AND ENVIRONMENT AL COSTS. 4-400 SOPIC STEEL VERSION AND SSCS/SSSS (SANDVIK S TEEL CUSTOMER AND SUPPLIER SYSTEM) ABSS IS PROVIDING SERVICES FOR 400-SOPIC STEEL VERS ION AND SSCS/SSSS AS A SANDVIK/ABSS SPECIFIC STANDARD SYSTE M. THE SERVICES INCLUDE APPLICATION DEVELOPMENT, MAINT ENANCE AND TROUBLE SHOOTING INTERFACES TO OTHER SYSTEMS AN D HELP DESK FOR USER HANDLING MATTERS, PROJECT MANAGEMENT, PROJECT PARTICIPATION AND PLANNING, SYSTEM ANALYSIS, TESTIN G AND USER DOCUMENTATION. THE 400-SOPIC STEEL SYSTEM IS OWNED BY ABSS FOR USA GE BY THE DIFFERENT SANDVIK SUBSIDIARIES. 7 ITA NOS.192 TO 194/PUN/2017 THE CUSTOMER HAS THE RIGHT TO ACQUIRE 400-SOPIC STE EL VERSION SERVICES. RESPONSIBILITIES AS DESCRIBED ABOVE FOR APPLICATION DEVELOPMENT ARE ALSO VALID FOR THESE SERVICES. THE SERVICES ARE CHARGED AS A FIXED YEARLY CHARGE ( 400-SOPIC LICENSE FEE RESPECTIVELY SSCS/SSSS LICENSE FEE) DEP ENDING ON SIZE OF THE IMPLEMENTATION. THE 400-SOPC RESPECTIVELY THE SSCS/SSSS LICENSE FEE COVERS THE ABSS COSTS FOR THE ABSS IT SERVICES AS DESCRIBE D ABOVE 7. FROM THE PERUSAL OF NATURE OF SERVICES PROVIDED BY ASSESSEE, IT IS SEEN THAT THE ASSESSEE IS PROVIDING IT SUPPORT AND ADVISORY SERVICES FOR SOLVING IT RELATED PROBLEMS BY ITS USERS AND VARIOU S APPLICATION SOFTWARES. IN ORDER TO QUALIFY THE PAYMENT AS ROYALTY, IT IS N ECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERACY, ARTISTIC OR SCI ENTIFIC WORK. FURTHER IN ORDER TO MEET THE CONSIDERATION PAID BY THE LICENCEE AS R OYALTY, IT IS TO BE ESTABLISHED THAT THE LICENCEE BY MAKING SUCH PAYMEN TS HAS OBTAINED ALL OR ANY OF THE COPYRIGHT RIGHTS. WE FURTHER FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LTD., REPORTED IN (20 13) 39 TAXMANN.COM 88(DEL) HAS OBSERVED AS TO WHAT QUALIFIES AS ROYALT Y AND THE DISTINCTION BETWEEN ROYALTY PAID ON TRANSFER OF COPYRIGHT AND C ONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. THE RELEVANT OBSERVATIONS OF HONBLE HIGH COURT ARE AS UNDER : 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGH TS (INCLUDING THE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGH T OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. 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 AN Y OF THE COPYRIGHT RIGHTS 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 INC ORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MANUSCRIPT. JUST BECAUSE ONE H AS THE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HA S ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LICENCE IN RESPECT OF COPYRIGHT. COPYRIGH T 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 R OYALTY. 88. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO THOSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PRO GRAM. THE RIGHTS TRANSFERRED ARE SPECIFIC TO THE NATURE OF CO MPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COMPUTER'S H ARD 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 TH E USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYMENTS IN THESE TYP ES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINESS INCOME IN ACCORDANCE WITH ARTICLE 7. 8 ITA NOS.192 TO 194/PUN/2017 89. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY PA ID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED AR TICLE OR PRODUCT WITH THE OWNER RETAINING HIS COPYRIGHT, IS NOT THE SAME THING AS TRANSFERRING OR ASSIGNING RIGHTS IN RELATI ON TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE THE ROY ALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON-EXCLUSIVE AND NON- TRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGH TED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN ARTICLE 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 PU RPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPY RIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACHED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/C USTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHORIZ ING OR ENABLING A CUSTOMER TO HAVE THE 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 TH E 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 W HO DIVESTS HIMSELF OF THE RIGHTS HE POSSESSES PRO TANTO. 90. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN T HE COMPUTER FOR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIG HTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO H AVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM TH E RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ON LY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH TH E PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION TO DO. 91. THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY THE ASSESSEE AND IT IS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE A ND REPRESENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONS IDERED AS ROYALTY EITHER UNDER THE INCOME TAX ACT OR UNDER TH E DTAA. 92. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE CO MPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LIC ENCE AGREEMENT, ONLY THE 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 WHOM THE ASSESSEE COMPANY HAS SOLD/LICENSED THE SOF TWARE WERE ALLOWED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPOSES WITH A CONDITION THAT SUCH COPYRIGHT SHALL INCLUDE INFRASO FT COPYRIGHT AND ALL COPIES OF THE SOFTWARE SHALL BE EXCLUSIVE P ROPERTIES OF INFRASOFT. LICENSEE WAS ALLOWED 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 SOFTWARE TO ANY THIRD PARTY WITHOUT THE CONSENT OF INFRASOFT . 9 ITA NOS.192 TO 194/PUN/2017 93. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DECOMPILING, DE-ASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WITHOUT THE WRITTEN CONSENT OF INFRASOFT. THE LICENCE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS CUST OMERS STIPULATES THAT ALL COPYRIGHTS AND INTELLECTUAL PRO PERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE O WNED BY INFRASOFT AND ONLY INFRASOFT HAS THE POWER TO GRANT LICENCE RIGHTS FOR USE OF THE SOFTWARE. THE LICENCE AGREEME NT STIPULATES THAT UPON TERMINATION OF THE AGREEMENT FOR ANY REAS ON, THE LICENCEE SHALL RETURN THE SOFTWARE INCLUDING SUPPOR TING INFORMATION AND LICENCE AUTHORIZATION DEVICE TO INF RASOFT. 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 RIGHT TO USE A COPYRIGHT IN A PROGRAM ME IS TOTALLY DIFFERENT FROM THE RIGHT TO USE A PROGRAMME EMBEDDED IN A CASSETTE OR A CD WHICH MAY BE A SOFTWARE AND T HE PAYMENT MADE FOR THE SAME CANNOT BE SAID TO BE RECE IVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE OF ANY COPYRIGHT TO BRING IT WITHIN THE DEFINITION OF ROYALTY AS GIVEN IN THE DTAA. WHAT THE LICENSEE HAS ACQUIRED IS ONLY A COPY OF TH E COPYRIGHT ARTICLE WHEREAS THE COPYRIGHT REMAINS WITH THE OWNE R AND THE LICENSEES HAVE ACQUIRED A COMPUTER PROGRAMME FOR BE ING USED IN THEIR BUSINESS AND NO RIGHT IS GRANTED TO THEM T O 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 SECTION 9 (1)(VI) OF THE ACT AND ALSO WHETHER THE AMOUNT RECEIVED FOR USE OF SOFTWARE WOULD BE ROYALT Y IN TERMS THEREOF FOR THE REASON THAT THE ASSESSEE 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 N OT ROYALTY UNDER THE DTAA. 97. WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT W HAT IS TRANSFERRED IS THE RIGHT TO USE THE COPYRIGHTED MAT ERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHTS I N A COPYRIGHT. THE RIGHT THAT IS TRANSFERRED IS NOT A RIGHT TO USE THE COPYRIGHT BUT IS ONLY LIMITED TO THE RIGHT TO USE THE COPYRIG HTED MATERIAL AND THE SAME DOES NOT GIVE RISE TO ANY ROYALTY INCO ME AND WOULD BE BUSINESS INCOME. 98. WE ARE NOT IN AGREEME NT WITH THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN TH E CASE OF SAMSUNG ELECTRONICS CO. LTD (SUPRA) THAT RIGHT TO M AKE A COPY OF THE SOFTWARE AND STORING THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TAKING BACKUP COPY WOUL D AMOUNT TO COPYRIGHT WORK UNDER SECTION 14(1) OF THE COPYRIGHT ACT AND THE PAYMENT MADE FOR THE GRANT OF THE LICEN CE FOR THE SAID PURPOSE WOULD CONSTITUTE ROYALTY. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTE R PROGRAMME AND STORING IT IN THE COMPUTER FOR HIS OW N USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LIC ENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUS INESS PURPOSE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND I S QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PROVISION BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED 10 ITA NOS.192 TO 194/PUN/2017 PRODUCT. THE RIGHT TO MAKE A BACKUP COPY PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR D AMAGE HAS BEEN HELD BY THE DELHI HIGH COURT IN DIT V. M/S NOK IA NETWORKS OY (SUPRA) AS NOT AMOUNTING TO ACQUIRING A COPYRIGHT IN THE SOFTWARE. IN VIEW OF THE ABOVE WE ACCORDINGL Y HOLD THAT WHAT HAS BEEN TRANSFERRED IS NOT COPYRIGHT OR THE R IGHT TO USE COPYRIGHT BUT A LIMITED RIGHT TO USE THE COPYRIGHTED MATERIAL AND DOES NOT GIVE RISE TO ANY ROYALTY INCOME. 8. WE FURTHER FIND THAT ON IDENTICAL FACTS AND IN T HE CASE OF THE SANDVIK AUSTRALIA PTY. LTD. VS. DDIT (ITA NO.93/PN/2011) OR DER DT.31.01.2013), THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE I SSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER : 16. IN THE PRESENT CASE, AS PER THE TERMS OF THE A GREEMENT BETWEEN THE ASSESSEE COMPANY AND SANDVIK ASIA LTD., DOES NOT SUPPORT THE CASE OF THE REVENUE THAT THE ASSESS EES CASE IS COVERED IN CLAUSE (G) OF PARA 3 TO ARTICLE 12 OF THE INDIA AUSTRALIA TREATY AS THE ASSESSEE HAS NOT MADE AVAILA BLE ANY TECHNICAL KNOWLEDGE OR EXPERTISE TO THE RECIPIENT I NDIAN COMPANY. IN OUR OPINION, THE ASSESSEE HAS ONLY PROV IDED THE BACK-UP SERVICES AND IT SUPPORT SERVICES FOR SOLVIN G IT RELATED PROBLEMS TO ITS INDIAN SUBSIDIARY. HENCE, UNLESS AN D UNTIL THE SERVICES ARE NOT MADE AVAILABLE, SAME CANNOT BE TAX ABLE IN INDIA. WE, THEREFORE HOLD THAT THE SERVICES RENDERE D BY ASSESSEE COMPANY TO ITS INDIAN GROUP COMPANIES, THO UGH ARE IN THE NATURE OF TECHNICAL SERVICES, BUT IS NOT COV ERED IN PARA (3)(G) TO ARTICLE 12 OF THE INDIA AUSTRALIA TREATY AND HENCE, THE SAME IS NOT TAXABLE IN INDIA. WE ALSO HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS A ROY ALTY EVEN UNDER THE NORMAL PROVISIONS OF I.T. ACT. BUT UNDER THE NORMAL PROVISION OF THE I.T. ACT THE SAME CONSTITUTE CONSI DERATION FOR RENDERING THE TECHNICAL SERVICES COVERED U/S.9(1)(V II) OF THE I.T.ACT. ACCORDINGLY, GROUND NO.1 IS ALLOWED AND IS SUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 9. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE ISSUE IS IDENTICAL TO THAT OF SANDVIK AUSTRALIA PTY. LTD. (SUPRA). WE TH EREFORE FOLLOWING THE AFORESAID DECISION AND THE RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT, ARE OF THE VIEW THAT THE AMOUNT RECEIVED BY ASSESSEE CANNOT BE CONSIDERED TO BE ROYALTY OR FTS AND THEREFORE NOT T AXABLE IN INDIA. WE THEREFORE HOLD ACCORDINGLY. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 9. BEFORE US, REVENUE HAS NEITHER POINTED OUT ANY DISTIN GUISHING FEATURE IN THE FACTS OF THE PRESENT CASE AND THAT OF EAR LIER YEAR. FURTHER, NO MATERIAL HAS BEEN PLACED BY REVENUE TO DEMONSTRATE THAT THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HAS SET ASIDE / STAYED BY HIGHER JUDICIAL FORUM. WE THEREFORE, RELYING ON THE DECIS ION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 AND FOR S IMILAR REASONS HOLD THAT THAT THE AMOUNTS RECEIVED BY THE ASSESSEE FR OM SANDVIK ASIA PRIVATE LIMITED (SAPL) CANNOT BE CONSIDERED AS ROYALTY OR FTS AND 11 ITA NOS.192 TO 194/PUN/2017 THEREFORE NOT TAXABLE IN INDIA. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IN ITA NO.192 /PUN/2017 FOR A.Y. 2010-11 IS ALLOWED. 11. AS FAR AS THE GROUNDS RAISED IN APPEALS IN ITA NOS.1 93 & 194/PUN/2017 FOR A.YS.2011-12 AND 2013-14 ARE CONCER NED, IN VIEW OF THE SUBMISSIONS OF BOTH THE PARTIES THAT THE FACTS OF TH E CASE IN THE YEARS BEING IDENTICAL TO THE FACTS AND ISSUE OF THE CASE IN ITA NO.192/PUN/2 017 FOR A.Y. 2010-11, WE THEREFORE FOR THE REASONS STATED HE REIN WHILE DISPOSING OF THE APPEAL IN ITA NO.192/PUN/2017 FOR A.Y. 2010 -11 AND FOR SIMILAR REASONS, HOLD THAT THE PAYMENTS RECEIVED BY ASSES SEE FROM SANDVIK ASIA PRIVATE LIMITED (SAPL) CANNOT BE CONSIDERED T O BE ROYALTY OR FTS AND THEREFORE NOT TAXABLE IN INDIA AND THUS ALLO W THE GROUNDS OF APPEALS OF ASSESSEE IN ITA NOS.193 & 194/PUN/2017 FOR A.YS.2011-12 AND 2013-14. THUS, THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, THE APPEALS OF ASSESSEE IN ITA NOS. 193 & 194/PUN/2017 FOR A.YS.2011-12 & 2012-13 ARE ALLOWED . 13. TO SUM UP, ALL THE APPEALS OF THE ASSESSEE ARE ALL OWED. ORDER PRONOUNCED ON 19 TH DAY OF FEBRUARY, 2019. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 19 TH FEBRUARY, 2019. YAMINI 12 ITA NOS.192 TO 194/PUN/2017 #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-13, PUNE. PR. CIT-5, PUNE. '#$ %%&',) &', / DR, ITAT, B PUNE; $*+,/ GUARD FILE. / BY ORDER // TRUE COPY // -./%0&1 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.