Vinzas Solutions India P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2048/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9209 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-04-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 08-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Retrospective amendment
• Section: 143(3); 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2048/MDS/2015 ( / ASSESSMENT YEAR: 2011-12) M/S. VINZAS SOLUTIONS INDIA P. LTD., W-97, NEW NO.23, SECOND STREET, ANNA NAGAR, CHENNAI-600 040. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(4), CHENNAI-600 034. PAN:AACCV7736K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.S.SRIRAMAN, ADVOCATE /RESPONDENT BY : MR. A.B.KOLI, JCIT /DATE OF HEARING : 12 TH APRIL, 2016 /DATE OF PRONOUNCEMENT : 15 TH JUNE, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)- 11, CHENNAI DATED 14.09.2015 IN ITA NO.123/2014-1 5/ CIT(A)-11 PASSED UNDER SECTION 143(3) R.W.S.250(6) OF THE ACT . 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS A PPEAL HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING 2 ITA NO.2048 /MDS/2015 OFFICER AMOUNTING TO ` 4,52,93,242/- BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT BEING THE COST OF PURCHASE OF SOFTWARE AGAINST WHICH TAX IS NOT DEDUCTED AT SOURCE UNDER SECTION 194J OF THE ACT. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY E NGAGED IN THE BUSINESS OF TRADING IN SOFTWARE, SOFTWARE MA INTENANCE AND MANPOWER SERVICES FILED ITS RETURN OF INCOME ON 30.09.2011 FOR THE ASSESSMENT YEAR 2011-12 DECLARIN G INCOME OF ` 29,95,250/-. SUBSEQUENTLY, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 21.03. 2014, WHEREIN THE LEARNED ASSESSING OFFICER MADE CERTAIN ADDITIONS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT A SSESSEE HAD PURCHASED COMPUTER SOFTWARE FROM VARIOUS COMPAN IES LIKE INGRAM MICRO (INDIA) LTD., REDINGTON INDIA LTD ., K & S VIVID INDIA LTD., ETC., AND FAILED TO DEDUCT TDS ON THE PAYMENTS MADE TO THEM IN ACCORDANCE WITH SECTION 19 4J OF THE ACT. THEREFORE, THE LEARNED ASSESSING OFFICER I NVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND DIS ALLOWED ` 4,52,93,242/- FOR NON-DEDUCTION OF TDS AGAINST PURC HASE OF 3 ITA NO.2048 /MDS/2015 SOFTWARE/ROYALTY. WHILE DOING SO, THE LEARNED ASSES SING OFFICER OBSERVED AS FOLLOWS:- EXPLANATION 4 HAS BEEN INSERTED IN SECTION 9(1) (VI) TO CLARIFY THAT THE CONSIDERATION FOR USE OR RIGHT TO USE OF COMPUTER SOFTWARE IS ROYALTY BY CLARIFYING THAT TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY BY CLARIFYING THAT TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION AS MENTIONED IN EXPLANATION 2, INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENSE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. EXPLANATION 5 HAS BEEN INSERTED IN SECTION 9(1) (VI) TO CLARIFY THAT ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT: (A) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY OR INFORMATION IS WITH THE PAYER; (B) SUCH RIGHT, PROPERTY OR INFORMATION IS USED DIRECTLY BY THE PAYER; (C) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION IS IN INDIA. HENCE THE PAYMENT MADE FOR THE PURCHASE OF COMPUTERS WITHOUT ANY RIGHTS TO USE OR MODIFY IS RO YALTY AS PER INCOME -TAX ACT. THE ASSESSE ALSO SAID ABOUT A CBOT CIRCULAR, WHICH IS REPRODUCED BELOW: IN EXERCISE OF THE POWERS CONFERRED BY SUB-SECTION (1 F) OF SECTION 197A OF THE INCOME-TAX ACT, 1961 (43 OF 1961), THE CENTRAL GOVERNMENT HEREBY NOTIFIES THAT NO 4 ITA NO.2048 /MDS/2015 DEDUCTION OF TAX SHALL BE MADE ON THE FOLLOWING SPECIFIED PAYMENT UNDER SECTION 194J OF THE ACT, NAMELY:- PAYMENT BY A PERSON (HEREAFTER REFERRED TO AS THE TRANSFEREE) FOR ACQUISITION OF SOFTWARE FROM ANOTHER PERSON, BEING A RESIDENT, (HEREAFTER REFERRED TO AS THE TRANSFEROR), WHERE- (I) THE SOFTWARE IS ACQUIRED IN A SUBSEQUENT TRANSFER AND THE TRANSFEROR HAS TRANSFERRED THE SOFTWARE WITHOUT ANY MODIFICATION, (II) TAX HAS BEEN DEDUCTED- (A) UNDER SECTION 194J ON PAYMENT FOR ANY PREVIOUS TRANSFER OF SUCH SOFTWARE; OR (B) UNDER SECTION 195 ON PAYMENT FOR ANY PREVIOUS TRANSFER OF SUCH SOFTWARE FROM A NON-RESIDENT, AND (III) THE TRANSFEREE OBTAINS A ECLARATION FROM THE TRANSFEROR THAT THE TAX HAS BEEN DEDUCTED EITHER UNDER SUB-CLAUSE (A) OR (B) OF CLAUSE (II) ALONG WITH THE PERMANENT ACCOUNT NUMBER OF THE TRANSFEROR. THIS NOTIFICATION SHALL COME INTO FORCE FROM THE 1 ST DAY OF JULY, 2012.SINCE THESE CHANGES IN THE SECTION 194 J APPLICABLE FOR THE SOFTWARE PURCHASED AFTER 1.7.2012 SUBJECT TO THE CONDITIONS MENTIONED IN THE NOTIFICATION. ASSESSEE CANNOT TAKE SHELTER UNDER THE CONTENT OF THE NOTIFICATION. THE ASSESSEE HAS FAILED TO DEDUCT TDS IN PURCHASE OF SOFTWARE I.E. ROYALTY. HENCE, ` 4,52,93,242/- IS DISALLOWED U/S.40(A)(IA) AND ADDED BACK TO THE TOTAL INCOME. 4. FURTHER, ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ORDER OF THE L EARNED ASSESSING OFFICER OBSERVING AS FOLLOWS:- 5 ITA NO.2048 /MDS/2015 REMARKS OF CIT(AL ON AR'S SUBMISSION : IT IS TRUE THAT WHEN IT COMES TO THE DEFINITION OF 'ROYALTY' U/ S 194J AND 40A(IA), IT IS REFERRED TO EXPLANATION 2 OF SEC. 9 (1 )(VI), REPRODUCED HEREUNDER FOR READY REFERENCE: REPRODUCED EXPLANATION 2 OF SEC,9( 1 )(VI) : 'EXPLANATION 2.-FOR THE PURPOSES OF THIS CLAUSE, 'ROYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UND ER THE HEAD 'CAPITAL GAINS') FOR- (I) THE TRANSFER OF ALL QR ANY RIGHTS (INCLUDING THE GR ANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MOD EL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (ILL) THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SE CRET FORMULA .OR PROCESS OR TRADE MARK OR SIMILAR PROPER TY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNIC AL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL ; (LVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB;] (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GR ANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, A RTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONN ECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDER ATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRA PHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH TH E ACTIVITIES REFERRED TO IN SUB- CLAUSES (I) TO (IV), (IVA) AND) (V).' (EMPHASIS SUPPLIED) 7,5 FROM THE PLAIN READING OF THE ABOVE EXPLANATION, THE AR'S CONTENTION FAILS IN SO FAR AS ITS CLAIM TH AT SINCE THE SOFTWARE PURCHASED WAS NOT USED BY THE ASSESSEE COMPANY, SEC.194J IS NOT APPLICABLE. CLAUSE (I) TO EXPLANATION 2 MENTIONED ABOVE CLEARLY STATES THAT 'THE TRANSFER OF ALL OR ANY RIGHTS (INC LUDING 6 ITA NO.2048 /MDS/2015 GRANTING OF A LICENCE) ... ' THEREFORE, THERE IS NO STIPULATION THAT THE ASSESSEE SHOULD USE THE SOFTWA RE TO BE BROUGHT UNDER THE DEFINITION OF ROYALTY. 7.6 ANOTHER CONTENTION OF THE AR, STATING THAT THE ASSESSING OFFICER SHOULD HAVE RESTRICTED HIS FOCUS ONLY TO EXPLANATION 2 AND NOT REFER TO EXPLANATION 4 AND 5, IS NOT ACCEPTABLE. ACCORDING TO THE AR, SINCE THERE IS NO MENTION OF 'SOFTWARE' UNDER EXPLANATION 2, THE PAYMENT FOR THE PURCHASE OF SOFTWARE SHOULD NOT BE TREATED AS ROYALTY. THIS CONTENTION DOES NOT HOLD W ATER WHILE REFERRING TO EXPLANATION 4 & 5 OF SEC. 9( L)(VI) REPRODUCED HEREUNDER: REPRODUCED EXPLANATION 4 & 5 OF SEC.9(1)(VI): [EXPLANATION 4.- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RI GHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A-LLCENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. EXPLANATION 5.-FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT- (A) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY O R INFORMATION IS WITH THE PAYER; (B) SUCH RIGHT, PROPERTY OR INFORMATION IS USED DIRECTL Y BY THE PAYER; (C) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION IS IN INDIA.' (EMPHASIS SUPPLIED ) 7.7 THE ABOVE EXPLANATION 4 & 5 WERE INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.06.1976. THE EXPLANATION 4 & 5 BEGIN WITH THE PHRASE 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED ',' THEREFORE, THE AO HAS RIGHTLY HELD THAT THE EXPLANATION 4 & 5 WHICH ARE CLARIFICATORY IN NATURE SHOULD BE READ WITH EXPLANATION 2. IF THE AR'S CONTENTION IS TO BE ACCEPTED, IT WILL DEFEAT THE PU RPOSE OF THE LEGISLATIVE AMENDMENT WITH RETROSPECTIVE EFF ECT TO BRING THE TRANSFER OF RIGHTS ALONG WITH SOFTWARE UNDER 'ROYALTY'. 7 ITA NO.2048 /MDS/2015 7.8 I PLACE RELIANCE ON THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA IN (THE CASE OF CIT, INTERNATIONAL TAXATION VS. SAMSUNG ELECTRONICS CO. LTD. (2012) 345 ITR 494 (KAR). THE CONCLUSION OF THE HONBLE HIGH COURT IS REPRODUCED HEREUNDER : REPRODUCED FROM (2012) 345 ITR 494 (KAR): 'ON FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUN AL WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNTS) PAID BY THE ASSESSEE TO THE FOREIGN SOFTWARE SUPPLIERS WAS NOT 'ROYALTY' AND THAT THE SAME DID NOT GIVE RISE TO AN Y 'INCOME' TAXABLE IN INDIA AND, WHEREFORE. THE ASSES SEE WAS NOT LIABLE TO DEDUCT ANY TAX AT SOURCE. [PARA 2 5] 7.9 THE AR HAS PLACED RELIANCE ON THE ON THE SUPREME COURT DECISION IN THE CASE OF TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH (2004) (271 ITR 401) (SC). THE SAID DECISION IS NOT APPLICABLE TO THE APPELLANT'S CASE FOR THE FOLLOWING REASONS : A) THE QUESTION RAISED IN THE APPEAL BEFORE THE APE X COURT IS WHETHER THE CANNED SOFTWARE SOLD BY THE APPELLANT, CAN BE TERMED AS 'GOODS' AND AS SUCH ASSESSABLE UNDER THE SALES TAX ACT OF STATE OF ANDHRA PRADESH. WHEREAS, THE ISSUE IN THE INSTANT CASE IS COMPLETELY DIFFERENT. B) IT IS PERTINENT TO NOTE THAT THE APEX COURT'S DE CISION CAME IN THE YEAR 2004. WHEREAS THE AO HAS RELIED ON EXPLANATION 4 & 5 INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.06.1976. 8. DECISION OF THE CIT(A) : FOR THE ELABORATE REASONS GIVEN BY ME FROM PARA 7.4 TO 7.9, THE AR'S SUBMISSI ON IS NOT ACCEPTABLE. THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF CIT) INTERNATIONAL TAXATION VS. SAMSUNG ELECTRONICS CO. LTD. (2012) 345 ITR 494 (KAR) IS APPLICABLE TO THE PRESENT CASE. THE DECISION IN THE CASE OF TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH (2004) (271 ITR 401) {S'C}, RELIED ON BY THE AR) IS NOT RELEVANT TO THE FACTS AND CIRCUMSTANCES OF THE APPELLANT AS DISCUSSED ABOVE IN PARA 7.9. THE 8 ITA NO.2048 /MDS/2015 APPELLANT CANNOT TAKE SHELTER UNDER THE CBDT'S NOTIFICATION NO.21/2012 DATED 13.06.2012 AS IT IS N OT APPLICABLE TO A.Y. 2011-12 UNDER CONSIDERATION AS T HE SAID NOTIFICATION SHALL COME INTO FORCE FROM 0 L.07 .2012. 8.1 IT IS ALSO PERTINENT TO NOTE THAT THE APPELLANT HAS EFFECTED TDS ON THE PAYMENT TOWARDS RENEWAL OF LICENCE FOR SOFTWARE WHICH ATTRACTS 10% SERVICE TAX WHEREAS NO TDS WAS DONE ON THE PURCHASE ?F SOFTWARE WHICH ATTRACTED VAT OF 4% / 5%. THEREFORE, I AM OF THE CONSIDERED OPINION THAT THE APPELLANT OUG HT TO HAVE DEDUCTED TDS U(S 194J R.W.S. 9(1)(VI). 5. BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE RELYING ON THE DECISION OF THE HONBLE DELHI HIGH C OURT IN THE CASE OF THE PRINCIPAL CIT VS. M.TECH INDIA P.LTD., IN ITA NO.89/2015, ORDER DATED 19.01.2016, ARGUED BY STATI NG THAT, THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE AS PER PROVISIONS OF SECTION 194J OF THE ACT BECAUSE THE A SSESSEE HAS ONLY PURCHASED A CUSTOMIZED SOFTWARE MEANT FOR THE USE OF ITS BUYER WITHOUT ANY RIGHT TO MODIFY THE SAME. THE ASSESSEE IS ACTING ONLY IN THE CAPACITY AS A DEALER FOR PURCHASE AND SALE OF THE SOFTWARE, HENCE THE QUESTI ON OF ROYALTY DOES NOT ARISE. THE SOFTWARE PURCHASED AND RESOLD CAN BE ONLY INSTALLED AND USED BY THE BUYER FOR WHO M IT IS CUSTOMIZED. THE CUSTOMER WHO PURCHASES THE SOFTWARE IS GIVEN SECRET CODE FOR INSTALLATION AND USAGE. UNTIL THE USER 9 ITA NO.2048 /MDS/2015 INSTALLS AND USES THE SOFTWARE, NO RIGHT IS ACQUIRE D. FURTHER THE SOFTWARE IS JUST A NON-USABLE DUMP CD TILL INST ALLED. IT WAS THEREFORE SUBMITTED THAT PROVISIONS OF TAX DEDUCTED AT SOURCE WILL NOT BE APPLICABLE IN THE CASE OF THE CASE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND, ARGUED IN SUPPORT OF THE ORDERS OF THE REVENU E. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE IS IT IS APPARENT THAT THE ASSESSEE IS ONL Y BUYING THE SOFTWARE AND SELLING THE SAME IN THE OPEN MARKET, T HUS HE IS ACTING ONLY IN THE CAPACITY AS DISTRIBUTOR/AGENT OR AS TRADER. THE END USER OF THE SOFTWARE OBTAINS THE CODE FROM THE SOFTWARE DEVELOPER FOR USING THE SOFTWARE EMBEDDED IN THE CD. THUS, THERE IS A CONTINUOUS RELATIONSHIP BETWEE N THE SOFTWARE DEVELOPER AND THE END USER. IN THESE CIRCU MSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE DECISION CIT ED BY THE LEARNED AUTHORIZED REPRESENTATIVE IS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE HONBLE DELHI HIGH COUR T IN THE CASE OF PRINCIPAL CIT VS. M.TECH INDIA P.LTD., (SUP RA) HELD AS FOLLOWS:- 10 ITA NO.2048 /MDS/2015 9. WE HAVE HEARD THE LEARNED COUNSEL FOR THE PART IES. 10. THE ASSESSEE HAD ENTERED INTO A VAR AGREEMENT WITH THPL PARAGRAPH1.1 OF THE SAID AGREEMENT EXPRES SLY INDICATES THAT THPL HAD APPOINTED THE ASSESSEE (DESCRIBED AS VAR) TO MARKET AND SELL THE PRODUCTS IN THE TERRITORY. ARTICLE 2 OF THE SAID AGREEMENT PROVIDES FOR VARS OBLIGATIONS. CLAUSE (A) OF PARAGRAPH 2.1 OF ARTICLE 2 EXPRESSLY PROVIDES THAT THE ASSESSEE SHALL PROMOTE , MARKET AND SELL THE PRODUCTS IN ACCORDANCE WITH A B USINESS PLAN WHICH SHALL BE SUBMITTED TO TRAK WITHIN THREE( 3)MONTHS OF THE EFFECTIVE DATE OF THE AGREEMENT .PARAGRAPH 4.2 ENTITLES THE ASSESSEE TO INTER ALIA,USE THE SOFTWAR E AND SOURCE CODES FOR A LIMITED PURPOSES TO SELL AND PRO MOTE THE SOFTWARE FOR USE BY THIRD PARTIES; DEMONSTRATE THE SOFTWARE TO THIRD PARTIES; AND TO CUSTOMISE THE SOFTWARE FOR THE PURPOSES OF END USERS. THE SAID AGREEMENT FURTHER CONTAINS A NUMBER OF COVENANTS TO ENSURE THAT THE INTELLECTUAL PROPERTY RIGHTS IN RESPECT OF THE SOFT WARE, RELATED MATERIAL AND SOURCE CODES REMAINS WITH THPL . A PLAIN READING OF THE AFORESAID AGREEMENT INDICATES THAT THE ASSESSEE HAS BEEN APPOINTED FOR THE PURPOSES OF RES ELLING THPLS SOFTWARE. 11.THE CIT(A) FOUND THAT THE ASSESSEE WAS ENGAGED I N THE RESALE OF SOFTWARE AND THE PAYMENTS MADE BY IT TO T HPL AND OTHERS WERE ON ACCOUNT OF PURCHASES MADE BY THE ASSESSEE. THE ITAT CONCURRED WITH THE AFORESAID FIN DING. IT IS ALSO NOT DISPUTED THAT IN THE PRECEDING YEARS TH E AO HAD ACCEPTED THE TRANSACTIONS IN QUESTION TO BE THAT OF PURCHASE OF SOFTWARE. THE LIMITED ISSUE TO BE ADDRESSED IS W HETHER IN VIEW OF THESE FINDINGS THE AMOUNT PAID BY THE ASSES SEE COULD BE TAXED AS ROYALTY. 12. IN THE CASES WHERE AN ASSESSEE ACQUIRES THE RIG HT TO USE A SOFTWARE, THE PAYMENT SO MADE WOULD AMOUNT T O ROYALTY. HOWEVER IN CASES WHERE THE PAYMENTS ARE MA DE FOR PURCHASE OF SOFTWARE AS A PRODUCT, THE CONSIDER ATION PAID CANNOT BE CONSIDERED TO BE FOR USE OR THE RIGH T TO USE THE SOFTWARE. IT IS WELL SETTLED THAT WHERE SOFTWAR E IS SOLD AS A PRODUCT IT WOULD AMOUNT TO SALE OF GOODS. IN THE CASE OF TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADES H: (2004) 271 ITR 401 (SC) THE SUPREME COURT EXAMINED THE TRANSACTIONS RELATING TO THE PURCHASE AND SALE OF S OFTWARE RECORDED ON A CD IN THE CONTEXT OF THE ANDHRA PRADE SH GENERAL SALES TAX ACT. THE COURT HELD THE SAME TO B E GOODS WITHIN THE MEANING OF SECTION 2(B) OF THE SAI D ACT AND CONSEQUENTLY EXIGIBLE TO SALES TAX UNDER THE SA ID ACT. 11 ITA NO.2048 /MDS/2015 CLEARLY, THE CONSIDERATION PAID FOR PURCHASE OF GOO DS CANNOT BE CONSIDERED AS ROYALTY. THUS, IT IS NECES SARY TO MAKE A DISTINCTION BETWEEN THE CASES WHERE CONSIDER ATION IS PAID TO ACQUIRE THE RIGHT TO USE A PATENT OR A C OPYRIGHT AND CASES WHERE PAYMENT IS MADE TO ACQUIRE PATENTED OR A COPYRIGHTED PRODUCT/MATERIAL. IN CASES WHERE PAYMEN TS ARE MADE TO ACQUIRE PRODUCTS WHICH ARE PATENTED OR COPYRIGHTED, THE CONSIDERATION PAID WOULD HAVE TO B E TREATED AS A PAYMENT FOR PURCHASE OF THE PRODUCT RA THER THAN CONSIDERATION FOR USE OF THE PATENT OR COPYRIG HT. 13. A COORDINATE BENCH OF THIS COURT HAS ALSO EXPRE SSED A SIMILAR VIEW IN THE CASE OF INFRASOFT (SURPA). IN THAT CASE THE REVENUE SOUGHT TO TAX THE RECEIPTS ON SALE OF LICEN SING OF CERTAIN SOFTWARE AS ROYALTY. THE TRIBUNAL HELD THAT THERE WAS NO TRANSFER OF RIGHTS IN RESPECT OF THE COPYRIGHT H ELD BY THE ASSESSEE IN THE SOFTWARE AND IT WAS A CASE OF MERE TRANSFER OF COPY RIGHTED ARTICLE. THIS COURT CONCURRED WITH THE TRIBUNAL AND HELD THAT WHAT WAS TRANSFERRED WAS NOT COPYRIGHT OR THE RIGHT TO USE A COPYRIGHT BUT A LIM ITED RIGHT TO USE THE COPYRIGHTED MATERIAL AND THAT DID NOT GIVE RISE TO ANY ROYALTY INCOME. 14. INSOFAR AS THE RELIANCE PLACED BY THE REVENUE O N THE DECISION OF THE KARNATAKA HIGH COURT IN SAMSUNG ELECTRONICS CO. (SUPRA) IS CONCERNED, A COORDINATE BENCH OF THIS COURT IN INFRASOFT(SUPRA) HAS UNEQUIVOCALL Y EXPRESSED ITS VIEW THAT IT WAS NOT IN AGREEMENT WI TH THAT DECISION. THUS, THE SAID DECISION IS OF NO ASSISTAN CE TO THE REVENUE IN THIS CASE. 15. IN ANOTHER CASE, DYNAMIC VERTICAL SOFTWARE INDI A P. LTD. (SUPRA) THIS COURT HAD REITERATED THE VIEW THAT PAY MENT MADE BY A RESELLER FOR THE PURCHASE OF SOFTWARE FOR SALE IN THE INDIAN MARKET COULD BY NO STRETCH BE CONSIDERED AS ROYALTY. ACCORDINGLY, THE HONBLE DELHI HIGH COURT IN THE CA SE OF THE ASSESSEE HELD THAT THAT THE PROVISIONS OF THE ACT R ELATING TO TAX DEDUCTED AT SOURCE WILL NOT APPLY AND HENCE, PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE INVOKED. 12 ITA NO.2048 /MDS/2015 8. FOLLOWING THE ABOVE DECISION, WE DO NOT HAVE ANY HESITATION TO HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF TAX DEDUCTED AT SOURCE WILL NOT BE AP PLICABLE. HENCE, WE HEREBY DIRECT THE LEARNED ASSESSING OFFIC ER TO DELETE THE ADDITION FOR `4,52,93,242/- MADE BY INV OKING THE PROVISIONS OF SECTION 40(A)(IA), 194J R.W.S 9(I)(VI ) OF THE ACT. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH JUNE, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 15 TH JUNE, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF