M/s. i 2 TECHNOLOGIES (NETHERLAND) B.V., MUMBAI V. ADIT Rg. - 3(1), MUMBAI

ITA 2410/MUM/2007

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7830 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 19-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 26-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: A V SONDE
• Keywords: Business income; Double taxation relief; Bonafide belief; Retrospective amendment; Permanent establishment; Question of law; Reason to believe

Judgement Text

ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH L, MU MBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.2410/MUM/2007 (ASSESSMENT YEAR- 2002-03) ITA NO.6449 /MUM/2008 (ASSESSMENT YEAR- 2004-05) M/S I 2 TECHNOLOGIES (NETHERLAND) BV, 143-B&C,S.D.F. V, SEEPZ, ANDHERI EAST MUMBAI-400096 PAN:AACI0320B VS. ACIT (INTERNATIONAL TAXATION) - 3 (1), MUMBAI (APPELLANT) (RESPONDENT) ITA NO.1718 /MUM/2007 (ASSESSMENT YEAR- 2002-03) ACIT(INTERNATIONAL TAXATION) -3 (1), MUMBAI VS. M/S I 2 TECHNOLOGIES (NETHERLAND) BV, 143-B&C,S.D.F. V, SEEPZ, ANDHERI EAST MUMBAI-400096 PAN:AACI0320B (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. A.V. SONDE SR. ADVOCATE REVENUE BY : SH. M.V.RAJGURU (CIT- SR. DR) DATE OF HEARING : 21.03.2017 DATE OF PRONOUNCEMENT : 31.03.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. THIS ORDER SHALL DISPOSE OF A BUNCH OF THREE APPEAL S OUT OF WHICH FIRST TWO CROSS APPEALS FOR AY 2002-03. AND THE THIRD APPEAL BY ASS ESSEE FOR AY 2002-03 ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 2 AGAINST THE ORDER OF LD CIT(A) IN DELETING THE PENA LTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. THE APPEAL ITA NO.2410/MUM/ 2007 FOR AY 2002-03 AND APPEAL NO.ITA NO.1718 /MUM/2008 FOR AY 2004-05 IS DIRECTED AGAINST THE CIT(A) -33 DATED 1.12.2006 AND 31.12.2007 RESPECTIV ELY IN QUANTUM ASSESSMENT. THE APPEAL ITA NO.6449 /MUM/2008 FOR A Y- 2002-03 I S DIRECTED AGAINST THE ORDER OF LD CIT(A) DATED 02.05.2008 IN DELETING TH E PENALTY UNDER SECTION 21(1)(C). AS FACTS OF ALL THE APPEALS ARE COMMON IN ALL THE APPEALS HENCE, ALL THE APPEALS WERE HEARD TOGETHER AND ARE BEING DECIDED B Y CONSOLIDATED ORDER FOR AVOIDING CONFLICTING DECISIONS. 2. IN ITA NO.2410/MUM/2007 FOR AY 2002-03 THE ASSESSE E HAS RAISED FOLLOWING GROUNDS OF APPEAL : (1) THE LEARNED CIT(A) ERRED IN LAW IN HOLDING THAT CON SIDERATION RECEIVED FOR SOFTWARE LICENSE/SUB-LICENSED AS ROYALTY ( GROUND A TO D) (2) THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT S ATYAM COMPUTER SERVICES LTD AND AGROTECH FOOD LTD HAD NOT DEDUCTED TAX AT S OURCE AND THE DEPARTMENT HAD ACCEPTED THIS SITUATION WITHOUT INITIATING ANY ACTION AGAINST THEM(E) . (3) THE LEARNED CIT(A) FAILED TO ADJUDICATE UPON WHETHE R THE VARS CONSTITUTED A PE OF APPELLANT IN INDIA. WITHOUT PREJUDICE TO THE GROUNDS IS ASKED THE ASSESSEE SUBMITS THAT THESE VARS CANNOT BE CONSIDERED PE OF THE ASSESSEE IN INDIA AS THEY DID NOT COME UNDER THE CONTROL AND DIRECTION O F THE ASSESSEE.(F) 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE COMPANY I S INCORPORATED UNDER THE LAW OF NETHERLANDS. THE ASSESSEE IS WHOLLY SUBSIDIARY OF M /S I2 TECHNOLOGY INC USA. THE ASSESSEE OBTAINED THE EXCLUSIVE RIGHT TO USE, D EVELOP AND ENJOY THE INTANGIBLE PROPERTY RIGHTS TO THE COMPUTER SOFTWARE FROM M/S I 2 TECHNOLOGIES (CAYMAN ISLAND) LTD. THE ASSESSEE FILED RETURN OF INCOME FO R RELEVANT ASSESSMENT YEAR ON 17 FEBRUARY 2004 DECLARING TOTAL INCOME OF RS.3,88,23, 854/-. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED THAT RS. 1,28,89,958/- WAS REC EIVED ON ACCOUNT OF LICENCE FEE FOR THE SALE OF SOFTWARE WHICH IS NOT TAXABLE IN IN DIA. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO AND TREATED THE SAID INCOME AS ROYALTY AND BROUGHT THE SAME AS TAXABLE INCOME OF ASSESSEE IN INDIA. THE A O FURTHER CONCLUDED THAT OUT THE SAID INCOME, THE INCOME ON ACCOUNT OF LICENCE F EE OF SOFTWARE TO M/S AGROTECH FOODS LTD OF RS. 32,27,028/- IS A DIRECT SALE AND I NCOME ON LICENCE FEE TO M/S COMPAQ COMPUTER (INDIA) FOR RS.73,27,586/- AND TO M /S SATYAM COMPUTER SERVICES FOR RS.32,35,344/- ARE VALUE ADDED RETAIL( VAR). THE VARS SOLD THESE ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 3 SOFTWARE TO PREMIERE INSTRUMENT & CONTROLS LTD AND MARUTI UDYOG LTD AND THE RECEIPT WAS NOT OFFERED TO TAX BY ASSESSEE ON THE G ROUND THE TRANSACTION ARE IN THE NATURE OF COPYRIGHTED PRODUCT RATHER THAN COPYRIGHT ARTICLE. THE AO HELD THAT THEY ARE DEPENDING AGENT OF THE ASSESSEE AND ACCORDINGLY TAXED THE RECEIPT U/S 44AD. ON APPEAL BEFORE LD CIT(A) THE INCOME RECEIVED ON A CCOUNT OF DIRECT SALE AS WELL AS VARS BOTH WERE TREATED AS ROYALTY. THUS, FURTHE R AGGRIEVED BY THE ORDER OF COMMISSIONER (APPEALS) THE ASSESSEE HAS FILED PRESE NT APPEAL BEFORE US. 4. GROUND NO1 & 2 (A TO E) RELATES TO TREATMENT OF CON SIDERATION RECEIVED BY THE ASSESSEE FOR SOFTWARE LICENSED / SUBLICENSED AS ROY ALTY. WE HAVE HEARD THE LEARNED ADVOCATE / AUTHORIZED REPRESENTATIVE FOR TH E ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE ASSESSEE COMPANY SELLS SOFTWARE TO INDIAN COMPANIES FOR THEIR USE AN D NOT FOR RESALE. ALTHOUGH THE ASSESSEE COMPANY CHARGED AS LICENCE FEE, THE AMOU NT RECEIVED IS FOR THE GRANT OF NON-EXCLUSIVE, NON-TRANSFERABLE PERPETUAL LICENSE F OR SOFTWARE AMOUNT TO SALE OF SUCH SOFTWARE. THE ASSESSEE COMPANY ALSO RECEIVES F EES TOWARD ANNUAL MAINTENANCE CONTRACT ENTERED INTO WITH THE LICENSES OF THE SOFTWARE AND SUCH RECEIPTS WERE OFFERED TO TAX IN THE RETURN OF INCOM E FILED FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER TOOK THE VIEW THAT WHERE THE SOFTWARE HAS BEEN DIRECTLY SOLD TO THE END-USER, THE AMOUNT IS CHARGEABLE TO TAX AS ROYALTY AND WHERE THE SOFTWARE HEAD BEEN LICENSED TO VALUE- ADDED RESELLERS (VAR) THE INCOME WOULD BE BUSINESS INCOME SINCE THE VAR CAN BE CONSTRUED TO BE THE PE OF THE ASSESSEE COMPANY. IT WAS FURTHER ARGUED BY T HE LD COUNSEL THAT THE LEARNED CIT(A) ALSO HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE COMPANY IS ONLY FOR THE RIGHT TO USE THE COPY RIGHT AND NOT FOR CO PYRIGHTED ARTICLE. THE LD COMMISSIONER (APPEALS) ALSO TOOK THE VIEW THAT SOFT WARE ITSELF IS A SECRET PROCESS WHICH IS USED IN DATA PROCESSING AND IN A S SUCH THE PAYMENT IS MADE FOR USING SUCH PROCESS AND THE PAYMENT IS IN THE NATURE OF ROYALTY. THE LEARNED CIT(A) ALTERNATIVELY ALSO HELD THAT SOFTWARE IS A SCIENTIFIC EQUIPMENT AND THE PAYMENT RECEIVED BEING FOR USE OF SUCH EQUIPMENT WO ULD BE CONSTRUED AS ROYALTY. IT WAS ARGUED ON BEHALF OF ASSESSEE THAT INCOME REC EIVED BY THE ASSESSEE IS NOT IN ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 4 THE NATURE OF ROYALTY, THE SOFTWARE LICENSE GRANTED BY IT ARE IN THE NATURE OF SHRINK WRAPPED SOFTWARE OR PACKAGED SOFTWARE WHICH DOES NOT RESULT IN ROYALTY INCOME FOR THE ASSESSEE. IN SUPPORT OF HIS ARGUMENT THEY LEARNED COUNSEL FOR ASSESSEE RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CIT VERSUS INFRASOFT LTD[2013] 220 TAXMAN 273, DECISIO NS OF MUMBAI TRIBUNAL IN ADIT VERSUS BAN GLOBAL B.V. [2016] 49 ITR(T) 73, QA D EUROPE BV VERSUS DCIT 53 ITR(T) 259, ADIT VS FIRST ADVANTAGE PRIVATE LIMITED[2017] 77 TAXMAN.COM 195, GALATEA LTD. V/S. DCIT(IT) [2016] 4 6 ITR (T) 690, INTERNATIONAL LTD. VS. ADIT(IT) [2016] 68 TAXMAN.COM 97, RELIANCE INDUSTRIES LTD. [2016] 69 TAXMAN.COM 311, [2011] 16 TAXMAN.COM 371, SOLID WOR KS CORPORATION [2012] 51 SOT 34, SOFTWARE & SYSTEM (P.) LTD. V/S DCIT/ACIT [ 2014] 47 TAXMAN.COM 140, ANTWERP DIAMOND BANK NV ENGINEERING CENTRE [2014] 6 5 SOT 23, INC. V/S. ADIT [2015] 61 TAXMAN.COM 36, TEAM TELECOM INTERNAT IONAL (P.) LTD. [2011] 12 ITR (T) 688 AND ADIT(IT) V/S. COLGATE PALMOLIVE MAR KETING SDN BHD [ITA NOS. 2129-2130/8311/MUM/04/; ITA NO. 2639/5794/5423 /MUM/2006, ITA NO. 5920/MUM/2007]. ON THE OTHER HAND THE LEARNED DR FO R THE REVENUE SUPPORTED THE ORDER OF AUTHORITY BELOW. THE LEARNED DR FOR TH E REVENUE FURTHER ARGUED THAT THE HONBLE DELHI HIGH COURT AND VARIOUS TRIBUNALS HAVE EXAMINED THE ISSUE OF ROYALTY ONLY UNDER CLAUSE (V) OF EXPLANATION 2 TO S ECTION 9(1)(VI) OF THE ACT AND THE CORRESPONDING CLAUSE OF DTAA BUT NOT UNDER ANY OTHER CLAUSE OF EXPLANATION TO SECTION 9(1)(VI). THE USE OF SOFTWARE IS COVERED UNDER CLAUSE (III) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT/DTAA AS USE OF PRO CESS. THE AO CORRECTLY HELD THAT THE CONSIDERATION RECEIVED BY ASSESSEE FOR SAL E/SUPPLY/LEASE OF SOFTWARE AS ROYALTY FOR THE USE OR RIGHT TO USE OF COPYRIGHT IN SOFTWARE UNDER CLAUSE (V) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AS WEL L AS UNDER DTAA. THE AO ALSO PUT AN ALTERNATIVE CONTENTION THAT WHETHER SOFTWARE FITS (FALLS) INTO ONE OF THE CATEGORIES MENTIONED IN CLAUSE (I) & (III) TO EXPLA NATION 2 TO SECTION 9(1)(VI) OF THE ACT. THE LD. DR FURTHER RELIED THAT THE VARIOUS DEC ISION RELIED BY LD. AR OF THE ASSESSEE INCLUDING OF DECISION OF HONBLE DELHI HIG H COURT IN INFRASOFT LTD. (SUPRA) AND WOULD ARGUE THAT VARIOUS DECISION OF MU MBAI TRIBUNAL WERE NOT AVAILABLE AT THE TIME OF ASSESSMENT ORDER OR DURING THE PROCEEDINGS BEFORE FIRST ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 5 APPELLATE AUTHORITY (FAA), THEREFORE, THE LOWER AUT HORITY HAS NO OCCASION TO EXAMINE WHETHER THE RATIO OF THOSE DECISION CAN BE APPLIED IN THE PRESENT CASE. THE AO HAS EXAMINED THE ISSUE OF ROYALTY AS PROCESS W HICH HAS NOT BEEN DISCUSSED BY HONBLE DELHI HIGH COURT OR IN VARIOUS DECISIONS BY MUMBAI TRIBUNAL. THE LD. DR FOR THE REVENUE MADE SUBMISSIONS THAT IN CASE TH E TRIBUNAL COMES TO THE CONCLUSION THAT THE ISSUE RAISED IN THE PRESENT APP EAL IS COVERED BY THE ABOVE REFERRED DECISIONS, THEN THE ASSESSEES CASE NEEDS TO BE EXAMINED AFRESH ON THE FACT AS WELL AS ON LAW INCLUDING THE ISSUE OF PROCESS BE FORE GIVING THE BENEFIT OF FAVORABLE DECISION TO THE ASSESSEE. THE LD. DR FOR THE REVENUE REFERRED THAT IN GLOBAL TALLY SYSTEM LTD. THE MUMBAI TRIBUNAL VIDE O RDER DATED 20.04.2016 AND AHMEDABAD TRIBUNAL IN LMT LTD. (152 ITD 873) HAS RE STORED THE MATTER BACK TO THE FILE OF LD. CIT(A). THE LD DR FOR THE REVENUE A LSO REFERRED AND RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CIT VS SAMSUNG ELECTRONICS LTD. [2012] 345ITR 494. IN THE REJOINDER ARGUMENT, THE LD. SR. COUNSEL OF ASSESSEE ARGUED THAT THE POINT OF PROCESS WAS CONSIDERED B Y DELHI TRIBUNAL IN DATAMINE INTERNATIONAL IN PARA 10, 11 & 12 AND IN QAD EUROPE BV V/S. DCIT 53 ITR(T) 259. THE LD. COUNSEL FOR ASSESSEE FURTHER RELIED UP ON THE DECISION OF SPECIAL BENCH IN ITO VS. PRASAD PRODUCTION [2010] 125 ITD 263 (CH ENNAI) (SB). 5. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE ASSESSMENT, THE AO ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF NON-TAXABILITY OF LICENSE FEES OF RS. 1,28,89,958/-. THE ASSESSEE FILED ITS DETAILED REPLY DATED 07.03.3003. THE AO OBSERVED THAT SATYAM COMPUTER SERVICES LTD. AND COMPAQ COMPUTER (INDIA) PVT. LTD. ACTED AS VALUE ADDED RESELLER (VAR) FOR PREMIUM INSTRUCTION AND CO NTROL LTD. (PRICOL) AND MARUTI UDYOG LTD. SATYAM COMPUTER SERVICES LTD. AND COMPAQ COMPUTER (INDIA) PVT. LTD. WHICH ACTED AS VAR FOR ASSESSEE W HICH ARE NOT IN THE BUSINESS OF SELLING THE LICENSE SOFTWARE TO THE END USER BUT FO R THE ASSESSEE-COMPANY AND WERE TREATED AS AGENTS OF ASSESSEE AND THUS THE ASSESSEE FORMS A PERMANENT ESTABLISHMENT THROUGH ITS AGENT. THUS, THE AMOUNT R ECEIVED FROM SATYAM COMPUTER SERVICES LTD. AMOUNTING TO RS. 1,23,35,344 /- AND RS. 73,27,586/- RESPECTIVELY WAS TAXED AS ROYALTY INCOME AS PER THE PROVISION OF SECTION 44D OF ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 6 THE ACT. THE AO FURTHER OBSERVED THAT ASSESSEE-COMP ANY ENTERED INTO AGREEMENT WITH M/S AGROTECH FOOD LTD. WHEREIN THE LICENSE IS SOLD DIRECTLY. IN THE LICENSE AGREEMENT, IT WAS CLARIFIED THAT OWNERSHIP ENTITLED AND THE LICENSED PRODUCT INCLUDING CORRECTIVE UPDATE, ADAPTATION ENHANCEMENT OR COPIES DELIVERABLE AND SERVICES SHALL BE OWNED BY ASSESSEE. THE ASSESSEE A LSO AGREE TO PROVIDE SUPPORT SERVICE TO THE LICENSE PRODUCT WHICH CAN BE PURCHAS ED ANNUALLY SUPPORT BASIS, THUS THE ASSESSEE HAS RECEIVED LICENSE FEES FROM THE FOL LOWING THREE PARTIES: (A) COMPAQ COMPUTER (INDIA) PVT. LTD. RS. 73,27,586/- (B) SATYAM COMPUTER SERVICES LTD. RS. 23,35,344/- (C) M/S AGROTECH FOOD LTD. RS. 32,27,028/- THUS, THE AO TAXED THE RECEIPT FROM COMPAQ COMPUTER (INDIA) PVT. LTD. AND SATYAM COMPUTER SERVICES LTD. @ 20% AS PER THE PROV ISION OF SECTION 44D AND THE RECEIPT OF RS. 32,27,028/- RECEIVED FROM M/S AG ROTECH FOOD LTD. WAS TREATED AS ROYALTY AND TAXED @ 15%. THE LD. CIT(A) WHILE C ONSIDERING THE APPEAL OF THE ASSESSEE HELD THAT THE CONSIDERATION RECEIVED BY TH E ASSESSEE IS ONLY FOR THE RIGHT TO USE THE COPYRIGHT AND NOT COPYRIGHTED ARTICLE. THE LD. CIT(A) ALSO CONCLUDED THAT SOFTWARE ITSELF IS SECRET PROCESS WHICH IS USED IN DATA PROCESSING AND AS MUCH THE PAYMENT IS MADE FOR USING SUCH PROCESS, THE PAYMENT IS IN THE NATURE OF ROYALTY. THE LD. CIT(A) IN ALTERNATIVE ALSO HELD THAT SOFTWA RE IS A SCIENTIFIC EQUIPMENT AND THE PAYMENT RECEIVED FOR USE OF SUCH EQUIPMENT WOUL D BE CONSTRUED AS ROYALTY. THE HONBLE DELHI HIGH COURT IN DIT VS. INFRASOFT L TD. WHILE CONSIDERING THE SUBSTANTIAL QUESTION OF LAW, WHETHER THE CONSIDERAT ION RECEIVED BY GRANT OF LICENSE FOR USE OF SOFTWARE IS NOT ROYALTY WITHIN THE MEANI NG OF ARTICLE 12(13) OF DTAA BETWEEN INDIA AND USA AND HELD AS UNDER: 81. THE SUPREME COURT IN TATA CONSULTANCY SERVICES CASE' (SUPRA) HAVE THUS LAID DOWN THAT COMPUTER PROGRAMS ARE THE PRODUCT OF AN I NTELLECTUAL PROCESS, BUT ONCE IMPLANTED IN A MEDIUM THEY ARE WIDELY DISTRIBUTED T O COMPUTER OWNERS. THAT A COMPUTER PROGRAM MAY BE COPYRIGHTABLE AS INTELLECTU AL PROPERTY DOES NOT ALTER THE FACT THAT ONCE IN THE FORM OF A FLOPPY DISC OR OTHER MED IUM, THE PROGRAM IS TANGIBLE MOVABLE AND AVAILABLE IN THE MARKETPLACE. 82. THE SUPREME COURT HAS FURTHER HELD THAT A SOFTW ARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENABLE THE COMPUTER TO PERFO RM A DESIGNATED TASK. THE COPYRIGHT IN THAT PROGRAMME MAY REMAIN WITH THE ORI GINATOR OF THE PROGRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS WHICH ARE SUSCEPTIBLE TO ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 7 SALES TAX. EVEN INTELLECTUAL PROPERTY' ONCE IT IS P UT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS (IN CASE OF PAINTING) OR CO MPUTER DISCS OR CASSETTES AND MARKETED WOULD BECOME 'GOODS'. THERE IS NO DIFFEREN CE BETWEEN A SALE OF A SOFTWARE PROGRAMME ON A CD/FLOPPY DISC FROM A SALE OF MUSIC ON A CASSETTE/CD OR A SALE OF A FILM IN A VIDEO CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECTUAL PROPERTY HAS BEEN INCORPORATED ON A MEDIA FOR, PURPOSES OF TRANSFER. SALE IS NOT JUST OF THE MEDIA WHICH BY ITSELF HAS VERY LITTLE VALUE. THE SOFTWARE AND T HE MEDIA CANNOT BE SPLIT UP. WHAT THE BUYER PURCHASES AND PAYS FOR IS NOT THE DISC OR THE CD. AS IN THE CASE OF PAINTINGS OR BOOKS OR MUSIC OR FILMS THE BUYER IS PURCHASING THE INTELLECTUAL PROPERTY AND NOT THE MEDIA I.E. THE PAPER OR CASSETTE OR DISC OR CD. THE SOFTWARE ITSELF, I.E. THE PHYSICAL COPY, IS NOT MERELY A RIGHT OR AN IDEA TO BE COMPRE HENDED BY THE UNDERSTANDING. 83. IT HAS BEEN FURTHER HELD THAT THE PURCHASER OF COMPUTER SOFTWARE NEITHER DESIRES NOR RECEIVES MERE KNOWLEDGE, BUT RATHER RECEIVES A CERT AIN ARRANGEMENT OF MATTER THAT WILL MAKE HIS OR HER COMPUTER PERFORM A DESIRED FUNCTION . THIS ARRANGEMENT OF MATTER, PHYSICALLY RECORDED ON SOME TANGIBLE MEDIUM, CONSTI TUTES A CORPOREAL BODY. THE FORM OF THE DELIVERY OF THE SOFTWARE-MAGNETIC TAPE OR EL ECTRONIC TRANSFER VIA MODEM- IS OF NO RELEVANCE. THAT THE SOFTWARE CAN BE TRANSFERRED TO VARIOUS MEDIA I.E. FROM TAPE TO DISC, OR TAPE TO HARD DRIVE, OR EVEN THAT IT CAN BE TRANSFERRED OVER THE TELEPHONE LINES, DOES NOT TAKE AWAY FROM THE FACT THAT THE SOFTWARE WAS ULTIMATELY RECORDED AND STORED IN PHYSICAL FORM UPON A PHYSICAL OBJECT. RECORDED A S SUCH, THE SOFTWARE IS NOT MERELY AN INCORPOREAL IDEA TO BE COMPREHENDED, AND WOULD B E OF NO USE IF IT WERE. RATHER, THE SOFTWARE IS GIVEN PHYSICAL EXISTENCE TO MAKE CERTAI N DESIRED PHYSICAL THINGS HAPPEN. ONE CANNOT ESCAPE THE FACT THAT SOFTWARE, RECORDED IN PHYSICAL FORM, BECOMES INEXTRICABLY INTERTWINED WITH, OR PART AND PARCEL O F THE CORPOREAL OBJECT UPON WHICH IT IS RECORDED, BE THAT A DISC, TAPE, HARD DRIVE, OR O THER DEVICE. THAT THE INFORMATION CAN BE TRANSFERRED AND THEN PHYSICALLY RECORDED ON ANOT HER MEDIUM IS OF NO MOMENT, AND DOES NOT MAKE COMPUTER SOFTWARE ANY DIFFERENT THAN ANY OTHER TYPE OF RECORDED INFORMATION THAT CAN BE TRANSFERRED TO ANOTHER MEDI UM SUCH AS FILM, VIDEO TAPE, AUDIO TAPE, OR BOOKS. IT IS NOW COMMON KNOWLEDGE THAT BOO KS, MUSIC, AND EVEN MOVIES OR OTHER AUDIO/VISUAL COMBINATIONS CAN BE COPIED FROM ONE MEDIUM TO ANOTHER. THEY ARE ALSO ALL AVAILABLE ON COMPUTER IN SUCH FORMS AS FLO PPY DISC, TAPE, AND CD-ROM. SUCH MOVIES, BOOKS, MUSIC, ETC. CAN ALL BE DELIVERED BY AND/OR COPIED FROM ONE MEDIUM TO ANOTHER, INCLUDING ELECTRICAL IMPULSES WITH THE USE OF A MODEM. ASSUMING THERE IS SUFFICIENT MEMORY SPACE AVAILABLE IN THE COMPUTER H ARD DISC DRIVE SUCH MOVIES, BOOKS, MUSIC, ETC. CAN ALSO BE RECORDED INTO THE PERMANENT MEMORY OF THE COMPUTER. THAT THE INFORMATION, KNOWLEDGE, STORY, OR IDEA, PHYSICALLY MANIFESTED IN RECORDED FORM, CAN BE TRANSFERRED FROM ONE MEDIUM TO ANOTHER DOES NOT AFF ECT THE NATURE OF THAT PHYSICAL MANIFESTATION AS CORPOREAL, OR TANGIBLE. LIKEWISE, THAT THE SOFTWARE CAN BE TRANSFERRED FROM ONE TYPE OF PHYSICAL RECORDATION, E.G., TAPE, TO ANOTHER TYPE, E.G., DISK OR HARD DRIVE, DOES NOT ALTER THE NATURE OF THE SOFTWARE, I T STILL HAS CORPOREAL QUALITIES AND IS INEXTRICABLY INTERTWINED WITH A CORPOREAL OBJECT. T HE SOFTWARE MUST BE STORED IN PHYSICAL FORM ON SOME TANGIBLE OBJECT SOMEWHERE. IN SUM, ONCE THE 'INFORMATION' OR 'KNOWLEDGE' IS TRANSFORMED INTO PHYSICAL EXISTENCE AND RECORDED IN PHYSICAL FORM, IT IS CORPOREAL PROPERTY. THE PHYSICAL RECORDATION OF THI S SOFTWARE IS NOT AN INCORPOREAL RIGHT TO BE COMPREHENDED. 84. TO FURTHER ELUCIDATE THE NATURE OF THE TRANSACT ION IN THE CASE OF THE ASSESSEE IT IS NECESSARY TO EXAMINE SOME OF THE CLAUSES OF THE LIC ENSING SOFTWARE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS CUSTOMERS: INFRASOFT LICENCE AGREEMENT. 2. GRANT, SUPPLY AND USE OF LICENCE ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 8 (A) INFRASOFT GRANTS LICENSEE A NON-EXCLUSIVE, NON- TRANSFERABLE LICENCE TO USE THE SOFTWARE IN ACCORDANCE WITH THIS AGREEMENT AND THE INFRASOFT LICENCE SCHEDULE. THE LICENCE IS PERPETUAL UNLESS IDENTIFIED AS BEING FOR A SPECIFIED TERM IN THE INFRASOFT LICENCE SCHEDULE. (B) ANY THIRD PARTY SOFTWARE INCORPORATED IN THE SO FTWARE IS LICENSED ONLY FOR USE WITH THE SOFTWARE. (C) INFRASOFT WILL SUPPLY ONE COPY OF THE SOFTWARE FOR EACH SITE AND, WHEN APPLICABLE, ONE SET OF SUPPORT INFORMATION TO THE LICENSEE. LIC ENSEE SHALL PAY INFRASOFT A FEE FOR ADDITIONAL COPIES OF ANY PRINTED SUPPORT INFORMATIO N SUPPLIED BY INFRASOFT. (D) LICENSEE MAY MAKE ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPOSES, PROVIDED THAT THE COPY, SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPNETARY NOTICES. ALL COPIES OF THE SOFTWAR E SHALL BE THE EXCLUSIVE PROPERTY OF INFRASOFT. (E) THE SOFTWARE INCLUDES A LICENCE AUTHORISATION D EVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE AS SPECIFIED IN THE INFRASOFT LICENCE SCHE DULE. (F) THE SOFTWARE SHALL BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENCE SCHEDULE AND SHALL NOT, WITHOUT P RIOR WRITTEN CONSENT FROM INFRASOFT: (I) BE LOANED, RENTED, SOLD, SUB-LICENSED OR TRANSF ERRED TO ANY THIRD PARTY II) USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED EN TITY OF LICENSEE III) USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSING (G) IF LICENSEE WAS GRANTED AN EDUCATIONAL LICENCE, AS IDENTIFIED ON THE INFRASOFT LICENCE SCHEDULE, THE SOFTWARE MAY ONLY BE USED FOR INSTRUCTION OR RESEARCH PURPOSES AND NOT FOR ANY COMMERCIAL PURPOSES. (H) LICENSEE MAY NOT COPY, DECOMPILE, DISASSEMBLE O R REVERSE-ENGINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT.' THE LICENSEE' S RIGHTS SHALL NOT BE RESTRICTED BY THIS CLAUSE 2(H) TO THE EXTENT THAT LOCAL LAW GRANTS LIC ENSEE A RIG~( TO DO SO FOR THE PURPOSE OF ACHIEVING INTEROPERABILITY WITH OTHER SOFTWARE A ND IN ADDITION THERETO INFRASOFT UNDERTAKES TO MAKE INFORMATION RELATING TO INTEROPE RABILITY AVAILABLE. TO LICENSEE SUBJECT TO SUCH REASONABLE CONDITIONS AS INFRASOFT MAY FROM TIME TO TIME IMPOSE INCLUDING A REASONABLE FEE FOR DOING SO. TO ENSURE LICENSEE RECEIVES THE APPROPRIATE INFORMATION, LICENSEE MUST FIRST GIVE INFRASOFT SUF FICIENT DETAILS OF ITS OBJECTIVES AND THE OTHER SOFTWARE CONCERNED. REQUESTS FOR THE APPR OPRIATE INFORMATION SHOULD BE DIRECTED TO THE VICE PRESIDENT TECHNICAL OF INFRASO FT. 3. LICENCE FEES, PAYMENT AND TAXES (A) LICENSEE SHALL PAY INFRASOFT A LICENCE FEE FOR THE USE OF THE SOFTWARE AS AGREED IN THE ORDER. INFRASOFT CONFIRMS THAT WHERE THE LICENS EE HAS PURCHASED THE SOFTWARE THROUGH AN AUTHORISED RESELLER OF THE SOFTWARE THE LICENSEE SHALL OWE NO LICENSE FEES TO INFRASOFT WHERE THE LICENSEE HAS MADE PAYMENT OF THE LICENCE FEES TO THE AUTHORISED RESELLER. (B) ALL LICENCE FEES ARE EXCLUSIVE OF AND NET OF AN Y TAXES, DUTIES OR OTHER SUCH ADDITIONAL SUMS INCLUDING, BUT WITHOUT PREJUDICE TO THE FOREGOING GENERALITY, VALUE ADDED/PURCHASE TAX, EXCISE TAX (TAX ON SALES, PROPE RTY OR USE), IMPORT OR OTHER DUTIES AND WHETHER LEVIED IN RESPECT OF THIS AGREEMENT, TH E SOFTWARE ITS USE OR OTHERWISE. ALL ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 9 SUCH TAXES SHALL BE THE RESPONSIBILITY OF THE LICEN SEE AND SHALL BE PAYABLE IN ADDITION TO THE LICENCE FEE. (C) INFRASOFT ADVISES THE LICENSEE THAT THE SOFTWAR E CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. 4. ** ** ** 5. OWNERSHIP, INTELLECTUAL PROPERTY AND INDEMNITY (A) ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. INFRASOFT WARRANTS THAT IT HAS THE POWER TO GRANT THE LICENCE RIGHTS CONTAINED IN THIS AGREEMENT. 85. THE LICENSING AGREEMENT SHOWS THAT THE LICENSE IS NON-EXCLUSIVE, NON-TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACCORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE L ICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMA TION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATED THAT THE COPY SO MA DE SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SO FTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOFT. THE SOFTWARE INCLUDES A LICENCE AUTHORIS ATION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FO R LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENCE SCHEDULE. WITH OUT THE CONSENT OF THE ASSESSEE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUB-LICENS ED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENT ITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSIN G. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECORNPILE, DISASSEMBLE OR REVE RSE-ENGINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE I N 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 SOFT WARE, 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 ACCORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE L ICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMA TION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATED THAT THE COPY SO MA DE SHALL INCLUDE INFRASFOTS COPYRIGHT AND OTHER PROPRIETARY NOTICES. 11 COPIES OF THE SOF TWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOFT THE SOFTWARE INCLUDES A LICENCE AUTHORISA TION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FO R LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENCE SCHEDULE. WITH OUT THE CONSENT OF THE ASSESSEE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUB-LICENS ED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENT ITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSIN G. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVER SE-ENGINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE I N 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 SOFT WARE, 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 ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 10 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 ONE HA S ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LI CENCE IN RESPECT OF COPYRIGHT. COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTING UISHABLE FROM SALE CONSIDERATION PAID FOR 'COPYRIGHTED' ARTICLE. THIS SALE CONSIDERA TION 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 ESSE NTIAL STEP IN UTILIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACT S 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 TRANSACTION FOR T AX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINESS INC OME IN ACCORDANCE WITH ARTICLE 7. 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 ARTICLE OR PRODUCT WITH THE OWNER RETAINING HIS COPYRIGHT, 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 INVO KE THE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON-EXCLUSIVE AND NON-TRANSFERAB LE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHO RITY 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 TO RESTRICT USE OF THE C OPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE T HAT THE COPYRIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT. THE P ARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACHED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER 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 TR ANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE C OPYRIGHT. THE TRANSFER OF RIGHTS IN OR OVER COPYRIGHT OR THE CONFERMENT OF THE RIGHT OF US E OF COPYRIGHT IMPLIES THAT THE TRANSFEREE/LICENSEE SHOULD ACQUIRE RIGHTS: EITHER I N 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 NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVELY DIFFE RENT FROM THE RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ONLY INTEGRAL TO T HE USE OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE 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 AND REPRESENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME-TAX ACT OR UNDER THE DTAA. ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 11 92. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE CO MPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LICENCE AGREEMENT, ONLY THE COP YRIGHTED SOFTWARE WHICH BY ITSELF IS AN ARTICLE AND THEY HAVE NOT ACQUIRED ANY COPYRI GHT IN THE SOFTWARE. IN THE CASE OF THE ASSESSEE COMPANY, THE LICENSEE TO WHOM THE ASSE SSE COMPANY HAS SOLD/LICENSED THE SOFTWARE WERE ALLOWED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPOSES WITH A COND ITION THAT SUCH COPYRIGHT SHALL INCLUDE INFRASOFT COPYRIGHT AND ALL COPIES OF THE S OFTWARE SHALL BE EXCLUSIVE PROPERTIES OF INFRASOFT. LICENSEE WAS ALLOWED TO USE THE SOFTW ARE ONLY FOR ITS OWN BUSINESS AS SPECIFICALLY IDENTIFIED AND WAS NOT PERMITTED TO LO AN/RENT/SALE/SUB-LICENCE OR TRANSFER THE COPY OF SOFTWARE TO ANY THIRD PARTY WITHOUT THE CONSENT OF INFRASOFT. 93. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DECOMPILING, DE-ASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WITHOUT THE WRITTE N CONSENT OF INFRASOFT. THE LICENCE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS CUST OMERS STIPULATES THAT ALL COPYRIGHTS AND' INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE OWNED 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 REASON, THE LICENCEE SHALL RETURN THE SOFTWARE INCLUDING SUPPORTING INFORMATION AND LICENCE AUTHORIZATION DE VICE TO INFRASOFT. 94. THE INCORPOREAL RIGHT TO THE SOFTWARE I.E. COPY RIGHTER MAINS WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED BY THE ASSESSEE. THE RIGHT TO USE A COPYRIGHT IN A PROGRAMME IS TOTALLY DIFFERENT FROM THE RIGHT TO USE A PROGRA MME EMBEDDED IN A CASSETTE OR A CD WHICH MAY BE A SOFTWARE AND THE PAYMENT MADE FOR TH E SAME CANNOT BE SAID TO BE RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT T O USE OF ANY COPYRIGHT TO BRING IT WITHIN THE DEFINITION OF ROYALTY AS GIVEN IN THE DT AA. WHAT THE LICENSEE HAS ACQUIRED IS ONLY A COPY OF THE COPYRIGHT ARTICLE WHEREAS THE COPYRIGHT REMAINS WITH THE OWNER AND THE LICENSEES HAVE ACQUIRED A COMPUTER PROGRAMM E FOR BEING USED IN THEIR BUSINESS AND NO RIGHT IS GRANTED TO THEM TO UTILIZE THE COPYRIGHT OF A COMPUTER PROGRAMME AND THUS THE PAYMENT 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 ROYALTY IN TERMS THEREOF FOR THE REASON THAT THE ASSESSEE I S 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 DTAA. 97. WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT WHAT IS TRANSFERRED IS THE RIGHT TO USE THE COPYRIGHTED MATERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT. THE RIGHT THAT IS TRANSFERRED IS NOT A RIGHT TO USE THE COPYR IGHT BUT IS ONLY LIMITED TO THE RIGHT TO USE THE COPYRIGHTED MATERIAL AND THE SAME DOES NOT GIVE RISE TO ANY ROYALTY INCOME AND WOULD BE BUSINESS INCOME. 98. WE ARE NOT IN AGREEMENT WITH THE DECISION OF THE KA RNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD (SUPRA) THAT RIGHT TO MAKE A COPY OF THE SOFTWARE AND STORING THE SAME IN THE HARD DISK OF T HE DESIGNATED COMPUTER AND TAKING BACKUP COPY WOULD AMOUNT TO COPYRIGHT WORK UNDER SE CTION 14( I ) 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 LICE NSEE PERMITTING HIM TO DOWN LOAD THE COMPUTER PROGRAMME AND STORING IT IN THE COMPUTER F OR HIS OWN USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND I S QUALITATIVELY DIFFERENT FROM THE ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 12 RIGHT CONTEMPLATED BY THE SAID PROVISION BECAUSEI1T IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. THE RIGHT TO MAKE A BACKUP COP Y PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE HAS BEEN HELD BY THE DELHI HIGH COURT IN NOKIA NETWORKS OY (SUPRA) AS NOT AMOUNTING TO AC QUIRING A COPYRIGHT IN THE SOFTWARE. 99. IN VIEW OF THE ABOVE WE ACCORDINGLY HOLD THAT W HAT HAS BEEN TRANSFERRED IS NOT COPYRIGHT OR THE RIGHT TO USE COPYRIGHT BUT A LIMIT ED RIGHT TO USE THE COPYRIGHTED MATERIAL AND DOES NOT GIVE RISE TO ANY ROYALTY INCO ME. FURTHER, THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL I N DIT VS. RELIANCE INDUSTRIES LTD. (2016) 69 TAXMAN.COM 311(MUM TRIB.) WHILE CONS IDERING THE ISSUE RELATED WITH PURCHASE OF DIFFERENT TYPE OF SOFTWARE FROM RESIDEN T OF DIFFERENT COUNTRIES WHEREIN, INDIA HAS TAX TREATY/DTAA HELD AS UNDER: 41. THE INCOME TAX ACT DOES NOT SPECIFICALLY INCLUDE THE COMPUTER SOFTWARE IN THE TERM LITERARY WORK AND UNDER SUCH CIRCUMS TANCES, IF WE APPLY THE PROVISIONS OF INCOME TAX TO DEFINE THE SC OPE OF LITERARY WORK , THEN PERHAPS THE COMPUTER SOFTWARE WILL BE OUT OF THE SCOPE OF THE TERM ROYALTY AS DEFINED UNDER THE DTAA. HOWEVER, IF WE A PPLY THE COPYRIGHT ACT, THEN THE COMPUTER SOFTWARE WILL HAVE TO BE INCLUDED IN THE TERM LITERARY WORK BUT TO CONSTITUTE ROYALTY UNDER THE TREATY, THE CONSIDERATION SHOULD HAVE BEEN PAID FOR THE USE OF OR THE RIGHT TO USE T HE COPYRIGHT IN THE LITERARY WORK AND NOT THE LITERARY WORK ITSELF. 42. FURTHER, WHEN WE READ THE DEFINI TION OF COPYRIGHT AND LITERARY WORK AS PROVIDED IN THE COPYRIGHT ACT, 1957, IT IS ALSO IMP ORTANT TO NOTE DOWN THAT WHAT CONSTITUTES INFRINGEMENT OF COPYRIGHT AND WHAT ARE THE EXCEPTIONS TO IT. IF THE SOFTWARE PURCHASED BY THE ASSESSEE AND THE USE OF IT BY THE ASSESSEE IS COVERED WITHIN THE EXCEPTIONS AS PROVIDED UNDER SEC TION 52 OF THE COPYRIGHT ACT, THEN IN THAT EVENT IT CANNOT BE SAID THAT THE TRANSFER OF RIGHT TO USE OR FOR USE OF THE COPYRIGHT HAS PASSED. THE PROVISO TO SEC TION 57 OF THE COPYRIGHT ACT HAS FURTHER CLARIFIED THAT THE AUTHOR OF THE WORK S HALL NOT HAVE RIGHT TO RESTRAIN OR CLAIM DAMAGES IN RESPECT OF ANY ADAPTATION OF A COMPUTER PROGRAMME TO WHICH CLAUSE (AA) OF SUB SECTION (1) OF SECTION 52 APPLIES. 43. FURTHER IN CASE OF IMPORTED SOFT WARE I.E. IF THE ORIGINAL WORK HAS BEEN PUBLISHED OUTSIDE INDIA, AS PER THE PROVISIONS OF T HE COPYRIGHT ACT, APART FROM THE WORK BEING ORIGINAL AND NOT COPIED FROM ELSEWHE RE, THE WORK SHOULD BE FIRST PUBLISHED IN INDIA OR IF THE WORK IS PUBLISHE D OUTSIDE INDIA, THE AUTHOR ON THE DATE OF PUBLICATION, IF THE AUTHOR IS DEAD, AT THE TIME OF HIS DEATH, SHOULD BE CITIZEN OF INDIA. IN CASE OF UNPUBLISHED WORK, THE AUTHOR ON THE DATE OF MAKING OF A WORK SHOULD BE A CITIZEN OF INDIA OR DOMICILE IN INDIA. SECTION 40 OF THE COPYRIGHT ACT 1957, PROVIDES FOR INTERNATIONAL COPY RIGHTS. AS PER THE SECTION 40 OF THE SAID ACT, THE GOVERNMENT OF INDIA MAY BY AN ORDER PUBLISHED IN THE OFFICIAL GAZETTE DIRECT THAT ALL OR ANY PROVISIONS OF THIS ACT SHALL APPLY TO THE WORK PUBLISHED OR UNPUBLISHED IN ANY TERRITORY OUTS IDE INDIA. SUCH A RIGHT IS EXTENDED IN RELATION TO COUNTRIES WHICH HAVE ENTERE D INTO A TREATY OR WHICH ARE A PARTY TO A CONVENTION RELATING TO RIGHTS OF THE COP YRIGHT OWNERS AND HAVE UNDERTAKEN TO MAKE SUCH PROVISIONS IN THEIR LAWS IN RELATION TO THE INDIAN ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 13 AUTHORS FOR PROTECTION OF THEIR RIGHTS IN THEIR COU NTRY. SECTIONS 40, 40A AND SECTION 41OF THE COPYRIGHT ACT, 1957 ARE RELEVANT I N THIS RESPECT. SECTION 42 OF THE COPYRIGHT ACT, HOWEVER, PUT CERTAIN RESTRICTION S ON THE RIGHTS IN WORKS OF FOREIGN AUTHORS FIRST PUBLISHED IN INDIA WHEREIN IT HAS BEEN PROVIDED THAT IF A FOREIGN COUNTRY DOES NOT GIVE ADEQUATE PROTECTION T O THE WORKS OF THE INDIAN AUTHORS, THE CENTRAL GOVERNMENT MAY DIRECT THAT SUC H OF THE PROVISIONS OF THE ACT AS CONFER COPYRIGHT ON WORKS FIRST PUBLISHED IN INDIA OF THE FOREIGN AUTHORS SHALL NOT APPLY. SO IF A FOREIGN COUNTRY RECOGNIZES THE COPYRIGHTS OF THE INDIAN AUTHORS IN THEIR COPYRIGHTED WORK, THE INDIA ALSO A LLOWS THE COPYRIGHT TO THE FOREIGN AUTHORS ON RECIPROCAL BASIS. SO A FOREIGN A UTHOR CAN CLAIM THE COPYRIGHT IN A PRODUCT, IF INDIA HAS A TREATY WITH THAT COUNT RY OR IF INDIA AND THAT OTHER COUNTRY ARE SIGNATORIES OF THE CERTAIN INTERNATIONA L TREATIES OR CONVENTIONS E.G. BERNE CONVENTION TO WHICH INDIA IS A SIGNATORY. UND ER SUCH CIRCUMSTANCES, IN RESPECT OF WORKS DONE IN FOREIGN COUNTRIES OR BY FO REIGN AUTHORS, THE COPYRIGHT DOES NOT AUTOMATICALLY FLOW OR EXTENDED TO THEM. TH E RIGHTS OF THE FOREIGN AUTHOR ARE TO BE EXAMINED IN THE LIGHT OF THE COPYR IGHT ACT AND THE RELEVANT TREATY OR THE CONVENTION, IF ANY, SIGNED BY INDIA W ITH THAT COUNTRY TO WHICH THE FOREIGN AUTHOR BELONGS. THE COPYRIGHT IN A FOREIGN PRODUCT THUS DOES NOT FLOW AUTOMATICALLY OR IMPLIEDLY, SO FAR AS THE INDIAN CO PYRIGHT LAWS ARE CONCERNED. 44. HENCE, WHILE INTERPRETING THE DE FINITION OF ROYALTY AS PROVIDED IN THE DTAA, IT IS TO BE SEEN AS TO WHAT HAS BEEN PURCHASE D BY THE ASSESSEE I.E. WHETHER THE COPYRIGHT ITSELF HAS BEEN PURCHASED OR WHAT THE AS SESSEE HAS PURCHASED IS ONLY A COPYRIGHTED WORK. IT IS ALSO REQUIRED TO BE ANALYS ED AS TO WHETHER THE USE OF SUCH RIGHT WOULD AMOUNT TO INFRI NGEMENT OF COPYRIGHT IF A LICENSE OR PERMISSION IN THIS RESPECT IS NOT GIVEN BY THE OWNER; AND WHEN ASSESSEE HAS PURCHASED A COPYRIGHTED PRODUCT, WHETH ER THE USE OF THE SAME FOR THE BUSINESS PURPOSE OF THE ASSESSEE IS COVERED WIT HIN THE EXCEPTIONS AS PROVIDED UNDER SECTION 52 OF THE COPYRIGHT ACT. FUR THER, IN CASE OF IMPORTED WORK/PRODUCT, WHETHER THE PROTECTION OF COPYRIGHT I S AVAILABLE TO THE FOREIGN AUTHOR IN TERMS OF SECTION 40,40A, 41 AND 42 OF THE COPYRIGHT ACT 1957. 45. THE PROVISIONS OF THE COPYRIGHT ACT, AS DISCUSSED ABOVE ARE CLEAR AND UNAMBIGUOUS IN THIS RESPECT. IF THE ASSESSEE HAS PU RCHASED A COPY OF A COMPUTER SOFTWARE PROGRAMME AND HE USES THE SAID CO PY FOR HIS BUSINESS PURPOSE AND IF THE SAID USE FALLS WITHIN THE SCOPE AND PURVIEW OF THE EXCEPTIONS OF SECTION 52, SUCH AS THE USE OF IT FOR THE PURPOS E FOR WHICH IT IS SUPPLIED AND TO MAKE BACKUP COPIES FOR TEMPORARY PURPOSE AS A PR OTECTION AGAINST LOSS OR DAMAGE AND DOING OF ANY ACT NECESSARY TO OBTAIN INF ORMATION ESSENTIAL FOR OPERATING THE SOFTWARE FOR THE PURPOSE FOR WHICH IT IS PURCHASED ETC. AS PROVIDED UNDER SECTION 52OF THE COPYRIGHT ACT, THEN IN THAT EVENT IT CANNOT BE SAID TO BE AN INFRINGEMENT OF COPYRIGHTS OF THE AUT HOR OR OWNER OF THE WORK. EVEN THE HONBLE KARNATAKA HIGH COURT IN THE CASE O F SAMSUNG ELECTRONICS COMPANY LTD. & OTHERS (SUPRA) WHILE RELYING UPON ARTICLE 3 SUB SECTION ( 2) OF THE DTAA WITH US AS THE IDENTICALLY WORDED ARTICLE BEING THERE IN ALMOST ALL THE TAX TREATIES WITH OTHER COUNTRIES, HAS HELD THA T ANY TERM NOT DEFINED IN THE CONVENTION SHALL, UNLESS THE CONTEXT OTHERWISE REQU IRES, HAVE THE MEANING WHICH IT IS UNDER THE LAWS OF THAT STATE CONCERNING THE TAX TO WHICH THE CONVENTION APPLIES. IN VIEW OF ABOVE, WHEN WE SEE T HE DEFINITION AS PER THE STATUTORY PROVISIONS/DOMESTIC LAW OF THE COUNTRY I. E. COPYRIGHT ACT,1957 OF INDIA (THE TAXING STATE IN THIS CASE), IT IS APPARE NT THAT THE FAIR USE OF THE WORK ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 14 FOR THE PURPOSE OF WHICH IT IS BEING PURCHASED AND DOING OF SUCH OTHER ACTS INCLUDING MAKING OF COPY FOR PROTECTION FROM DAMAGE OR LOSS CANNOT, IN ANY CASE, SAID TO BE ANY INFRINGEMENT OF COPYRIGHT WHET HER OR NOT ANY LICENSE IN THIS RESPECT HAS BEEN GRANTED BY THE AUTHOR/OWNER OF THE WORK. THE RIGHT TO USE OR FOR USE OF THE PRODUCT ACCRUES TO THE PURCHASER BY THE OPERATION OF THE STATUTE (SUPRA), THE SAME WOULD AMOUNT TO THE SALE OF A GOO DS AND THE ACTS DONE SUCH AS DOWNLOADING OF THE SAME TO THE COMPUTER OR MAKIN G BACKUP COPIES ETC. WOULD BE THE NECESSARY ACTS FOR ENABLING THE USE OF THE PRODUCT AND WOULD NOT AMOUNT TO THE TRANSFER OF COPYRIGHT THEREIN, BUT ON LY THE TRANSFER OF THE COPYRIGHTED PRODUCT AND THUS WILL NOT BE COVERED UN DER THE DEFINITION OF ROYALTY UNDER DTAA. THE CONSIDERATION, THUS, PAID W ILL BE THE BUSINESS INCOME OF THE NON-RESIDENT AND TAXABLE IN ACCORDANCE WITH THE PROVISIONS OF DTAA. WE MAY CLARIFY HERE THAT EVEN IN CASES WHERE THE OW NER OF THE COPYRIGHTED WORK MAY RESTRICT THE USE OF OR RIGHT TO USE THE WO RK BY WAY OF CERTAIN TERMS OF THE LICENSE/SOFTWARE AGREEMENT, THE VALIDITY OR THE ENFORCEABILITY OF THE SAME MAY BE SUBJECT MATTER IN OTHER LAWS SUCH AS INDIAN CONTRACT ACT 1872 , SALE OF GOODS ACT 1930 OR THE CONSUMER PROTECTION ACT 1986 ETC., BUT, THE SAME IN ANY WAY CANNOT BE SAID TO GRANT OF OR INFRINGEMENT OF C OPYRIGHT IN THE LIGHT OF SPECIFIC STATUTORY PROVISIONS OF COPYRIGHT ACT 1957 . 46. WHILE FINALIZING THIS ORDER, WE HAVE COME ACROSS A RECENT DECISION OF THE CO-ORDINATE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DATAMINE INTERNATIONAL LTD. VS. ADIT IN ITA NO.5651/DEL/2010 VIDE ORDER DATED 14.03.16 ON THE IDENTICAL ISSUE WHEREIN THE DEFINIT ION OF ROYALTY VIS--VIS COMPUTER SOFTWARE IN THE LIGHT OF INDIA UK TREATY H AS BEEN DISCUSSED. THE TRIBUNAL IN PARA 12.1 OF THE SAID ORDER(SUPRA) HAS OBSERVED THAT IN THE INDIA-UK TREATY, IN PARA 3(A) OF ARTICLE 13 WHICH DEALS WITH THE DEFINITION OF ROYALTY IN THE RELEVANT INDIA-UK TREATY, THERE WAS NO SPECIFIC MENTION OF WORD COMPUTER SOFTWARE ALONG WITH OTHER TERMS SUCH AS LITERARY, ARTISTIC OR SCIENTIFIC WORK, PATENT, TRADE MARK ETC. THE TRIBUNAL OBSERVED THAT SUCH A LANGUAGE OF THE INDIA-UK DTAA WAS IN SHARP CONTRAST TO THE SPECIFIC USE OF THE TERM COMPUTER SOFTWARE OR COMPUTER SOFTWARE PROGRAMME TOGETHER WITH OTHER TERMS SUCH AS LITERARY, ARTISTIC OR SCIENTIFIC WORK, PATENT, TRAD E MARK ETC. IN MANY OTHER DTAAS SUCH AS INDIA MALAYSIA TREATY, WHEREIN, THE T ERM COMPUTER SOFTWARE PROGRAMME HAS BEEN SEPARATELY MENTIONED ALONG WITH THE WORDS COPY RIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK . PLAN, KN OWHOW, COMPUTER SOFTWARE PROGRAMME, SECRET FORMULA OR PROCESS. THE DELHI BEN CH OF THE TRIBUNAL (SUPRA) HAS FURTHER ILLUSTRATED ON THIS POINT AS UNDER: TO ILLUSTRATE, ARTICLE 12 OF THE DTAA BETWEEN INDI A AND MALAYSIA DEFINES 'ROYALTIES' TO MEAN 'PAYMENTS OF ANY KIND RECEIVED AS CONSIDERA TION FOR THE USE OF OR RIGHT TO USE ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK.. PLAN, KNOWHOW, COMPUTER SOFTWARE PROGRAMME, SECRET FORMULA OR PROC ESS..' SIMILARLY, THE DTAA BETWEEN INDIA AND KAZAKHSTAN DEFINES THE TERM 'ROYA LTIES' IN ARTICLE 12(3)(A) TO MEAN : 'PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION F OR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING SOFTWARE, CINEMATOGRAPH FILMS'. SIMILARLY, THE DTAA TURKMENISTAN ALSO DEFI NES 'ROYALTIES' IN ARTICLE 12 TO MEAN : 'PAYMENTS OF ANY KIND RECEIVED AS CONSIDERAT ION FOR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIF IC WORK, .. COMPUTER SOFTWARE, ANY PATENT, TRADEMARK'. IT IS THUS CLEAR THAT WHEREVER THE GOVERNMENT OF INDIA INTENDED TO INCLUDE CONSIDERATION FOR THE USE OF SOFTWARE AS 'ROYALTIES', IT EXPLICITLY PROVIDED SO ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 15 IN THE DTAA WITH THE CONCERNED COUNTRY. SINCE ARTIC LE 13(3)(A) OF THE DTAA WITH UK DOES NOT CONTAIN ANY CONSIDERATION FOR THE USE OF O R THE RIGHT TO USE ANY 'COMPUTER SOFTWARE', THE SAME CANNOT BE IMPORTED INTO IT. 47. THE ABOVE ANALYSIS MADE BY THE T RIBUNAL (SUPRA) OF VARIOUS TAX TREATIES OF INDIA WITH OTHER COUNTRIES CLINCHES THE ISSUE. EVEN AT THE COST OF REPETITION, WE DEEM IT PROPER TO REFER TO THE OBSERVATIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE DIT VS NEW SKIES SATELLITE BV, (SUPRA), THAT AN INT ERNATIONAL INSTRUMENT AFFECTED BETWEEN TWO SOVEREIGN STATES IS THE RESULT OF THE NEGOTIATIONS BY THOSE SOVEREIGN NATIONS WHICH IN IT SELF IS CONSIDERED TO BE MINI LEGISLATION CONTAINING IN IT ALL THE RELEVANT ASPEC TS OR FEATURES WHICH MAY BE AT VARIANCE WITH THE GENERAL TAXATION LAWS OF THE RESP ECTIVE COUNTRIES AND THE SAME ARE TO BE READ AS SUCH. WE, THEREFORE, FULLY AGREE WITH THE OBSERVATIONS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DATAMINE INTERNATIONAL LTD. VS. ADIT (SUPRA) THAT WHEREVER THE GOVERNMENT OF IN DIA INTENDED TO INCLUDE CONSIDERATION FOR THE USE OF SOFTWARE AS 'ROYALTIES ', IT EXPLICITLY PROVIDED SO IN THE DTAA WITH THE CONCERNED COUNTRY VIZ. MALAYSIA, KAZAKHSTAN AND TURKMENISTAN. WE FIND THAT IN THE CASES BEFORE US, IN THE DTAA OF INDIA WITH RESPECTIVE COUNTRIES (NAMES MENTIONED IN THE CHART GIVEN ABOVE), THE DEFINITION OF ROYALTY IN NONE OF THE RESPECTIVE TREATIES SPECI FICALLY INCLUDE ANY CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE AN Y COMPUTER SOFTWARE AND THEREFORE, THE SAME CANNOT BE IMPORTED OR READ INTO IT. 48. WE MAY FURTHER CLARIFY HERE THA T WITHOUT EXPRESSING OUR OPINION OR ANY VIEW IN RELATION TO THE DEFINITION OF ROYALTY VIS --VIS COMPUTER SOFTWARE AS PROVIDED UNDER THE INCOME TAX ACT, WE HAVE GIVEN OU R FINDINGS ONLY IN RESPECT OF THE SCOPE OF ROYALITY UNDER THE DTAA. 49. IN VIEW OF OUR DETAILED DISCUSS ION MADE ABOVE, THE ASSESSEE CANNOT BE SAID TO HAVE PAID THE CONSIDERATION FOR USE OF OR THE RI GHT TO USE COPYRIGHT BUT HAS SIMPLY PURCHASED THE COPYRIGHTED WORK EMBEDDED IN T HE CD- ROM WHICH CAN BE SAID TO BE SALE OF GOOD BY THE OWNER. THE CONS IDERATION PAID BY THE ASSESSEE THUS AS PER THE CLAUSES OF DTAA CANNOT BE SAID TO BE ROYALTY AND THE SAME WILL BE OUTSIDE THE SCOPE OF THE DEFINITION OF ROYALTY AS PROVIDED IN DTAA AND WOULD BE TAXABLE AS BUSINESS INCOME OF THE RECIPIENT. THE ASSESSEE IS ENTITLED TO THE FAIR USE OF THE WORK/PRODUCT INC LUDING MAKING COPIES FOR TEMPORARY PURPOSE FOR PROTECTION AGAINST DAMAGE OR LOSS EVEN WITHOUT A LICENSE PROVIDED BY THE OWNER IN THIS RESPECT AND THE SAME WOULD NOT CONSTITUTE INFRINGEMENT OF ANY COPYRIGHT OF THE OWNER OF THE W ORK EVEN AS PER THE PROVISIONS OF SECTION 52 OF THE COPYRIGHT ACT,1957. 50. EVEN OTHERWISE, THE REVENUE HAS NOT CITED ANY DIRECT CASE LAW OF THE JURISDICTIONAL HIGH COURT OF BOMBAY BEFORE US. IN THE CASE LAWS CITED BY THE REVENUE OF THE HONBLE KARANATKA HIGH COURT IN THE MATTER OF CIT VS. SAMSUNG ELECTRONICS COMPANY LTD. (SUPRA) AND CIT VS. SYNOPSIS INTERNATIONAL OLD LTD. (SUPRA), THOUGH, A VIEW IN F AVOUR OF THE REVENUE HAS BEEN TAKEN, BUT THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LTD. (SUPRA), WHICH IS A LATTER DECISION, HAS DISCUSSED THE SAMSUNG CASE ALSO AND HAS TAKEN THE VIEW IN FAVOUR OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT HAS TAKEN THE IDENTICAL VI EW FAVOURING THE ASSESSEE IN ! '!#$% ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 16 ERICSON A.B. (SUPRA) ALSO. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF THE ADDL. COMMISSIONER OF SALES TAX VS. M/S ANKIT I NTERNATIONAL, SALES TAX APPEAL NO.9 OF 2011 VIDE ORDER DATED 15 SEPTEMBER, 2011 WHILE RELYING UPON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE C OMMISSIONER OF INCOME TAX V. VEGETABLE PRODUCT LTD. (1973) 88 ITR 192 AND IN MAURI YEAST INDIA PVT. LTD. V. STATE OF U.P. (2008) 14 VST 259(SC) : (2008) 5 S.C.C. 680 HAS HELD THAT, IF TWO VIEWS IN REGARD TO THE INTERPRETA TION OF A PROVISION ARE POSSIBLE, THE COURT WOULD BE JUSTIFIED IN ADOPTING THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE. RELIANCE CAN ALSO BE PLACED I N THIS REGARD ON THE DECISION OF HONBLE SUPREME COURT IN BIHAR STATE ELECTRICITY BOARD AND ANOTHER VS. M/S. USHA MARTIN INDUSTRIES AND ANOTHER: (1997) 5 S CC 289. WE ACCORDINGLY ADOPT THE CONSTRUCTION IN FAVOUR OF THE ASSESSEE. 51. THE LD. A.R. OF THE ASSESSEE, A T THIS STAGE, HAS RAISED ANOTHER IMPORTANT ARGUMENT. HE HAS SUBMITTED THAT THE PURCHASE ORDERS FOR THE SOFTWARES WERE MADE MUCH PRIOR TO THE YEAR 2012. THE DATES OF PURC HASE ORDERS HAVE BEEN MENTIONED IN THE 4TH COLUMN OF THE TABLE DRAWN IN I NITIAL PARAS OF THIS ORDER. HE HAS SUBMITTED THAT EXPLANATION 4 TO SECTION 9(1)(VI ) HAS BEEN INSERTED BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT 01.06.1 976, VIDE WHICH THE RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE INCLUDI NG GRANTING OF LICENSE HAS BEEN INCLUDED IN THE DEFINITION OF THE TERM RIGHT, PROPERTY OR INFORMATION, THE CONSIDERATION PAID FOR WHICH HAS BEEN DEEMED TO BE INCOME BY ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. HE HAS STATED THAT THE SAID EXPLANATION THOUGH PRECEDED WITH THE PHRASE IT IS HEREBY CLARIFIED A ND IS FOLLOWED BY THE WORDS INCLUDES AND HAS ALWAYS INCLUDED YET THE SAID EX PLANATION CANNOT BE APPLIED RETROSPECTIVELY. HE HAS STATED THAT VIDE SAID EXPLA NATION, COMPUTER SOFTWARE HAS BEEN SPECIFICALLY ADDED INTO THE DEFINITION OF RIGH T, PROPERTY OR INFORMATION. HOWEVER, PRIOR TO THE INSERTION OF EXPLANATION 4 TO SECTION 9(1)(VI), NO SUCH INTERPRETATION AS HAS EVER BEEN DONE BY ANY COURT O F LAW TO INCLUDE COMPUTER SOFTWARE IN THE DEFINITION OF RIGHT, PROPERTY OR IN FORMATION UNDER SECTION 9(1)(VI) OF THE ACT. HE HAS FURTHER INVITED OUR ATT ENTION TO SUB CLAUSE (V) TO EXPLANATION 2 (AS REPRODUCED AND DISCUSSED ABOVE) U NDER WHICH THE CONSIDERATION PAID FOR THE TRANSFER OF ALL OR ANY R IGHTS IN RESPECT OF ANY COPYRIGHT IN LITERARY, ARTISTIC OR SCIENTIFIC WORK WAS TO BE CONSIDERED IN THE DEFINITION OF ROYALTY. HE HAS FURTHER STATED THAT T HE ABOVE CLAUSE (V) TO EXPLANATION 2 TO SECTION 9(1)(VI) AS DISCUSSED ABOV E WAS IN PARAMATERIA TO THE DEFINITION OF ROYALTY AS PROVIDED UNDER THE TREATY. HE, THEREFORE, HAS CONTENDED THAT IN VIEW OF THIS, THE ASSESSEE WAS NOT SUPPOSED TO DEDUCT TDS ON THE REMITTANCE MADE FOR THE PURCHASE OF SOFTWARE PRIOR TO THE BRINGING OF AMENDMENT/INSERTION OF EXPLANATION 4 TO THE SECTION 9(1)(VI) OF THE ACT, AS PER THE INTERPRETATION OF THE RELEVANT PROVISION DONE B Y VARIOUS COURTS, THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT NO TDS WAS DEDUCTABL E AS THE CONSIDERATION PAID FOR PURCHASE OFF THE SHELF/SHRINK WRAPPED SOFT WARE WOULD NOT FALL IN THE DEFINITION OF ROYALTY. EVEN THE ABOVE VIEW OF THE A SSESSEE HAS BEEN SUBSEQUENTLY CONFIRMED BY THE VARIOUS DECISIONS OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE. HE, BRINGING OUR ATTENTION TO THE ORDERS DATED 29.10.2010 (SUPRA) AND 26.11.2010 (SUPRA) AND ALSO VARIOUS OTH ER ORDERS IN THE CASE OF ASSESSEES IN THE EARLIER ASSESSMENT YEARS HAS CONTE NDED THAT THE DIFFERENT BENCHES OF THE TRIBUNAL HAVE UPHELD THE FINDINGS IN RELATION TO THE INTERPRETATION OF THE PROVISIONS OF SECTION 9(1)(VI ) MADE BY THE FIRST APPELLATE ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 17 AUTHORITY [CIT(A)] WHICH HAS BEEN SUMMED UP IN THE FOLLOWING POINTS: (A) IT IS NOW ESTABLISHED LAW THAT COMPUTER SOFTWARE AF TER BEING PUT ON TO A MEDIA THEN SOLD, BECOMES GOODS LIKE ANY OTHER AUDIO CASSE TTE OR PAINTING ON CANVAS OR A BOOK AND THAT THE ASSESSING OFFICER IS WRONG I N HOLDING THAT COMPUTER SOFTWARE MEDIA, CONTINUES TO BE AN INTELLECTUAL PRO PERTY RIGHT AND THAT THE ASSESSING OFFICER WAS WRONG IN TREATING THIS COMPUT ER SOFTWARE AS A 'PATENT' OR AS 'INVENTION THE PAYMENT CANNOT BE TERMED AS 'ROYALTY'. (B)THAT THE DEFINITION OF THE TERM 'ROYALTY' IN ARTICLE 12(3) O F THE INDO-US DTAA IS RESTRICTIVE THAN WHAT IS PROVIDED IN SECTION 9(1)(V II) OF THE INCOME TAX ACT, 1961 THAT IN SUCH A SITUATION THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT OVERRIDE THE DOMESTIC LAW. (C) THAT THE A SSESSEE HAS PURCHASED A COPYRIGHTED ARTICLE AND NOT THE COPYRIGHT. THERE IS NO TRANSFER OF ANY PART OF COPYRIGHT (D) AS WHAT IS PAID IS NOT 'ROYALTY' UNDE R THE INDO-US DTAA, AND AS IT IS COVERED ARTICLE 7, WHICH DEALS WITH 'BUSINESS PROFIT' AND AS THE FOREIGN PARTY DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDI A, THE SAME IS NOT TAXABLE IN INDIA AND THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT. (E) THE PRESENT COMPUTER SOFTWARE CANNOT B E TREATED AS A PATENT OR AN INVENTION. 52. THE LD. AR HAS FURTHER RELIED IN THIS RESPECT ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILL INC. & OTHERS VS. COMMISSIONER OF INCOME TAX & ANOTHER (2005) 199 CTR (SC) 320 AND ALSO OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF RICH GRAVISS PRODUCTS (P.) LTD. VS. ACIT (2014) 49 TAXMAN.COM 531 (MUM-TRIB.). HE HAS ALSO RELIED UPON THE DECISION OF THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE &' ' ( ( ) * IN ITA NO.6340/M/2004 DECIDED VIDE ORDER DATED 05.03.2007 WHEREIN THE TRIBUNAL HAS TAKEN A VIEW THAT WHEREIN AN EARLIER CASE A SPE CIFIC VIEW HAS BEEN TAKEN IN THE CASE OF AN ASSESSEE, THEN THE CONSISTENCY SHOUL D BE MAINTAINED IN THE SUBSEQUENT YEAR ON IDENTICAL SET OF FACT AND CIRCUM STANCES. 53. THE LD. D.R., ON THE OTHER HAND , HAS STRESSED THAT SINCE THE EXPLANATION 4 HAS BEEN INSERTED WITH RETROSPECTIVE EFFECT, HENCE THE SAME SHOULD BE READ FOR THE PURPOSE OF DEFINITION OF ROYALTY IN THE YEARS I N WHICH THE LIABILITY TO DEDUCT TDS HAD ARISEN. 54. WE HAVE CONSIDERED THE ABOVE SU BMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. ADMITTEDLY, AS NOTED IN 4TH COLUMN OF THE TABLE DRAWN IN PARA 4 OF THIS ORDER, THE PURCHASE ORDERS WERE MADE BY THE AS SESSEE FOR THE SOFTWARES AS MENTIONED IN COLUMN NO.5, PRIOR TO THE BRINGING OF AMENDMENT VIDE FINANCE ACT, 2012, THOUGH THE AMENDMENT HAS BEEN MADE WITH RETROSPECTIVE EFFECT FROM 01.06.1976. HOWEVER, WE FIND THAT THE SAID AME NDMENT VIDE WHICH THE EXPLANATION 4 HAS BEEN INSERTED TO SECTION 9(1)(VI) HAS THE EFFECT OF CHANGE IN THE LAW AS WAS EXISTING AND EVEN INTERPRETED BY THE VARIOUS HIGHER COURTS OF THE COUNTRY PRIOR TO THE INSERTION OF EXPLANATION 4 IN THE SAID PROVISION. BY THE INTRODUCTION OF THE SAID EXPLANATION 4, COMPUTER SO FTWARE HAS BEEN SPECIFICALLY INCLUDED IN THE DEFINITION OF RIGHT, PROPERTY OR INFORMATION WHICH WAS NEVER ASSUMED TO HAVE BEEN INCLUDED BY ANY COURT OF LAW P RIOR TO THE INSERTION OF EXPLANATION 4 VIDE AMENDMENT OF ACT OF 2012. THE HO NBLE SUPREME COURT IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILL INC. & OTHERS VS. C OMMISSIONER ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 18 OF INCOME TAX & ANOTHER (SUPRA) HAS HELD THAT IF AN EXPLANATION ADDED TO A PROVISION CHANGES THE LAW, THEN IT IS NOT TO BE PRE SUMED TO BE RETROSPECTIVE IRRESPECTIVE OF THE FACT THAT THE PHRASE USED ARE IT IS DECLARED OR FOR THE REMOVAL OF DOUBTS. AS IT IS AN ADMITTED POSITION T HAT IN THE EARLIER YEARS, NOT ONLY THE VARIOUS HIGH COURTS BUT ALSO THE TRIBUNAL IN THE CASES OF THE ASSESSEE HAS TAKEN A VIEW THAT THE CONSIDERATION PAID FOR TH E PURCHASE OF THE SOFTWARE CANNOT BE TREATED AS ROYALTY; THE ASSESSEE WAS, THU S, UNDER THE BONAFIDE BELIEF THAT NO TDS/WITHHOLDING OF TAX WAS REQUIRED TO BE D ONE IN RESPECT TO SAID PURCHASES. THE ASSESSEE HAD NO REASON TO BELIEVE OR TO FORESEE A SUBSEQUENT EVENT VIDE WHICH THE DEFINITION OF ROYALTY HAS BEEN EXTENDED TO INCLUDE THE CONSIDERATION FOR THE USE OF OR RIGHT TO USE THE SO FTWARE HAS BEEN INCLUDED IN THE DEFINITION OF ROYALTY UNDER THE ACT. AS PER THE EXI STING LAW WHICH WAS IN OPERATION AT THE TIME OF PURCHASE OF SOFTWARE, THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF THAT THERE WAS NO LIABILITY TO DEDU CT TAX IN RESPECT OF THE CONSIDERATION PAID FOR THE SAID PURCHASE OF SOFTWAR E. IT MAY BE FURTHER OBSERVED THAT AS THE DEFINITION AS WAS IN EXISTENCE BEFORE T HE INSERTION OF EXPLANATION 4, THERE WAS A REMOTE POSSIBILITY TO GIVE A BROAD INTE RPRETATION TO THE DEFINITION OF RIGHT, PROPERTY OR INFORMATION SO AS TO INCLUDE THE RIGHT TO USE OR RIGHT FOR USE OF THE SOFTWARE IN THE SAID DEFINITION. THE EXPLANATIO N 4 HAS BROUGHT AND ADDED A FURTHER MEANING TO THE PROVISION WHICH WAS NOT SUPP OSED TO BE FORESEEN BY THE ASSESSEE. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RICH GRAVISS PRODUCTS (P.) LTD. VS. ACIT (SUPRA), WHILE RELYING UPON VARIOUS OTHER DECISIONS OF THE TRIBUNAL, HAS HELD THAT THE DISALLOWANCE CAN NOT BE MADE UNDER SECTION 40(A)(IA) ON THE BASIS OF A SUBSEQUENT AMENDMENT BR OUGHT INTO THE ACT WITH RETROSPECTIVE EFFECT. IN VIEW OF THIS, EVEN OTHERWI SE, THE EXPLANATION 4 INSERTED VIDE FINANCE ACT, 2012 CANNOT BE APPLIED RETROSPECT IVELY TO THE CASE OF THE ASSESSEE AS THE SAID EXPLANATION 4 HAS THE EFFECT O F CHANGE IN LAW AND THE ASSESSEE WAS NOT EXPECTED TO FORESEE SUCH CHANGE AT THE TIME OF MAKING THE REMITTANCE IN CONSIDERATION OF PURCHASE OF THE SOFT WARE IN QUESTION. HENCE, UNDER SUCH CIRCUMSTANCES, EVEN OTHERWISE, THE ASSES SEE WAS NOT SUPPOSED TO DEDUCT TDS ON SUCH PURCHASES. FROM THE ABOVE FACTUAL DISCUSSION AND RESPECTFULLY FOLLOWING THE LEGAL POSITION AS DETERMINED BY HONBLE DELHI HIGH COURT IN INFRASOFT LTD. (SUPRA) AND THE DECISION OF COORDINATE BENCH OF MUMBAI TRIBUNAL IN RELIANCE INDUSTRIES LTD (SUPRA), WE ARE OF THE OPINION THAT THE ASSESSEE HAS TRANSFERRE D THE COPYRIGHTED ARTICLE/ MATERIAL WHICH DOES NOT GIVE RISE TO ANY ROYALTY IN COME AS HELD BY LD CIT(A) IN THE IMPUGNED ORDER. WE ORDER ACCORDINGLY. IN THE RE SULT THE GROUND NO.1 &2 ( A TO E) OF THE APPEAL ARE ALLOWED. 6. GROUND NO.3(F) RAISED BY THE ASSESSEE IS THAT THE L D CIT(A) FAILED TO ADJUDICATE WHETHER THE VARS CONSTITUTED A PE OF THE APPELLANT IN INDIA. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LD CIT (A) NOT AD JUDICATED THE GROUND OF APPEAL RAISED BEFORE HIM. IT WAS FURTHER ARGUED IN ALTERNA TIVE THAT M/S SATYAM AND ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 19 COMPAQ ARE WELL ESTABLISHED COMPANY IN THE FIELD OF SOFTWARE SERVICES AND QUESTION OF THEIR DEPENDENT UPON THE ASSESSEE DOES NOT ARISE. ON THE OTHER HAND THE LD DR FOR THE REVENUE SUBMITTED THAT HE HAS NO OBJE CTION IF THIS GROUND OF APPEAL IS RESTORED TO THE FILE OF LD CIT(A) FOR ADJUDICATI ON ON MERIT. 7. WE HAVE CONSIDERED THE CONTENTIONS OF THE LD REPRES ENTATIVES OF THE PARTIES. WE HAVE NOTICED THAT LD CIT(A) HAS NOT ADJUDICATE THE GROUND OF APPEAL DESPITE SPECIFIC GROUND OF APPEAL RAISED BY ASSESSEE. HENCE , WE DEEM IT APPROPRIATE TO RESTORE THIS GROUND OF APPEAL TO THE FILE OF LD CIT (A) TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT THE LD CI T(A) SHALL GRANT OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE PASSING THE ORDER. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 1718/MUM/2008 FOR AY 2004-05 8. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS OF APPEAL AS RAISED IN APPEAL FOR AY 2002-03. THE FACTS FOR THE ASSESSMENT YEAR UNDER CO NSIDERATION ARE ALSO SIMILAR. WE HAVE ALREADY ALLOWED THE APPEAL OF THE ASSESSEE FOR AY 2002-03 ON SIMILAR FACTS. HENCE, THIS APPEAL IS ALSO ALLOWED WITH SIMI LAR OBSERVATIONS. ITA NO. 6449/MUM/2008 FOR AY 2002-03 9. THIS APPEAL IS FILED BY REVENUE AGAINST DELETION OF PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 10. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN TH E RETURN OF INCOME CLAIMED RS. 1,28,89,958/- WAS RECEIVED ON ACCOUNT OF LICENCE FE E FOR THE SALE OF SOFTWARE AND THE SAME IS NOT TAXABLE IN INDIA. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY AO AND TREATED THE INCOME AS ROYALTY AND BROUGHT TH E SAME AS TAXABLE INCOME IN INDIA. THE AO FURTHER CONCLUDED THAT OUT THE SAID I NCOME, THE INCOME ON ACCOUNT OF LICENCE FEE OF SOFTWARE TO M/S AGROTECH FOODS LT D OF RS. 32,27,028/- IS A DIRECT SALE AND INCOME ON LICENCE FEE TO M/S COMPAQ COMPUT ER (INDIA) FOR RS.73,27,586/- AND TO M/S SATYAM COMPUTER SERVICES FOR RS.32,35,344/- ARE VALUE ADDED RETAIL(VAR). THE VARS SOLD THESE SOFTWARE TO PREMIERE INSTRUMENT & CONTROLS LTD AND MARUTI UDYOG LTD AND THE RECEIPT W AS NOT OFFERED TO TAX BY ASSESSEE ON THE GROUND THE TRANSACTION ARE IN THE N ATURE OF COPYRIGHTED PRODUCT RATHER THAN COPYRIGHT ARTICLE. THE AO HELD THAT M/S SATYAM AND COMPAQ IS ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 20 DEPENDING AGENT OF THE ASSESSEE AND ACCORDINGLY TAX ED THE RECEIPT U/S 44AD. ON APPEAL BEFORE LD CIT(A) THE INCOME RECEIVED ON ACCO UNT OF DIRECT SALE AS WELL AS VARS BOTH WERE TREATED AS ROYALTY. AFTER RECEIPT OF ORDER FROM CIT(A)/ FIRST APPELLATE AUTHORITY, THE AO LEVIED THE PENALTY OF R S. 1,28,89,958/- BEING 100% ON THE INCOME SOUGHT TO BE EVADED VIDE ORDER DATED 28 TH MARCH 2008. ON APPEAL AGAINST THE PENALTY ORDER BEFORE THE LD. CIT(A), T HE PENALTY WAS DELETED HOLDING THAT ASSESSEE UNDER THE BONAFIDE BELIEF HAD CLAIMED THE CERTAIN INCOME AS NOT TAXABLE AND NOT INCLUDED THE INCOME IN THE TOTAL IN COME AND DISCLOSED THIS FACT IN THE RETURN OF INCOME. THE LD CIT(A) FURTHER HELD TH AT THE ADDITION WAS MADE IN THE ASSESSMENT ORDER PURELY DUE TO THE INTERPRETATION O F LAW AND NOT BECAUSE OF NON- FURNISHING THE INACCURATE PARTICULAR OF INCOME OR C ONCEALMENT OF INCOME. THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE H AS FILED THE PRESENT APPEAL BEFORE US. 11. WE HAVE HEARD LD SR COUNSEL FOR ASSESSEE AND LD SR CIT-DR FOR REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD CO UNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). ON THE OTHER HAND THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF AO. 12. ALONG WITH THIS APPEAL, WE HAVE ALSO HEARD THE APPE AL AGAINST THE QUANTUM ASSESSMENT ( VIDE ITA NO. 2410/MUM/2007 )WHEREIN WE HAVE GRANTED FULL RELIEF TO THE ASSESSEE AS HOLDING THAT CONSIDERATION RECEI VED FOR SOFTWARE LICENCE/SUB- LICENCE IS NOT ROYALTY. AS IN THE QUANTUM ASSESSMEN T, THE TREATMENT OF THE INCOME HAS BEEN REVERSED; CONSEQUENTLY THE DISALLOWANCE IN THE ASSESSMENT ORDER IS DELETED. THUS, THE APPEAL FILED BY REVENUE EVEN ON MERIT LEFT NO MERIT FOR FURTHER CONSIDERATION. BECAUSE, AS THE ORDER ON THE BASIS O F WHICH THE PENALTY WAS LEVIED HAS BEEN SET-ASIDE BY US. EVEN OTHERWISE THE PENAL TY WAS LEVIED BY AO ON ACCOUNT OF DIFFERENT TREATMENT BESIDES CLAIMED BY T HE ASSESSEE. IT IS THE SETTLED LAW THAT MERE DISALLOWANCE OF CLAIM WHICH IS BASED ON B ONAFIDE BELIEF CANNOT BE A BASIS FOR LEVY OF PENALTY. THERE IS NO SPECIFIC ALL EGATION OR FINDING BY AO THE THAT ASSESSEE HAS INTENTIONALLY AND DELIBERATELY FURNISH ED THE INACCURATE PARTICULAR OR CONCEALED THE INCOME. HENCE, APPEAL FILED BY THE RE VENUE IS DISMISSED. ITA NO(S). 24 10/M/2007, 6449/M/2008 & 1718/M/2008 I2 TECHNOLOGIES( NETHERLAND)BV 21 13. IN THE RESULT, APPEAL FILED BY ASSESSEE FOR AYS 200 2-03, 2004-05 ARE ALLOWED AND THE APPEAL FILED BY REVENUE AGAINST DELETION OF PEN ALTY LEVIED U/S 271(1)(C) IS DISMISSED. 14. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2017. SD/- SD/- (JASON. P. BOAZ) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 31/03/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT .REGISTRAR) ITAT, MU MBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/