ONGC as representative assessee of International Human Resources Dev.Corp., Dehradun V. Deputy Director of Income-tax, Dehradun

ITA 2486/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5967 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 04-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MOHD FARID
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.2486/DEL/2016 ASSESSMENT YEAR: 2010-11 ONGC AS REPRESENTATIVE ASSESSEE OF INTERNATIONAL HUMAN RESOURCES DEV. CORPORATION, DGM-HEAD CORP. TAX, ONGC LTD., ROOM NO.244, OLD SECRETARIAT BUILDING, TEL BHAWAN, DEHRADUN. PAN: AAACO1598A VS DEPUTY DIRECTOR OF INCOME- TAX, INTERNATIONAL TAXATION, CIRCLE-2, AAYAKAR BHAWAN, 13A, SUBHASH ROAD, DEHRADUN. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MOHD. FARID, CA REVENUE BY : SHRI AMIT KATOCH, SR. DR DATE OF HEARING : 16.01.2019 DATE OF PRONOUNCEMENT : 22.01.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 29 TH FEBRUARY, 2016 OF THE CIT(A)-2, NOIDA, RELATING TO ASSESSMENT YEAR 2010-11. ITA NO.2486/DEL/2016 2 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME ON 13 TH SEPTEMBER, 2010 SHOWING NIL INCOME IN ITS CAPACITY AS THE REPRESENTATIVE ASSESSEE OF M/S INTERNATIONAL HUMAN RESOURCES DEVELOPMENT CORPO RATION, USA. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, OBSERVED THAT THE ASSESSEE HAS EARNED REVENUE ON ACCOUNT OF CONTRACT DATED 25 TH SEPTEMBER, 2009 FOR PROCUREMENT OF IPIMS E-LEARNING LICENSE AND FOR JOINT DEVELOPMENT PROJECT I.E., EXPLORATION ACTION LEARNING PLANS (EALP). HE OBSERVED THAT THE ASSESS EE HAS RECEIVED PAYMENTS/REVENUES AMOUNTING TO RS.52,06,380/- IN R ESPECT OF PROVISION OF THE FOLLOWING SERVICES:- DURING THE RELEVANT PREVIOUS YEAR, PAYMENTS WERE M ADE BY ONGC TO INTERNATIONAL HUMAN RESOURCES DEVELOPMENT CORPORATI ON, USA (HEREINAFTER NON-RESIDENT) UNDER ONE TAX PROTECTED CONTRACT DA TED 25.09.2009 FOR PROCUREMENT OF INTERNATIONAL PETROLEUM INDUSTRY MUL TIMEDIA SYSTEM (IPIMS) E-LEARNING LICENSE AND FOR DEVELOPMENT OF EXPLORATI ON ACTION LEARNING PLANS (EALP). IPIMS DATABASE MANAGEMENT SOFTWARE I S A SOFTWARE DEVELOPED BY THE NON-RESIDENT AND DELIVERED TO ONGC FOR INSTALLATION ON CENTRAL SERVERS PC AND/OR HARD DRIVES, WHICH IS USE D TO MANAGE ACCESS TO AND ADMINISTRATION OF IPIMS CONTENT. ACTION LEARNING M ODULE IS AN ACTION LEARNING UNIT DEVOTED TO A SPECIFIC LEARNING TOPIC, DESIGNED AND PUBLISHED SO THAT THE CONTENT MAY BE LEARNED ON A E-LEARNING BAS IS AS NEEDED AT THE DESKTOP. 3. HE NOTED THAT THE ASSESSEE HAS NOT OFFERED ANY R EVENUE TO TAX IN INDIA IN THE RETURN FILED UNDER THE CLAIM THAT THE PAYMENT FOR S ALE OF SOFTWARE THROUGH LICENCE TO ONGC IS NOT RECEIVED BY ASSESSEE IN INDIA AND IS, T HEREFORE, EXEMPT FROM TAX. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY PE IN INDIA. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AN D HELD THAT THE RECEIPTS OF THE NON- RESIDENT WERE TAXABLE AS ROYALTY ON GROSS BASIS AS PER THE RATE MENTIONED IN SECTION ITA NO.2486/DEL/2016 3 115A OF THE ACT WITHIN THE MEANING OF SECTION 9(1)( VI) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME OF TH E ASSESSEE AT RS.58,20,930/-. 4. BEFORE THE CIT(A), IT WAS ARGUED THAT THE RECEIP TS OF THE NON-RESIDENT ARE NOT TAXABLE IN INDIA. THROUGH AN ADDITIONAL GROUND OF APPEAL, THE ASSESSEE ALSO, WITHOUT PREJUDICE TO THE MAIN PLEA TAKEN IN THE APPEAL PROC EEDINGS THAT THE RECEIPTS WERE NOT TAXABLE IN INDIA, SUBMITTED THAT THE RECEIPTS OF TH E ASSESSEE COULD BE TAXABLE U/S 44B OF THE ACT IN VIEW OF THE DECISION OF THE HON'BLE SUPR EME COURT IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT REPORTED IN 3 76 ITR 306. HOWEVER, THE LD.CIT(A) WAS ALSO NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE AND HELD THAT THE RECEIPTS OF INTERNATIONAL HUMAN RESOURCES DEVELOPMENT CORPORATION, USA ARE TAXABLE AS ROYALTY. HE ALSO REJECTED THE ALTER NATIVE CONTENTION OF THE ASSESSEE THAT THE RECEIPTS ARE TAXABLE U/S 44B OF THE ACT. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, NO IDA, HAS ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE RECEIPTS OF INTERNATIONAL HUMAN RESOURCES DEVEL OPMENT CORPORATION, USA, ARE TAXABLE AS 'ROYALTY AND IN REJECTING THE APPELLANTS CONTENTION THAT THE SAME WERE NOT TAXABLE IN INDIA AS PER THE INDIA-USA DOUBLE TAXATION AVOIDANCE AGREEMENT. 2. WITHOUT PREJUDICE TO THE PRECEDING GROUND, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, NOIDA, HAS ERRED IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING THE ALTERNAT IVE CONTENTION OF APPELLANT THAT THE RECEIPTS OF INTERNATIONAL HUMAN RESOURCES DEVELOPMENT CORPORATION, USA, ARE TAXABLE U/S. 44BB OF THE INCO ME-TAX ACT, 1961. 3. THE APPELLANT CRAVES PERMISSION TO ADD, ALTER AND/ OR AMEND ANY ITA NO.2486/DEL/2016 4 GROUND(S) OF APPEAL BEFORE OR AT THE TIME OF HEARIN G. 6. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND 2006-07 VIDE ITA NO.1811 & 3047/DEL/2010, ORDER DATED 18 TH MAY, 2018 AND SUBMITTED THAT THE IDENTICAL ISSUE HAD BEEN CONSIDERED BY THE TRIBUNAL AND IT HAS BEEN HELD THAT THE PAYMENTS MADE BY ONGC FOR USE OF IPIMS E-LEARNING L ICENSE IS IN THE NATURE OF BUSINESS RECEIPTS AND, THUS, EXEMPT UNDER ARTICLE 7 OF DTAA. THE LD. COUNSEL FURTHER MADE A STATEMENT AT THE BAR THAT NO RETURN HAS BEEN FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007-08, 2008-09 AND 2009-10. HE ACCORDINGLY SUBMITTED THAT THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE, THE GROUN DS RAISED BY THE ASSESSEE SHOULD BE DISMISSED. 7. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND CIT(A). 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS AND PERUS ED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THE ASSESSEE WAS A TAX RESIDENT OF THE USA DURING THE YEAR UNDER CONSIDERATION. ONGC FILED THE RETURN OF INCOM E AS REPRESENTATIVE ASSESSEE OF THE NON-RESIDENT FOR THE YEAR UNDER CONSIDERATION CLAIM ING THAT THE RECEIPTS OF THE NON- RESIDENTS WERE NOT TAXABLE IN INDIA. ACCORDINGLY, THE ASSESSEE DID NOT OFFER ANY INCOME TO TAX IN THE RETURN OF INCOME FILED FOR THE YEAR. WE FIND THE ASSESSING OFFICER HELD THAT THE RECEIPTS OF THE NON-RESIDENTS WERE TA XABLE AS ROYALTY ON GROSS BASIS AS PER ITA NO.2486/DEL/2016 5 THE RATE MENTIONED IN 115A OF THE IT ACT WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT. THE RELEVANT OBSERVATION OF THE ASSESSING OFF ICER READS AS UNDER:- DURING THE RELEVANT PREVIOUS YEAR, PAYMENTS WERE M ADE BY ONGC TO INTERNATIONAL HUMAN RESOURCES DEVELOPMENT CORPORATION, USA (HEREI NAFTER 'NON-RESIDENT) UNDER ONE TAX PROTECTED CONTRACT DATED 25.09.2009 F OR PROCUREMENT TO INTERNATIONAL PETROLEUM INDUSTRY MULTIMEDIA SYSTEM (IPIMS) E-LEAM ING LICENSE AND FOR DEVELOPMENT OF EXPLORATION ACTION LEARNING PLANS (E ALP). IPIMS DATABASE MANAGEMENT SOFTWARE IS A SOFTWARE DEVELOPED BY THE NON-RESIDENT AND DELIVERED TO ONGC FOR INSTALLATION ON CENTRAL SERVICES PC AND/OR HARD DRIVES, WHICH IS USED TO MANAGE ACCESS TO AND ADMINISTRATION OF IPIMS CONTEN T. ACTION LEARNING MODULE IS AN ACTION LEARNING UNIT DEVOTED TO A SPECIFIC LEARN ING TOPIC, DESIGNED AND PUBLISHED SO THAT THE CONTENT MAY BE LEARNED ON A E-LEARNING BASIS AS NEEDED AT THE DESKTOP. THE ASSESSEE HAS NOT OFFERED ANY REVENUES TO TAX IN INDIA IN THE RETURN FILED UNDER THE CLAIM THAT THE PAYMENT FOR SALE OF SOFTWARE THR OUGH LICENSE TO ONGC IS NOT RECEIVED BY ASSESSEE IN INDIA AND IS THEREFORE, EXE MPT FROM TAX. ASSESSEE HAS ALSO STATED THAT IT DID NOT HAVE PERMANENT ESTABLISHMENT (PE) IN INDIA. THE CLAIM OF THE ASSESSEE IS NOT FOUND TO BE CORRECT AND ACCEPTABLE. LOOKING AT THE NATURE OF THE ACTIVITIES WHICH INVOLVES PROCUREMENT OF LICENSE TO USE THE IPIMS SYSTEMS BY ONGC IN INDIA WHICH IS A DATA BASE MANAGEMENT SOFTW ARE DEVELOPED BY IHRDC FOR ONGC, TO BE INSTALLED ON ONGCS COMPUTERS, IS CL EARLY IN THE NATURE OF SOFTWARE SUPPLY AND SOFTWARE DEVELOPMENT (ALONGWITH GRANT OF LICENSE TO USE) IS IN THE NATURE OF ROYALTY PAYMENT BY ONGC.' 9. WE FIND, IN APPEAL THE LD.CIT(A) NOT ONLY UPHELD THE ACTION OF THE ASSESSING OFFICER, BUT ALSO REJECTED THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT RECEIPTS COULD BE TAXABLE U/S 44B OF THE IT ACT. WE FIND IDENTICAL I SSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING AS SESSMENT YEARS 2005-06 AND 2006- 07. WE FIND THE TRIBUNAL VIDE ITA NO. VIDE ITA NO. 1811 & 3047/DEL/2010, ORDER DATED 18 TH MAY, 2018, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE P ERUSED THE MATERIAL PLACED BEFORE US. THE SHORT ISSUE IN THIS CASE IS REQUIRED TO BE EXAMINED AS TO WHETHER ASSESSEES CLAIM IS CORRECT IN VIEW OF THE LICENCE AGREEMENT AND THE DEFINITION OF THE ROYALTY AS PROVIDED UNDER THE DTAA, PAYMENT OF ANNU AL LICENCE FEE CANNOT BE TREATED AS ROYALTY AND SHOULD BE TREATED AS THE BUS INESS RECEIPTS OF THE ASSESSEE ITA NO.2486/DEL/2016 6 COMPANY, WHICH IS EXEMPT UNDER THE DTAA. FOR THE SA KE OF CLARITY, DEFINITION OF ROYALTY AS PROVIDED UNDER THE DTAA BETWEEN INDIA AN D U. S. A., WHICH SPEAKS THAT THE ROYALTIES AS USED IN THE ARTICLE 12 MEANS :- (A) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE ANY COPYRIGHT OF A LITERACY, ARTISTIC OR SCI ENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, A NY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFO RMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE OR DISPOSITION THEREOF ; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQ UIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 O F ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARAGRAPH 2 (C) OR 3 OF ARTICLE 8. TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THE ON GC IS TO BE TESTED ON THE BASIS OF THIS DEFINITION. 12. NOW COMING TO THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE ONGC, AS PER THE RECITALS OF THE AGREEMENT I.E. THE ASSESSEE COMPANY HAS REPRESENTED THAT IT PUBLISHES VIRTUAL KNOWLEDGE, LE ARNING AND COMMUNICATION SYSTEM CONTAINED IN THE IPIMS AND ACTION LEARNING MODELS T HEREOF, FOR THE INTERNATIONAL ENERGY SECTOR AND CONTINUES TO MAKE ADDITIONS, MODI FICATIONS AND EXTENSIONS TO SUCH SYSTEM ON AN ANNUAL BASIS. 13. AS PER THE DEFINITION CLAUSE 1.4 OF THE AGREEMENT, IPIMS CONTENT IS THAT MULTIMEDIA SUBJECT MATTER CLASSIFIED AS BACKGROUND KNOWLEDGE, PRACTICAL KNOWLEDGE, BACKGROUND LEANING AND COMMUNICATION AS DESCRIBED FROM TIME IN IHRDC BROCHURES AND PUBLICATIONS. THIS CONTENT INCL UDES ANY UPGRADES, SUBSTITUTIONS, REPLACEMENTS, ENHANCEMENT S AND MODI FICATIONS THEREOF, WHICH ARE DELIVERED TO ONGC DURING THE TERM OF THIS AGREEMENT AND ANY EXTENSION THEREOF. THE SCOPE OF IPIMS CONTENT FOR THE ENERGY SECTOR TH AT IS THE SUBJECT OF THIS LICENSE IS PROVIDED IN SCHEDULE B. 14. CLAUSE 3.2 OF THE TERM OF AGREEMENT ENVISAGES IPIMS SYSTEM BECOMES AND REMAINS INACCESSIBLE TO ONGC DURING THE LICENSE PER IOD DUE TO BUGS, ERRORS, INCONSISTENCIES, ETC. IN SOFTWARE, HAND, FAILURE OR OTHER PROBLEMS WITH MATERIAL/SOFTWARE SUPPLIED FOR INSTALLATION AT ONGC SITES AND/OR IHRDC SERVER AT BOSTON, OR THE ACCESS GETS BLOCKED FOR ANY REASON U NDER THE DIRECT CONTROL OF IHRDC, THE SAME SHALL BE NOTIFIED BY ONGC TO IHRDC THROUGH TELEPHONE AND/OR E-MAIL/FAX. IF THE ACCESS IS NOT RESTORED WITHIN SE VENTY TWO (72) HOURS OF INTIMATION TO IHRDC BY ONGC, THE LICENSE PERIOD WILL AUTOMATIC ALLY BE EXTENDED PRO-RATA FOR THE PERIOD OF NON-AVAILABILITY OF THE SYSTEM TO ONG C. ITA NO.2486/DEL/2016 7 15. AS PER CLAUSE 4.4, NO TITLE OR OWNERSHIP OF IPIMS S YSTEM IS TRANSFERRED TO ONGC BY WAY OF THIS AGREEMENT. 16. AS PER CLAUSE 3.1, THE TERM OF AGREEMENT SHALL REMA IN FOR A PERIOD OF ONE YEAR, WHICH IS EXTENDABLE UPON MUTUAL AGREEMENT BY THE PARTIES. 17. AS PER CLAUSE 16.1, UNLESS AUTHORIZED BY IHRDC, ONG C AGREES NOT TO COPY, IN ANY FORM, OR OTHERWISE ADD TO, DELETE AND/ OR MODIFY THE IPIMS SYSTEM, NOR ALLOW NON-EMPLOYEES, EXCLUDING THIRD PARTY PERSONNE L TO WHOM ONGC OUTSOURCES ITS SERVICES AND WHO PERFORM ON ONGC PREMISES, TO V IEW, USE OR OTHERWISE OBTAIN ACCESS TO SAID SYSTEM. 18. FROM THE ABOVE STATED CLAUSES OF THE AGREEMENT, IT IS EVIDENT THAT ONGC ACQUIRES ONLY COPY OF COPYRIGHTED ARTICLE, WHEREAS THE COPYRIGHT REMAINS WITH THE OWNERS. WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE TRANSACTION WOULD NOT FALL WITHIN THE DEFINITION OF ROYALTY AS USED IN ARTICLE 12(3) OF THE INDO-US DTAA. SINCE THE DEF INITION SPEAKS OF USE OF COPYRIGHT, IT DOES NOT SPEAK USE OF COPYRIGHTED AR TICLE. IF THE COPY RIGHT IS TRANSFERRED IN FAVOUR OF THE ASSESSEE, IN THAT EVEN T, THE PAYMENTS MADE BY ONGC WOULD HAVE CERTAINLY FALLEN IN THE CATEGORY OF PAYM ENT FOR ROYALTY. HAVING CONSIDERED THE MATERIAL ON RECORD AND SUBMISSION OF THE PARTIES, WE ARE OF THE VIEW THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF DIT VS. INFRASOFT LIMITED, (2014) 220 TAXMAN 273 (DEL), WHEREIN THE HON'BLE COURT HAS RUL ED AS UNDER :- 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS N ECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRATING OF ANY LICENCE) IN RESPECT OF COPY RIGHT OF A LITERARY, ARTISTIC OR SC IENTIFIC WORK. IN ORDER TO TREAT THE CONSIDERATION PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT THE LICENSEE, BY MAKING SUCH PAYMENT, OBTAINS ALL O R ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A COPYRIGHT RIGHT AND A COPYRIGHT ED ARTICLE. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COPY RIGHTED. CO PYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUI TE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MANUSCRIPT. JUST BECA USE 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 INC LUDING LICENCE IN RESPECT OF COPYRIGHT. COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM SALE CONSIDERATION PAID FOR COPYRIGHTED ARTICLE. THIS SALE CONSIDERATION IS FOR PURCHASE OF GOODS AND IS NOT ROYALTY. 88. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO THOSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PROGRAM. THE RIG HTS TRANSFERRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PRO GRAM ONTO THE COMPUTERS HARD DRIVE OR RANDOM ACCESS MEMORY OR MA KING AN ARCHIVAL COPY IS AN ESSENTIAL STEP IN UTILIZING THE PROGRAM. THER EFORE, RIGHTS IN RELATION TO ITA NO.2486/DEL/2016 8 THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN E NABLE THE EFFECTIVE ,OPERATION OF THE PROGRAM BY THE USER, SHOULD BE D ISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYM ENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINESS INCOME 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 COPYRIGHTE D ARTICLES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRODUCT WITH THE OWNER RETAI NING 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 C OPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON- EXCLUSIVE AND NON-TRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJO Y ANY OR ALL 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 COPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPYRIGHT ITSELF OR RIGHT TO, USE COPYRIGHT HAS BEE N TRANSFERRED TO ANY EXTENT. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHEREN T IN AN ATTACHED TO THE SOFTWARE PRODUCE IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHORIZING OR ENABLING A CU STOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT A NY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, AMOUNT TO TRANSFER 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 TH E RIGHT OF USE OF COPYRIGHT IMPLIES THAT THE TRANSFEREE WHO 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 THE COMPUTER F OR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPO SE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO H AVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHT ED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO D EAL 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 PRI CE OF AN ARTICLE AND CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME-TA X ACT OR UNDER THE DTAA. 92. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE CO MPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LICENCE AGRE EMENT, ONLY THE COPYRIGHTED SOFTWARE WHICH BY ITSELF IS AN ARTICLE AND THEY HAVE NOT ACQUIRED ITA NO.2486/DEL/2016 9 ANY COPYRIGHT IN THE SOFTWARE AND ASSOCIATED SUPPOR T INFORMATION FOR BACKUP PURPOSE WITH A CONDITION THAT SUCH COPYRIGHT SHALL INCLUDE INFRASOFT COPYRIGHT AND ALL COPIES OF THE SOFTWARE SHALL BE EXCLUSIVE P ROPERTIES OF INFRASOFT. LICENSEE WAS ALLOWED TO USE THE SOFTWARE ONLY FOR I TS 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 WI THOUT THE CONSENT OF INFRASOFT. 93. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DECOMPILING, DE- ASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WIT HOUT THE WRITTEN CONSENT OF INFRASOFT. THE LICENCE AGREEMENT BETWEEN THE ASSESS EE COMPANY AND ITS CUSTOMERS STIPULATES THAT ALL COPYRIGHTS AND INTELL ECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE OWNE D BY INFRASOFT AND ONLY INFRASOFT HAS THE POWER TO GRANT LICENCE RIGHTS FOR USE OF THE SOFTWARE. THE LICENCE AGREEMENT STIPULATES THAT UPON TERMINATION OF THE AGREEMENT FOR ANY REASON, THE LICENSEE SHALL RETURN THE SOFTWARE INCL UDING SUPPORTING INFORMATION AND LICENCE AUTHORIZATION DEVICE 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 ASSES SEE. THE RIGHT TO USE A COPYRIGHT IN A PROGRAMME IS TOTALLY DIFFERENT FROM THE RIGHT TO USE A PROGRAMME EMBEDDED IN A CASSETTE OR A CD WHICH MAY BE A SOFTWARE AND THE 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 BRIN G IT WITHIN THE DEFINITION OF ROYALTY AS GIVEN IN THE DTAA. 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 PROGRAMME FOR BE ING 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. 19. THE LD. DEPARTMENTAL REPRESENTATIVE TRIED TO DISTIN GUISH THE FACTS OF THE PRESENT CASE. HOWEVER, THE LD. SENIOR COUNSEL REVE RTED THE SAME BY A PLAUSIBLE EXPLANATION. THUS, WE HAVE NO HESITATION TO HOLD TH AT THE PAYMENTS MADE BY THE ONGC FOR USE OF IPIMS SYSTEM IS IN THE NATURE OF BU SINESS RECEIPTS AND, THUS, IS EXEMPT UNDER ARTICLE 7 OF DTAA. 10. SINCE THE FACTS OF THE IMPUGNED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AND 2006-07, THEREFORE, IN ABSENCE OF ANY DISTINGUISHAB LE FEATURE BROUGHT TO OUR NOTICE BY THE LD. DR, WE HOLD THE PAYMENTS MADE BY ONGC TO TH E INTERNATIONAL HUMAN ITA NO.2486/DEL/2016 10 RESOURCES DEVELOPMENT CORPORATION, USA FOR PROCUREM ENT OF INTERNATIONAL PETROLEUM INDUSTRY MULTIMEDIA SYSTEM (IPIMS) IS IN THE NATURE OF BUSINESS RECEIPTS AND, THUS, EXEMPT UNDER ARTICLE 7 OF DTAA. THE GRO UND OF APPEAL NO.1 BY THE ASSESSEE IS ACCORDINGLY ALLOWED. SINCE THE ASSESSE E SUCCEEDS ON GROUND OF APPEAL NO.1, THE GROUND OF APPEAL NO.2 BEING ACADEMIC IN N ATURE IS NOT BEING ADJUDICATED. 11. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 2.01.2019. SD/- SD/- (KULDIP SINGH) (R.K. PANDA) JUDICIAL MEMBER AC COUNTANT MEMFBER DATED: 22 ND JANUARY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI