MICRO FOCUS LTD., BERKSHIRE, UNITED KINGDOM V. DCIT, CIRCLE- 2(2)(1), INTL. TAXATION, NEW DELHI

ITA 3826/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3219 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 13-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI
• Keywords: Business income; Double taxation relief; TDS; FORM 26AS
• Section: 143(3); 195; 9(1); 9(1); 9(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 3826/DEL/2017 (ASSESSMENT YEAR: 2014-15) MICRO FOCUS LTD., THE LAWN, 22-30, OLD BATH ROAD, BERKSHIRE, RG141QN, UNITED KINGDOM. VS. DCIT, CIRCLE 2(2)(1), INTL. TAXATION, NEW DELHI PAN NO. AAGCM3842B APPELLANT RESPONDENT ASSESSEE BY SH. VISHAL KALRA, ADVOCATE MS. SUMISHA SUMURAGI, CA REVENUE BY SH. SATPAL GULATI, CIT/DR DATE OF HEARING 02/11/2020 PRONOUNCEMENT ON 04 /11/2020 ORDER PER K. NARASIMHA CHARRY, JM AGGRIEVED BY THE ASSESSMENT ORDER DATED 07.04.2017 PURSUANT TO DIRECTIONS DATED 09.03.2017 OF LD. DRP U/S. 144C(5) OF THE INCOME TAX ACT (FOR SHORT THE ACT), THE ASSESSEE PREFERRED THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED IN UNITED KINGDOM AND ENGAGED IN THE BU SINESS OF DEVELOPMENT AND DISTRIBUTION OF SOFTWARE PRODUCTS A ND IT SELLS ITS SOFTWARE PRODUCTS IN INDIA EITHER THROUGH DISTRIBUTORS OR DI RECTLY TO THE CUSTOMERS. ACCORDING TO THE ASSESSEE, THEY HAVE NO OFFICES/PRO JECT OFFICES/ GODOWNS OR ANY OTHER BUSINESS OR PRESENCE IN INDIA AND SALE OF SOFTWARE PRODUCTS IS CONDUCTED OUTSIDE INDIA, ON PRINCIPAL TO PRINCIPAL BASIS, WITH INDIAN PURCHASERS. 3. FOR THE ASSESSMENT YEAR 2014-15, THE ASSESSEE FIL ED THEIR RETURN OF INCOME ON 30.09.2014 DECLARING NIL INCOME. LD. ASSE SSING OFFICER, HOWEVER, BY ORDER DATED 29.11.2016 PROPOSED TO MAKE AN ADDITION OF RS.10,80,18,856/- BY TREATING THE RECEIPTS FROM SALE OF SOFTWARE PRODUCTS AS ROYALTY INCOME DESPITE THE CONTENTION OF THE ASS ESSEE THAT IT CANNOT BE TAXED SO BECAUSE THE DISTRIBUTORS DO NOT ACT ON BEH ALF OF THE ASSESSEE AND THE AGREEMENTS WITH DISTRIBUTORS GIVES NON-EXCLUSIVE RIGHTS TO THE DISTRIBUTORS TO MARKET AND DISTRIBUTE THE SOFTWARE P RODUCTS TO THIRD PARTIES THROUGHOUT THE TERRITORY IN OBJECT CODE FORM; THAT THE DISTRIBUTOR WILL ACT AS INDEPENDENT CONTRACTOR ONLY AND WILL NEITHER ACT ON BEHALF OF MICRO FOCUS NOR PURPORT TO REPRESENT MICRO FOCUS IN ANY W AY; THAT THE AGREEMENT DOES NOT LICENCE DISTRIBUTOR TO USE THE S OFTWARE PRODUCTS FOR ANY PURPOSE WHATSOEVER INCLUDING WITHOUT LIMITATION THE USE OF THE SOFTWARE PRODUCTS INTERNALLY OR IN A SERVICE BUREAU OR TIME-SHARING BASIS; AND THAT DISTRIBUTOR HAS NO RIGHT TO COPY, MODIFY, REVERSE ENGINEER, DECOMPILE, DISASSEMBLE OR REPACKAGE THE SOFTWARE PRO DUCTS IN ANY. 4. AGGRIEVED BY SUCH PROPOSAL IN THE DRAFT ASSESSME NT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP. LD. DRP V IDE ORDER DATED 09.03.2017 U/S. 144C(5) CONFIRMED THE ADDITIONS PRO POSED BY ASSESSING OFFICER BY PLACING RELIANCE ON ITS DIRECTIONS FOR P RECEDING ASSESSMENT YEARS IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-10 AND 2010-11, AND FURTHER OBSERVING THAT ASSESSEE SOLD THE SOFTWARE I N INDIAN MARKET THROUGH A NETWORK OF DEALERS AND SUCH SOFTWARE IS CAPABLE OF REPLICATION AND MULTIPLICATION. LD. DRP FURTHER OBSERVED THAT IN O RDER TO INVOKE THE BENEFICIAL PROVISION OF SECTION 90(2) OF THE ACT, T HE ASSESSEE HAS TO FIRST NECESSARILY CONCEDE THE APPLICATION OF SECTION 9(1) (VI) OF THE ACT. PURSUANT TO DRPS DIRECTIONS, LD. ASSESSING OFFICER PASSED T HE FINAL ASSESSMENT ORDER DATED 07.04.2017 U/S. 143(3) R.W.S. 144C(13) OF THE ACT. LD. ASSESSING OFFICER FURTHER GRANTED CREDIT TO TAX DEDUCTED AT S OURCE ONLY TO THE TUNE OF RS. 1,17,68,759/- AS AGAINST THE CREDIT OF RS.1,56,5 9,151/- AS PROVIDED IN FORM 26AS. 5. THE ASSESSEE IS, THEREFORE, BEFORE US IN THIS AP PEAL, CHALLENGING THE ADDITION MADE BY LD. ASSESSING OFFICER PURSUANT TO DRPS DIRECTIONS AND ALSO THE GRANT OF PARTIAL CREDIT OF TDS. 6. LEARNED AR WHILE DRAWING OUR ATTENTION TO CLAUSE NOS. 1.2.3, 1.4.1, 2.2.1, 2.2.2, 2.2.3(V) AND 2.2.3(VI) OF THE DISTRIB UTOR AGREEMENT, SUBMITTED THAT THE APPELLANT IS A TAX RESIDENT OF UK AND ACCO RDINGLY, IN VIEW OF SECTION 90(2) OF THE ACT, THE PROVISIONS OF THE ACT OR THE DTAA, WHICHEVER IS MORE BENEFICIAL TO THE APPELLANT SHALL APPLY. SI NCE THE DEFINITION OF ROYALTY PROVIDED UNDER ARTICLE 13 OF THE INDIA - UK D TAA ('DTAA'), BEING MORE BENEFICIAL AS COMPARED TO THE PROVISIONS OF SE CTION 9(1)(VI) OF THE ACT, SHALL APPLY; THAT IN THE INSTANT CASE, THE SOF TWARE SUPPLIED BY THE APPELLANT TO INDIAN DISTRIBUTORS DOES NOT FALL UNDE R ANY OF THE CATEGORIES MENTIONED IN ARTICLE 13 OF THE DTAA, AND IN PARTICU LAR, IT DOES NOT FALL WITHIN THE MEANING OF 'COPYRIGHT'. THE APPELLANT GR ANTS THE DISTRIBUTOR(S), NON-EXCLUSIVE, NON-TRANSFERRABLE AND NON-ASSIGNABLE RI GHTS AND THEY ARE NOT IMPARTED WITH ANY RIGHT TO COMMERCIALLY EXPLOIT THE RIGHTS OF THE APPELLANT. THE MAIN THRUST OF THE AGREEMENT BETWEEN THE APPELLANT AND THE DISTRIBUTOR IS SUMMARIZED AS UNDER: - DISTRIBUTOR(S) HAVE NON-EXCLUSIVE RIGHT TO MARKET AND DISTRIBUTE THE SOFTWARE PRODUCTS TO THIRD PARTIES THROUGHOUT THE T ERRITORY IN OBJECT CODE FORM (REFER CLAUSE 1.3.2 OF THE DISTRIBUTOR AG REEMENT PLACED AT PAGE 13 OF THE PAPERBOOK VOLUME 1). - DISTRIBUTOR(S) WILL ACT AS AN INDEPENDENT CONTRACTO R ONLY AND WILL NEITHER ACT ON BEHALF OF MICRO FOCUS NOR PURPORT TO REPRESENT MICRO FOCUS IN ANY WAY (REFER CLAUSE 1.4.1 OF THE DISTRIB UTOR AGREEMENT PLACED AT PAGE 13 OF THE PAPERBOOK VOLUME 1). - DISTRIBUTOR(S) HAVE NO RIGHT TO GRANT SUB-LICENSE FO R SOFTWARE PRODUCTS AND APPELLANT WILL LICENSE THE SOFTWARE PR ODUCTS DIRECTLY TO END USERS THROUGH APPELLANT'S END USER LICENSE A GREEMENT (REFER CLAUSE 2.2.1 OF THE DISTRIBUTOR AGREEMENT PLACED AT PAGE 14 OF THE PAPERBOOK VOLUME 1). - DISTRIBUTOR(S) WILL EXECUTE A WRITTEN DEALER AGREEM ENT WITH DEALERS AS PER WHICH: THE APPELLANT'S RIGHT IN SOFTWARE WILL BE PROTECT ED; THERE IS NO REVERSE ENGINEERING, DECOMPILING AND DISSEMBLING OF THE OBJECT CODE; AND DEALERS WILL NOT MAKE ANY REPRESENTATION OR WARRAN TIES ON BEHALF OF APPELLANT. (REFER CLAUSE 2.2.2 OF THE DIS TRIBUTOR AGREEMENT PLACED AT PAGE 15 OF THE PAPERBOOK VOLUME 1). -DISTRIBUTOR(S) CAN USE THE TRADEMARK OF APPELLANT ON LY FOR THE SPECIFIC PURPOSE OF INDICATING TO THE PUBLIC THAT T HEY ARE AUTHORIZED BY THE APPELLANT BUT THEY WILL INDICATE THAT THE AP PELLANT IS SOLE OWNER OF TRADEMARK AND ON TERMINATION WILL IMMEDIATE LY CEASE ALL USE OF APPELLANT'S TRADEMARK (REFER CLAUSE 2.2.3 (V) OF THE DISTRIBUTOR AGREEMENT PLACED AT PAGE 15 OF THE PAPE R BOOK VOLUME 1). - ALL THE RIGHTS, INCLUDING ALL INTELLECTUAL PROPERT Y RIGHTS IN THE PRODUCTS, UPDATES AND OTHER LOCALIZATIONS OR TRANSL ATIONS ARE OWNED BY THE APPELLANT AND NO OWNERSHIP RIGHTS HAVE BEEN TRANSFERRED TO THE DISTRIBUTOR(S) (REFER CLAUSE 2.2.3 (VI) OF THE DISTRIBUTOR AGREEMENT PLACED AT PAGES 15 AND 16 AND CLAUSE 4.1 OF THE DISTRIBUTOR AGREEMENT PLACED AT PAGE 19 OF THE PAPE R BOOK VOLUME 1). 7. LEARNED AR, THEREFORE, SUBMITS THAT FROM THE AF ORE-MENTIONED RELEVANT CLAUSES OF THE SAMPLE DISTRIBUTOR AGREEMEN T ENTERED BY THE APPELLANT FOR SALE OF SOFTWARE PRODUCTS, IT IS AMPL Y CLEAR THAT SUCH AGREEMENT IS ENTERED SOLELY FOR THE SALE OF SOFTWAR E PRODUCT AND DO NOT IN ANY WAY ENTAIL TRANSFER OF OWNERSHIP OF ANY PATENTS , COPYRIGHTS, OR ANY OTHER INTELLECTUAL PROPERTY RIGHTS. 8. BASING ON THIS, HE SUBMITTED THAT BY THE SALE OF SOFTWARE PRODUCT, WHAT IS BEING TRANSFERRED IS NOT THE RIGHT TO USE T HE COPYRIGHT, BUT ONLY LIMITED RIGHT TO USE THE COPY RIGHTED ARTICLES AND THE SALE CONSIDERATION RECEIVED BY ASSESSEE FROM THE CUSTOMERS FOR THE SAL E OF SOFTWARE PRODUCT OUGHT NOT TO BE TREATED AS BEING A CONSIDERATION FO R USE OF THE COPYRIGHT. CONSEQUENTLY, THE RECEIPTS FROM SALE OF SOFTWARE PR ODUCTS ARE NOT TAXABLE IN INDIA AS PER ARTICLE 13 OF DTAA READ WITH THE AC T. 9. HE FURTHER SUBMITTED THAT SIMILAR QUESTION AROSE IN IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E., 2008-09 TO 2011-12 AND 2013-14 IN ITA NOS. 2376, 2377, 3312 AND 3313/DEL/2016 AND THE TRI BUNAL BY ORDER DATED 15.05.2018 HELD THAT FOR THE SALE OF SOFTWARE WHAT WAS TRANSFERRED IS NOT THE RIGHT TO USE THE COPYRIGHT, BUT ONLY LIMITED RI GHT TO USE THE COPY RIGHTED ARTICLE AND ON THAT PREMISES, ALLOWED THE C LAIM OF THE ASSESSEE. 10. LEARNED DR SUBMITS THAT THE ASSESSEE HAS NOT FI LED APPLICATION FOR NOT WITHHOLDING TAX CERTIFICATES UNDER SECTION 195 OR 197 OF THE ACT AND, THEREFORE, IT AMOUNT TO ACCEPTANCE OF ASSESSEE THAT ITS RECEIPTS ARE TAXABLE IN INDIA. HE FURTHER SUBMITTED THAT AS PER THE DIST RIBUTOR AGREEMENT, THE DISTRIBUTOR(S) HAS RIGHT TO USE MICRO FOCUS TRADEMA RK AND TRADE NAME WHERE APPROPRIATE AND PER COPY LICENSE FEES IS PAID BY THE DISTRIBUTOR TO THE APPELLANT APART FROM MAINTENANCE FEES AND UPGRA DE FEES. FURTHER, DISTRIBUTORS MAY PERMIT DEALERS TO DISTRIBUTE OBJEC T CODE COPIES OF THE SOFTWARE PRODUCTS TO END USER CUSTOMERS. 11. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF SUBMISSIONS MADE ON EITHER SIDE. THERE IS NO DISPUTE THAT A SIMILAR QUESTION HAS ARISEN IN ASSESSEES OWN CASE FOR IMMEDIATELY PRECEDING ASSES SMENT YEARS IN RESPECT OF TREATMENT OF RECEIPTS WHETHER AS ROYAL TY OR THE SALE CONSIDERATION FOR SALE OF COPY RIGHTED ARTICLES. IT IS ALSO NOT IN DISPUTE THAT BY ORDER DATED 17.05.2018, THE COORDINATE BENCH OF THIS TRIBUNAL REACHED A CONCLUSION THAT IT IS A MATTER OF SALE AND COPY R IGHTED ARTICLE AND NOT THE TRANSFER OF RIGHT TO USE THE COPYRIGHT. FOR THE SAKE OF CONVENIENCE, WE FIND IT NECESSARY TO EXTRACT THE RELEVANT PORTION OF THE ORDERS OF TRIBUNAL, WHICH ARE THUS ;- '6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DISTRIBUTER AGREEMENT GIVE S NON-EXCLUSIVE RATIO TO ONLY DISTRIBUTOR TO MARKET AND DISTRIBUTE THE SOFTWARE PRODUCTS TO THIRD PARTIES THROUGHOUT THE TERRITORY DISTRIBUTOR WILL ACT AS INDEPENDENT CONTRACTOR ONLY AND WILL NEITHER ACT ON BEHALF OF MICRO FOCUS NOR PURPORT TO REPRESENT MICRO FOCUS IN ANY WAY. THUS, THE LD. AR SUBMITTED THAT THE CONSIDERATION RECEIVE D BY THE MICRO FOCUS FROM THE CUSTOMERS IN INDIA TOWARDS OFF SHORE SUPPLY OF SOFTWARE COULD NOT BE CHARITABLE TO TAX IN INDIA UN DER THE ACT READ WITH INDIA UK TAX. THE ASSESSE ENTERS INTO CONTRACTS WITH ITS CUSTOMERS ON PRINCIPAL TO PRINCIPAL BASIS AND THAT THE SALE OF SOFTWARE LICENSES IS MADE OUTSIDE OF INDIA. NO PORT ION OF SALE IS CARRIED OUT IN INDIA AND THE PAYMENT IS MADE DIRECT LY BY THE CUSTOMERS TO THE BANK ACCOUNT IN UNITED KINGDOM. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER HAS REFERRED THIS D ISTRIBUTOR AGREEMENT BUT HAS NOT TAKEN THE COGNIZANCE OF THE C LAUSE OF THESE AGREEMENTS. THE SUBMISSIONS MADE BY THE LD. AR CLEA RLY SET OUT WHAT ARE THE EFFECTS OF THIS DISTRIBUTION AGREEMENT . IN VIEW OF SECTION 90(2) OF THE INCOME TAX ACT, THE ASSESSEE O PTS FOR DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND UK T O OVERRIDE THE PROVISION OF THE ACT AS THERE IS NO CORRESPONDING A MENDMENT TO THE DEFINITION OF THE TERM ROYALTY IN ARTICLE 13(3) OF THE AFORESAID DTAA AS CARRIED OUT IN THE DEFINITION OF ROYALTY U/S 9 (1)( 6) OF THE ACT. THE AMENDMENT WILL NOT BE APPLICABLE AS HELD IN HON'BLE DELHI HIGH COURT DECISION IN CASE OF INFRA SOFT LTD. (SUPRA). THE INCOME REPRESENTS BUSINESS INCOME OF THE RESPONDENT OUTSIDE OF INDIA AND SHOULD BE COVERED UNDER THE DEFINITION OF ROYALTY. IN ABSENCE OF ANY PERMANENT ESTABLISHED IN INDIA, THE SAME WOULD NOT BE CHARGEABLE TO TAX IN INDIA IN ARTICLE 7 OF INDIA UK TAX TREATY. F URTHER, THE SAME CANNOT BE TREATED AS ROYALTY INCOME UNDER THE ACT O R INDIA-UK TAX TREATY. 7. THE ASSESSEE IS ONLY SELLING COPY RIGHTED ARTICL E AND THERE IS NO PAYMENT FOR USE OF COPY RIGHT OR ACQUIRING THE RIGH T TO USE THE COPY RIGHT AND HENCE THE SAME IS NOT COVERED WITHIN THE DEFINITION OF ROYALTY IN DTAA. IT IS THE SEPARATE POSITION THAT T HE PAYMENT MADE FOR THE USE OF COPY RIGHTED ARTICLE SHOULD BE TREAT ED AS BUSINESS INCOME AND NOT THE ROYALTY INCOME. THE RELIANCE ON THE HON'BLE DELHI HIGH COURT DECISION IN CASE OF INFRA SOFT LTD. AND M. TECH. INDIA PVT. LTD IS RELEVANT IN THE ASSESSEE'S CASE AS INFRA SOF T LTD . THE HON'BLE HIGH COURT HELD IN THE ORDER THAT PAYMENT TO BE QUA LIFIED AS A ROYALTY PAYMENT IT IS NECESSARY TO ESTABLISH THAT T HERE IS A TRANSFER OF ALL OR ANY RIGHTS INCLUDING GRANT OF LICENSE IN RESPECT OF COPY RIGHT OF A LITERALLY ARTISTIC OR SCIENTIFIC WORK. IN ORDE R TO TREAT THE CONSIDERATION PAID BY THE LICENSEE IS ROYALTY, IT I S TO BE ESTABLISHED THAT THE LICENSEE BY MAKING SUCH PAYMENTS OBTAINS A LL OR ANY OF THE COPY RIGHTED RIGHTS OF SUCH LITERALLY WORK. THE PAR TING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACH TO THE SOFTW ARE PRODUCT IN FAVOURE OF THE LICENSEE CUSTOMER IS WHAT IS CONTEMP LATED BY THE TREATY FOR PAYMENT TO BE CLASSIFIED AS ROYALTY PAYM ENT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPY RIGHT OWNER HAS NECESSARY TO INVOKE THE ROYALTY DEFINITION VIEW FRO M THIS ANGLE ON NON-EXCLUSIVE AND NON-TRANSFERABLE LICENSE IN ATTEM PTING THE USE OF A COPY RIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AU THORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGREDIEN T ARTICLE 12 OF DTAA. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DO THE COMPUTER PROGRAM AND STORING IT IN THE COMPUTER FOR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LIC ENSEE TO MAKE USE OF THE COPY RIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAM FUNCTIONAL AND TO HAVE EXCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM TH E RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ONLY INTEGRAL T O THE USE OF COPY RIGHTED PRODUCT APART FROM SUCH INCIDENTAL FACILITI ES . THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION TO DO. THE LICENSEE HAS BEEN PROHIBITED FR OM COPYING, DECOMPILING, DE-ASSEMBLING OR REVERSE ENGINEERING T HE SOFTWARE WITHOUT THE WRITTEN CONSENT OF INFRA SOFT. THE LICENSE AGREEMENT BETWEEN INFRA SOFT AND ITS CUSTOMERS STIPULATES THA T ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AN D COPIES MADE BY THE LICENSEE WERE OWN BY INFRASOFT AND ONLY INFRASO FT HAS THE POWER TO GRANT LICENSE RIGHTS FOR USE OF THE SOFTWA RE. THE LICENSE GRANTED BY THE INFRASOFT IS LIMITED TO THOSE NECESS ARY TO ENABLE THE LICENSEE TO OPERATE THE PROGRAM. THE RIGHTS TRANSFE RRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PRO GRAM ONTO THE COMPUTER'S HARD DRIVE OR RANDOM ACCESS MEMORY OR MA KING ARCHIVAL COPY IS AN ESSENTIAL STEP IN UTILI Z ING PROGRAM. THEREFORE, RIGHTS IN RELATION TO THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFECTIVE OPERATION OF THE PROGRAM BY THE USER, SHOULD BE DISREGARDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYMENTS IN THESE TYPES OF TRANSA CTIONS WOULD BE DEALT WITH AS BUSINESS INCOME IN ACCORDANCE WITH AR TICLE 7 OF INDIA- UK DTAA. 8. THUS, THE ISSUE RELATING TO THE CONSIDERATION RE CEIVED BY THE ASSESSE FROM VARIOUS ENTITIES ON ACCOUNT OF SALE OF SOFTWARE IS NOT ROYALTY WITHIN THE MEANING OF ARTICLE 13OF THE INDI A UK DTAA, THE EFFECT OF ARTICLE 3(2) OF DTAA CLEARLY SET OUT THE DEFINITION OF ROYALTY AS PER THE DISTRIBUTOR AGREEMENT AND THE END USER L ICENSE AGREEMENT WHICH WAS PRODUCED BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A) ' 12. IN THESE CIRCUMSTANCES, WHILE RESPECTFULLY FOLL OWING THE FINDING OF THE TRIBUNAL COVERING THE ISSUE UNDER GROUNDS NOS. 1 TO 4, WE HOLD THE ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOW THESE GRO UND NOS. 1 TO 4 ACCORDINGLY. 13. NOW, COMING TO GROUND NO. 5, IT IS SUBMITTED TH AT ASSESSEE FILED RECTIFICATION APPLICATION ON 20.06.2017 BEFORE THE ASSESSING OFFICER CLAIMING REFUND OF RS.38,90,391/- AND THE SAME IS PE NDING. SUFFICE IT TO SAY THAT THE ASSESSING OFFICER WOULD VERIFY THE FACTS A ND TAKE THE VIEW ACCORDING TO LAW IN THIS MATTER. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 04/11/2020 SD/- SD/- (N.K. BILLAIYA) (K. NARSIMHA CHARRY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 04/11/2020 AKS/-