DDIT (IT)-2(1), MUMBAI V. SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV, MUMBAI

ITA 5051/MUM/2009

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7811 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 27-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 04-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Retrospective amendment; Question of law
• Section: 143(3); 90; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI AMIT SHUKLA, JM& SHRI ASHWANI TANEJA, AM ITA NO.5051/MUM/2009 FOR ASSESSMENT YEAR: 2006-07 ITA NO.3818/MUM/2011 FOR ASSESSMENT YEAR: 2007-08 THE DDIT (IT) 2(1), MUMBAI VS. SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV C/O. S R BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWER, NARIMAN POINT, MUMBAI- 400 021 PAN AAICS9091A (APPELLANT) RESPONDENT) & ITA NO.729/MUM/2012 FOR ASSESSMENT YEAR: 2008-09 SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV, MUMBAI 400 021 VS. THE DDIT (IT) 2(1), MUMBAI (APPELLANT) RESPONDENT) FOR THE REVENUE : SHRI JASBIR S CHOUHAN FOR THE ASSESSEE : S/SHRI RAHUL K MITRA, HARSH KAPADI A & PARAS S SAVLA DATE OF HEARING :10.03.2017 DATE OF PRONOUNCEMENT :15 .03.2017 O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER THE APPEALS FOR ASSESSMENT YEARS 2006-07 & 2007-08 HAVE BEEN FILED BY THE REVENUE AGAINST SEPARATE IMPUGNED ORDERS DATED 19.06.2009 AND 23.03.2011, PASSED BY LD. CIT(APPEAL S) FOR THE QUANTUM OF ASSESSMENT PASSED U/S. 143(3); WHEREAS TH E APPEAL FOR ASSESSMENT YEAR 2008-09 HAS BEEN FILED BY THE ASSESSE E AGAINST ORDER SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 2 DATED 30.11.2011, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 144C (13) R.W.S. 143(3) OF THE I.T. ACT, 1961. SINCE THE IS SUES INVOLVED IN ALL THESE APPEALS ARE COMMON, ARISING OUT OF IDENTICAL SET OF FACTS, THEREFORE, THEY WERE HEARD TOGETHER AND ARE BEING DISPO SED OF BY WAY OF THIS CONSOLIDATED ORDER. IN ALL THE APPEALS THE CORE ISSUE INVOLVED IS, WHETHER THE PAYMENTS RECEIVED BY THE ASSESSEE FROM IT S ERVICE PROVIDERS, LIKE WIPRO & IBM FOR PROVIDING NETWORK A CCESS TO USE COPYRIGHTED SOFTWARE IS IN THE NATURE OF ROYALTY OR NOT. 2. IN ORDER TO UNDERSTAND THE FACTS AND IMPLICATIONS THE REOF ON THE ISSUE INVOLVED, WE WILL TAKE UP THE APPEAL FOR THE A.Y . 2006-07, WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PAYME NT RECEIVED BY THE ASSESSEE FOR NETWORK ACCESS AND REL ATED SERVICES IS PAYMENT FOR ACQUISITION OF COPYRIGHTED SOFTWARE AND NOT FOR ANY COPYRIGHT OVER SUCH SOFTWA RE AND HENCE THE PAYMENTS HAVE WRONGLY BEEN HELD BY TH E AO AS ROYALTY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE P AYMENTS IN QUESTION WERE FOR THE RIGHT OF ACCESS AND USE OF SOFTWARE (THE INTELLECTUAL PROPERTY RIGHTS OF WHICH BELONG TO THE ASSESSEE) WHICH WOULD QUALIFY AS ROYALTY UND ER CLAUSE 4 OF ARTICLE 12 OF THE DTAA BETWEEN INDIA AN D THE NETHERLANDS, BEING PAYMENTS RECEIVED FOR USE OF SEC RET PROCESS. 3. THE BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT THE A SSESSEE COMPANY IS A TAX RESIDENT AND REGISTERED IN NETHERLANDS . IT IS MAINLY SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 3 ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHN OLOGY SUPPORT SERVICES, IT HELPDESK AND NETWORK INFRASTRUCTURE SERV ICES TO SHELL GROUP COMPANIES COMPRISING OF:- - INFORMATION TECHNOLOGY (IT) SUPPORT FOR SOLVING A NY IT RELATED PROBLEMS FACED BY USERS I.E., ANY PROBLEM FACED BY USERS FOR ACCESSIN G ANY APPLICATION SOFTWARE, E- MAILS, COMPUTER REPAIRS AND MAINTENANCE ETC., DESKT OP, LAPTOP AND WORKSTATION SUPPORT; - SERVICES RELATED TO WIDE AREA NETWORK (WAN) AND L OCAL AREA NETWORK (LAN) FOR CONNECTION TO THE GLOBAL SERVERS; AND - FACILITATING TELECONFERENCING AND VIDEO CONFERENC ING SERVICES. 4. THE ASSESSEE COMPANY HAD ENTERED INTO MASTER SERV ICE AGREEMENT (MSA) WITH CERTAIN IT SERVICE PROVIDERS V IZ., WIPRO & IBM. PURSUANT TO SUCH AGREEMENT, THESE IT SERVICE PRO VIDERS COULD ENTER INTO SEPARATE AGREEMENT TO PROVIDE IT SERVICES TO SHELL GROUP ENTITIES INCLUDING ITS ENTITIES IN INDIA. IN ORDER TO PRO VIDE SUCH IT SERVICES BY WIPRO & IBM, THEY WERE REQUIRED TO HAVE A CCESS TO NETWORK AND SOFTWARE OF THE ASSESSEE COMPANY. BEFORE THE AO, THE ASSESSEE VIDE LETTER DATED 04.12.2008 HAVE MADE ELABO RATE SUBMISSION ON SERVICES RENDERED BY THE ASSESSEE AND WHY THE PAYMENTS RECEIVED BY THE ASSESSEE FOR SUCH PROVISION OF SERVICES IS NOT TAXABLE AS ROYALTY IN INDIA. FOR BETTER UNDERSTAN DING THE SAME IS REPRODUCED HEREIN BELOW:- 3. DETAIL SUBMISSIONS DESCRIBING WHETHER THE SERVI CES RENDERED BY SITI BV CAN CONSTRUE TO FALL WITHIN THE DEFINITION OF ROYALTY OR FEES FOR TECHNICAL SERVICES; 3.1 SITI BV IS IN THE BUSINESS OF PROVIDING INFORMA TION TECHNOLOGY SUPPORT SERVICES. 3.2.SITI BV, TYPICALLY, PROVIDES HELPDESK SERVICES AND NETWORK INFRASTRUCTURE SERVICES TO SHELL GROUP COMP ANIES SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 4 COMPRISING: - INFORMATION TECHNOLOGY (IT) SUPPORT FOR SOLVING ANY IT RELATED PROBLEMS FACED BY USERS I.E., ANY PROBLE M FACED BY USERS FOR APPLICATION SOFTWARE FOR ACCESSI NG ANY APPLICATION SOFTWARE, E-MAILS, COMPUTER REPAIRS AND MAINTENANCE ETC, DESKTOP, LAPTOP AND WORKSTATION SU PPORT; -SERVICES RELATED TO WIDE AREA NETWORK (WAN') AND L OCAL AREA NETWORK (FOR CONNECTION TO THE GLOBAL SERVERS; AND -FACILITATING TELECONFERENCING AND VIDEO CONFERENC ING SERVICES. 3.3 FURTHER, IN THE EVENT SHELL REQUIRES IT SERVICE S FROM EXTERNAL SERVICE PROVIDERS LIKE WIPRO AND IBM, S/TI BV IS ENGAGED IN PROVIDING THE NECESSARY NETWORK ACCESS A ND RELATED SERVICES TO SUCH SERVICE PROVIDERS AS WELL. 3.4 FOR THIS PURPOSE, REFERENCE CAN BE MADE TO THE SCOPE OF SERVICES TO BE RENDERED BY SITI BV TO WIPRO UNDER T HE SERVICES AGREEMENT (ATTACHED AS ANNEXURE 3) REPRODUCED BELOW: ARTICLE 3 - PROVISION OF SERVICES 'SITI BV SHALL PROVIDE THE IT SERVICE PROVIDER WITH THE SERVICES.' FURTHER, 'SERVICES HAS BEEN DEFINED IN ARTICLE 1 - DEFINITIONS AS 'THE COMBINED SUB-SERVICES PROVIDED BY S/TI BV TO THE IT SERVICES PROVIDER UNDER THIS AGREEMENT , WHICH SUB-SERVICES INCLUDE THE GI SERVICES, THE STO SERVI CES AND THE PROVISION BY SITI BV TO THE IT SERVICE PROVIDER AND SERVICE PERSONNEL OF ACCESS TO AND/OR USE OF GI SOFTWARE AN D/OR OPTIONAL SOFTWARE........ SIMILAR PROVISIONS ARE CONTAINED IN THE AGREEMENT B ETWEEN SITI BV AND IBM (ATTACHED AS ANNEXURE 4). 3.5 TAXABILITY OF THE SERVICES PROVIDED BY SITI BV 3.5.1 SITI BV IS A COMPANY INCORPORATED IN THE NETH ERLANDS. SITI BV IS A TAX RESIDENT OF THE NETHERLANDS ELIGIB LE TO CLAIM THE BENEFITS CONFERRED BY THE DOUBLE TAXATION AVOID ANCE AGREEMENT ENTERED INTO BETWEEN INDIA AND THE NETHER LANDS ('TREATY'). SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 5 3.5.2 SECTION 90 OF THE ACT READ WITH THE CIRCULARS AND SEVERAL JUDICIAL PRECEDENTS ISSUED THERE UNDER PROV IDE THAT A NON-RESIDENT TAXPAYER IS ELIGIBLE TO BE ASSESSED AS PER THE PROVISIONS OF THE ACT OR AS PER THE PROVISIONS OF THE RELEVANT DOUBLE TAXATION AVOIDANCE AGREEMENT, WHICH EVER IS MORE BENEFICIAL. 3.5.3 SITI BV IS A NON-RESIDENT FOR INDIAN TAX PURP OSES. ACCORDINGLY, SITI BV COULD BE ASSESSED AS PER THE P ROVISIONS OF THE ACT OR AS PER THE TREATY, WHICHEVER IS MORE BENEFICIAL TO SIT/ BV. IN VIEW OF THE SAME, THE NON- TAXABILITY OF THE SER VICES RENDERED SIT/ BV HAS BEEN EXAMINED UNDER THE PROVIS IONS OF THE TREATY. 3.5.4 ARTICLE 12(4) OF THE TREATY DEFINES THE TERM ROYALTY AS FOLLOWS: PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION F OR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITER ARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRE T FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 3.5.5 AS DISCUSSED ABOVE, SITI BV IS ENGAGED IN PR OVIDING IT SERVICES TO INDIAN ENTITIES. IT DOES NOT PROVIDE A NY RIGHT TO USE ANY COPYRIGHT OF LITERARY ARTISTIC OR SCIENTIFIC WORK I NCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 3.5.6 EVEN UNDER THE AGREEMENTS ENTERED INTO WITH W IPRO AND IBM, SITI BV ONLY PROVIDES THEM ACCESS TO THE SOFTW ARE IE COMPUTER PROGRAMME. SITI BV DOES TO PROVIDE THEM THE RIGHT T O USE THE COPYRIGHT EMBEDDED IN THE SOFTWARE. IN OTHER WORDS , WIPRO/IBM IS NOT PERMITTED TO MAKE COPIES AND SELL THE SOFTWA RE. 3.5.7 UNDER THE SERVICES AGREEMENTS, WIPRO AND IBM HAVE BEEN GRANTED THE MERE USER RIGHT IN THE COPYRIGHTED SOFT WARE AND NOT THE RIGHT OF USE OF COPYRIGHT. WHEREAS USE OF COPYRI GHT ENCOMPASSES EXPLOITATION OF THE RIGHTS EMBEDDED IN A COPYRIGHT, A MERE USER RIGHT IS A LIMITED RIGHT AND CONSIDERATION PAID FOR SUCH USER RIGHT CANNOT BE REGARDED AS CONSIDERATION FOR USE OF OR RIGHT TO USE A COPYRIGHT. SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 6 IT IS HUMBLY SUBMITTED THAT THE AMOUNTS PAID BY WIP RO/IBM ARE FOR USE OF A COPYRIGHTED ARTICLE AND NOT FOR THE US E OF COPYRIGHT. 5. IN PURSUANCE OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND SERVICE PROVIDERS, THE AMOUNT RECEIVED B Y THE ASSESSEE IN VARIOUS ASSESSMENT YEARS ARE AS UNDER: NAME AY 2006-07 AY 2007-08 AY 2008-09 TOTAL WIPRO 3,63,17,017 84,74,506 52,92,362 50,083,885 IBM 2,73,26,777 63,48,802 77,25,598 41,401,177 TOTAL 6,36,43,794 1,48,23,308 1,30,17,960 91,485,062 ACCORDING TO THE ASSESSEE THIS AMOUNT CANNOT BE CONSIDER ED AS ROYALTY AND IN ABSENCE OF ANY PE, NO BUSINESS INC OME CAN BE TAXED IN INDIA. 6. THE LEARNED AO REFERRED TO CERTAIN CLAUSES OF THE M SA AND HELD THAT THE AMOUNT RECEIVED FROM THESE IT SERVICE PROVIDE RS FOR ACCESS/USE OF SOFTWARE WERE IN THE NATURE OF ROYALTY NOT ONLY WITHIN THE MEANING OF THE ACT BUT ALSO UNDER THE TREATY. HE DISC USSED IN DETAIL THE CONCEPT OF ROYALTY AND OBSERVED THAT IT CONNO TES PAYMENT MADE TO A PERSON, WHO HAS AN EXCLUSIVE RIGHT OVER A TH ING FOR ALLOWING ANOTHER TO MAKE USE OF THAT THING WHICH MAY BE EITHER P HYSICAL OR INTELLECTUAL PROPERTY OR A THING. HE HELD THAT EXPLANATION 2 TO SECTION 9(1)(VI) IS APPLICABLE, BECAUSE SOFTWARE IS AN INTAN GIBLE PROPERTY AND CONSIDERATION FOR USE OF SUCH PROPERTY WAS IN THE NATU RE OF ROYALTY. HE ALSO REFERRED TO VARIOUS DECISIONS, WHICH HAS BE EN DISCUSSED BY HIM IN THE ASSESSMENT ORDER. THEREAFTER, HE HELD THAT TH IS SOFTWARE IS A PROCESS USED BY A COMPUTER TO ACHIEVE DESIRED RES ULTS AND TO ARRIVE AT THIS CONCLUSION HE REFERRED TO THE DECISION O F ITAT, DELHI BENCH IN THE CASE OF ASIA SAT. HE ALSO HELD THAT IF SOF TWARE IS CLASSIFIED AS A PROCESS, IT WILL ALSO BE SECRET BEC AUSE THE SOURCE CODE SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 7 IS NOT GIVEN TO THE USER. THUS, THE PAYMENT FOR USE OF SOFTWARE IS, IN FACT, USE OF SECRET PROCESS. LASTLY, HE HELD THAT THE B ASIS STRUCTURE OF THE TERM ROYALTY UNDER THE TREATY IS THE SAME AS IN DOMESTIC LAW AND, THEREFORE, USE OF SOFTWARE COULD CONTINUE TO BE A PRO CESS. IN A WAY HE TRIED TO COVER UP THE CONCEPT OF ROYALTY ON SOFTWARE UNDER ALL THE POSSIBLE LIMBS AND SCOPE OF DEFINITION AS ENSHRINED IN ARTICLE 9(1)(VI) READ WITH EXPLANATION 2 . ACCORDINGLY, HE TAXED THE ENTIRE PAYMENT AS ROYALTY AND SINCE THE TAX RATE UNDER THE DTAA WAS 10 %, THEREFORE, HE TAXED THE ROYALTY @10%. 7. THE LEARNED CIT(A) AFTER CONSIDERING THE ENTIRE GAM UT OF FACTS AND SUBMISSIONS MADE BY THE ASSESSEE, OBSERVED THAT THE AGREEMENT FOR SUPPLY OF SOFTWARE PROVIDED TO WIPRO/IBM WAS FOR MERE USE AND ACCESS THE COPY RIGHTED SOFTWARE OF THE ASSESSEE. THE ASSESSEE DOES NOT PROVIDE THEM THE RIGHT TO USE THE COPY RIGHT EMBEDDED IN THE SOFTWARE; WIPRO/IBM ARE NOT EITHER MAKING COPIES OR S ELLING THE SOFTWARE, EXCEPT FOR THE LIMITED RIGHT TO ACCESS THE CO PYRIGHTED SOFTWARE FOR ITS OWN BUSINESS PURPOSE. THEY DO NOT AC QUIRE ANY RIGHT TO EXPLOIT THE COPYRIGHT IN THE SOFTWARE. HE FURTHER OBS ERVED THAT USE OF COPYRIGHT ENCOMPASSES EXPLOITATION OF THE RIGHT EMBE DDED IN THE COPYRIGHT. SUCH USER RIGHT IS JUST A LIMITED RIGHT AND C ONSIDERATION PAID FOR SUCH LIMITED RIGHT CANNOT BE CONSIDERED AS USE OF RIGHT TO USE A COPYRIGHT. HENCE, HE CAME TO THE CONCLUSION THAT PAYMENT RECEIVED FOR ALLOWING MERE USE OF COPYRIGHTED ARTICLE CANNOT BE HELD AS PAYMENT FOR ROYALTY. HE FURTHER HELD THAT ROYALTY AS PER TREATY HAS A MORE RESTRICTED SCOPE AND DEFINITION THAN UNDER THE ACT. AFTER ANALYSING SECTIONS 13 & 14 OF THE COPYRIGHT ACT 1957, HE HELD THAT NO COPYRIGHT AS ENVISAGED UNDER THIS ACT HAS BEEN TRANS FERRED. HIS RELEVANT CONCLUSION ON THIS POINT READS AS UNDER: 1.22 EXAMINATION OF THE AGREEMENT OF THE APPELLANT WITH WIPRO/IBM REVEALS THAT THE AGREEMENT FORBIDS WIPRO/ IBM SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 8 FROM TRANSFERRING OR MODIFYING THE SOFTWARE. THE A GREEMENT ALSO FORBIDS THEM DECOMPILING, REVERSE ENGINEERING, DISASSEMBLING OR DECODING THE SOFTWARE. THE AGREEM ENT ALSO PROVIDES THAT THE END USER SHALL USE THE SOFTWARE O NLY FOR THE OPERATION AND SHALL NOT SUBLICENSE OR MODIFY THE SO FTWARE. THE PERUSAL OF THE AGREEMENT CLEARLY REVEALS THAT W IPRO/IBM HAS GOT NO RIGHT AS ENVISAGED IN SECTION -14 OF THE COPYRIGHT ACT TO DUPLICATE THE SOFTWARE, TO ISSUE COPIES OF S OFTWARE IN PUBLIC OR TO REVERSE ENGINEER, DE COMPILE OR MODIFY THE SOFTWARE. THUS, SALE OF SOFTWARE BY THE APPELLANT TO WIPRO/IBM CANNOT BE SAID TO BE THE TRANSFER OF THE COPYRIGHT EITHER IN PART OR IN WHOLE. THUS, CONSIDERATION PA ID BY WIPRO/IBM TO APPELLANT FOR ACQUIRING COPY OF SOFTWA RE IS NOT FOR THE USE OF COPYRIGHT OR TRANSFER OF RIGHT TO US E OF COPYRIGHT. AS MENTIONED ABOVE, COPYRIGHT IS DIFFERENT FROM THE WORK IN RESPECT OF WHICH COPYRIGHT SUBSIST, WIPRO/IBM HAS O NLY GOT A COPY OF SOFTWARE WITHOUT ANY PART OF THE COPYRIGHT OF THE SOFTWARE. THUS, PAYMENT BY WIPRO/IBM FOR ACQUIRING COPY OF SOFTWARE DOES NOT AMOUNT TO ROYALTY WITHIN THE DEFI NITION OF ARTICLE- 12(3) OF THE DTAA. AFTER REFERRING TO VARIOUS TRIBUNAL DECISIONS, HE HEL D THAT THE AMOUNT PAID TO THE ASSESSEE BY WIPRO/IBM CANNOT BE TAXED AS RO YALTY AND ACCORDINGLY, ALLOWED THE ASSESSEES APPEAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE PA RTIES BEFORE US AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS THE MATERIAL REFERRED BEFORE US AT THE TIME OF HEARING.AS STATED EARLIER, THE ASSESSEE HAD ENTERED INTO SERVICE A GREEMENT (MSA) WITH WIPRO/IBM TO PROVIDE IT SERVICES TO VARIOUS SHEL L ENTITIES. UNDER THIS AGREEMENT, THE ASSESSEE PROVIDES RESTRICTED S OFTWARE / NETWORK ACCESS AND RELATED IT SUPPORT SERVICES TO WIP RO/IBM. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE RELEVAN T ARTICLES AND CLAUSES GIVEN IN THE MASTER SERVICE AGREEMENTS ARE VERY RELEVANT TO UNDERSTAND THE NATURE AND CONCEPT OF SOFTWARE SERVICE S PROVIDED AS WELL AS TO EXAMINE, WHETHER THERE IS ANY PAYMENT RECEIV ED, WHICH CAN SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 9 BE RECKONED AS ROYALTY WITHIN THE TERMS OF ARTICLE 12(4) OF INDIA NETHERLAND DTAA, BECAUSE THE ASSESSEE HAS SOUGHT BENEF IT UNDER THE TREATY IN TERMS OF SECTION 90 OF THE IT ACT. THE RELEVA NT TERMS OF SERVICE AGREEMENT, COPY OF WHICH ARE APPEARING IN PA GES 35 TO 40 OF THE PAPER-BOOK ARE REPRODUCED HERE UNDER: PREAMBLE 'WHEREAS A. SITI AND IT SERVICE PROVIDER HAVE ENTERED INTO A MS A ('AS DEFINED' BELOW) UNDER WHICH IT SERVICE PROVIDER, EITHER DIRE CTLY OR AS A SUB- CONTRACTOR OF AN AFFILIATE OF IT SERVICE PROVIDER, MAY BE PROVIDING CERTAIN MSA SERVICES (AS DEFINED BELOW) TO SHELL CO MPANIES (AS DEFINED BELOW); B. IN ORDER TO BE ABLE TO PROVIDE MSA SERVICES, IT SER VICE PROVIDER HAS REQUESTED AND SITI HAS AGREED TO PROVIDE CERTAIN SE RVICES (AS DEFINED BELOW). ARTICLE 1. DEFINITIONS: 'GI SERVICES ' SHALL MEAN THE SERVICES AS SPECIFIED IN EXHIBIT A. SECTION I 'INTELLECTUAL PROPERTY RIGHTS' OF A PARTY MEANS PAT ENTS, COPYRIGHTS, DESIGNS, TRADE OR SERVICE MARKS (WHETHER OR NOT REG ISTERED), RIGHTS IN INVENTIONS AND CONFIDENTIAL INFORMATION, SEMICONDUC TOR TOPOGRAPHY RIGHTS, DATABASE RIGHTS OR OTHER SIMILAR RIGHTS IN ANY COUNTRY AND ANY APPLICATIONS FOR REGISTRATION OF ANY OF THE FOREGOI NG, TO THE EXTENT THE PARTY IN QUESTION IS ENTITLED TO GRANT LICENSES THERE UND ER. 'MSA ' SHALL MEAN THE MASTER SERVICE ARRANGEMENT (AS MAY B E AMENDED FROM TO TIME) FOR THE PROVISION OF OFFSHORE IT SERV ICES AS ENTERED INTO BETWEEN SRN AND IBM NETHERLAND B. V., WITH CONTRACT NUMBER LDMO4/00005. 'MSA SERVICES' SHALL MEAN THE IT SERVICES PROVIDED UNDER MSA BY THE IT SERVICE PROVIDER EITHER DIRECTLY OR AS A SUB-CONTRA CTOR OF AFFILIATE OF IT SERVICE PROVIDER, AS FURTHER DESCRIBED IN A STATEME NT OF WORK ENTERED INTO BY THE IT SERVICE PROVIDER (OR AN IT SERVICE PROVID ER AFFILIATE , ) AND A SHELL COMPANY. 'MSA SERVICE AREA' SHALL MEAN THE PHYSICAL SEPARATE D AND SECURED AREA AS DESCRIBED IN THE MSA WHERE (UNLESS OTHERWISE AGREED IN A PARTICULAR STATEMENT OF WORK FOR THE MSA SERVICES TO BE PROVID ED UNDER THAT PARTICULAR STATEMENT OF WORK ONLY) THE MSA SERVICES SHALL BE PROVIDED BY THE IT SERVICE PROVIDER 'SERVICES' SHALL MEAN THE COMBINED SUB-SERVICES PRO VIDED BY SITI TO THE IT SERVICES PROVIDER UNDER THIS AGREEMENT, WHICH SU B-SERVICES INCLUDE THE GI SERVICES, THE STO SERVICES AND THE PROVISION BY S117 TO THE IT SERVICE PROVIDER AND SERVICE PERSONNEL OF ACCESS TO AND/OR USE 401 SOFTWARE 4 SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 10 AND/OR OPTIONAL SOFTWARE, ALL AS FURTHER SPECIFIED IN EXHIBIT A. 'GI SOFTWARE' SHALL MEAN THE MANDATORY GI CLIENT SO FTWARE THAT SHALL BE PROVIDED BY SITI TO THE IT SERVICE PROVIDER AS PART OF THE GI SERVICES. THE EXACT MANDATORY 01 CLIENT SOFTWARE THAT WILL BE PROVIDED TO THE IT SERVICE PROVIDER WILL DEPEND ON THE EQUIPMENT USED BY THE IT SERVICE PROVIDER IN ORDER TO PROVIDE THE MSA SERVICES. IT I S NOT PRACTICAL TO INCLUDE A LIST TO THIS AGREEMENT OF ALL THE MANDATORY GI CL IENT SOFTWARE THAT MAY BE PROVIDED BY SITI AS PART OF THE GI SERVICES, BEC AUSE THE LIST OF MANDATORY GI CLIENT SOFTWARE IS SUBJECT TO REGULAR CHANGE, HOWEVER THE MANDATORY GI CLIENT SOFTWARE PROVIDED TO THE IT SER VICE PROVIDER SHALL BE THE SAME AS THE MANDATORY GI CLIENT SOFTWARE PROVID ED BY SITI TO OTHER SHELL COMPANIES THAT USE THE SAME EQUIPMENT AS USED BY THE IT SERVICE PROVIDER IN ORDER TO PROVIDE THE MSA SERVICES. 'STO SERVICES' SHALL MEAN THE SERVICES AS SPECIFIED IN EXHIBIT A, SECTION II ARTICLE 3. PROVISION OF SERVICES. SITI SHALL PROVIDE THE IT SERVICE PROVIDER WITH THE SERVICES. SITI SHALL AT ITS SOLE DISCRETION BE ENTITLED TO SUBCONTRACT ANY PART OF THE SERVICES TO A THIRD PARTY ORTHIRD PARTIES, BUT S117 SHALL REMAIN SOLELY RESPONSIBLE FOR THE PROVISION THE SERVICES. THE IT SERVICE PROVIDER SHALL NOT SUBCONTRACT NOR D ELEGATE ANY OF ITS RIGHTS AND/OR RESPONSIBILITIES UNDER THIS AGREEMENT TO A T HIRD PARTY WITHOUT SITPS PRIOR WRITTEN CONSENT. IN THE EVENT OF DELEGA TION OR SUB-CONTRACTING BY THE IT SERVICE PROVIDER THE IT SERVICE PROVIDER SHALL REMAIN SOLELY RESPONSIBLE FOR ITS FULFILLMENT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. ARTICLE 4 . ACCESS TO AND USE OF THE GI SOFTWARE AND OPTIONAL SOFTWARE. ACCESS TO AND USE THE GI SOFTWARE AND THE OPTIONAL SOFTWARE IS SUBJECT TO THE TERMS AND CONDITIONS SET OUT IN THIS AGREEME NT, INCLUDING THE SPECIFIC . TERMS AND CONDITIONS OF ACCESS AND/OR USE AS MAY B E SET OUT IN EXHIBIT A, SECTION III (AS MAY BE AMENDED FROM TIME TO TIME), IF ANY. OPTIONAL SOFTWARE. IN ADDITION TO ACCESS TO AND/OR USE OF THE GI SOFTW ARE, THE IT SERVICE PROVIDER MAY, IN ORDER TO PROVIDE TH E MS'A SERVICES AGREED IN CERTAIN STATEMENTS OF WORK, NEED TO ACCESS AND/O R USE CERTAIN OPTIONAL SOFTWARE. IN SUCH CASE THE IT SERVICE PROVIDER 01 F OCAL POINT SHALL REQUEST SI11 THE RIGHT TO ACCESS AND/OR USE THE OPTIONALSOF TWARE IN QUESTION IN ACCORDANCE WITH THE OPTIONAL SOFTWARE ORDERING PROC EDURES. SITI IN ITS SOLE DISCRETION MAY (BUT IS UNDER NO CIRCUMSTANCES OBLIG ATED TO) GRANT THE IT SERVICE PROVIDER THE RIGHT TO ACCESS AND/OR USE THE OPTIONAL SOFTWARE IN QUESTION. THE IT SERVICE PROVIDER GI FOCAL POINT SHALL ONLY R EQUEST SITI FOR ACCESS TO AND/OR USE OF OPTIONAL SOFTWARE, IF THE IT SERVICE PROVIDER REQUIRES SUCH ACCESS AND/OR USE IN ORDER TO PROVIDE THE MSA SERVI CES AGREED IN CERTAIN STATEMENTS OF WORK. THE IT SERVICE PROVIDER SHALL E NSURE THAT THE IT SERVICE PROVIDER GI FOCAL POINT SHALL BE DULY AUTHORIZED TO FINANCIALLY COMMIT THE IT SERVICE PROVIDER FOR THE ORDER PLACED BY THE IT SER VICE PROVIDER GI FOCAL POINT. THE IT SERVICE PROVIDER SHALL FURTHERMORE EN SURE THAT THE IT SERVICE PROVIDER GI FOCAL POINT SHALL FOLLOW ALL INSTRUCTIO NS AS MAY BE GIVEN FROM 5 SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 11 TIME TO TIME BY SITI. ACCESS/USE RESTRICTIONS. THE IT SERVICE PROVIDER SHALL ENSURE THAT: I) ONLY SERVICE PERSONNEL WITH A STRICT NEED TO USE AND/OR ACCESS THE GI SOFTWARE AND/OR OPTIONAL SOFTWARE IN ORDER TO PROVI DE MSA SERVICES SHALL USE AND/OR ACCESS THE GI SOFTWARE AND/OR THE OPTION AL SOFTWARE; AND 2) SUCH SERVICE PERSONNEL SHALL ONLY ACCESS AND/OR USE THE GI SOFTWARE AND OPTIONAL SOFTWARE IN A NORMAL OPERATIONAL MANN ER AND ONLY IN SO FAR AS STRICTLY NECESSARY TO PROVIDE USA SERVICES; AND 3) UNLESS OTHERWISE AGREED WITH SITI, THE GI SOFTWARE AND OPTIONAL SOFTWARE SHALL ONLY HE ACCESSED FROM AND USED IN TH E MSA SERVICE AREA. SITI RESERVES THE RIGHT TO UNILATERALLY ADD OR REMO VE CERTAIN SOFTWARE FROM THE GI SOFTWARE AND TO STOP THE IT SERVICE PROVIDER FROMACCESSING AND/OR USING CERTAIN OPTIONAL SOFTWARE OR REQUEST THE SERV ICE PROVIDER TO STOP ACCESSING AND/OR USING CERTAIN OPTIONAL SOFTWARE. S I71 ALSO RESERVES THE RIGHT TO UNILATERALLY AMEND THE SPECIFIC TERMS AND CONDITIONS FOR ACCESS AND/OR USE OF THE GI SOFTWARE AND/OR OPTIONAL SOFTW ARE, AS MAY BE SET OUT IN EXHIBIT A, SECTION III. IN THE EVENT THAT SUL AT ITS SOLE DISCRETION, STOPS THE IT SERVICE PROVIDER FROM ACCESSING AND/OR USING CERTAIN OPTIONAL SOFTWA RE, OR REQUESTS THE IT SERVICE PROVIDER TO SLOP ACCESSING AND/OR USING CER TAIN OPTIONAL SOFTWARE, AND THE IT SERVICE PROVIDER DOES REQUIRE SUCH OPTIO NAL SOFTWARE IN ORDER TO BE ABLE TO PROVIDE MSA SERVICES, SITI SHALL USE REA SONABLE ENDEAVOURS TO PROVIDE THE IT SERVICE PROVIDER WITH SUFFICIENT PRI OR NOTICE IN ORDER TO ENABLE IT SERVICE PROVIDER TO ACQUIRE A LICENSE OR ANY OTHER PERMISSION FROM THE APPLICABLE THIRD PARTY LICENSOR TO ACCESS AND USE SUCH OPTIONAL SOFTWARE OR A SUBSTANTIAL EQUIVALENT, SO THAT THE I T SERVICE PROVIDER SHALL CONTINUE TO BE ABLE TO PROVIDE MSA SERVICES. IN THE EVENT THAT SITI REQUESTS THE SERVICE PROVIDE R TO SLOP ACCESSING AND/OR USING CERTAIN OPTIONAL SOFTWARE (UNLESS OPTI ONAL SOFTWARE HAS ALREADY BEEN REMOTELY REMOVED FROM THE IT SERVICE P ROVIDER EQUIPMENT BY SITI), THE IT SERVICE PROVIDER SHALL ENSURE THAT AL L SERVICE PERSONNEL IMMEDIATELY STOP ACCESSING AND USING SUCH OPTIONAL SOFTWARE AND UPON REQUEST OF SITI, THE IT SERVICE PROVIDER SHALL AS S OON AS REASONABLY POSSIBLE RETURN TO SITI SUCH OPTIONAL SOFTWARE TOGE THER WITH ANY ASSOCIATED DOCUMENTATION, INCLUDING (BUT NOT LIMITE D TO) MANUALS RELATING TO THE OPTIONAL SOFTWARE IN QUESTION AS WELL AS LIC ENSE CERTIFICATES ETCETERA WHICH MAY BE IN THE IT SERVICE PROVIDER'S' AND/OR SERVICE PERSONNEL'S POSSESSION. UPON REQUEST BY SITI, THE IT SERVICE PROVIDER SHALL INFORM SITI OF THE NUMBERS AND IDENTITIES OF THE SERVICE PERSONNEL ACC ESSING AND/OR USING THE GI SOFTWARE AND/OR OPTIONAL SOFTWARE. SUBJECT T O APPLICABLE LAW, SITI SHALL HAVE THE RIGHT TO LOG INTO AND MONITOR THE IT SERVICE PROVIDER'S AND SERVICE PERSONNELS ACCESS TO AND USE OF ANY OF THE GI SOFTWARE AND OPTIONAL SOFTWARE AT ANY TIME WITHOUT NOTICE. THE I T SERVICE PROVIDER SHALL PERMIT SITI OR ITS AUTHORIZED REPRESENTATIVES AT ALL REASONABLE TIMES, TO AUDIT THE IT SERVICE PROVIDER'S AND SERVICE PERSONN EL'S ACCESS TO AND USE OF THE GI SOFTWARE AND OPTIONAL SOFTWARE. THE IT SE RVICE PROVIDER SHALL CO- SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 12 OPERATE WITH S111 IN CARRYING OUT SUCH AUDIT. ARTICLE 5 . INDEMNITY. 5.2.1. BY SITI. SITI WILL DEFEND, INDEMNIFY AND HOLD HARMLESS THE I T SERVICE PROVIDER AGAINST ANY LOSSES, DAMAGES, CLAIMS, SUITS, LIABILI TIES, JUDGMENTS AND EXPENSES (INCLUDING BUT NOT LIMITED TO ATTORNEYS ' FEES AND OTHER COSTS OF LITIGATION) BROUGHT BY A THIRD PARTY THAT THE ACCES S AND/OR USE OF THE GI SOFTWARE OR OPTIONAL SOFTWARE BY IT SERVICE PROVIDE R AND/OR THE SERVICE PERSONNEL IN ACCORDANCE WITH THIS AGREEMENT INFRING ES SUCH THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS. AS A CONDITION OF THIS INDEMNITY, IT SERVICE PROVID ER SHALL (I) NOTIFY SITI PROMPTLY IN WRITING OF ANY ALLEGATION OF INFRINGEME NT (II) MAKE NO ADMISSION RELATING TO THE INFRINGEMENT; AND (III) A LLOW SITITO CONDUCT ALL NEGOTIATIONS AND PROCEEDINGS AND GIVE SITI ALL REAS ONABLE ASSISTANCE. THE FOREGOING INDEMNITY SHALL NOT APPLY TO THE EXTENT T HAT THE INFRINGEMENT OR ALLEGED INFRINGEMENT IS CAUSED BY (A) THE IT SERVICE PROVIDER'S AND/OR THE SERVICE PERSON NEL'S MISUSE OR MODIFICATION OF THE GI SOFTWARE OR OPTIONAL SOFTWAR E; (B) THE IT SERVICE PROVIDER'S AND/OR THE SERVICE PERSON NELS . FAILURE TO USE CORRECTIONS OR ENHANCEMENTS MADE AVAILABLE DIRE CTLY OR INDIRECTLY BY SITI; OR (C) THE IT SERVICE PROVIDER'S AND/OR THE SERVICE PERSON NELS USE OF THE GI SOFTWARE OR OPTIONAL SOFTWARE OTHERWISE THAN IN ACCORDANCE WITH THIS AGREEMENT. PROVIDED THE EXCEPTIONS OF THE FOREGOING PARAGRAPH DO NOT APPLY, IF THE IT SERVICE PROVIDER'S AND/OR THE SERVICE PERSONNEL'S A CCESS OR USE OF THE GI SOFTWARE OR OPTIONAL SOFTWARE IN SITI'S REASONABLE OPINION ARE LIKELY TO BE HELD TO BE INFRINGING, SITI SHALL AT ITS OPTION AND EXPENSE TAKE ONE OR MORE OF THE FOLLOWING ACTIONS IN ORDER TO PROCURE T HE RIGHT FOR THE IT SERVICE PROVIDER AND THE SERVICE PERSONNEL TO CONTINUE TO U SE AND/OR ACCESS THE GI SOFTWARE OR OPTIONAL SOFTWARE IN QUESTION; I. REPLACE THE GI SOFTWARE OR OPTIONAL SOFTWARE IN QUESTION WITH A NON- INFRINGING EQUIVALENT. I.E. HAVING SUBSTANTIALLY EQ UIVALENT FUNCTIONALITIES AND FEATURES, PROVIDED HOWEVER THAT SUCH NON-INFRIN GING EQUIVALENT WILL CONTINUE TO ENABLE THE IT SERVICE PROVIDER TO PROVIDE MSA SERVICES; OR 4. MODIFY THE GI SOFTWARE OR OPTIONAL SOFTWARE UI Q UESTION TO MAKE IT NON- INFRINGING; OR 5. IN THE CASE THAT THE IT SERVICE PROVIDER'S AND/O R THE SERVICE PERSONNEL'S ACCESS TO OR USE OF A GI SOFTWARE AND/OR OPTIONAL S OFTWARE IS LIKELY TO BE HELD TO BE INFRINGING, REMOVE THE GI SOFTWARE AND/O R OPTIONAL SOFTWARE FROM THE LIST INCLUDED IN EXHIBIT IN WHICH CASE THE IT SERVICE PROVIDER SHALL ENSURE THAT ALL SERVICE PERSONNEL IMMEDIATELY STOP USING AND/OR ACCESSING SUCH GI SOFTWARE AND/OR OPTIONAL SOFTWARE AND UPON REQUEST OF SITI THE IT SERVICE PROVIDER SHALL, UNLESS THE G I SOFTWARE OR OPTIONAL SOFTWARE IN QUESTION HAS ALREADY BEEN REMOTELY REMO VED BY SITI, AS SOON AS REASONABLY POSSIBLE RETURN TO SITI SUCH GI SOFTW ARE TOGETHER WITH ANY - 6 SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 13 ASSOCIATED DOCUMENTATION, INCLUDING (BUT NOT LIMITE D TO) MANUALS RELATING TO THE GI SOFTWARE, LICENSE CERTIFICATES ETCETERA W HICH ARE IN THE IT SERVICE PROVIDER'S AND/OR SERVICE PERSONNEL'S POSSESSION. THE FOREGOING SLATES SITI'S ENTIRE LIABILITY TO THE IT SERVICE PROVIDER IN RESPECT OF THE INFRINGEMENT OF THE INTELLECTUAL PRO PERTY RIGHTS OF ANY THIRD PARTY . ARTICLE 6. OWNERSHIP OF INTELLECTUAL PROPERTY RIGHT S. THE INTELLECTUAL PROPERTY RIGHTS IN THE GI SOFTWARE AND OPTIONAL SOFTWARE ARE OWNED BY SITI AND/OR SITI'S THIRD PARTY LICENSO RS AND REMAIN VESTED IN SITI OR ITS THIRD PARTY LICENSORS (AS APPLICABLE ). SITI IS NOT EXPECTED TO MAKE, CREATE OR GENERATE ANY WORK PRODUCTS IN THE P ERFORMANCE AT THE SERVICES UNDER THIS AGREEMENT, HOWEVER IN THE EVENT THAT SITI DOES MAKE, CREATE OR GENERATE ANY WORK PRODUCTS IN THE PERFORM ANCE OF THE SERVICES, THE INTELLECTUAL PROPERTY RIGHTS IN SUCH WORK PRODU CTS SHALL VEST EXCLUSIVELY IN SITI AND/OR SITI'S THIRD PARTY LICEN SORS AS APPLICABLE. FOR THE AVOIDANCE OF ANY DOUBT, THE OWNERSHIP OF/HE INTELLECTUAL PROPERTY RIGHTS OF ANY WORK PRODUCT MADE. CREATED O R GENERATED BY THE 11 SERVICE PROVIDER (OR THE IT SERVICE PROVIDER'S A FFILIATES AS THE CASE MAY BE IN THE PERFORMANCE OF MSA SERVICES, SHALL HE SOL ELY DETERMINED IN ACCORDANCE WITH THE STATEMENT OF WORK UNDER WHICH S UCH MSA SERVICES WERE PROVIDED. ARTICLE 8. TERMINATION OF THE AGREEMENT AND EFFECT OF TERMINATION. 8.2. EFFECT OF TERMINATION. UPON TERMINATION OF THIS AGREEMENT, FOR WHATEVER RE ASON, THE IT SERVICE PROVIDER SHALL ENSURE THAT ALL SERVICE PERSONNEL IM MEDIATELY SLOP USING AND/OR ACCESSING ALL GI SOFTWARE AND OPTIONAL SOFTW ARE AND THE IT SERVICE PROVIDER SHALL RETURN TO SITI AS SOON AS REASONABLY POSSIBLE ALL THE GI SOFTWARE AND ALL OPTIONAL SOFTWARE TOGETHER WITH T HE ASSOCIATED DOCUMENTATION, INCLUDING ('BUT NOT LIMITED TO) MANU ALS RELATING TO THE GI SOFTWARE AND OPTIONAL SOFTWARE, LICENSE CERTIFICATE S ETCETERA, WHICH ARE IN THE IT SERVICE PROVIDER'S POSSESSION. 8.3. TERMINATION, OF PROVISION OF A SUB SERVICE. IN THE EVENT THAT THE IT SERVICE PROVIDE,' NO LONGE R REQUIRES A CERTAIN SUB- SERVICE PROVIDED UNDER THIS AGREEMENT IN ORDER TO P ROVIDE MSA SERVICES, THE IT SERVICE PROVIDER SHALL INFORM SITI THERE AND THE PROVISION OF SUCH SUB-SERVICE WILL BE TERMINATED AND THE IT SERVICE P ROVIDER SHALL N LONGER BE CHARGED TO FEES APPLICABLE TO THE SUB-SERVICE III Q UEST/U/I. IF PROVISION BY SIT! TO THE IT SERVICE PROVIDER OF ACCESS TO AND/OR USE A/UI SOFTWARE AND OPTIONAL SOFTWARE IS TERMINATED, THE IT SERVICE PRO VIDER SHALL, UNLESS THE UI SOFTWARE AND ALL OPTIONAL SOFTWARE HAS ALREAD Y BEEN REMOTELY REMOVED BY SITI, RETURN TO SITI AS SOON AS REASONABLY POSSI BLE ALL THE GI SOFTWARE AND ALL OPTIONAL SOFTWARE TOGETHER WITH THE ASSOCIA TED DOCUMENTATION, INCLUDING (BUT NOT LIMITED TO) MANUALS RELATING TO THE GI SOFTWARE, OR OPTIONAL SOFTWARE, LICENSE CERTIFICATES ETCETERA, W HICH MAY , HE IN THE IT SERVICE PROVIDER'S POSSESSION. ARTICLE 9. EQUIPMENT NO LONGER USED TO PROVIDE MSA SERVICES. IN THE EVENT THAT THE IT SERVICE PROVIDER, IN ORDER TO PROVIDE MSA SERVICES, SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 14 HAS INSTALLED THE GI SOFTWARE AND/OR OPTIONAL SOFT WARE ON CERTAIN EQUIPMENT (SUCH AS, BUT NOT LIMITED TO PCS), AND S UCH EQUIPMENT IS NO LONGER USED BY THE IT SERVICE PROVIDER IN ORDER TO PROVIDE MSA SERVICES, THE IT SERVICE PROVIDER SHALL, UNLESS EXPRESSLY OTHERWI SE AGREED IN WRITING BY SITI, ENSURE THAT ALL THE GI SOFTWARE AND/OR OPTION AL SOFTWARE ON SUCH EQUIPMENT IS REMOVED AS SOON AS SUCH EQUIPMENT IS N O LONGER USED FOR PROVISION OF THE MSA SERVICES. ARTICLE 17. NETWORK ACCESS IN ORDER FOR SITI TO PROVIDE THE SERVICES AND FOR T HE IT SERVICE PROVIDER AND SERVICE PERSONNEL 10 MAKE USE OF THE SERVICES, THE SERVICE PERSONNEL SHALL BE ALLOWED TO ACCESS CERTAIN PARTS OF THE IT NETWOR K OF SHELL COMPANIES. IT SERVICE PERSONNEL SHALL ENSURE THAT THE SERVICE PERSONNEL ONLY ACCESS AND USE THE IT NETWORK OF SHELL COMPANIES IN SO, FAR AS REQUIRED IN ORDER TO PROVIDE THE MSA SERVICES AND SHALL COMPLY WITH ALL FURTHER INSTRUCTIONS AS MAY BE PROVIDED FROM TIME TO TIME B Y SITI WITH RESPECT TO THE IT SERVICE PROVIDERS ACCESS AND USE OF THE IT N ETWORK OF SHELL COMPANIES. EXHIBIT A: SERVICES S ECTION I GI SERVICES THE, FOLLOWING SERVICES ARE COMPONENTS OF THE GI SE RVICES AND SHALL BE PROVIDED BY SITI UNDER THE AGREEMENT TO THE IT SERV ICE PROVIDER: I. OFFICE COMPUTING SERVICES. 2. MESSAGING AND TIME MANAGEMENT SERVICES. 3. INFORMATION ACCESS AND SHARING SERVICES. 4. REMOTE ACCESS SERVICES. THE ABOVE-MENTIONED SERVICES SHALL BE PROVIDED BY 5 177 IN THE SAME MANNER AS THEY ARE PROVIDED TO OTHER SHELL COMPANIE S AND IN ACCORDANCE WITH THE RELEVANT SECTIONS OF THE GI SERVICE LEVEL AGREEMENT AS AGREED BETWEEN SITI AND OTHER SHELL COMPANIES. IN THE EVENT OF A CONFLICT BETWEEN THE RELEVANT SEC TIONS OF THE GI SERVICE LEVEL AGREEMENT AS AGREED BETWEEN SIT1 AND OTHER SH ELL COMPANIES AND THE TERMS AND CONDITIONS AND EXHIBITS OF THIS AGREE MENT THE TERMS AND CONDITIONS AND EXHIBITS OF THIS AGREEMENT SHALL PRE VAIL. THE PROVISION OF THE SERVICES SHALL BE GOVERNED BY THE TERMS AND CON DITIONS IN THIS AGREEMENT; THE IT SERVICE PROVIDER ACKNOWLEDGES THA T THE 'SITI DELIVERY TERMS . ' SHALL NOT APPLY TO PROVISION OF THE SERVICES BY S ITI TO THE IT SERVICE PROVIDER. IN THE EVENT THAT SERVICE PERSONNEL ENCOUNTER PROBL EMS WHILE USING THE SERVICES THE SERVICE PERSONNEL SHALL FOLLOW THE PRO BLEM MANAGEMENT PROCEDURES/INSTRUCTIONS AS PROVIDED BY SITI. SECTION II STO SERVICES STO SERVICES ARE THE END-TO-END CONNECTIVITY SERVIC ES PROVIDED BY SITI, BY MEANS OF WHICH THE IT SERVICE PROVIDER SHALL BE PROVIDED WITH A CONNECTION TO (CERTAIN PARTS OF) THE IT NETWORK OF SHELL COMPANIES. 7 SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 15 SECTION III IN ADDITION TO THE TERMS AND CONDITIONS STATED IN T HIS AGREEMENT THE FOLLOWING SPECIFIC TERMS AND CONDITIONS OF ACCESS A ND/OR USE APPLY: AL THE DATE OF SIGNATURE OF THIS AGREEMENT, OTHER T HAN THE PROVISIONS ALREADY SET OUT IN THIS AGREEMENT, NO SPECIFIC TERM S AND CONDITIONS OF ACCESS AND/OR USE THE GI SOFTWARE AND OPTIONAL SOFT WARE PROVIDED BY SITI THERE UNDER APPLY.' 9. FROM THE AFORESAID ARTICLES OF THE MASTER SERVICE AG REEMENT, LEARNED COUNSEL SUBMITTED THAT FROM THE READING OF ARTICL E 3 IT CAN BE NOTED THAT RIGHT GRANTED TO WIPRO/IBM SHALL NOT BE PASSED ON/TRANSFERRED TO ANY OTHER PERSON AND ONLY WIPRO/IBM ARE LEGALLY PERMISSIBLE TO EXERCISE THOSE RIGHTS. ARTICLE 4 MERELY GRANTS RIGHT TO ACCESS/USE THE GI/OPERATIONAL SOFTWARE. THIS RIGHT IS SUBJECT TO THE TERMS AND CONDITIONS SET OUT IN THAT ARTICLE AND PROVID ES FOLLOWING RESTRICTIONS ON TO THE RIGHTS SO GRANTED: 1) ONLY SERVICE PERSONNEL WITH A STRICT NEED TO USE AND/OR ACCESS THE GI SOFTWARE IN ORDER TO PROVIDE MS SERVICES SHA LL USE AND/OR ACCESS THE GI SOFTWARE AND/OR OPTIONAL SOFTWARE; AN D 2) SUCH SERVICE PERSONNEL SHALL ONLY ACCESS AND/OR USE THE GI SOFTWARE AND OPTIONAL SOFTWARE IN A NORMAL OPERATIO NAL MANNER AND ONLY IN SO FAR AS STRICTLY NECESSARY TO PROVIDE MSA SERVICES; AND 3) UNLESS OTHERWISE AGREED WITH SITI, THE GI SOFTWA RE AND OPERATIONAL SOFTWARE SHALL ONLY BE ACCESSED FROM AN D USED IN THE MSA SERVICE AREA. HE POINTED OUT ARTICLE 17 STIPULATES THAT IN ORDER TO PROV IDE SERVICES TO SHELL ENTITIES, WIPRO/IBM SHALL BE ALLOWED TO ACCESS CERTAIN PARTS OF THE IT NETWORK OF THE SHELL COMPANIES. SUCH RIGHT IS N OT UNFETTERED BUT AGAIN IS LIMITED TO USE FOR THE OWN BUSINESS PURPO SE AND NOT OTHERWISE. SIMILARLY, ARTICLE 6 OUTLINES THE OWNERSHIP OF THE IPRS AND CLEARLY STATES THAT GI/OPERATIONAL SOFTWARE SHALL AT ALL TIMES REMAIN SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 16 VESTED WITH THE ASSESSEE. SIMILARLY, TERMINATION AGREEM ENT UNDER ARTICLE 8.2 PROVIDES THE IMMEDIATE STOP OF ACCESS OF U SING GI/OPERATION SOFTWARE AND THE PARTY SHALL RETURN THE SO FTWARE ALONG WITH MANY OTHER THINGS. 10. THE LEARNED COUNSEL FURTHER SUBMITTED THAT ALL THESE TERMS AND CONDITIONS AS ENSHRINED IN MSA WILL ONLY GO TO SHOW THAT THE ASSESSEE DOES NOT IN ANY MANNER GIVE ANY RIGHT TO USE ANY COPYR IGHT EMBEDDED IN THE SOFTWARE OR TO MAKE COPIES OR SELL THE SOFTWARE AND ONLY LEANT RIGHT TO ACCESS/USE THE SOFTWARE FOR ITS OWN BUSINESS PURPOSE. WIPRO/IBM DOES NOT GET ANY RIGHT PER SE IN THE SOFTWARE AND, HENCE, SUCH A PAYMENT CANNOT BE TREATED AS ROYALTY. HE CONTEN DED THAT ROYALTY AS PER DTAA IS DIFFERENT FROM THE TERM ROY ALTY AS DEFINED UNDER THE INDIAN IT ACT, WHICH HAS A MUCH WIDER SCOPE . FURTHER, ACCESS TO THE SOFTWARE/NETWORK ACCESS IS NOT A PROCES S AS REFERRED BY THE LEARNED AO, BECAUSE THE ASSESSEE HAS NOT ALLOWE D WIPRO/IBM TO USE THE PROCESS BY USING THE SOFTWARE AS THEY DO N OT HAVE ANY ACCESS TO THE SOURCE CODE. WHAT IS ALLOWABLE FOR THEIR USE IS THEIR SOFTWARE PRODUCT AS SUCH AND NOT A PROCESS EMBEDDED IN IT. IN ANY CASE, HE SUBMITTED THAT BY MAKING USE OF OR HAVING ACCE SS TO THE COMPUTER PROGRAMS EMBEDDED IN THE SOFTWARE, IT CANNOT B E SAID THAT WIPRO/IBM ARE USING THE PROCESS THE PROCESS THAT HAS G ONE INTO THE SOFTWARE OR THAT THEY HAVE ACQUIRED ANY RIGHTS IN RELA TION TO THE PROCESS AS SUCH. LASTLY, HE CONTENDED THAT ACCESS TO SOFTWARE/NETWORK IS NOT THE USE OF COPYRIGHT BUT THE USE OF COPYRIGHTED ARTICLE AND, FURTHER REFERRING TO THE RELEV ANT DEFINITION IN SECTION 13 & 14 OF THE COPYRIGHT ACT, HE SUBMITTED THAT THE RE IS NO USE OR RIGHT TO USE OF ANY COPY RIGHT AND DOES NOT FALL WITHIN THE AMBIT OF ROYALTY AS COVERED UNDER DTAA. IN SUPPORT HE RELI ED UPON THE FOLLOWING DECISIONS BEFORE US:- SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 17 DIT V. INFRASOFT LTD [2013] 39 TAXMANN.COM 88 (DEL- HC ) ADIT V BAAN GLOBAL B V [2016] (ITA 7048/MUM/2010 CIT V. HALLIBURNTON EXPORT INC. [2016] ITA 363/2016 ( DEL-HC) DIT V. NOKIA NETWORK OY [2012] 25 TAXMANN.COM225 (DE L-HC) DIT V. ERICSSON A.B. [2012]246 CTR 422 (DEL HC) DDIT V. SOLID WORKS CORPN [2012] 18 TAXMANN.COM 189 (MUM TRI) GALATEA LTD. V. DCIT [2016]67 TAXMANN.COM 190 (MUM- TR I) CAPGEMINI BUSINESS SERVICES (INDIA) LTD. VS. ACIT [2 016] 68 TAXMANN.COM 36 (MUM-TRI) DDIT V. RELIANCE INDUSTRIES LIMITED [2016] 69 TAXMANN. COM 311 (MUM- TRI) ASPECT SOFTWARE INC. V. ADIT [2015] 61 TAXMANN.COM 36 (DEL-TRI) ALLIANZ SE V. ADIT [2012] 21 TAXMANN.COM 62 (PUNE-TR I) TATA CONSULTANCY SERVICES V. STATE OF AP[2004] 141 TAX MAN 132 (SC). 11. ON THE OTHER HAND, THE LEARNED CIT-DR AFTER REFERR ING TO VARIOUS OBSERVATIONS OF THE AO, SUBMITTED THAT THE AMENDMENT BROUGH T IN THE SECTION 9(1)(VI) BY INSERTION OF EXPLANATION 4 TO FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT, COVERS SUCH KIND OF PAYMENTS FOR USE OR RIGHT TO USE OF A COMPUTER SOFTWARE UNDER THE AMBIT OF ROYALTY. SUCH AN AMENDMENT HAS TO BE READ INTO THE TREATY, BECAUSE THE SC OPE OF DEFINITION AND MEANING OF ROYALTY UNDER THE ACT AND DTAA ARE BY AND LARGE SAME. IN SUPPORT, HE STRONGLY RELIED UPON THE DE CISION OF CIT VS. SIEMENS AKTIONGESELLSCHAFT, 310 ITR 320; AND VAICOM 18 MEDIA PRIVATE LTD. VS. ADIT (2014) 162 TTJ 336. HE GAVE A SMALL WRITE- UP ON THIS ASPECT, WHICH FOR THE SAKE OF READY REFEREN CE IS REPRODUCED BELOW: 1. ON THE ISSUE WHETHER THE AMENDMENTS/EXPLANATION S SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 18 INSERTED IN THE INCOMETAX ACT CAN BE READ INTO THE DTAA OR NOT, IN MY MOST RESPECTFUL SUBMISSIONS, THE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT V. SIEMENS AKTIONGESELLSCHAFT, 3 10 ITR 320 (BOM HC)RENDERED IN THE FACTS PECULIAR FACTSCASE HAS NOT BEEN APPRECIATEDIN THE PROPER PERSPECTIVE IN VARIOUS DEC ISIONS OF THE DELHI HIGH COURT AND MUMBAI TRIBUNAL RELIED UPO N BY THE ASSESSEE. WHILE APPRECIATING THE SIEMENS AG, SUPRA, THE FOLLOWING FACTS MAY KINDLY BE KEPT IN MIND: I) THE EXACT QUESTION OF LAW BEFORE THE HON'BLE HIG H COURT WAS NOT THAT WHETHER AMENDMENTS IN THE I.T. A CT CAN BE READ INTO THE DTAA OR NOT AND THEREFORE, THE HON 'BLE HIGH COURT CANNOT BE SAID TO HAVE ANSWERED IT AS CLAIMED . II) IN THE SAID CASE, OLD DTAA (1960) BETWEEN INDIA AND GERMANY WAS UNDER CONSIDERATION IN WHICH 'ROYAL TY' HAD NOT BEEN DEFINED.( PARA 15). III) 'ROYALTY' UNDER THE I.T. ACT HAS BEEN DEFINED IN EXPLANATION 2 TO S.9(1)(VI), INSERTED BY THE FINANC E ACT 1976 W.E.F 01-06-1976. IV) THE AGREEMENTS UNDER CONSIDERATION IN THE CASE OF SIEMENS AG, SUPRA WHICH GAVE RISE TO THE IMPUGNED INCOME WE RE ENTERED INTO BEFORE 01-06-1976 WHEN THERE WAS NO DE FINITION OF 'ROYALTY' BOTH UNDER THE I.T. ACT AND UNDER THE DTAA. THE A.Y. UNDER CONSIDERATION IN SIEMENS AG SUPRA WAS A. Y.1979-80. V) SECTION 9(1) (VI) UPTO AND INCLUDING EXPLANATION 2 ARE SUBSTANTIVE PROVISIONS AS INSERTED BY FINANCE ACT 1976 AND THEREAFTER, EXPLANATION 3 TO 6 AND EXPLANATION BELOW S.9(2) ARE ONLY CLARIFICATORY PROVISIONS INSERTED SUBSEQUENTLY. VI) FOR THE PURPOSE OF THE PRESENT APPEAL, THE DEFI NITION OF 'ROYALTY' AS APPLICABLE HAS BEEN DEFINED BOTH UNDER THE DTAA AS WELL AS I.T. ACT AND THE ISSUE IS REGARDING THE APPLICATION OF EXPLANATIONS (CLARIFICATORY PROVISIONS) INSERTED IN THE ACT INTO THE DTAA BY VIRTUE OF ARTICLE 3(2) OF THE DTAA . VII) THE SAID DECISION IN THE CASE OF SIEMENS AG, SUPRA WAS RENDERED IN 2008 WHEN THE ONLY CLARIFICATORY PR OVISION BY WAY OF EXPLANATION IN SECTION 9 WAS THE EXPLANATION BELOW S.9(2) INSERTED BY THE FINANCE ACT 2007 DOING AWAY WITH THE REQUIREMENT OF PE FOR ROYALTY ETC. VIII) IN THE CASE OF SIEMENS AG, SUPRA, THE BASIC Q UESTION BEFORE THE HON'BLE HC WAS WHETHER THE DEFINITION OF SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 19 'ROYALTY' AS PER EXPLANATION 2 TO S.9 INSERTED BY T HE FINANCE ACT 1976 W.E.F. 01-06-1976 COULD BE IMPORTE D INTO THE OLD DTAA (1960) WHEN AT THE RELEVANT POINT OF T IME OF APPLICATION OF TREATY, ' ROYALTY' WAS NOT DEFINED B OTH UNDER THE THEN DTAA AND THE I.T. ACT AND WHAT WAS THE CHA RACTER OF PAYMENT UNDER THE DTAA. IX) IT IS NOT DISPUTED BY THE REVENUE THAT THE PROVISIONS OF DTAA, IF BENEFICIAL TO THE ASSESSEE S HALL PREVAIL OVER THE PROVISIONS OF THE I.T. ACT. 2.IN MY RESPECTFUL SUBMISSIONS, A PERUSAL OF BOMBAY HC DECISION IN THE CASE OF SIEMENS AG, SUPRA WOULD REVEAL THAT: I) IN THE OPERATIONAL PART (PARAS 27 TO 31) OF THE JUDGMENT IN THE CASE OF SIEMENS AG, SUPRA, NOWHERE IT IS MENTIO NED THAT AMENDMENTS IN THE I.T. ACT CANNOT BE READ INTO DTAA . II) THE NATURE OF SERVICES RENDERED IN THE SAID CAS E WAS FOUND TO BE NOT ROYALTY UNDER THE DTAA THOUGH FOUND TO BE ROYALTY UNDER THE ACT (POST 01-06-1976). THOSE SERV ICES WERE FOUND TO FALL UNDER THE EXPRESSION 'COMMERCIAL OR INDUSTRIAL PROFITS' AS PER THE THEN DTAA (OLD) AND THEREFORE COULD NOT BE TAXED IN INDIA IN ABSENCE OF PE. THUS, THE PROVISIONS OF DTAA BEING MORE BENEFICIAL TO THE ASS ESSEE WERE PREFERRED OVER THE PROVISIONS OF THE I.T. ACT. III) IN PARAS 13, 22 AND 28 OF ITS ORDER, THE HON'BLE HC HAS APPROVED THE INSERTION OF EXPLANATION BELOW S.9 (2) INSERTED BY THE FINANCE ACT 2007, THEREBY IMPLYING THAT THE CLARIFICATORY EXPLANATIONS COULD BE READ INTO MODER N DTAAS. IV) MUMBAI TRIBUNAL, IN THE CASE OF VIACOM 18 MEDIA (P.) LTD.(2014) 162 TTJ 336 (MUM) HAS EXPLAINED THE IMPO RT OF BOMBAY HC DECISION IN RIGHT PERSPECTIVE IN PARAS 16 AND 17 OF ITS ORDER WHILE REJECTING THE ASSESSEE'S ARGUMEN T THAT THE HC HAS HELD THAT AMENDMENTS IN THE ACT CANNOT BE RE AD INTO DTAAS. V) THE BOMBAY HC HAS APPROVED AMBULATORY APPROACH (PARA 22) TO INTERPRETATION OF TREATIES AGAINST STA TIC APPROACH ADOPTED BY THE DELHI HC. KLAUS VOGEL IN HIS COMMENT ARY HAS ALSO ADVOCATED AMBULATORY APPROACH. SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 20 12. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND THE RELEVANT TERMS OF MASTER SERVICE AGREEMENT (AS REPRODUCED A BOVE) BETWEEN THE ASSESSEE AND THE IT SERVICES PROVIDERS, I.E., WIP RO/IBM, IT IS QUITE OSTENSIBLE THAT:- FIRSTLY, ANY KIND OF RIGHT GRANTED TO WIPRO/IBM CANNOT B E PASSED ON OR TRANSFERRED TO ANY OTHER PERSON AND ONLY WIPRO/IBM IS LEGALLY PERMISSIBLE TO EXERCISE THIS RIG HT. SECONDLY, THE RIGHT TO ACCESS/USE OF SOFTWARE IS AGAIN SUBJECT TO VARIOUS TERMS AND CONDITIONS, WHICH HAS BEEN HIGHLIG HTED UNDER ARTICLE 4 THE RIGHT WHICH HAS BEEN GIVEN TO WIPRO/IBM IS NOT UNF ETTERED BUT HAS A VERY LIMITED USE FOR THE OWN BUSINESS PURPO SE AND NOT OTHERWISE. THUS, ONLY LIMITED RIGHT TO ACCESS/USE THE SOFTWARE HAS BEEN PROVIDED TO THE UT SERVICE PROVIDER FOR ITS OWN BUSINE SS PURPOSE AND THEY DO NOT GET ANY RIGHT IN THE SAID SOFTWARE. THE ACCESS TO SOFTWARE IS NOT FOR USE OF ANY COPYRIGHT ALBEIT FOR A COPYRIGHTED ARTICLES DURING THE COURSE OF PROVIDING SERVICE. THE AGREEMENT CLEARLY ENVISAGES THAT WIPRO/IBM SHALL U SE THE SOFTWARE ONLY FOR PROVIDING SERVICES TO SHELL ENTITIE S AND CANNOT ALTER OR MODIFY THE SOFTWARE. SINCE THE ASSESSEE IS A RESID ENT OF NETHERLAND THEREFORE, SUCH A PAYMENT HAS TO BE SEEN IN TERMS OF A RTICLE 12(4) OF DTAA, WHICH READS AS UNDER:- THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITER ARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECR ET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 21 FROM THE PLAIN READING OF THE ARTICLE IT CAN BE INFERRE D THAT, IT REFERS TO PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SC IENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFO RMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. THUS , IN ORDER TO TAX THE PAYMENT IN QUESTION AS ROYALTY, IT IS SINE QUA NON THAT THE SAID PAYMENT MUST FALL WITHIN THE AMBIT AND SCOPE OF PARA4 OF ARTICLE 12. THE MAIN EMPHASIS ON THE PAYMENT CONSTITUTING ROYALTY IN PARA4 IS FOR A CONSIDERATION FOR THE USE OF OR THE RIGHT TO US E ANY COPYRIGHT.......... THE KEY PHRASES ARE FOR THE USE OR THE RIGHT TO USE ANY COPYRIGHT OF ; ANY PATENT......., OR PROCESS, OR FOR INFORMATION.........,; OR SCIENTIFIC EXPERIENCE, E TC., ARE IMPORTANT PARAMETER FOR TREATING A TRANSACTION IN THE NATURE OF ROYALTY. IF THE PAYMENT DOESNT FIT WITHIN THESE PARAMETERS THEN IT DOES NT FALL WITHIN TERMS OF ROYALTY UNDER ARTICLE 12(4).THE COMPUTER S OFTWARE DOES NOT FALL UNDER MOST OF THE TERM USED IN THE ARTICLE BARRING USE OF PROCESS OR USE OF OR RIGHT TO USE OF COPYRIGHTS HERE FIRST O F ALL, THE LIMITED USE OF SOFTWARE CANNOT BE HELD TO BE COVERED UNDER THE WOR D USE OF PROCESS, BECAUSE THE ASSESSEE HAS NOT ALLOWED THE END USER TO USE THE PROCESS BY USING THE SOFTWARE, AS THE CUSTOMER DOE S NOT HAVE ANY ACCESS TO THE SOURCE CODE. WHAT IS AVAILABLE FOR THEIR USE IS SOFTWARE PRODUCT AS SUCH AND NOT THE PROCESS EMBEDDED IN IT. SE VERAL PROCESSES MAY BE INVOLVED IN MAKING COMPUTER SOFTWAR E BUT WHAT THE CUSTOMER USES IS THE SOFTWARE PRODUCT AS SUCH AND NOT TH E PROCESS, WHICH ARE INVOLVED INTO IT. WHAT IS REQUIRED TO BE EXAM INED IN THE IMPUGNED CASE AS TO WHETHER THERE IS ANY USE OR RIGHT T O USE OF COPYRIGHT? THE DEFINITION OF COPYRIGHT, THOUGH HAS NO T BEEN EXPLAINED OR DEFINED IN THE TREATY, HOWEVER, THE VARIOUS COURTS H AVE CONSISTENTLY OPINED THAT THE DEFINITION OF COPYRIGHT AS GIVEN IN THE COPYRIGHT ACT, SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 22 1957 HAS TO BE TAKEN INTO ACCOUNT FOR UNDERSTANDING THE CONCEPT. SECTION 14OF THE SAID ACT DEFINES THE COPYRIGHTS TO ME AN AS UNDER: 14. MEANING OF COPYRIGHT FOR THE PURPOSES OF THI S ACT, 'COPYRIGHT' MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF TH IS ACT, TO DO OR AUTHORISE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT O F A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY: (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAMME, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCL UDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORD ING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK; (VI) TO MAKE ANY ADAPTATION OF THE WORK; (VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADA PTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SU B-CLAUSES (I) TO (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME,- (I) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A); (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E: PROVIDED THAT, SUCH COMMERCIAL RENTAL DOES NOT APPL Y IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS N OT THE ESSENTIAL OBJECT OF THE RENTAL. (C) IN THE CASE OF AN ARTISTIC WORK,- (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCL UDING DEPICTION IN THREE DIMENSIONS OF A TWO DIMENSIONAL WORK OR IN TW O DIMENSIONS OF A THREE DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC; (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSES (I ) TO (IV); SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 23 (D) IN THE CASE OF CINEMATOGRAPH FILM, - (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGR APH OF ANY IMAGE FORMING PART THEREOF; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GI VEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE FILM TO THE PUBLIC; (E) IN THE CASE OF SOUND RECORDING, - (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE SOUND RECORDING TO THE PUB LIC. EXPLANATION: FOR THE PURPOSES OF THIS SECTION, A CO PY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALREADY IN C IRCULATION. 13. THUS, THE DEFINITION OF COPYRIGHT IN SECTION 14 IS AN EXHAUSTIVE DEFINITION AND IT REFERS TO BUNDLE OF RIGHTS. IN RESPEC T OF COMPUTER PROGRAMMING, WHICH IS RELEVANT FOR THE ISSUE UNDER CO NSIDERATION BEFORE US, THE COPYRIGHT MAINLY CONSISTS OF RIGHTS AS GIVEN IN CLAUSE (B), THAT IS, TO DO ANY OF THE ACT SPECIFIED IN CLAUSE ( A) FROM (I) TO (VII) AS REPRODUCED ABOVE. THUS, TO FALL WITHIN THE REALM AND AMBIT OF RIGHT TO USE COPYRIGHT IN THE COMPUTER SOFTWARE PROGRAMME, THE A FORESAID RIGHTS MUST BE GIVEN AND IF THE SAID RIGHTS ARE NOT GI VEN THEN, THERE IS NO COPYRIGHT IN THE COMPUTER PROGRAMME OR SOFTWARE. H ERE IN THIS CASE, NONE OF THE CONDITIONS MENTIONED IN SECTION 14 O F THE COPYRIGHT ACT IS APPLICABLE AS HELD BY THE LEARNED CIT(A); AN D IS ALSO IS EVIDENT FROM THE TERMS OF MSA, BECAUSE NO SUCH RIGHTS HAS BEE N GIVEN BY THE ASSESSEE TO THE IT SERVICE PROVIDERS. 14. FURTHER BY MAKING USE OR HAVING ACCESS TO THE COMP UTER PROGRAMS EMBEDDED IN THE SOFTWARE, IT CANNOT BE HELD TH AT EITHER WIPRO/IBM ARE USING THE PROCESS THAT HAS GONE INTO THE SOFTWARE OR THAT THEY HAVE ACQUIRED ANY RIGHTS IN RELATION TO THE PROC ESS AS SUCH. SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 24 THE SOFTWARE CONTINUES TO BE OWNED BY THE ASSESSEE AND WHAT WIPRO/IBM IS GETTING MERE ACCESS TO THE SOFTWARE. THE SOURCE CODE EMBEDDED IN THE SOFTWARE HAS NOT BEEN IMPARTED TO THEM. HENCE, THERE IS NO USE OR RIGHT TO USE OF ANY PROCESS AS HEL D BY THE LEARNED AO. HENCE, THE FINDING OF THE LEARNED CIT(A) THAT THE P AYMENT IN QUESTION CANNOT BE RECKONED AS ROYALTY IS FACTUALLY AND LEGALLY CORRECT AND THE SAME IS UPHELD. 15. APART FROM THAT NOW THERE ARE VARIOUS DECISIONS OF HONBLE HIGH COURT INCLUDING THAT OF HONBLE DELHI HIGH COURT IN CAS E OF DIT VS. INFRASOFT LTD., REPORTED IN [2013] 39 TAXMANN.COM 88, WHEREIN HOST OF OTHER DECISIONS HAVE BEEN REFERRED AND RELIED UP ON. IN THE A.Y. 2008-09, THE LEARNED CIT (A) HAS RELIED UPON THE DE CISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE CIT VS. SAMSUNG ELECTRONICS CO. LTD. [2013]345 ITR 494 AND SOME OTHER DECISIONS OF THE TRIBUNAL. WE FIND THAT THE HONBLE DELHI HIGH COURT HAS TAKEN NOTE OF THIS FACT AND ALSO ANALYSED THE PAYMENT OF SOFTWARE WITHIN THE A MBIT OF ROYALTY AS DEFINED UNDER ARTICLE 12 OF THE INDIA US TREATY. T HE RELEVANT OBSERVATION AND FINDING OF THE HONBLE HIGH COURT IS A S UNDER: 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGH TS (INCLUDING THE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. IN ORDER TO TREAT THE CONSIDERA TION PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT T HE LICENSEE, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPY RIGHT RIGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETW EEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHT ED ARTICLE'. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COP YRIGHTED. 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 NO T FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LICENCE IN RESPECT OF COPYRIGHT . COPYRIGHT OR EVEN RIGHT TO USE COPYRIGHT IS DISTINGUISHABLE FROM SALE CONSIDERATION SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 25 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 PRO GRAM. THE RIGHTS TRANSFERRED ARE SPECIFIC TO THE NATURE OF COMPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COMPUTER'S HARD DRIVE OR RANDOM ACCESS MEMORY OR MAKING AN ARCHIVAL COPY IS AN ESSE NTIAL STEP IN UTILIZING THE PROGRAM. THEREFORE, RIGHTS IN RELATIO N TO THESE ACTS OF COPYING, WHERE THEY DO NO MORE THAN ENABLE THE EFFE CTIVE OPERATION OF THE PROGRAM BY THE USER, SHOULD BE DISREGARDED I N ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYM ENTS IN THESE TYPES OF TRANSACTIONS WOULD BE DEALT WITH AS BUSINE SS INCOME IN ACCORDANCE WITH ARTICLE 7. 89. THERE IS A CLEAR DISTINCTION BETWEEN ROYALTY P AID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRO DUCT WITH THE OWNER RETAINING HIS COPYRIGHT IS NOT THE SAME THING AS TR ANSFERRING OR ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. VIEWED FROM THIS ANG LE, A NON- EXCLUSIVE AND NON-TRANSFERABLE 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 AR TICLE 12 OF DTAA. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY TO RESTRICT USE OF THE COPYRIGHTED PRODUCT FOR INTERNAL BUSINES S PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPY RIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT . THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACH ED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHORIZING OR ENABLING A CUS TOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THERE IN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONF ERMENT OF THE RIGHT OF USING THE COPYRIGHT. THE TRANSFER OF RIGHTS IN OR O VER COPYRIGHT OR THE CONFERMENT OF THE RIGHT OF USE OF COPYRIGHT IMPLIES THAT THE TRANSFEREE/LICENSEE SHOULD ACQUIRE RIGHTS EITHER IN ENTIRETY OR PARTIALLY CO-EXTENSIVE WITH THE OWNER/ TRANSFEROR W HO DIVESTS HIMSELF OF THE RIGHTS HE POSSESSES PRO-TANTO. 90. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN T HE COMPUTER FOR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 26 LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND I S QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID P ARAGRAPH BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHT ED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITIO N 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 COP YRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRES ENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDER ED AS ROYALTY EITHER UNDER THE INCOME TAX 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 COPY RIGHTED SOFTWARE WHICH BY ITSELF IS AN ARTICLE AND THEY HAVE NOT ACQUIRED ANY COPYRIGHT IN THE SOFTWARE. IN THE CASE OF THE ASSESSEE COMPANY, THE LICENSEE TO WHOM THE ASSESSEE COMPANY HAS SOLD/LICENSED THE SOFTWARE WERE ALLOWED TO MAKE ONL Y ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPOSES WITH A CONDITION THAT SUCH COPYRIGHT SHALL INCLUDE INFRASOFT COPYRIGHT AND ALL COPIES OF THE SOFTWARE SHALL BE E XCLUSIVE PROPERTIES OF INFRASOFT. LICENSEE WAS ALLOWED TO USE THE SOFTW ARE ONLY FOR ITS OWN BUSINESS AS SPECIFICALLY IDENTIFIED AND WAS NOT PERMITTED TO LOAN/RENT/SALE/SUB-LICENCE OR TRANSFER THE COPY OF SOFTWARE TO ANY THIRD PARTY WITHOUT THE CONSENT OF INFRASOFT. 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 ASSESSEE COMPANY AND ITS CUSTOMERS STIPULATES THAT ALL COPYR IGHTS AND INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND CO PIES MADE BY THE LICENSEE WERE OWNED BY INFRASOFT AND ONLY INFRASOFT HAS THE POWER TO GRANT LICENCE RIGHTS FOR USE OF THE SOFTWARE. TH E LICENCE AGREEMENT STIPULATES THAT UPON TERMINATION OF THE AGREEMENT F OR ANY REASON, THE LICENSEE SHALL RETURN THE SOFTWARE INCLUDING SU PPORTING INFORMATION AND LICENCE AUTHORIZATION DEVICE TO INF RASOFT. XXX XXXX XXXXX XXXXX XXXXXX XXXXX XXX XXXXXX 94. THE INCORPOREAL RIGHT TO THE SOFTWARE I.E. COPY RIGHT REMAINS WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED BY THE A SSESSEE. 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 SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 27 SAID TO BE RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE OF ANY COPYRIGHT TO BRING IT WITHIN THE DEFINITION OF ROYALTY AS GIVEN IN THE DTAA. WHAT THE LICENSEE HAS ACQUIRED IS ONLY A COPY OF THE COPYRIGHT ARTICLE WHEREAS THE COPYRIGHT REMAINS WIT H THE OWNER AND THE LICENSEES HAVE ACQUIRED A COMPUTER PROGRAMME FO R BEING USED IN THEIR BUSINESS AND NO RIGHT IS GRANTED TO THEM T O UTILIZE THE COPYRIGHT OF A COMPUTER PROGRAMME AND THUS THE PAYM ENT FOR THE SAME IS NOT IN THE NATURE OF ROYALTY. 95. WE HAVE NOT EXAMINED THE EFFECT OF THE SUBSEQUE NT AMENDMENT TO SECTION 9 (1)(VI) OF THE ACT AND ALSO WHETHER TH E AMOUNT RECEIVED FOR USE OF SOFTWARE WOULD BE ROYALTY IN TERMS THERE OF FOR THE REASON THAT THE ASSESSEE IS COVERED BY THE DTAA, THE PROVI SIONS OF WHICH ARE MORE BENEFICIAL. 96. THE AMOUNT RECEIVED BY THE ASSESSEE UNDER THE L ICENCE AGREEMENT FOR ALLOWING THE USE OF THE SOFTWARE IS N OT ROYALTY UNDER THE DTAA. 97. WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT WHAT IS TRANSFERRED IS THE RIGHT TO USE THE COPYRIGHTED MATERIAL OR ARTICL E WHICH IS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT. THE RIGHT THAT IS TRANSFERRED IS NOT A RIGHT TO USE THE COPYRIGHT BUT IS ONLY LIMITE D 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 TH E ANDHRA PRADESH HIGH COURT IN THE CASE OF SAMSUNG ELECTRONI CS CO. LTD (SUPRA) THAT RIGHT TO MAKE A COPY OF THE SOFTWA RE AND STORING THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTE R AND TAKING BACKUP COPY WOULD AMOUNT TO COPYRIGHT WORK UNDER SE CTION 14(1) OF THE COPYRIGHT ACT AND THE PAYMENT MADE FOR THE GRAN T OF THE LICENCE FOR THE SAID PURPOSE WOULD CONSTITUTE ROYALTY. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTE R PROGRAMME AND STORING IT IN THE COMPUTER FOR HIS OWN USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE O F THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO H AVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM THE RIGHT CO NTEMPLATED BY THE SAID PROVISION BECAUSE IT IS ONLY INTEGRAL TO THE U SE OF COPYRIGHTED PRODUCT. THE RIGHT TO MAKE A BACKUP COPY PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE HAS BEEN HELD BY THE SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 28 DELHI HIGH COURT IN DIT V. M/S NOKIA NETWORKS OY (S UPRA) AS NOT AMOUNTING TO ACQUIRING A COPYRIGHT IN THE SOFTWARE . THE RATIO OF THE ABOVE DECISION CLEARLY CLINCHES TH E ISSUE WHICH IS APPLICABLE IN THE CASE OF THE ASSESSEE ALSO. THIS R ATIO AND PRINCIPLE HAS BEEN FOLLOWED AND REITERATED AGAIN IN THE CASE OF PRINCIPAL CIT VS M.TECH INDIA PVT LTD (SUPRA) AND AGAIN IN THE DE CISIONS OF ALACATEL LUCENT, CANADA, REPORTED [2015] 372 ITR 47 6 , WHEREIN HONBLE DELHI HIGH COURT RELYING UPON ITS EARLIER T WO DECISIONS IN THE CASE OF DIT VS ERICSON , [2012] 343 ITR 470 AND DIT VS M/S NOKIA NETWORKS, REPORTED IN 358 ITR 259 (DEL) CONCL UDED THAT, WHEN ASSESSEE SUPPLIES THE SOFTWARE WHICH IS INCORP ORATED ON CD, IT HAS APPLIED ONLY A TANGIBLE PROPERTY AND PAYMENT MADE FOR ACQUIRING SUCH A PROPERTY CANNOT BE REGARDED AS PAY MENT BY WAY OF ROYALTY. THE RELEVANT OBSERVATION OF THE HIGH CO URT IN ALCATEL LUCENT (SUPRA) IN THIS REGARD READS AS UNDER: WE HAVE NOTICED, AT THE OUTSET, THAT THE ITAT HAD RELIED UPON THE RULING OF THIS COURT IN DIRECTOR OF INCOME TAX V. ERICSSON A.B. (2012) 343 ITR 470 WHEREIN IDENTICAL ARGUMENT WITH RESPECT TO WHETHER CONSIDERATION PAID TOWARDS SUPPLY OF SOFTWARE ALONG WITH HARDWARE RA THER SOFTWARE EMBEDDED IN THE HARDWARE AMOUNTED TO ROYAL TY. AFTER NOTICING SEVERAL CONTENTIONS OF THE REVENUE, THIS COURT HELD IN ERICSSON A.B. (SUPRA) AS FOLLOWS: 54. IT IS DIFFICULT TO ACCEPT THE AFORESAID SUBMIS SIONS IN THE FACTS OF THE PRESENT CASE WE HAVE ALREADY HELD ABOV E THAT THE ASSESSEE DID NOT HAVE ANY BUSINESS CONNECTION I N INDIA. WE HAVE ALSO HELD THAT THE SUPPLY OF EQUIPMENT IN Q UESTION WAS IN THE NATURE OF SUPPLY OF GOODS. THEREFORE, TH IS ISSUE IS TO BE EXAMINED KEEPING IN VIEW THESE FINDINGS. MORE OVER, ANOTHER FINDING OF FACT IS RECORDED BY THE TRIBUNAL THAT THE CELLULAR OPERATOR DID NOT ACQUIRE ANY OF THE COPYRI GHTS REFERRED TO IN SECTION 14 (B) OF THE COPYRIGHT ACT, 1957. 55. ONCE WE PROCEED ON THE BASIS OF AFORESAID FACTU AL FINDINGS, IT IS DIFFICULT TO HOLD THAT PAYMENT MADE TO THE ASSESSEE WAS IN THE NATURE OF ROYALTY EITHER UNDER THE INCOME -TAX ACT OR UNDER THE DTAA. WE HAVE TO KEEP IN MIND WHAT WAS SOLD BY THE ASSESSEE TO THE INDIAN CUSTOMERS WAS A GSM WHICH CONSISTED BOTH OF THE SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 29 HARDWARE AS WELL AS THE SOFTWARE, THEREFORE, THE TR IBUNAL IS RIGHT IN HOLDING THAT IT WAS NOT PERMISSIBLE FOR TH E REVENUE TO ASSESS THE SAME UNDER TWO DIFFERENT ARTICLES. TH E SOFTWARE THAT WAS LOADED ON THE HARDWARE DID NOT HA VE ANY INDEPENDENT EXISTENCE. THE SOFTWARE SUPPLY IS AN IN TEGRAL PART OF THE GSM MOBILE TELEPHONE SYSTEM AND IS USED BY THE CELLULAR OPERATOR FOR PROVIDING THE CELLULAR SERVIC ES TO ITS CUSTOMERS. THERE COULD NOT BE ANY INDEPENDENT USE O F SUCH SOFTWARE. THE SOFTWARE IS EMBODIED IN THE SYSTEM AN D THE REVENUE ACCEPTS THAT IT COULD NOT BE USED INDEPENDE NTLY. THIS SOFTWARE MERELY FACILITATES THE FUNCTIONING OF THE EQUIPMENT AND IS AN INTEGRAL PART THEREOF. ON THESE FACTS, IT WOULD BE USEFUL TO REFER TO THE JUDGMENT OF THE SUP REME COURT IN TATA CONSULTANCY SERVICES VS. STATE OF AND HRA PRADESH (2004) 271 ITR 401 (SC), WHEREIN THE APEX C OURT HELD THAT SOFTWARE WHICH IS INCORPORATED ON A MEDIA WOULD BE GOODS AND, THEREFORE, LIABLE TO SALES TAX. FOLLO WING DISCUSSION IN THIS BEHALF IS REQUIRED TO BE NOTED: - 'IN OUR VIEW, THE TERM 'GOODS' AS USED IN ARTICLE 366(12) O F THE CONSTITUTION OF INDIA AND AS DEFINED UNDER THE SAID ACT ARE VERY WIDE AND INCLUDE ALL TYPES OF MOVABLE PROPERTI ES, WHETHER THOSE PROPERTIES BE TANGIBLE OR INTANGIBLE. WE ARE IN COMPLETE AGREEMENT WITH THE OBSERVATIONS MADE BY TH IS COURT IN ASSOCIATED CEMENT COMPANIES LTD. (SUPRA). A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENABLE THE COMPUTER TO PERFORM A DESIGNATED T ASK. THE COPYRIGHT IN THAT PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS, WHICH ARE SUSCEPTIBLE TO SALES TAX. EVEN INTELLECTUAL PROPERT Y, ONCE IT IS PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOO KS OR CANVAS (IN CASE OF PAINTING) OR COMPUTER DISCS OR C ASSETTES, AND MARKETED WOULD BECOME 'GOODS'. WE SEE NO DIFFER ENCE BETWEEN A SALE OF A SOFTWARE PROGRAMME ON A CD/FLOP PY DISC FROM A SALE OF MUSIC ON A CASSETTE/CD OR A SAL E OF A FILM ON A VIDEO CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECTUAL PROPERTY HAS BEEN INCORPORATED ON A ME DIA FOR PURPOSES OF TRANSFER. TAXPUNDIT.ORG SALE IS NOT JUS T OF THE MEDIA WHICH BY ITSELF HAS VERY LITTLE VALUE. THE SO FTWARE AND THE MEDIA AND CASE LAWS IN FAVOUR OF THE ASSESSEE I NCLUDING THAT OF THE DELHI HIGH COURT ON SEVERAL OCCASIONS, WE ARE INCLINED TO FOLLOW THE DECISION AND PROPOSITION LAI D DOWN BY SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 30 THE HONBLE DELHI HIGH COURT. THUS, IN VIEW OF THE FINDING GIVEN ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) THAT THE PAYMENT RECEIVED BY THE ASSESSEE FOR SUMS AMOUNTING TO RS. 3,75,25,291/- DOES NOT AMOUNT TO ROYALTY WITH IN THE MEANING OF ARTICLE 12(4) OF INDO-NETHERLAND DTAA AN D ACCORDINGLY, THE SAME IS NOT TAXABLE IN INDIA. SINC E, ADMITTEDLY, THE ASSESSEE HAS NO PE IN INDIA; THEREF ORE, SAME CANNOT BE TAXED AS BUSINESS INCOME UNDER ARTIC LE 7. ACCORDINGLY, GROUND RAISED BY THE REVENUE STANDS DISMISSED. THE AFORESAID DECISION CLEARLY CLINCHES THE ISSUES I N FAVOUR OF THE ASSESSEE. 16. SO FAR AS THE READING OF AMENDED DEFINITION OF ROYALTY AS GIVEN IN SECTION 9(1)(VI) INTO TREATY AS CONTENDED AND ARGUED BY LD. CIT DR, WE FIND THAT, HONBLE DELHI HIGH COURT IN ITS LATEST JUDG MENT IN THE CASE OF DIT VS. NEW SKIES SATELLITE, REPORTED IN [2016] 95 CCH 0032,WHEREIN THEIR LORDSHIPS SHAVE DISCUSSED THE ISSU E THREADBARE AND CAME TO THE CONCLUSION IN THE FOLLOWING MANNER:- 60. CONSEQUENTLY, SINCE WE HAVE HELD THAT THE FINA NCE ACT, 2012 WILL NOT AFFECT ARTICLE 12 OF THE DTAAS, IT WOULD F OLLOW THAT THE FIRST DETERMINATIVE INTERPRETATION GIVEN TO THE WOR D ROYALTY IN ASIA SATELLITE, SUPRA NOTE 1, WHEN THE DEFINITIONS WERE IN FACT PARI MATERIAL (IN THE ABSENCE OF ANY CONTOURING EXPLANAT IONS), WILL CONTINUE TO HOLD THE FILED FOR THE PURPOSE OF ASSES SMENT YEARS PRECEDING THE FINANCE ACT, 2012 AND IN ALL CASES WH ICH INVOLVE A DOUBLE TAX AVOIDANCE AGREEMENT, UNLESS THE SAID DTA AS ARE AMENDED JOINTLY BY BOTH PARTNERS TO INCORPORATE INC OME FROM DATA TRANSMISSION SERVICES AS PARTAKING OF THE NATURE OF ROYALTY, OR AMEND THE DEFINITION IN A MANNER SO THAT SUCH INCOM E AUTOMATICALLY BECOMES ROYALTY. IT IS REITERATED THA T THE COURT HAS NOT RETURNED A FINDING ON WHETHER THE AMENDMENT IS IN FACT SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 31 RETROSPECTIVE AND APPLICABLE TO CASES PRECEDING THE FINANCE ACT OF 2012 WHERE THERE EXISTS NO DOUBLE TAX AVOIDANCE AGR EEMENT. THE AFORESAID DECISION ALSO TAKES CARE OF ALL THE ARG UMENTS RELIED UPON BY THE LD. CIT DR INCLUDING THAT OF THE VERIZON COMMUNI CATIONS SINGAPORE PTE. LTD. THE HONBLE HIGH COURT HAS SPECIF ICALLY CLARIFIED AS TO WHY THE SAID JUDGMENT OF MADRAS HIGH COURT CANNO T BE APPLIED IN SUCH CASES AFTER OBSERVING AS UNDER:- 31. IN A JUDGMENT BY THE MADRAS HIGH COURT IN VERI ZON COMMUNICATIONS SINGAPORE PTE LTD. V. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION I, [2014] 361 ITR 575 (MAD), THE COURT HELD THE EXPLANATIONS TO BE APPLICABLE TO NOT ONLY THE D OMESTIC DEFINITION BUT ALSO CARRIED THEM TO INFLUENCE THE M EANING OF ROYALTY UNDER ARTICLE 12. NOTABLY, IN BOTH CASES, T HE CLARIFICATORY NATURE OF THE AMENDMENT WAS NOT QUESTIONED, BUT WAS INSTEAD APPLIED SQUARELY TO ASSESSMENT YEARS PREDATING THE AMENDMENT. THE CRUCIAL DIFFERENCE BETWEEN THE JUDGMENTS HOWEVE R LIES IN THE APPLICATION OF THE AMENDMENTS TO THE DTAA. WHILE TV TODAY, SUPRA NOTE 22 RECOGNIZES THAT THE QUESTION WILL HAV E TO BE DECIDED AND THE SUBMISSION ARGUED, VERIZON, SUPRA NOTE 23 C ITES NO REASON FOR THE EXTENSION OF THE AMENDMENTS TO THE D TAA. AS REGARDS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT (SUPRA), REFERRED TO BY D. CIT DR, THE HONBLE DELHI HIGH COURT HAS ALSO DEALT WITH THIS POINT AND MADE DISTINCTION THAT THE ISSUE AND SITUATION BEFORE THE HON BLE BOMBAY HIGH COURT WAS MATERIALLY DIFFERENT AND ALSO THE TERM ROYAL TY WAS NOT DEFINED IN THE GERMAN DTAA. 17. THUS, WE HOLD THAT FOR ALL THE YEARS THE PAYME NTS RECEIVED BY THE ASSESSEE FROM WIPRO/IBM IN PURSUANCE TO THE MSA CA NNOT BE TREATED AS ROYALTY UNDER ARTICLE 12(4) OF THE INDIA- NETHERLAND DTAA. SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 32 THUS, THE MATTER IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 18. FOR THE A.Y. 2007-08 ALSO, THE REVENUE HAS RAISED EXACTLY SIMILAR GROUNDS, THEREFORE, OUR FINDING GIVEN IN THE AFORESAID APPEAL WILL APPLY MUTATIS MUTANDIS AND, HENCE, THE APPEAL OF THE REVENUE FOR A.Y. 2007-08 IS DISMISSED. 19. IN 2008-09, THE SAME ISSUE OF ROYALTY ON SIMILAR PAYMENT TO THE SAME PARTIES, GOVERNED BY SAME MSA HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE LD. CIT (A) FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA). SINCE WE HAVE ALREADY DISCUSSED THIS ISSUE WHILE DEA LING WITH THE APPEAL FOR A.Y. 2006-07 AND THE DECISION OF THE HON BLE DELHI HIGH COURT WHEREIN THIS ISSUE HAS BEEN DISCUSSED IN DETAIL, THEREFORE, THE APPEAL FOR A.Y. 2008-09 OF THE ASSESSEE IS ALLOWED. 18. IN THE RESULT, THE REVENUES APPEALS FOR A.Y. 2006 -07 AND 2007- 08 ARE DISMISSED AND THE ASSESSEES APPEAL FOR 2008- 09 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 15 TH MARCH 2017 SD/- SD/- (ASHWANI TANEJA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI; DATED: 15 TH MARCH, 2017. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. SHELL INTERNATIONAL TECHONOLOGY INTERNATIONAL BV. 33 4. THE CIT 5. THE DR, L BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI