Appeal Details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 8339 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 4 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-04-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
08-12-2015
Assessment Year
2007-2008
Appeal Filed On
01-12-2010
Judgement Text
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI A.T.VARKEY , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBE R ITA NO . 5411/DEL/2010 (ASSESSMENT YEAR: 2007 - 08 ) ITA NO.5587/DEL/2011 (ASSESSMENT YEAR: 2008 - 09) ITA NO.699/DEL/2013 (ASSESSMENT YEAR: 2009 - 10) COMPTEL OYJ, POST BOX NO.1000, 00181 HELSINKI, FINLAND PAN:AADCC5974F VS. ADIT, CIRCLE - 1(1), INTERNATIONAL TAXATION, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAVI SHARMA, ADV RE VENUE BY: SH . ANUJ ARORA, CIT DR DATE OF HEARING 20 /01/2016 DATE OF PRONOUNCEMENT 12 / 0 4 /2016 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . FOR A. Y. 2007 - 08 IS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 16.09.2010 PASSED BY LD. ASSESSING OFFICER ( HEREINAFTER REFERRED TO AS AO) FOR THE ASSESSMENT YEAR 2007 - 08. ON IDENTICAL ORDERS PASSED BY LD. AO FOR AY 2008 - 09 AND 20 09 - 10 , ASSESSEE HAS FILED APPEAL RAISING IDENTICAL GROUNDS. 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL IN ITA NO. 5411/DEL/2010 FOR ASSESSMENT YEAR: 2007 - 08 : - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER ('AO') UNDER S ECTION 143(3) READ WITH PAGE 2 OF 46 SECTION 1 44C OF THE INCOME - TAX ACT, 1961 ('THE ACT') IS BAD IN LAW AND VOID AB - INITIO. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN ASSESSING THE INCOME OF THE APPELLANT AT RS, 292,124,834/ - AS AGAINST THE NIL INCOME DECLARED BY THE APPELLANT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE RECEIPTS IN THE HANDS OF THE APPELLANT FROM SALE OF 'STANDARD SOFTWARE' ARE IN THENATURE OF ROYALTY AND HENCE IS TAXABLE UNDER SECTION 9(1) (VI) OF THE ACT A ND AS WELL AS UNDER A C T 13(3) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN THE INDIA AND FINLAND, WHILE DOING SO, THE LD. AO/DRP HELD; 2.1 THAT THE APPELLANT IS RECEIVING THE PAYMENT FOR CONFERMENT OF A RIGHT ALLOWING THE USE OF A COPYRIGH T; 2.2 THAT IN THE SOFTWARE A PROCESS IS MADE AVAILABLE TO THE CUSTOMER WHOUSES THE PROCESS WHILE CARRYING OUT THEIR BUSINESS; 2.3 THAT CONSIDERATION RECEIVED BY THE APPELLANT FROM THE SALE OF STANDARD SOFTWARE IS FOR THE USE OF COMMERCIAL CUM SCIEN TIFIC EQUIPMENT . 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN HOLDING THAT THE ANCILLARY SERVICES PROVIDED BY THE APPELLANT ALONG WITH THE SALE OF SOFTWARE COMES WITHIN THE PURVIEW OF FEES FOR TECHNICAL SERVICES UND ER ART 13(4) (A)/ (B) OF DTAA. 3.1 THAT THE LD. AO FAILED TO APPRECIATE THAT THE SERVICES PROVIDED BY THE APPELLANT ARE ANCILLARY AND SUBSIDIARY AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED TO THE SALE OF SOFTWARE AND THEREFORE COMES WITHIN THE PURVI EW OF EXCLUSION CLAUSE AS PER ART 13(5) (A) OF DTAA. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ DRP ERRED IN NOT ALLOWING THE TDS CREDIT FOR THE PAYMENTS RECEIVED ON NET OF TAX CONTRACTS IN SPITE OF CHARGING TO TAX THE GROSS AMOUNT OF THE PAYMENTS. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN NOT APPLYING THE CORRECT CONVERSION RATE ON THE GROSSED UP AMOUNT OF USD 39,55,712 AND COMING TO THE WRONG IN R EQUIVA LENT OF RS. 17,17,49,104/ - . 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN APPLYING THE TAX RATE OF 15% ON ALL THE RECEIPTS WITHOUT APPRECIATING THAT THE AGREEMENTS ENTERED WITH VODAFONE ESSAR AND IDEA CELLULAR WERE POST JU NE, 2005 AND ACCORDINGLY RECEIPTS, EVEN IF TREATING THE SAME AS ROYALTY THEREOF OUGHT TO BE TAXED AT THE RATE OF 10% IN VIEW OF THE PROVISIONS OF SECTION 115A OF THE ACT. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN LEVYING THE INTEREST UNDER SECTION 234A AND 234B OF THE ACT. 3 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 5587/DEL/2011 FOR THE ASSESSMENT YEAR ASSESSMENT YEAR: 2008 - 09: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LA W, THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER ('AO') UNDER S ECTION 143(3) READ WITH SECTION 1 44C OF THE INCOME - TAX ACT, 1961 ('THE ACT') IS BAD IN LAW AND VOID AB - INITIO. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN ASSESSING THE INCOME OF THE APPELLANT AT RS. 32,79,71,9337 - AS AGAINST THE NIL INCOME DECLARED BY THE APPELLANT IN THE RETURN OF INCOME. PAGE 3 OF 46 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE RECEIPTS IN THE HANDS OF THE APPELLANT FROM SALE OF 'STANDARD SOFTWARE' ARE IN THE NATURE OF ROYALTY UNDER SECTION 9(1) (VI) OF THE ACT AND UNDER ART 13(3) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN THE INDIA AND FINLAND. 2.1 THAT, ON T HE FACTS AND IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE APPELLANT IS RECEIVING THE PAYMENT FOR CONFERMENT OF A RIGHT ALLOWING THE USE OF A COPYRIGHT; 2.2 THAT ON THE FACTS AND IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE APPELLANT MADE AVAI LABLE THE PROCESS TO THE CUSTOMER WHO USES SUCH PROCESS WHILE CARRYING OUT THEIR BUSINESS; 2.3 THAT ON THE FACTS AND IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT CONSIDERATION RECEIVED BY THE APPELLANT FROM THE SALE OF STANDARD SOFTWARE IS FOR THE USE OF COMMERCIAL CUM SCIENTIFIC EQUIPMENT 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN HOLDING THAT THE ANCILLARY SERVICES PROVIDED BY THE APPELLANT ALONG WITH THE SALE OF SOFTWARE COMES WITHIN THE PURVIEW OF FEES FOR TEC HNICAL SERVICES UNDER ART 13(4) (A)/ (B) OF DTAA. 3.1 THAT THE LD. AO FAILED TO APPRECIATE THAT THE SERVICES PROVIDED BY THE APPELLANT ARE ANCILLARY AND SUBSIDIARY AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED TO THE SALE OF SOFTWARE AND THEREFORE COM ES WITHIN THE PURVIEW OF EXCLUSION CLAUSE AS PER ART 13(5) (A) OF DTAA. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ DRP ERRED IN NOT ALLOWING THE TDS CREDIT OF RS.3,28,06,026/ - IN SPITE OF SUBMITTING THE TDS CERTIFICATES BEFORE THE AO/DRP. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN APPLYING THE TAX RATE OF 15% ON ALL THE RECEIPTS WITHOUT APPRECIATING THAT THE AGREEMENTS ENTERED WITH VODAFONE ESSAR AN D IDEA CELLULAR WERE POST JUNE, 2005 AND ACCORDINGLY RECEIPTS, EVEN IF TREATING THE SAME AS ROYALTY THEREOF OUGHT TO BE TAXED AT THE RATE OF 10% IN VIEW OF THE PROVISIONS OF SECTION 115A OF THE ACT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN L AW, THE LD. AO/DRP ERRED IN LEVYING THE INTEREST UNDER SECTION 234B OF THE ACT. 4 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITA NO. 699/DEL/2013 FOR ASSESSMENT YEAR: 2009 - 10: - 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, TH E IMPUGNED ORDER PASSED BY THE ASSISTANT DIRECTOR OF INCOME TAX, RANGE - 1, (INTERNATIONAL TAXATION) NEW DELHI ('LD. AO') UNDER S ECTION 143(3) READ WITH SECTION 1 44C OF THE INCOME - TAX ACT, 1961 ('THE ACT') IS BAD IN LAW AND VOID AB - INITIO. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO GROSSLY ERRED IN ASSESSING THE INCOME OF THE APPELLANT AT RS.52,94,74,960/ - AS AGAINST THE NIL INCOME DECLARED BY THE APPELLANT IN THE RETURN OF INCOME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE RECEIPTS IN THE HANDS OF THE APPELLANT FROM SALE PAGE 4 OF 46 OF 'STANDARD SOFTWARE' ARE IN THE NATURE OF ROYALTY UNDER SECTION 9(1) (VI) CLAUSES (I), (III), (IVA) & (V) OF THE ACT AND UNDER ARTICLE 13(3 ) ( A) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN THE INDIA AND FINLAND. 2.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE APPELLANT IS RECEIVING THE PAYMENT FOR CONFERMENT OF A RIGHT IN THE NA TURE OF ACOPYRIGHT; 2.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE APPELLANT IS RECEIVING THE PAYMENT FOR TRANSFER OF RIGHT TO USE THE PROCESS EMBEDDED IN THE SOFTWARE TO THE CUSTOMER WHO USE SUCH P ROCESS WHILE CARRYING OUT THEIR BUSINESS; 2.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT CONSIDERATION RECEIVED BY THE APPELLANT FROM THE SALE OF STANDARD SOFTWARE IS FOR THE USE OF COMMERCIAL CUM SCIEN TIFIC EQUIPMENT. 2.4 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE CONSIDERATION RECEIVED BY THE APPELLANT IS ROYALTY FOR THE USE OF INVENTION/SCIENTIFIC WORK . 3. THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN HOLDING THAT THE CONSIDERATION FOR SUPPLY OF SOFTWARE SHALL QUALIFY AS 'ROYALTY' BY VIRTUE OF RETROSPECTIVE AMENDMENT INTRODUCED BY THE FINANCE ACT, 2012 IN THE DEFINITION OF ROYALTY UNDER SECTION 9(1) (VI) OF THE ACT, WITHOUT APPRECIATING THAT THERE IS NO CORRESPONDING AMENDMENT INTRODUCED IN THE DEFINITION OF ROYALTY UNDER THE DTAA. 3.1 WITHOUT PREJUDICE, THE LD. DRP HAS FURTHER ERRED IN HOLDING THAT THE AFORESAID AMENDMENT IN THE ACT HAVE ALSO TO BE READ I NTO THE DTAA BASED ON AUTHORITY DRAWN FROM THE SECTION 90(3) OF THE ACT READ WITH EXPLANATION 3 THEREUNDER ALONG WITH ARTICLE 3 OF DTAA. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/ DRP ERRED IN NOT ALLOWING THE TDS CREDIT OF RS . 4,16,79,774/ - DESPITE OF SUBMITTING THE TDS CERTIFICATES BEFORE THE AO/DRP. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO ERRED IN APPLYING THE TAX RATE OF 15% ON ALL THE RECEIPTS WITHOUT APPRECIATING THAT THE AGREEMENTS ENTERED WITH VODAFONE ESSAR AND IDEA CELLULAR WERE POST JUNE, 2005 AND ACCORDINGLY RECEIPTS, EVEN IF TREATING THE SAME AS ROYALTY THEREOF OUGHT TO BE TAXED AT THE RATE OF 10% IN VIEW OF THE PROVISIONS OF SECTION 115A OF THE ACT. 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD DRP GROSSLY ERRED IN NOT DISPOSING OF THE OBJECTION RAISED BY THE APPELLANT IN RELATION TO TAXING THE RECEIPTS ON ACCOUNT OF THE INVOICES RAISED DIRECTLY ON CUSTOMERS AFTER GROSSING UP THE SAME. 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. DRP ERRED IN NOT ISSUING ANY DIRECTION TO THE LD. AO WHO ERRED IN GROSSING UP THE RECEIPTS WITHOUT APPRECIATING THAT THE SAME CAN BE DONE ONLY IN THE HANDS OF THE PAYER FOR THE PURPOSE OF DEDUCT ION OF TAXES AND NOT FOR COMPUTING THE INCOME 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO/DRP ERRED IN LEVYING THE INTEREST UNDER SECTION 234B OF THE ACT. PAGE 5 OF 46 5 . BASED ON ABOVE GROUNDS OF APPEAL IT IS APPARENT THAT FOR ALL THE THREE APPEALS FACTS, ASSESSMENT ORDER AND ORDER OF DRP IS SIMILAR AND THEREFORE THE GROUNDS OF APPEAL OF ASSESSEE ARE SIMILAR. HENCE WE FIRST TAKE UP THE APPEAL OF ASSESSEE FOR 2007 - 08, DISCUSS FACTS OF THE CASE, RIVAL ARGUMENTS AND OUR DECISIONS AND REASONS THEREFORE. THEN WE WILL FOLLOW THE SAME FOR RESPECTIVE SUBSEQUENT TWO YEARS I.E. A . Y. 2008 - 09 AND 2009 - 10. 6 . HENCE, GROUND 1 TO 3 OF THE APPEAL OF THE ASSESSEE ARE TAKEN UP FIRST AND DECIDED AS UNDER. 7 . COMPTEL OYJ , (HEREIN AFTER REFERRED TO AS COM PTEL) APPELLANT IS A FINNISH SOFTWARE COMPANY LISTED ON HELSINKI STOCK EXCHANGE. THE ASSESSEE IS INCORPORATED AND REGISTERED IN FINLAND AND THUS, IS A RESIDENT OF FINLAND AS PER THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND FINLA ND ('DTAA'). IT IS FORMED/REGISTERED UNDER NEITHER THE COMPANIES ACT, 1956 NOR THE CONTROL AND MANAGEMENT OF ITS OPERATION IS SITUATED IN INDIA. THEREFORE, BEING A NON - RESIDENT AS PER THE PROVISIONS OF THE ACT, IT IS LIABLE TO BE TAXED IN IRELAND ON ACCOUN T OF ITS RESIDENCE AND PLACE OF MANAGEMENT. 8 . BUSINESS OF THE A SSESSEE IS TO DEVELOP, MANUFACTURE AND DELIVER OFF - THE - SHELF MEDIATION, CHARGING AND FULFILLMENT SOLUTIONS AND SOFTWARE. COMTELS SOLUTIONS AND SOFTWARE ARE BEING SOLD TO THE TELEPHONE OPERATO RS WHO MAINTAIN AND PROVIDE SERVICES IN THE TELECOMMUNICATION NETWORKS. APPELLANT IS A GLOBAL MARKET PLAYER IN PROVISIONING AND CONVERGENT MEDIATION SOFTWARE SOLUTIONS. COMPTEL SOLUTIONS SUPPORT THE CORE BUSINESS PROCESSES OF OPERATORS AND SERVICE PROVIDERS BY GENERATING CONCRETE SAVINGS THAT ALLOW FOR NEW BUSINESS MODELS AND SUSTAINED CONSUMER LO YALTY. THE COMPTEL LINK PRODUCT PORTFOLIO INCLUDES COMPTEL EVENT LINK FOR EVENT MEDIATION AND USAGE DATA MANAGEMENT, COMPTEL INSTANT LINK FOR AUTOMATED USER PROVISIONING AND SERVICE ACTIVATION AND COMPTEL ONLINE UNK FOR PAGE 6 OF 46 ONLINE AND PRE - DELIVERY CHARGING FOR NON - VOICE SERVICES. REGARDING ITS BUSINESS ACTIVITY IN INDIA, IT HAS ENTERED INTO A FRAMEWORK AGREEMENT WITH IBM UNITED KINGDOM LTD, WHICH IS THE CHANNEL PARTNER OF COMPTEL FOR THE PURPOSE OF SALE AND DELIVERY OF THE MEDIATION SOFTWARE. THE ABOVE FRA ME AGREEMENT IS ALSO APPLICABLE BETWEEN IBM INDIA LTD AND THE APPELLANT. 9 . FOR AY 2007 - 08, ASSESSEE FILED ITS RETURN OF INCOME ON 27.03.2009 DECLARING NIL INCOME. ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER ON 30.12.2009AND SUBSEQUENTLY ASSESSEE FIEL D AN APPLICATION BEFORE DRP ON 11.02.2010, WHICH WAS DECIDED BY DRP ON 26.08.2010. CONSEQUENTLY, ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER ON 16.09.2010. 10 . GROUND NO 1 OF THE APPEAL COVERS THE MAIN C ONTROVERSY IN THE APPEAL IS WHETHER RECEIPTS FROM TRANSFER OF SHRINK WRAPPED SOFTWARE AMOUNT TO BUSINESS INCOME OR ROYALTY UNDER SECTION 9(1) (VI) OF THE INCOME TAX ACT, 1961 (ACT) AND THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND FINLAND (DTAA/ TREATY). 11 . THEREFORE, IT IS IMPORTANT TO AN ALYZE THE NATURE OF SOFTWARE IN CONSIDERATION. THIS WAS EXPLAINED BY THE ASSESSEE AND THERE IS NO DISPUTE ABOUT THAT WHICH IS AS NOTED BY LD. AO AS UNDER : - 3. NATURE OF THE SOFTWARE LICENSES GRANTED TO PARTIES IN INDIA: AS PER THE WEBSITE OF THE ASSESSEE, 'COMPTEL DYNAMIC OSS (OPERATIONS SUPPORT SYSTEMS) PRODUCTS AND SOLUTIONS FOCUS ON FULFILLMENT, RESOURCE MANAGEMENT, CONVERGENT MEDIATION AND CHARGING. OUR EXPERTISE ALLOWS COMMUNICATIONS SERVICE PROVIDERS (CSPS) TO FOCUS ON THEIR CORE BUSINESS: DEVELOPING AND DELIVERING INNOVATIVE AND PROFITABLE SERVICES, COLLECTING USAGE INFORMATION AND CHARGING CUSTOMERS'. ' COMTELS PRODUCTS AND SOLUTIONS ARE DESIGNED TO ADAPT TO ALL COMMON TELECOMS NETWORK AND IT ENVIRONMENTS AND TO EV OLVE TO MEET THE DEMANDS OF FUTURE SERVICES'. 3.1 THE SOFTWARE IS DELIVERED AT THE SITE OF THE END CUSTOMER. THE ASSESSEE, REGARDING THE NATURE OF SOFTWARE, ON 07.10.09 SUBMITTED THE FOLLOWING: MEANING OF MEDIATION SOFTWARES COMPTEL MEDIATION AND CHARGI NG SOLUTIONS COLLECT THE CONVERGENT REAL TIME USAGE DATA TO ENSURE ACCURACY OF CUSTOMER BILLING AND THEIR CREDIT MANAGEMENT. IT ALLOWS MOBILE SERVICE PROVIDER TO CREATE INNOVATIVE SERVICES FOR BOTH PREPAID AND POSTPAID CUSTOMERS. THE FEATURES OF THE MEDIAT ION SOFTWARE ARE IN SERIATIM AS HEREUNDER: PAGE 7 OF 46 ENABLE DATA AND CONTENT SERVICES FOR PREPAID AND POSTPAID SUBSCRIBERS IN MOBILE ENVIRONMENTS; HELP COMBATING FRAUD IN PREPAID AND POSTPAID CHARGING OF VOICE SERVICES IN CIRCUIT SWITCHING AND POCKET SWITCHED MOBILE NETWORKS; PROVIDE TO MOBILE SERVICE PROVIDERS FLEXIBLE AND COST EFFICIENT CHARGING AND BILLING APPLICATION SUCH AS IP PREPAID, POSTPAID COST CONTROL, HYBRID AND CONVERGENT BONUS ACCOUNTING; HANDLE ROAMING USAGE DATA PROCESSING IN ACCORDANCE WITH THE SPECI FICATION SETS BY GSMA AND CIBERNET; EFFECTIVE INTERCONNECT BILLING GIVES MOBILE SERVICE PROVIDERS A REAL TIME VIEW ON THE PROFITABILITY OF THEIR SERVICES; ENABLE MOBILE SERVICE PROVIDERS TO RECEIVE IMMEDIATE INTELLIGENCE ON THEIR BUSINESS MODEL AND AUTOMAT ES CRITICAL ASPECTS OF INTERCONNECT BILLINGS; ALLOW THE MOBILE SERVICE PROVIDER TO USE INTELLIGENT CHARGING MODELS, INCLUDING RATING AND DISCOUNTING CAPABILITIES, FOR THE USAGE OF ITS NETWORK; ENABLE THE MOBILE SERVICE PROVIDERS TO LAUNCH NEW AND EXISTING SERVICES FASTER TO THE MARKET WITH THE ASSURANCE OF ACCURATE CHARGING'. NO DESCRIPTIONS OF CHARGING AND FULFILLMENT SOFTWARE ARE FILED. THE ASSESSES HAS ALSO PROVIDED BRIEF CATALOGUE PROVIDING A GLIMPSE OF THE PRODUCTS/SOLUTIONS. AS SUBMITTED TO THIS OFFI CE, THE ASSESSEE DEVELOPS MEDIATION, CHARGING AND FULFILLMENT SOLUTIONS AND SOFTWARE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE GRANTED LICENSE OF MEDIATION SOFTWARE IN INDIA NAMELY COMPTEL EVENT LINK AND COMPTEL INSTANT LINK. 3.2 THE NATURE O F THESE SOFTWARE IS FOUND OUT FROM THE WEBSITE OF THE ASSESSEE AND ARE GIVEN BELOW: COMPTEL EVENT LINK ENABLES OPERATORS TO MAKE THEIR BUSINESS OPERATIONS MORE EFFECTIVE AND COST - EFFICIENT, IT COLLECTS SUBSCRIBER USAGE DATA (FOR INSTANCE ON TRANSFERRED DAT A PACKAGES AND SENT MMS MESSAGES) FROM THE NETWORK, CHECKS AND CONVERTS IT, AND DELIVERS IT FURTHER TO THE OPERATOR'S OSS/BSS (OPERATIONS SUPPORT SYSTEM/BUSINESS SUPPORT SYSTEM). AS A TOO L FOR NETWORK MONITORING AND TRAFFIC ENGINEERING, EVENT LINK ENABLES CAPACITY OPTIMIZATION BY GIVING INSTANT INFORMATION ABOUT NETWORK USAGE IT ALLOWS OPERATORS TO EXECUTE ACCURATE AND TIMELY BILLING CYCLES THANKS TO THE IMMEDIATE CREATION OF SUBSCRIBER BILLS ON THE BASIS OF THE COLLECTED REAL - TIME USAGE DATA MOREOVER, THE SOLUTION ALLOWS VARIOUS CHARGING OPTIONS, MEANING THAT BILLING CAN BE BASED ON VOLUME, CONTENT VALUE, QOS (QUALITY OF SERVICE) OR LIME, OR ANY COMBINATION OF THESE. COMPTEL INSTANT LINK RELEASE 6 INTRODUCES A NEW COMBINATION OF CUSTOMER - DRIVEN ENHANCEMENT S AND INNOVATIVE PRODUCT FEATURES IT ALSO INCLUDES A RENEWED PROVISIONING LOGIC CONFIGURATION TOOL INSTANT LINK BUSINESS SERVICE TOOL 3, WHICH PROVIDES AN EASY - TO - USE FRONT - END FOR FLEXIBLE SERVICE CREATION AND MANAGEMENT FOR EXAMPLE, THE SUPERIOR CONFI GURATION ABILITY PROVIDED WITH INSTANT LINK BUSINESS SERVICE TOOL 3 GIVES OPERATORS THE MUCH - NEEDED FLEXIBILITY FOR COMPETITIVE REACTIONS, DIFFERENTIATION IN SERVICE LAUNCHES FURTHERMORE, THE VARIETY OF USABILITY, AND MAINTENANCE IMPROVEMENTS NOW INTRODUCE D ARE PAGE 8 OF 46 BASED ON THE CONTINUOUS DIALOGUE WITH OUR CUSTOMER BASE AND TARGETED TO PERSONNEL RESPONSIBLE FOR DAILY OPERATIONAL TASKS. THE FURTHER, DESCRIPTION OF THE SOFTWARE AS PER THE WEBSITE OF THE ASSESSEE ARE: 1. COMPTEL CONVERGENT MEDIATION IS THE SCALABL E PLATFORM FOR MANAGING THE COLLECTION AND TRANSFORMATION OF NETWORK TRANSACTIONS FROM VARIOUS NETWORK TYPES TO BILLABLE RECORDS. IT CAN COLLECT DATA AND PROCESS TRANSACTIONS FROM ANY NETWORK (IMS, MOBILE, IP, FIXED, NGN, WLAN AND SATELLITE NETWORKS) IN BO TH ONLINE AND OFFLINE MODE AND SUPPLY THE DATA JO ANY OSS/BSS THUS ELIMINATING THE NEED FOR MULTIPLE MEDIATION PLATFORMS THE SOLUTION ALSO ENABLES CONNECTIVITY TO BUSINESS SUPPORT SYSTEMS FOR PREPAID CHARGING AND POSTPAID BILLING. BY HIDING THE NETWORK COM PLEXITY BEHIND CHARGING AND LINKING SERVICES AND SUBSCRIBER AND PAYMENT TYPES, THE SOLUTION OFFERS AN INTELLIGENT APPROACH TO MEDIATION AND CHARGING. MEANWHILE, ITS VENDOR - INDEPENDENT COMPONENTS INTEGRATE EFFORTLESSLY WITH ANY LEGACY SYSTEM WHILE ALSO EXTE NDING TO NEXT GENERATION ENVIRONMENTS AND SERVICES. COMPTEL CONVERGENT MEDIATION ALSO DELIVERS HIGH PERFORMANCE AND FLEXIBILITY FROM A SMALL PACKAGE, BEING SCALABLE FROM 50 000 SUBSCRIBERS UP TO 500 MILLION WITH JUST ONE PHYSICAL SINGLE SERVER DEPLOYMENT A S A HIGHLY PRODUCTIZED PLATFORM WITH FULL SUPPORT FOR MULTI - HOST ARCHITECTURE OR CLUSTER ENVIRONMENTS, IT IS EASILY CONFIGURABLE WHILE CENTRALISED MANAGEMENT ENSURES EASY GEOGRAPHICAL DISTRIBUTION. WITH ITS CONV ERGENT MEDIATION SOLUTION, COMPT EL DRAWS UPON MORE THAN TWO DECADES OF EXPERIENCE IN THE MEDIATION BUSINESS TO DELIVER A SINGLE SOLUTION THAT IS FAST TO DEPLOY, AS WELL AS PROVIDING THE PLATFORM TO LAUNCH NEW SERVICES WITH SPEED AND EASE 2 COMPTEL CHARGING UNBEATABLE FLEXIBILITY IN ONE PACKAGE COMPTEL CHARGING IS COMPTEL'S RESPONSE TO COMMUNICATIONS SERVICE PROVIDERS' GROWING NEED TO REDUCE OPERATIONAL COSTS AND IMPROVE CUSTOMER SATISFACTION AND LOYALLY IN AN INCREASINGLY COMPETITIVE MARKET THE MODULAR AND FULLY CONFIGURABLE SOLUTION OFFERS ADVANCED RATING AND BALANCE MANAGEMENT FUNCTIONALITY WHILE ENABLING ONLINE AND REAL - TIME CHARGING OF ALL SERVICES IN FIXED, SATELLITE AND MOBILE NETWORKS. IT OFFERS SERVICE PROVIDERS THE CAPABILITY TO CREATE MORE ADVANCED AND FLEXIBLE CHARGING MODELS THAT COMBINE THE STRENGTHS OF BOTH DATA AND VOICE CHARGING, WHILE SUPPORTING BOTH POSTPAID AND PREPAID PAYMENT OPTIONS THIS VENDOR - , NETWORK - AND SERVICE - INDEPENDENT SYSTEM SOLUTION PROVIDES CONNECTIVITY TO ANY TELECOM BILLING SYSTEM, OFFERING EASY - TO - USE PRICI NG AND HIGH - PERFORMANCE RATING AND CHARGING IN REAL - TIME SERVING UP TO 80 MILLION SUBSCRIBERS IN ONE INSTALLATION. COMPTEL CHARGING IS BUILT ON TOP OF COMP T EL'S AWARD - WINNING, PATENTED MEDIATION AND CHARGING PLATFORM USED BY OVER 1 80 CUSTOMERS AROUND THE WORLD. IT HAS A PROVEN TRACK RECORD OF PROVIDING COMMUNICATIONS SERVICE PROVIDERS WITH A FUTURE - PROOF SOLUTION FOR ALL 3G, NGN AND IMS SERVICES. 4. BUSINESS MODEL: PAGE 9 OF 46 THE ASSESSEE HAS SUBMITTED A DETAILED NOTE ON THE BUSINESS MODEL ALONG WITH THE ARGUM ENTS ON TAXABILITY BUILT IN ON 07.10.09. THE SAME IS REPRODUCED BETOW: THE ASSESSEE HAS ALREADY SUBMITTED THAT FOR THE PURPOSE OF SELLING THE SOFTWARES, IT HAS ENTERED INTO AN AGREEMENT WITH IBM UNITED KINGDOM LTD, WHICH IS THE CHANNEL PARTNER OF THE COMPT EL FOR THE PURPOSE OF SALE AND DELIVERY OF THE MEDIATION SOFTWARES. THE AGREEMENTS IN THIS REGARD HAVE ALREADY BEEN FILED BY THE ASSESSEE AS HEREUNDER: - BASE AGREEMENT DATED FEBRUARY 1, 2003 - MASTER STATEMENT OF WORK DATED FEBRUARY 1, 2003 - STATEMENT OF W ORK BETWEEN IBM GLOBAL SERVICES INDIA PVT LTD AND COMPTEL CORPORATION EFFECTIVE FROM NOVEMBER 22,2004 TO NOVEMBER 21 ,2013 RELEVANT CLAUSES OF THE AGREEMENTS AND INTERPRETATION THEREOF IS PROVIDED AS HEREUNDER: BASE AGREEMENT DATED FEBRUARY 1,2003 IT IS A SOFTWARE & SERVICE ENGAGEMENT AGREEMENT ENTERED BETWEEN THE ASSESSEE AS SUPPLIER AND IBM UNITED KINGDOM LTD AS BUYER . THE OBJECT OF THE AGREEMENT IS TO ESTABLISH THE BASIS FOR A MULTINATIONAL PROCUREMENT RELATIONSHIP UNDER WHICH SUPPLIER WILL PROVIDE THE BUYER THE DELIVERABLES AND SERVICES DESCRIBED IN THE RELEVANT SOWS ISSUED UNDER THIS BASE AGREEMENT. UNDER THE BASE AGREEMENT, DELIVERABLES HAVE BEEN DEFINED AS ITEMS THAT SUPPLIER PREPARES FAR OR PROVIDES TO BUYER OR CUSTOMER AS DESCRIBED IN A SOW FOR CUS TOMER. DELIVERABLES MAY INCLUDE PROGRAM PRODUCTS, DEVELOPED WORKS, PRE - EXISTING MATERIALS AND/OR TOOLS. IT IS HUMBLY SUBMITTED THAT THE ASSESSEE HAS ONLY PROVIDED PROGRAM PRODUCTS AS DELIVERABLES TO THE BUYER. PROGRAM PRODUCTS HAS FURTHER BEEN DEFINED AS S UPPLIER'S COMMERCIALLY AVAILABLE SOFTWARE AND THE DOCUMENTATION REQUIRED TO INSTALL, SUPPORT, USE AND MAINTAIN IT. IT MEANS THAT BY VIRTUE OF THIS AGREEMENT THE ASSESSEE I.E. SUPPLIER WOULD PROVIDE THE IBM I.E. BUYER THE COMMERCIALLY AVAILABLE SOFTWARES FO R THE USE OF THE CUSTOMER OF BUYERS ARTICLE 7 OF THE BASE AGREEMENT PROVIDES THAT THE DELIVERABLES OR SERVICES WILL BE DELIVERED AS SPECIFIED IN THE RELEVANT SOW AND/OR, WHEN ACTIVATING A PROJECT UNDER A SOW FOR CUSTOMER, MASTER STATEMENT OF WORK DATED FEB RUARY 1,2003 THE ASSESSEE, FOR SELLING ITS PROGRAM PRODUCTS, HAS ENTERED IN1O A MASTER STATEMENT OF WORK ('MSOW') WITH ]J3M_UNJLED KINGDOM LTD WHICH SPECIFIES THE TERMS AGREED BETWEEN THE PARTIES REGARDING MARKETING, LICENSING AND SUPPLY OF SUPPLIER'S PROGRAM PRODUCTS AND SERVICES BY BUYER TO THE CUSTOMERS. ARTICLE 3 OF THE MSOW DEFINES THE PROGRAM PRODUCTS AS IDENTIFIED IN ATTACHMENT 2 WHICH IN TURN PROVIDES FOR COMPIEL EVENT LINK AND COMPTEL INSTANT LINK AS PROGRAM PRODUCTS. ARTICLE 6 OF THE MSOW DEFI NES LICENSE GRANTS, WHICH PROVIDES LICENSES FOR PROGRAM PRODUCTS AS HEREUNDER: QUOTE 6.7 PROGRAM PRODUCTS THE PARTIES HEREBY AGREE THAT ALL TITLE TO, OWNERSHIP OF AND INTEREST IN ALL OR ANY PORTION OR COMPONENT OF THE PROGRAM PRODUCTS (WHETHER DELIVERABL ES OR NOT AND INCLUDING ALL UPDATES, UPGRADES, PAGE 10 OF 46 MODIFICATIONS AND ENHANCEMENTS THERETO, AND RELATED DOCUMENTATION THEREOF, IF ANY, WHETHER LICENSED HEREUNDER OR PROVIDED IN CONNECTION WITH THE PROVISION OF ANY SERVICES HEREUNDER) AS WELL AS RIGHTS PERTAININ G THERETO, INCLUDING BUT NOT LIMITED TO PATEN!, COPYRIGHT AND TRADEMARK RIGHTS OR ANY OTHER LEGALLY PROTECTED PROPRIETARY RIGHT, SHALL BELONG TO AND REMAIN EXCLUSIVELY WITH SUPPLIER. BUYER ACQUIRES ONLY THE RIGHT TO TRANSFER THE EULA IN RESPECT OF THE PROG RAM PRODUCTS TO CUSTOMER STRICTLY IN ACCORDANCE WITH THIS AGREEMENT, AND DOES NOT ACQUIRE ANY RIGHT OF OWNERSHIP, TITLE OR INTEREST IN THE PROGRAM PRODUCT BY VIRTUE OF SUCH TRANSFER. ALL RIGHTS NOT EXPRESSLY GROUTED TO BUYER ARE RESERVED BY SUPPLIER. BUYER ACKNOWLEDGES THAT THE PROGRAM PRODUCTS AND ITS SEQUENCES, STRUCTURE AND ORGANIZATION ARE PROPERTY OF SUPPLIER, THAT SUPPLIER RETAINS EXCLUSIVE OWNERSHIP THEREOF, AS SET FORTH ABOVE, AND THAT IHE SAME CONSTITUTES CONFIDENTIAL INFORMATION OF SUPPLIER THAT S HALL BE SUBJECT TO (HE UNDERTAKINGS AS !O CONFIDENTIALITY AND NON - USE SET FORTH IN THE AECI. A PERUSAL OF THE AFOREMENTIONED CLAUSE MAKES IT OBVIOUS THAT ALL THE INTELLECTUAL PROPERTY RIGHTS ALONG WITH TITLE AND INTEREST M THE PROGRAM PRODUCTS ARE THE PROP ERTY OF THE ASSESSEE THE BUYER ONLY ACQUIRES A RIGHT TO TRANSFER THE EULA TO ITS END CUSTOMERS. END USER LICENSE AGREEMENT (EULA) IS A PART OF THE MSOW AS ATTACHMENT 1.. WE ARE ANNEXING HEREWITH A COPY OF MSOW ALONG WITH THE ATTACHMENTS AS ANNEXURE 2, THE EULA PROVIDES THE SOFTWARE LICENSE TERMS AND CONDITIONS UNDER WHICH THE ASSESSEE LICENSE ITS STANDARD SOFTWARE TO THE END USER. IN EULA THE TERM STANDARD SOFTWARE HAS BEEN DEFINED AS SOFTWARE IN OBJECT CODE, MACHINE READABLE FORMAT ONLY, LICENSED TO END US ER SUBJECT TO THE TERMS AND CONDITIONS AS MENTIONED IN THE AGREEMENT CLAUSE 2 OF THE EULA DEFINES THE GRANT OF LICENSE AS HEREUNDER. QUOTE 2 GRANT OF LICENSE. FOLLOWING DELIVERY AND ACCEPTANCE OF THE STANDARD SOFTWARE, AND UPON RECEIPT BY COMPTEL IN FULL OF THE CONSIDERATION AGREED UPON IN THE CONTRACT FOR THE LICENSE. COMPTEL HEREBY GRANTS, SUBJECT STRICTLY TO THE TERMS OF THE CONTRACT, A NON - EXCLUSIVE, NON - TRANSFERABLE, NON - ASSIGNABLE, REVOCABLE, NON - SUB LICENSABLE, AND PERSONAL RIGHT AND LICENSE (HEREIN AFTER THE 'LICENSE') TO END USER TO USE THE AGREED NUMBER OF MACHINE READABLE COPIES OF THE STANDARD SOFTWARE FOR THE AGREED NEWARK THAT IS BEING USED ONLY BY (HE END USER, AND A COPY OF THE DOCUMENTATION. THE RIGHT AND LICENSE TO USE THE STANDARD SOFFTWAR E GRANTED IN THE PREVIOUS SENTENCE SHALL BE LIMITED TO USE BY END USER ONLY (A) TO PROCESS DATA ORIGINATING FROM ITS OWN BUSINESS OPERATIONS AND (B) FOR END USER'S OWN INTERNAL OPERATIONS, IN EACH CASE FOR UP TO THE LICENSED AMOUNT END USER SHALL HAVE THE RIGHT TO USE THE STANDARD SOFTWARE ONLY IN THE HARDWARE AND OPERATING SYSTEM ENVIRONMENT DEFINED IN THE CONTACT. UNQUOTE AS PER THE DEFINITION OF GRANT OF LICENSE, CUSTOMER HAS RECEIVED A RIGHT TO USE THE SOFTWARE IN ACCORDANCE WITH THE EXHIBIT A, WHICH DE FINES THE TERMS OF USE OF STANDARD SOFTWARE AS HEREUNDER: QUOTE 1. THE LICENSE THE LICENSE GRANTED TO THE CUSTOMER SHALL BE NON - EXCLUSIVE, NON TRANSFERABLE, NON ASSIGNABLE , NON - SUB LICENSABLE, REVOCABLE, AND PERSONAL, PAGE 11 OF 46 AND BE LIMITED TO USE BY THE CUSTOME R OF A REASONABLE NUMBER OF MACHINE READABLE COPIES OF COMPTEL'S STANDARD SOFTWARE IN THE AGREED NETWORK, AND OF ONE COPY OF THE DOCUMENTATION, ONLY (A) TO PROCESS DATA ORIGINATING FROM CUSTOMER'S OWN BUSINESS OPERATIONS; (B) FOR THE CUSTOMER'S OWN INTERNAL OPERATIONS, IN EACH CASE FOR UP TO THE LICENSED AMOUNT; AND (C) IN THE HARDWARE AND OPERATING SYSTEM ENVIRONMENT DEFINED IN THE CONTRACT. THEREFORE, WHAT THE CUSTOMER IS GETTING IS A MACHINE READABLE COPIES OF A STANDARD SOFTWARE WHICH CAN BE U SED FOR THE INTERNAL OPERATIONS IN THE BUSINESS OF THE CUSTOMER. THE ABOVE MENTIONED CLAUSE PROVIDES THAT AT NO POINT OF TIME THE ASSESSEE HAS TRANSFERRED THE INTELLECTUAL PROPERTY RIGHTS IN THE NATURE OF PATENT, COPYRIGHT AND TRADEMARK ETC. AND OWNERSHIP OF THE SAME REMAINS WITH THE ASSESSEE ONLY. WHAT THE CUSTOMER HAS GOT IS ONLY A RIGHT TO USE A COPYRIGHTED ARTICLE WHICH IS A STANDARD SOFTWARE? THIS FACT IS ALSO EVIDENT FROM THE RESTRICTIONS PUT BY (HE ASSESSEE ON THE CUSTOMER TO USE THE STANDARD SOFTWAR E AS HEREUNDER: QUOTE 1. RESTRICTIONS THE END USER ACKNOWLEDGES AND AGGRESS NOT TO, AND NOT TO PERMIT OTHERS TO (UNLESS, AND TO THE EXTENT ONLY AS, PERMITTED BY A EXPRESS PROVISION CONTAINED IN THESE TERMS AND CONDITIONS): (A) REPRODUCE, COPY, PUBLISH, DIS PLAY, DISCLOSE, RENT, LEASE, SUB - LICENSE, MODIFY', LOAN, DISTRIBUTE OR CREATE DERIVATIVE WORKS BASED ON SHE LICENSED STANDARD SOFTWARE, OR ANY PART THEREOF ; (B) TRANSLATE, REVERSE ENGINEER, DECOMPILE, DISASSEMBLE, RE - ENGINEER OR OTHERWISE ATTEMPT TO DISCO VER THE SOURCE CODE OR THE STRUCTURAL FRAMEWORK OF THE LICENSED STANDARD SOFTWARE, OR ANY PORTION THEREOF; OR (C) MERGE ANY PORTION OF THE. STANDARD SOFTWARE WITH OTHER SOFTWARE OR OTHERWISE USE THE STANDARD SOFTWARE, OR ANY PORTION THEREOF, OTHER THAN AS JET FORTH IN THESE TERMS AND CONDITIONS END USER FARTHER AGREES NOT JO USE THE STANDARD SOFTWARE (OR ANY PART THEREOF), ANY DOCUMENTATION NOR ANY CONFIDENTIAL INFORMATION OF COMPTEL OR ITS LICENSORS TO CREATE SOFTWARE THAT EMULATES OR PERFORMS SUBSTANTIALL Y THE SAME FUNCTIONS AS THE LICENSED STANDARD SOFTWARE OR ANY PART THEREOF. END USER FURTHER AGREES NEVER TO REMOVE ANY COPYRIGHT, TRADEMARK AND OTHER PROPRIETARY NOTICES OR ANY OTHER FORM OF PRODUCT IDENTIFICATION AFFIXED TO THE LICENSED STANDARD SOFTWARE , ANY DOCUMENTATION, OR ANY PORTION OF THE LICENSED STANDARD SOFTWARE OR DOCUMENTATION, 4.1 IN THIS REGARD CONTENTS OF SOME OF THE AGREEMENTS / STATEMENTS OF WORK ARE REPRODUCED HEREUNDER: SOFTWARE AND SERVICES ENGAGEMENT .AGREEMENT AGREEMENT # 4903U K.0184 THIS BASE AGREEMENT ('BASE AGREEMENT') DATED AS OF 1 ST FEBRUARY, 2003 ('EFFECTIVE DATE) BETWEEN IBM UNITED KINGDOM LIMITED ('BUYER') AND COMPTEL CORPORATION ( SUPPLIER'), ESTABLISHES THE BASIS FOR A MULTINATIONAL PROCUREMENT RELATIONSHIP UNDER WHICH 'SUPPLIER WILL PROVIDE BUYER THE DELIVERABLES AND SERVICES DESCRIBED IN THE RELEVANT SOWS ISSUED UNDER THIS BASE AGREEMENT. DELIVERABLES AND SERVICES ACQUIRED BY CUSTOMER ON OR PAGE 1 2 OF 46 AFTER THE EFFECTIVE DALE WILL BE COVERED BY THIS BASE AGREEMENT TO THE EXTEN T REFERENCE ARE MADE HERETO BY THE PANICS IN A W A.THIS BASE AGREEMENT WILL REMAIN IN EFFECT UNTIL TERMINATED. 1.0 DEFINITIONS: 'DELIVERABLES' MEANS ITEMS THAT SUPPLIER PI SPARES FOR OR PROVIDES TO BUYER OR CUSTOMER AS DESCRIBED IN A SOW FOR CUSTOMER, DELIVERABLES WAY INCLUDE PROGRAM PRODUCTS, DEVELOPED WORKS, PRE - EXISTING MATERIALS AND/OR TOOLS. 'DEVELOPED WORKS' MEANS SUCH WORK PRODUCT (INCLUDING SOFTWARE AND ITS EXTERNALS) DEVELOPED IN THE PERFORMANCE OF THIS AGREEMENT, DEFINED AS SUCH IN A SOW FOR C USTOMER AND AS DESCRIBED IN SUCH SOW AND DOES NOT INCLUDE PRE - EXISTING MATERIALS, TOOLS, PROGRAM PRODUCTS, OR ITEMS SPECIFICALLY EXCLUDED IN SUCH SOW. . . 'END USER LICENSE AGREEMENT' SHALL HAVE THE MEANING AS DEFINED IN THE SOW ATTACHE D HERETO . 'INVENTIONS' MEANS IDEAS, DESIGNS, CONCEPTS, TECHNIQUES, INVENTIONS, DISCOVERIES OR IMPROVEMENTS, WHETHER OR NOT PATENTABLE, CONCEIVED OR REDUCED TO PRACTICE BY SUPPLIER PERSONNEL IN PERFORMANCE OF THIS AGREEMENT. 'JOINT INVENTIONS' MEANS INVENT IONS MADE BY SUPPLIER PERSONNEL JOINTLY WITH BUYER PERSONNEL. NO INVENTION SHALL BE REGARDED AS A JOINT INVENTION UNLESS THE PERSONNEL OF BOTH PARRIES HAVE CONTRIBUTED SIGNIFICANTLY THERETO UNLESS THE BUYER IS ABLE TO PRODUCE SUFFICIENT EVIDENCE TO THE CON TRARY, ALL INVENTIONS IN RELATION TO THE PROGRAM PRODUCTS SHALL BE REGARDED AS HAVING BEEN MADE SOLELY BY THE SUPPLIER OR ITS PERSONNEL AND SHALL VEST EXCLUSIVELY IN THE SUPPLIER. 'PARTICIPATION AGREEMENT' OR 'PA' MEANS AN AGREEMENT SIGNED BY ONE OR MORE A FFILIATES WHICH IN COOPERATES BY REFERENCE THE TERMS AND CONDITIONS IN THIS BASE AGREEMENT, THE SOW ATTACHED HERETO, AND OTHER ATTACHMENTS OR APPENDICES SPECIFICALLY REFERENCED IN THE P.A. 'SERVICES' MEANS WORK THAT SUPPLIER PERFORMS FAR BUYER AS DESCRIBED IN A SOW FOR CUSTOMER, 'STATEMENT OF WORK' OR 'SOW' MEANS EITHER (A) THE DOCUMENT ATTACHED TO THIS BASE AGREEMENT WHICH DESCRIBES THE DELIVERABLES AND SERVICES, INCLUDING ANY REQUIREMENTS, SPECIFICATIONS OR SCHEDULES TYPICALLY INCLUDED IN A W.A, AS WELL A S THE AGREED GENERA] VARIATIONS AND AMENDMENTS TO THIS BASE AGREEMENT, OR (B) ANY AGREED DOCUMENT INCLUDED IN A W.A (A 'SOW FOR CUSTOMER'), WHICH DESCRIBES HE DELIVERABLES AND SERVICES TO BE PROVIDED, INCLUDING THE SPECIFIC REQUIREMENTS AND SPECIFICATIONS, OR (C) WHEN THE CONTEXT PERMITS, ANY OF THESE DOCUMENTS. 'TOOLS' MEANS SOFTWARE THAT IS NOT COMMERCIALLY AVAILABLE, AND THEIR EXTERNALS, REQUIRED FOR THE DEVELOPMENT, MAINTENANCE OR IMPLEMENTATION OF SOFTWARE DELIVERABLE OTHER THAN A PROGRAM PRODUCT 'WORK AUTHORIZATION' OR WA' MEANS BUYER'S AUTHORIZATION IN EITHER ELECTRONIC OR TANGIBLE FORM FOR SUPPLIER LO CONDUCT TRANSACTIONS UNDER THIS AGREEMENT IN ACCORDANCE WITH THE APPLICABLE SOWS (I .E., A PURCHASE ORDER, OR OTHER APPROPRIATE BUYER DESIGNATED DOCUME NT). A SOW IS A WA ONLY IF DESIGNATED AS SUCH IN WRITING BY THE PARTIES 2.0 STATEMENT OF WORK SUPPLIER WILL PROVIDE DELIVERABLES AND SERVICES AS SPECIFIED IN THE RELEVANT SOWS ONLY WHEN ORDERED BY MEANS OF A WA. SUPPLIER WILL BEGIN WORK ONLY AFTER RECEIVIN G A WA FROM BUYER. BUYER MAY PROPOSE CHANGES TO A SOW AND SUPPLIER WILL SUBMIT TO BUYER THE IMPACT OF SUCH CHANGES AS DESCRIBED IN PAGE 13 OF 46 THE SOW ATTACHED HERETO (HEREIN AFTER REFERRED TO AS THE :MSOW) CHANGES ACCEPTED BY THE BUYER WILL BE IN AN AMENDED SOW FOR CUSTOMER OR CHANGES ORDER SIGNED BY BOTH PARTIES. 0. 8. INTELLECTUAL PROPERTY 8.1 WORK MADE FOR HIRE AIL DEVELOPED WORKS, IF ANY, BELONG EXCLUSIVELY TO BUYER OR CUSTOMER AND ARE WORKS MADE FOR HIRE. IF ANY DEVELOPED WORKS ARE NOT CONSIDERED WORKS MADE FOR HIRE OWNED BY OPERATION OF LAW, SUPPLIER ASSIGNS THE OWNERSHIP OF COPYRIGHTS IN SUCH WORKS TO BUYER OR CUSTOMER. 8.2 PREEXISTING MATERIALS SUPPLIER WILL NOT INCLUDE ANY PREEXISTING MATERIALS IN ANY DELIVERABLE UNLESS THEY ARE LISTED IN THE RELEVANT SOW. FOR THE SOLE PURPOSE OF SUPPORTING THE CUSTOMER AS EXPRESSLY SPECIFIED IN THE RELEVANT SOW, SUPPLIER GRANTS BUYER A NONEXCLUSIVE, WORLDWIDE, PERPETUAL, IRREVOCABLE, PAID - UP, LICENSE TO PREPARE AND HAVE PREPARED DERIVATIVE WORKS OF SUCH PREEXISTING MATERIA LS AS HAVE BEEN PREPARED BY IT AND TO USE, HAVE USED, EXECUTE, REPRODUCE, TRANSMIT, DISPLAY, PERFORM, TRANSFER, DISTRIBUTE, AND SUBLICENSE SUCH PREEXISTING MATERIALS OR THEIR DERIVATIVE WORKS AND TO GRANT OTHERS THE RIGHTS IN THIS SUBLICENSE ALL TO THE EXT ENT AS IS NECESSARY TO SUPPORT THE RELEVANT CUSTOMER AS AFORESAID. 8.3 TOOLS SUPPLIER WILL NOT INCLUDE TOOLS IN DELIVERABLES UNLESS THEY ARE LISTED IN THE RELEVANT SOW, FOR THE SOLE PURPOSE OF SUPPORTING THE CUSTOMER AS EXPRESSLY SPECIFIED IN THE RELEVANT SOW, SUPPLIER GRANTS BUYER NONEXCLUSIVE, WORLDWIDE, PERPETUAL, IRREVOCABLE, PAID - UP, LICENSE TO PREPARE AND HAVE PREPARED DERIVATIVE WORKS OF SUCH TOOLS AS HAVE BEEN PREPARED BY IT AND TO USE, HAVE USED, EXECUTE, REPRODUCE, TRANSMIT, DISPLAY, PERFORM, TRAN SFER, DISTRIBUTE, AND SUBLICENSE SUCH TOOLS OR THEIR DERIVATIVE WORKS, AND TO GRANT OTHERS THE RIGHTS GRANTED IN THIS SUBSECTION ALL TO THE EXTENT AS IS NECESSARY TO SUPPORT THE RELEVANT CUSTOMER AS AFORESAID. 8.4 INVENTION RIGHTS SUPPLIER OWNS INVENTIONS. SUPPLIER GRANTS TO CUSTOMER AN IRREVOCABLE, NONEXCLUSIVE, WORLDWIDE, PERPETUAL, PAID - UP LICENSE UNDER INVENTIONS (INCLUDING ANY PATENT APPLICATIONS FILED ON OR PATENTS ISSUED CLAIMING INVENTIONS) TO USE THE RELEVANT DELIVERABLES IN ACCORDANCE WITH AND SUB JECT TO THE END USER LICENSE AGREEMENT, FOR THE SOLE PURPOSE OF SUPPORTING THE CUSTOMER AS EXPRESSLY SPECIFIED IN THE RELEVANT SOW, SUPPLIER GRANTS BUYER A NONEXCLUSIVE, WORLDWIDE, PAID - UP, LICENSE TO USE INVENTIONS TO THIS EXTENT AS IS NECESSARY CUSTOMER AS AFORESAID. 8.5 JOINT INVENTION RIGHTS THE PARTIES WILL JOINTLY OWN ALL JOINT INVENTIONS AND RESULTING PATENTS. EITHER PARTY MAY LICENSE OTHERS UNDER JOINT INVENTIONS (INCLUDING ANY PATENT APPLICATIONS FILED ON OR PATENTS ISSUED CLAIMING JOINT INVENTIONS ) WITHOUT ACCOUNTING TO OR CONSENT FROM THE OTHER. 8.6 PERFECTION OF COPYRIGHTS UPON REQUEST, SUPPLIER WILL PROVIDE TO BUYER A 'CERTIFICATE OF ORIGINALITY' OR EQUIVALENT DOCUMENTATION TO VERIFY AUTHORSHIP OF DEVELOPED WORKS. SUPPLIER WILL CONFIRM ASSIGNMENT OF COPYRIGHT FOR DEVELOPED WORKS (IF ANY) USING THE CONFORMATION OF ASSIGNMEN T OF COPYRIGHT FROM AND WILL ASSIST BUYER IN PERFECTING SUCH COPYRIGHTS. FOR THE AVOIDANCE OF ANY DOUBT, SUPPLIER WILL NOT TRANSFER ANY COPYRIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS TO ITS PROGRAM PRODUCTS. 8.7 PERFECTION OF INVENTION RIGHTS PAGE 14 OF 46 SUPPLIER WILL IDENTIFY ALL COUNTRIES IN WHICH IT WHICH IT WILL SEEK PATENT PROTECTION FOR EACH INVENTION. SUPPLIER AUTHORIZES BUYER TO ACT AS ITS AGENT IN OBTAINING IN SUPPLIERS NAME PATENT PROTECTION FOR THE INVENTIONS IN COUNTRIES WHERE SUPPLIER DOES NOT SEEK PA TENT PROTECTION. BUYER WILL PAY ALL EXPENSES IN RELATION TO THESE PATENT APPLICATIONS AND THE MAINTENANCE OF THE RELEVANT PATENTS. SUPPLIER WILL, AT BUYER'S EXPENSE, ASSIST IN THE FILLING OF PATENT APPLICATION ON INVENTIONS AND HAVE REQUIRED DOCUMENTS SIGN ED. 8.8 TRADEMARKS THIS AGREEMENT DOES NOT GRANT EITHER PARTY THE RIGHT TO USE THE OTHER PARTY'S OR THEIR AFFILIATES' TRADEMARKS, TRADE NAMES OR SERVICE MARKS. 8,9 PATENTS SUPPLIER OWNS OR MAY OWN PATENTS. FOR THE SOLE PURPOSE OF SUPPORTING THE CUSTOMER AS EXPRESSLY SPECIFIED IN THE RELEVANT SOW, SUPPLIER GRANTS TO BUYER A NONEXCLUSIVE, WORLDWIDE, PAID - UP LICENSE UNDER ANY PATENTS AND PATENT APPLICATIONS LICENSABLE BY SUPPLIER TO MAKE HAVE MADE, USE HAVE USED IMPORT, EXPORT, SELL AND OTHERWISE TRANSFER THE DELIVERABLE AND USE THE SERVICES TO THE EXTENT AUTHORIZED IN THIS AGREEMENT AND AS IS NECESSARY TO SUPPORT THE RELEVANT CUSTOMER AS AFORESAID. 10 PROGRAM PRODUCTS CUSTOMER WILL RECEIVE AN END USER LICENSE AGREEMENT FROM BUYER OR SUPPLIER FOR PERFORM PRODU CTS, TO WHICH BUYER IS NEITHER A PARTY NOR LIABLE FOR VIOLATIONS. BUYER MAY INSTALL AND TEST PROGRAM PRODUCTS FOR CUSTOMER WITHOUT ADDITIONAL LICENSE CHARGE. FOR RECURRING CHARGE LICENSES, BUYER WILL NOTIFY SUPPLIER WHEN TO BEGIN INVOICING CUSTOMER, IF APP LICABLE AH TITLE TO, OWNERSHIP OF AND INTERESTS IN THE PROGRAM PRODUCTS SHALL BELONG TO AND REMAIN EXCLUSIVELY WITH SUPPLIER, AS MORE IN DETAIL DEFINED IN THE MSOW THE PROGRAM PRODUCTS SUPPLIED AND LICENSED HEREUNDER SHALL BE LIMITED TO OBJECT CODE (SUCH T ERM BEING DEFINED IN THE MSOW), 9.3 EXCEPTIONS TO INDEMNIFICATION SUPPLIER SHALL NOT BE LIABLE TO BUYER, BUYER'S PERSONNEL OR CUSTOMER, AND SHALL HAVE NO OBLIGATION TO INDEMNIFY BUYER, BUYER'S PERSONNEL OR CUSTOMER NOT TAKEN ANY OTHER ACTION AS SET OUT IN SECTION 9 - 2 FOR INFRINGEMENT: 1 . IN CASE BUYER, ITS PERSONNEL OR CUSTOMER MAKE ANY AUTHORIZED CHANGES OR MODIFICATIONS TO THE DELIVERABLES WHEN (HE CLAIM WOULD NOT HAVE OCCURRED BUT FOR SUCH CHANGES OR MODIFICATIONS; 2. WHICH ARE BASED UPON USE OF THE DELIVERABLES, OR ANY PART THEREOF, IN COMBINATION WITH SOFTWARE NOT SUPPLIED BY THE SUPPLIER WOULD HAVE BEEN AVOIDED IN THE ABSENCE OF SUCH COMBINATION, OR ANY USE OF THE DELIVERABLES IN A MANNER FOR WHICH THEY WERE NOT DESIGNED OR FOR WHIC H THEY WERE NOT AGREED; 3. SUPPLIERS IMPLEMENTATION OF A BUYER ORIGINATED DESIGN AND SUCH INFRINGEMENT WOULD HAVE BEEN AVOIDED IN THE ABSENCE OF SUCH IMPLEMENTATION; 4. BUYER OR ITS PERSONNEL MAKES ANY ADMISSION OF LIABILITY OR PER FORMS ANY OTHER ACTS WITH RESPECT TO ANY AFORESAID CLAIM WHICH SUPPLIER CAN SHOW, CAUSED [HE SUPPLIER'S CASE TO FAIL; OR 5. THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE BUYER OR ITS PERSONNEL. 12.1 ACCESS TO PREMISES PAGE 15 OF 46 SUPPLIER WILL SURE THAT SUPPLIER PERSONNEL ASSIGN ED TO WORK ON BUYER'S OR BUYER'S CUSTOMER'S PREMISES WILL: 1. TO THE EXTENT PERMITTED BY APPLICABLE LAW, PARTICIPATE IN A PRE - EMPLOYMENT CRIMINAL BACKGROUND CHECK COVERING THE COUNTRIES IN WHICH THE PERSON BY WAS EMPLOYED OR RESIDED FOR THE PAST SEVEN YEARS (OR LONGER AS REQUIRED BY STATE LEGISLATION), AND INFORM BUYER OF ANY NEGATIVE FINDINGS; 2. TO THE EXTENT PERMITTED BY APPLICABLE LAW MAINTAIN A CURRENT AND COMPLETE LIST OF THE PERSONS' NAMES AND SOCIAL SECURITY NUMBERS; 3. OBTAIN FOR EACH PERSO N A VALID IDENTIFICATION BADGE FROM BUYER AND ENSURE THAT IT IS DISPLAYED TO GAIN ACCESS TO AND WHILE ON BUYER'S PREMISES (IT IS BUYER'S POLICY TO DEACTIVATE ANY SUCH BADGE IF NOT USED FOR ONE MONTH); 4. MAINTAIN A SIGNED ACKNOWLEDGMENT THAT EACH PERSON WILL COMPLY WITH BUYER'S SAFETY & SECURITY GUIDELINES; 5. ENSURE THAT EACH PERSON WITH REGULAR ACCESS TO BUYER'S AND BUYER'S CUSTOMER'S PREMISES COMPLIES WITH ALL PARKING RESTRICTIONS AND WITH REGISTRATION REQUIREMENTS IF ANY; 6. INFORM BUYER IF A FOR MER EMPLOYEE OF BUYER WILL BE ASSIGNED WORK UNDER THIS AGREEMENT, SUCH ASSIGNMENT SUBJECT TO BUYER APPROVAL, WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD; 7 . AT BUYER'S REQUEST, REMOVE A PERSON FROM BUYER'S OR BUYER'S CUSTOMER'S PREMISES AND NOT RE ASSIGN SUCH PERSON TO WORK ON BUYER'S OR BUYER'S CUSTOMER'S PREMISES; AND 8. NOTIFY BUYER IMMEDIATELY UPON COMPLETION OR TERMINATION OF ANY ASSIGNMENT AND RETURN BUYER'S IDENTIFICATION BADGE. UPON BUYER'S REQUEST, SUPPLIER WILL PROVIDE DOCUMENTATION TO V ERIFY COMPLIANCE WITH THIS SUBSECTION, 12.4 ASSET CONTROL IN THE EVENT SUPPLIER PERSONNEL HAS ACCESS TO INFORMATION, INFORMATION ASSETS, SUPPLIES OR OTHER PROPERTY, INCLUDING PROPERTY OWNED BY THIRD PARTIES BUT PROVIDED TO SUPPLIER PERSONNEL BY BUYER ('BUY ER ASSETS'), SUPPLIER PERSONNEL: 1. WILL NOT REMOVE BUYER ASSETS ONLY FROM BUYER'S OR BUYER'S CUSTOMER'S PREMISES WITHOUT BUYER'S AUTHORIZATIONS; 2. WILL USE BUYER ASSETS ONLY FOR PURPOSE OF THIS AGREEMENT AND REIMBURSE BUYER FOR ANY UNAUTHORIZED USE; 3 . WILL ONLY CONNECT WITH, INTERACT WITH OR USE PROGRAMS, TOOLS OR ROUTINES THAT BUYERAGREES ARE NEEDED TO PROVIDE SERVICES; 4. WILL NOT SHARE OR DISCLOSE USER IDENTIFIERS, PASSWORDS, CIPHER KEYS OR COMPUTER DIAL PORT TELEPHONE NUMBERS; AND 5 IN THE E VENT THE BUYER ASSETS ARE CONFIDENTIAL, WILL NOT COPY, DISCLOSE OR LEAVE SUCH ASSETS UNSECURED OR UNATTENDED., BUYER MAY PERIODICALLY AUDIT SUPPLIER'S DAM RESIDING ON BUYER ASSETS. 12.5 SUPERVISION OF SUPPLIER'S PERSONNEL SUPPLIER WILL PROVIDE CONTINUAL SUPERVISION OF ITS PERSONNEL PROVIDED UNDER THIS AGREEMENT, AT NO ADDITIONAL COST TO BUYER. SUPPLIERS SUPERVISOR SHALL HAVE FULL SUPERVISORY AUTHORITY OVER ALL DAY TO DAY EMPLOYMENT RELATIONSHIP DECISION RELATING TO SUPPLIERS PERSONAL INCLUDING THOSE DEC ISION RELATING TO WAGES, HORS, TERMS AND CONDITIONS OF EMPLOYMENT, HIRING DISCIPLINE, PERFORMANCE EVALUATIONS, TERMINATION COUNSELING AND SCHEDULING. SUPPLIER'S SUPERVISORS RESPONSIBLE FOR EACH WORK LOCATION WILL BE RESPONSIBLE LO KNOW THAT WORK LOCATION' S PLANNED HOLIDAY (AND OTHER CLOSING) SCHEDULES AND THE IMPACTS ALL SUCH SCHEDULES HAVE ON SUPPLIER'S PERSONNEL SUPPLIER WILL CONDUCT ORIENTATION SESSIONS WITH ITS PERSONNEL BEFORE PAGE 16 OF 46 PLACEMENT ON AN ASSIGNMENT WITH BUYER, DURING WHICH ORIENTATION SUCH PERSON NEL WILL BE TOLD WHO THEIR SUPERVISOR IS AND HOW THAT SUPERVISOR CAN BE CONDUCTED, SUPPLIER WILL FROM TIME TO TIME ENSURE THAT ALL OF ITS EMPLOYEES WORKING UNDER THIS AGREEMENT CONTINUE TO BE AWARE OF THIS INFORMATION.. SOFTWARE AND SERVICES ENGAGEMENT AGR EEMENT THIS MASTER STATEMENT OF WORK ('SOW') # 4903UK0276 ADOPTS AND INCORPORATES BY REFERENCE THE TERMS AND CONDITIONS OF SOFTWARE AND SERVICES ENGAGEMENT AGREEMENT # 49Q3UK01S4 ('BASE AGREEMENT') ENTERED INTO CONTEMPORANEOUSLY HEREWITH BY AND BETWEEN IBM UNITED KINGDOM LIMITED AND COMPTEL CORPORATION. THIS SOW IS EFFECTIVE BEGINNING ON 1 FEBRUARY, 2003 AND WILL REMAIN IN EFFECT UNTIL THE BASE AGREEMENT TERMINATES TRANSACTIONS PERFORMED UNDER THIS SOW WILL BE CONDUCTED IN ACCORDANCE WITH AND BE SUBJECT TO THE TERMS AND CONDITIONS OF THIS SOW, THE BASE AGREEMENT AND ANY WORK AUTHORIZATIONS ('WAS') AND SOWS FOR CUSTOMERS (DEFINED BELOW), 1 . SCOPE OF WORK THI S SOW SPECIFIES THE TERMS AGREED TO BY THE PARTIES WITH REGARD TO THE MARKETING, LICENSING AND SUPPLY OF SUPPLIERS PROGRAM PRODUCTS AND SERVICES BY BUYER TO CUSTOMERS. THIS SOW ESTABLISHES THE BASIS FOR THE SOWS FOR CUSTOMER UNDER WHICH SUPPLIER WILL PROVIDE BUYER THE PROGRAM PRODUCTS AND SERVICES PURSUANT TO THE TERMS OUTLINED IN THIS SOW AND THE BASE AG REEMENT HEREINTO INCORPORATED, THE PARTIES DO NOT FORESEE MARKETING, LICENSING OR SUPPLYING ANY OTHER DELIVERABLES THAN SUPPLIER'S PROGRAM PRODUCTS UNDER THE AGREEMENT AND, THEREFORE, RECOGNIZE AND AGREE THAT NOTWITHSTANDING ANY USE IN A SOW FOR CUSTOMER O F THE TERM 'DEVELOPED WORKS11 FOR SOFTWARE AND/OR DOCUMENTATION THAT ARE IN FACT PROGRAM PRODUCTS SUCH PROGRAM PRODUCTS SUCH PROGRAM PRODUCTS SHALL REMAIN PROGRAM PRODUCTS AS DEFINED IN THE BASE AGREEMENT AND NOTHING ELSE. BUYER WILL ISSUE A WA FOR EACH SP ECIFIC CUSTOMER IN ACCORDANCE WITH THIS SOW AND THE RELEVANT SOW FOR CUSTOMER (REFERRED TO GENERALLY IN THIS SOW AS SOW FOR CUSTOMER), DETAILING THE SPECIFIC DELIVERABLES AND SERVICES AND OTHER TERMS AS MAY APPLY FOR THE SPECIFIC CUSTOMER THAT HAVE BEEN IDENTIFIED IN THE RELEVANT SOW FOR CUSTOMER. A SOW FOR CUSTOMER WILL ALWAYS INCLUDE AS AN INTEGRAL PART THE SUPPLIER'S STANDARD STATEMENT OF WORK ('STOW'), A TEMPLATE OF WHICH IS ATTACHED HERETO AS ATTACHMENT , 4. SUBJECT TO SECTION S5.10 ('PRIOR COMMUNICA TIONS AND ORDER OF PRECEDENCE'), OF THE BASE AGREEMENT EXCEPT AS OTHERWISE EXPLICITLY SLATED IN SUCH A SOW FOR CUSTOMER THE TERMS OF THIS SOW AND THE BASE AGREEMENT SHALL BE DEEMED TO BE INCORPORATED IN THAT SOW FOR CUSTOMER, 2 . DEFIN I TIONS 'ACCEPTANCE CRITER IA' MEANS THE CRITERIA SPECIFIED IN AN ACCEPTANCE TEST SPECIFICATION,WHICH CRITERIA THE DELIVERABLES SHALL BE REQUIRED TO MEET DURING AN ACCEPTANCE TEST 'ACCEPTANCE OF FUNCTIONAL SPECIFICATIONS' MEANS BUYER'S REVIEW AND ACCEPTANCE OF THE FUNCTIONAL SPECIFI CATION IN ACCORDANCE WITH SECTION 4.4 HEREOF. 'ACCEPTANCE TESTS' MEANS THE TESTS PROPOSED BY BUYER AND ACCEPTED BY SUPPLIER WHEREBY BUYER SHALL ESTABLISH WHETHER THE DELIVERABLES SUBSTANTIALLY FULFILL THE ACCEPTANCE CRITERIA. 'ACCEPTANCE TESTS SPECIFICATIO N' MEANS THE ACCEPTANCE TESTS PROCEDURE THAT BUYER SHALL SUBMIT LO SUPPLIER FOR SUPPLIER'S APPROVAL, UNLESS OTHERWISE AGREED IN THE RELEVANT SOW FOR CUSTOMER. THIS ACCEPTANCE TEST PROCEDURE SHALL INCLUDE A DETAILED DESCRIPTION OF THE ACCEPTANCE CRITERIA AN D ACCEPTANCE TESTS TO BE PERFORMED ON DELIVERABLES, THE TEST DATA AND ENVIRONMENT REQUIRED THE SEQUENCE FOR THE PERFORMANCE OF THE ACCEPTANCE TESTS AND THE CRITERIA FOR DETERMINING THE SUCCESS OR FAILURE THEREOF. PAGE 17 OF 46 'AEC1' MEANS HO AGREEMENT FOR EXCHANGE OF CONFIDENTIAL INFORMATION NUMBER W903UKO185 THAT HAS BEEN ENTERED INTO BY AND BETWEEN THE PARTIES ON THE DATE HEREOF. 'CODE' MEANS COMPUTER - PROGRAMMING CODE, INCLUDING BOTH COMPUTER PROGRAMMING CODE SUBSTANTIALLY IN BINARY FORM THAT IS DIRECTLY EXECUTABLE BY A COMPUTER AFTER PROCESSING, BUT WITHOUT COMPILATION OR ASSEMBLY ('OBJECT CODE') AND COMPUTER PROGRAMMING CODE THAT MAY BE DISPLAYED IN A FORM READABLE AND UNDERSTANDABLE BY D PROGRAMMER OF ORDINARY SKILL, EXCLUD ING OBJECT CODE ('SOURCE CODE'). 'CORE PROGRAM PRODUCTS' MEANS THE PROGRAM PRODUCTS LISTED IN ATTACHMENT 2, AS VARIED FROM TIME TO TIME 'CUSTOMER'S SYSTEMS' SHALL MEAN THE DATA CONNECTIONS, HARDWARE AND SOFTWARE OF THE CUSTOMER ON OR IN RELATION TO WHICH PROGRAM PRODUCTS WILL OPERATE. 'ENHANCEMENTS' MEANS CHANGES OR ADDITIONS TO THE PROGRAM PRODUCTS: A) 'MAJOR ENHANCEMENTS' MEANS ENHANCEMENTS WHICH PROVIDE SUBSTANTIAL ADDITIONAL VALUE AND ARE NORMALLY OFFERED TO CUSTOMERS FOR AN ADDITIONAL CHARGE (E.G .,, UPGRADES) 'BASIC ENHANCEMENTS' MEANS AIL ENHANCEMENTS, OTHER THAN MAJOR ENHANCEMENTS, INCLUDING THOSE THAT SUPPORT NEW RELEASES OF OPERATING SYSTEMS AND DEVICES, AND CORRECT ERRORS. 'END USER LICENSE AGREEMENT (EULA)' MEANS THE SUPPLIER'S END USER LICE NSE AGREEMENT FOR PROGRAM PRODUCTS, APPENDED HERETO AS ATTACHMENT 1 - SUPPLIER RESERVES THE RIGHT TO UPDATE THE CONDITIONS THEREIN FROM TIME TO TIME. 'INTERFACE AND ADDITIONAL SOFTWARE DEVELOPMENT WORK OF PROGRAM PRODUCTS' MEANS THE ACTIVITY FOR WHICH SUPPL IER GRANTS TO BUYER A NON - EXCLUSIVE, NON - TRANSFERABLE, NON - ASSIGNABLE, REVOCABLE AND PERSONAL RIGHT AND LICENSE, SUBJECT TO EXECUTION OF A PARTNER DEVELOPER'S LICENSE AGREEMENT BETWEEN THE PARTIES 'MARKETING MATERIALS' MEANS PROGRAM BROCHURES, MANUALS, TEC HNICAL SPECIFICATION SHEETS, DEMONSTRATION PRESENTATIONS, AND OTHER MARKETING SALES LITERATURE PROVIDED BY SUPPLIER TO BUYER FOR BUYER'S USE IN PERFORMANCE OF MARKETING ACTIVITIES. BUYER'S USE OF MARKETING MATERIALS MAY INCLUDE TRANSMISSION OF THEM THROUGH ELECTRONIC MARKETING SERVICES. 'PRODUCTIVE USE' MEANS USE OF THE DELIVERABLES IN CUSTOMER'S ORDINARY OPERATING ENVIRONMENT (OTHER THAN IN CONNECTION WITH AN ACCEPTANCE TEST). 'READY FOR ACCEPTANCE1' OR 'RFA' MEANS A WRITTEN NOTIFICATION BY SUPPLIER TO BUYER THAI THE DELIVERABLES ARE READY FOR THE ACCEPTANCE TESTS. 'READY FOR INSTALLATION' OR 'RJFI' MEANS A WRITTEN NOTIFICATION BY BUYER TO SUPPLIER OF BUYER'S HAVING SATISFIED THE CONDITIONS SPECIFIED HEREIN AND IN SOW FOR CUST OMER (INCLUDING THE STOW), SUCH (HAT CUSTOMER'S SYSTEMS ARE IN A READY FOR INSTALLATION STALE. 'SUPPLIER MAINTENANCE SUPPORT' MEANS THE SERVICES DESCRIBED IN ATTACHMENT IN WHICH ARE BASED ON SUPPLIER'S STANDARD MAINTENANCE AND SUPPORT SERVICES TO BE PROVID ED LO CUSTOMER. THE TERMS SET OUT IN ATTACHMENT 3 MAY BE CHANGED BY THE SUPPLIER FROM TIME - TO - TIME, AS THE SUPPLIER SHALL IN ITS SOLE DISCRETION DEEM FIT. EXCEPT AS MAY BE OTHERWISE AGREED IN WRITING BY BUYER OR CUSTOMER, SUCH CHANGED TERMS WILL NOT APPLY TO EXISTING CONTRACTS. PAGE 18 OF 46 'TERRITORY'' MEANS THE COUNTRY OF INCORPORATION ON BUYER ANY FURTHER COUNTRIES WILL BE AGREED UPON BY MEANS OF PARTICIPATION AAREEMENTS BETWEEN SUPPLIER AND BUYER AFFILIATES. , 4.4 FUNCTIONAL SPECIFICATIONS FOR CUSTOMER SUPPLIER S HALL PROVIDE FUNCTIONAL SPECIFICATIONS AS MAY BE REQUIRED TO MEET CUSTOMER REQUIREMENTS AND ENVIRONMENT AS STATED IN A SOW FOR CUSTOMER AND/OR FURTHER DEFINED IN THE SOW, INCLUDING DELIVERY OF SUCH FUNCTIONAL SPECIFICATIONS TO BUYER OR CUSTOMER WITHIN THE SCHEDULE DEFINED THEREIN. BUYER SHALL FULLY CO - OPERATE WITH SUPPLIER SO AS TO ACHIEVE A TIMELY PROVISION OF THE FUNCTIONAL SPECIFICATIONS. PROMPTLY AFTER RECEIPT OF THE FUNCTIONAL SPECIFICATIONS FROM SUPPLIER, AND, UNLESS OTHERWISE SPECIFIED IN THE RELEVAN T SOW FOR CUSTOMER, LATEST WITHIN WORKING DAYS THEREOF, BUYER SBALL NOTIFY SUPPLIER IN WRITING OF ITS ACCEPTANCE (OR REJECTION) FUNCTIONAL SPECIFICATIONS IF BUYER REJECTS, THE PORTIONS OF THE PROPOSED FUNCTIONAL SPECIFICATIONS NOT ACCEPTED AND OF THE REASO N FOR THE REJECTION, THE BUYER MAKES NO SUCH NOTIFICATION OF REJECTION TO SUPPLIER WITHIN RELEVANT PERIOD AND SUPPLIER HAS NOTIFIED BUYER OF SUCH OCCURRENCE, THEN THE FUNCTIONAL SPECIFICATIONS ARE DEEMED TO BE ACCEPTED BY BUYER 4.5 DESCRIPTION OF SERVICES REQUIRED FOR CUSTOMER SUPPLIER WILL PROVIDE THE SERVICES SPECIFIED IN THE RELEVANT SOW FOR CUSTOMER OR STOW THAT MAY COVER INTER ALIA: 4.5.1 WHERE APPROPRIATE, ALL DELIVERABLES (OR IDENTICAL DELIVERABLES) WILL HAVE BEEN TESTED PRIOR TO DELIVERY IF REQUESTE D BY BUYER, SUPPLIER WILL PROVIDE EVIDENCE OF SUCH TESTING TO BUYER, ANY MINOR DEFECTS OUTSTANDING IN THE DELIVERABLES SHALL BE NOTIFIED LO BUYER AT TIME OF DELIVERY, WITH APPROPRIATE PLAN FOR TIMELY RESOLUTION OF SUCH DEFECTS. 4.5.2 ADEQUATE RESOURCES TO CORRECT DEFECTS THAT MAY ARISE DURING INSTALLATION AND IMPLEMENTATION STAGES OF PROGRAM PRODUCTS, PROVISION OF TECHNICAL SUPPORT TO ENABLE BUYER'S INTEGRATION OF SUCH ITEMS INTO ME SOLUTION PACKAGE BY BUYER OR CUSTOMER. 4.5 - 3 PROVISIO N OF TRAINING TO BUYER OR CUSTOMER FOR INSTALLATION, CONFIGURATION, IMPLEMENTATION AND END USER ADMINISTRATION/MAINTENANCE OF THE DELIVERABLES. 4.5.4 TECHNICAL SUPPORT SERVICES FOR INSTALLATION, CONFIGURATION, PROBLEM DETERMINATION, IM PLEMENTATION AND OTHER PROJECT SUPPORT TASKS TO ENSURE THE SUCCESSFUL AND TIMELY DEPLOYMENT OF PROGRAM PRODUCTS FOR TESTING BY BUYER AND/OR CUSTOMER 4.6 TRAINING SERVICES LO BUYER UPON BUYER'S REQUEST. SUPPLIER WILL PROVIDE TRAINING IN HELSIN KI, FINLAND OR OILIER LOCATIONS AS MAY BE AGREED BY THE PARTIES, TO BUYER AND SUCH BUYER PERSONNEL THAT THE PARTIES AGREE AS HAVING A NEED SUPPORT THE BASIC SALES, IMPLEMENTATION AND SUPPORT OF PROGRAM PRODUCTS, AT NO ADDITIONAL CHARGE. A) AT LEAST TWO TR AINING SESSIONS FOR PROGRAM PRODUCTS STATED HEREIN; AND B) AT LEAST ONE FINING SESSION FOR EACH MAJOR ENHANCEMENT RELEASE OF A PROGRAM PRODUCT THE PARTIES SHALL REVIEW FIND AGREE TRAINING REQUIREMENTS FOR PROGRAM PRODUCTS UPON EXECUTION OF THIS SOW ANY F URTHER TRAINING SESSIONS SHALL BE AGREED TO IN EACH P,A. UPON BUYER'S REASONABLE REQUEST, SUPPLIER ALSO AGREES TO PROVIDE WITHOUT CHARGES, TRAINING TO BUYER ON THE IMPLEMENTATION AND SYSTEMS INTEGRATION OF PROGRAM PRODUCTS, INCLUDING CUSTOMIZATION OR MODIF ICATION OF PROGRAM PRODUCTS TO SUPPORT CUSTOMERS SYSTEMS AS HAS BEEN AGREED IN AN SOW FOR CUSTOMER AND/ OR STOW. UNLESS OTHERWISE AGREED BY THE PARTIES, SUPPLIER'S OBLIGATION TO PROVIDE SUCH PAGE 19 OF 46 TRAINING WITHOUT CHARGE WILL BE LIMITED TO A MAXIMUM OF TEN (10) WORKING MAN - DAYS FOR EACH SIGNIFICANT CUSTOMER ENGAGEMENT, AS DEFINED AND AGREED LO BY THE PARTIES. BUYER WILL NOTIFY SUPPLIER OF SUCH TRAINING REQUIREMENT AT LEAST THIRTY (30) DAYS IN ADVANCE BUYER ACCEPTS THAT OWING TO LIMITS IN SUPPLIER'S AVAILABLE RES OURCE AT ANY GIVEN TIME, SUPPLIER MAY NOT BE IN A POSITION TO RENDER THE REQUESTED TRAINING AT THE TIME OR VENUE REQUESTED BY THE BUYER FOR THE AVOIDANCE OF ANY DOUBT, AIL TRAVEL, ACCOMMODATION, SUBSISTENCE AND LIKE EXPENSES OF THE BUYER PERSONNEL PARTICI PATING IN ANY OF THE AFORESAID TRAINING SESSIONS SHALL BE BORNE BY THE BUYER THE BUYER SHALL REIMBURSE THE SUPPLIER FOR ALL TRAVEL, ACCOMMODATION, SUBSISTENCE AND LIKE EXPENSES OF SUCH SUPPLIER PERSONNEL WHO WILL BE LECTURING AT ANY TRAINING SESSIONS HELD OUTSIDE OF HELSINKI, FINLAND, ACCEPTANCE OF DELIVERABLES EXCEPT AS AND TO THE EXTENT SPECIFICALLY OTHERWISE SLATED IN A SOW FOR CUSTOMER, ACCEPTANCE OF A DELIVERABLES SHALL BE SUBJECT TO THE FOLLOWING: 'ACCEPTANCE' OF A DELIVERABLE AND THE CORRELATIVE 'ACCEPTED' MEANS THE FIRST TO OCCUR OFT A) THE SUBSTANTIAL SATISFACTION OF AIL ACCEPTANCE CRITERIA IN AN ACCEPTANCE TEST; B) THE DELIVERABLES, OR ANY PORTION THEREOF, HAVING BEEN PUT INTO PRODUCTIVE USE BY CUSTOMER; C) THE EXPIRY OF THE PERIOD OF TH IRTY (30) DAYS COMMENCING ON THE DATE OF THE RELEVANT RFA, PROVIDED THAT BUYER HAS NOT ISSUED ANY WRITTEN NOTICE LISTING THE RELEVANT ERROR IN REASONABLE DETAIL. IN ADDITION, ACCEPTANCE WILL OCCUR IF THE RELEVANT ACCEPTANCE TEST IS NOT PASSED DUE TO ANY DEFICIENCY WHICH: IS NOT PRIMARILY CAUSED BY SUPPLIER; OR WILL NOT ADVERSELY AFFECT THE INTENDED USE OF THE DELIVERABLES . IN CASE OF SUPPLY OF DELIVERABLES THAT IS CONDUCTED IN PHASES, EACH PHASE SHALL BE ACCEPTED IN ACCORDANCE WITH THE FOREGOING UPON AC CEPTANCE, SUPPLIER SHALL BE DEEMED TO HAVE FULFILLED ALL OF ITS OBLIGATIONS HEREUNDER AND UNDER THE RELEVANT SOW FOR CUSTOMER, SAVE FOR THE REMAINING OBLIGATIONS OF WARRANTY (SECTION 6) AND INTELLECTUAL PROPERTY INDEMNIFICATION (SECTION 9.2), SUBJECT TO TH E 'EXCEPTIONS TO INDEMNIFICATION' PROVISION (SECTION 9.3), OF THE BASE AGREEMENT AND THE WARRANTY PERIOD SET OUT IN SECTION 7.3 HEREOF OR , IN THE SOW FOR CUSTOMER. BUYER SHALL PREPARE THE ACCEPTANCE TEST SPECIFICATION IN CONFORMITY WITH THE FUNCTIONAL SPE CIFICATION FOR A DELIVERABLE OR SETS OF DELIVERABLES, AND SUBMIT FOR SUPPLIER'S PREVIEW AND ACCEPTANCE WITHIN (UNLESS OTHERWISE SPECIFIED IN THE RELEVANT SOW FOR CUSTOMER) A PERIOD NOT LESS THAN SIX (6) WEEKS PRIOR TO THE DATE OF ISSUE OF THE RFA IN RESPEC T OF A DELIVERABLE OR SETS OF DELIVERABLES AGREED IN THE RELEVANT SOW FOR CUSTOMER SUPPLIER SHALL NOTIFY BUYER IN WRITING OF ITS ACCEPTANCE (OR REJECTION) OF ACCEPTANCE TEST SPECIFICATION NO LATER THAN FIVE (5) BUSINESS DAYS THEREOF IF THE SUPPLIER REJECTS THE ACCEPTANCE TEST SPECIFICATION PROPOSED BY BUYER, THEN THE NOTICE SHALL INCLUDE A DETAILED DESCRIPTION OF THE PORTIONS OF THE ACCEPTANCE TEST SPECIFICATION NOT ACCEPTED AND THE REASON FOR THE REJECTION. IN CASE SUPPLIER HAS NOT BUYER OF ITS REJECTION O F THE ACCEPTANCE TEST SPECIFICATIONS WITHIN THE RELEVANT, THEN THEY WILL BE DEEMED ACCEPTED BY SUPPLIER. ACCEPTANCE TEST FAILURE IF, DURING ANY ACCEPTANCE TESTS, THE DELIVERABLE FAILS TO MEET THE ACCEPTANCE CRITERIA, BUYER SHALL PROMPTLY PROVIDE WRITTEN N OTICE TO SUPPLIER OF SUCH FAILURE, LISTING THE ERRORS IN REASONABLE DETAIL SUPPLIER, PAGE 20 OF 46 WITH APPROPRIATE SUPPORT FROM BUYER, SHALL USE DILIGENT EFFORTS PROMPTLY TO CORRECT ANY SUCH ERRORS, AND DELIVER RESOLUTIONS TO SUCH ERRORS . ACCEPTANCE TESTS, INCLUDING R EGRESSION TESTING, SHALL THEN BE REPEATED. SUB TESTING AND CORRECTION PROCESS SHALL CONTINUE UNTIL SUCH TIME AS THE PROGRAM PRODUCTS OR DELIVERABLES SHALL HAVE MET THE ACCEPTANCE CRITERIA AGREED FOR SUCH ACCEPTANCE TEST, 'NEITHER THE BUYER NOR THE CUSTOMER SHALL BE ENTITLED TO REJECT DELIVERABLE OR SERVICES FOR REFUND IN CASE OF MINOR NON - COMPLIANCE WITH THE ACCEPTANCE CRITERIA 6. LICENSE GRANTS EVOLUTION, DEMONSTRATION AND TRAINING LICENSE FOR PROGRAM PRODUCTS TO ENABLE BUYER TO EFFECTIVELY MARKET PROGRAM PRODUCTS (INCLUDING FOR AVOIDANCE OF ANY DOUBT, ENHANCEMENTS) AND SERVICES TO CUSTOMERS, SUPPLIER MAY GRANT TO BUYER A PAID - UP, NON - EXCLUSIVE AND NON - TRANSFERABLE, OBJECT CODE LICENSE LO USE, EXECUTE, REPRODUCE, DISPLAY AND PERFORM PROGRAM PRODUCTS FOR PU RPOSES OF EVALUATION AND TRAINING OF BUYER PERSONNEL SUBJECT TO A SUPPLEMENT TO THE AEC1 - THE RESULTS OF BUYER'S PROPERTY, AND BUYER IS UNDER NO OBLIGATION TO PROVIDE SUCH RESULTS TO SUPPLIER. IF SUCH RESULTS ARE PROVIDED TO SUPPLIER, THEY WERE PROVIDED ' ASIS' . IN ADDITION, SUPPLIER MAY GIANT TO BUYER A NON - EXCLUSIVE AND NON - TRANSFERABLE, OBJECT CODE LICENSE TO USE, EXECUTE, REPRODUCE, TRANSMIT, DISPLAY AND PERFORM PROGRAM PRODUCTS (INCLUDING USE, HAVE USED, REPRODUCE AND DISTRIBUTE ITS ASSOCIATED MARKETI NG MATERIALS) TO THE EXTENT NECESSARY LO PUBLICLY DEMONSTRATE THE FUNCTIONS AND FEATURES OF THE PROGRAM PRODUCTS ALONE OR IN CONJUNCTION WITH OR INTEGRATED INTO BUYER'S HARDWARE, SERVICES OR SOFTWARE OFFERINGS, DEVELOPMENT LICENSE FOR PROGRAM PRODUCTS SUPP LIER WILL, SUBJECT TO EXECUTION OF A PARTNER DEVELOPER'S LICENSE AGREEMENT AND PAYMENT OF THE RELEVANT LICENSE FEE BY BUYER, GRANT TO BUYER A NON - EXCLUSIVE AND NON - TRANSFERABLE LICENSE TO CONFIGURE CERTAIN PROGRAM PRODUCTS FOR A SPECIFIC CUSTOMER. BUYER H AS ALL RIGHT, LITTLE AND INTEREST (INCLUDING OWNERSHIP OF COPYRIGHT) IN SUCH INTERFACE AND ADDITIONAL SOFTWARE DEVELOPMENT WORK OF PROGRAM PRODUCTS PREPARED BY OR ON BEHALF OF BUYER, SUBJECT TO TERMS AND CONDITIONS OF THE PARTNER DEVELOPER'S LICENSE AGREEM ENT (INCLUDING WITHOUT LIMITATION A GRANT - BACK TO SUPPLIER OF A LICENSE THERETO). THE PARTIES MAY AGREE UPON THE ESTABLISHMENT OF A COMPTEL COMPETENCE CENTER WITH BUYER FOR THE PURPOSES OF PROVIDING THE BUYER'S RELEVANT PERSONNEL WITH THE REQUISITE SKILLS SO AS TO ENABLE THE BUYER TO SUPPLY CERTAIN PROGRAM PRODUCTS TO CUSTOMERS DESIGNATED BY THE PARTIES. PROGRAM PRODUCT EVALUATION LICENSE FOR CUSTOMERS SUPPLIER SHALL UPON BUYER'S REASONABLE REQUEST AND SUBJECT TO A RELEVANT SOW FOR CUSTOMER, GRANT BUYER TH E RIGHT TO OFFER A NON - CHARGE AND LIMITED PERIOD EVALUATION LICENSE TO POTENTIAL CUSTOMERS, SUBJECT TO THE TERMS AND CONDITIONS OF THE THEN CURRENT SUPPLIER SOFTWARE EVALUATION LICENSE AGREEMENT END USER LICENSE AGREEMENT PROGRAM PRODUCTS PROVIDED BY BUYER TO CUSTOMERS WILL BE SUBJECT LOAN EULA. BUYER WILL PROVIDE PROGRAM PRODUCTS TO CUSTOMERS UNDER THE TERMS OF TIE EULA SUPPLIER SHALL BE ENTITLED TO REFRAIN FROM DELIVERING PROGRAM PRODUCTS TO A CUSTOMER UNTIL RELEVANT CUSTOMER HAS SIGNED THE EULA AND FURNISHED SUCH SIGNED COPY TO SUPPLIER THE CURRENT VERSION OF SUPPLIER'S EULA IS AS APPENDED HERETO AS ATTACHMENT 1 BUYER IS NOT A PARTY TO THE EULA AND DOES NOT ASSUME ANY OBLIGATION FOR VIOLATIONS OF IT IN THE PAGE 21 OF 46 EVENT BU YER REASONABLY REQUESTS THAT SUPPLIER MODIFIES THE EULA TO COMPLY WITH COMPELLING LEGISLATION OF A COUNTRY IN THE TERRITORY, SUPPLIER AGREES TO: 1) CONSIDER SUCH A REQUEST ON A TIMELY BASIS; AND 2) NOT UNREASONABLY REFRAIN FROM MAKING SUCH REASONABLE AMEND MENTS TO THE EULA SO AS TO COMPLY WITH THE RELEVANT COMPELLING LEGISLATION, CUSTOMERS MAY INCLUDE AGENCIES OR OTHER UNITS OF A GOVERNMENT, OR THIRD PARTIES UNDER CONTRACT WITH, A GOVERNMENT ('PUBLIC SECTOR') - IN THE EVENT A PUBLIC SECTOR CUSTOMER REQUIRES MODIFICATION TO THE END USER LICENSE AGREEMENT, SUPPLIER AGREES TO NEGOTIATE WITHOUT PREJUDICE BUT IN GOOD FAITH SUCH REQUESTED MODIFICATIONS WITH BUYER AND THE PUBLIC SECTOR CUSTOMER, INCLUDING THE POSSIBILITY OF AUTHORIZING BUYER TO SUBLICENSE THE PROGRA M PRODUCTS OUTSTANDING LICENSES SUPPLIER ACKNOWLEDGES THAT LICENSEES OF PROGRAM PRODUCTS, WHETHER OBTAINED FROM BUYER, SUPPLIER OR A THIRD PARTY, MAY RETAIN BUYER TO PERFORM OUTSOURCING SERVICES ON THEIR BEHALF. NOTWITHSTANDING ANY OTHER PROVISION OF THIS SOW (OR SOW FOR CUSTOMER), THE AGREEMENT OR OF ANY LICENSE AGREEMENT, BUYER, WHEN OUTSOURCING SERVICES TO LICENSES OF PROGRAM PRODUCTS, WILT NOT, UNLESS OTHERWISE AGREED, OWE SUPPLIER A FEE FOR ACCESS TO OR ASSIGNMENT OF A LICENSE TO PROGRAM PRODUCTS. IN A DDITION, BUYER WILL NOT, UNLESS OTHERWISE AGREED, OWE SUPPLIER A FEE TO TRANSFER THE APPLICABLE PROGRAM PRODUCTS TO A BUYER COMPUTER SYSTEM WHICH IS OF LIKE CONFIGURATION AS CUSTOMER'S SYSTEMS FOR WHICH THE PROGRAM PRODUCTS WERE LICENSED THE PROGRAM PRODUC TS WILL ONLY BE USED ON BEHALF OF THE - LICENSE. UPON EXPIRATION OR TERMINATION OF THE AGREEMENT TO PROVIDE OUTSOURCING SERVICES TO THE LICENSE, BUYER'S LIGHT TO USE THE PRODUCTS WILL TERMINATE FOR THE AVOIDANCE OF ANY DOUBT, UNDER NO CIRCUMSTANCES SHALL AN Y SUCH OUTSOURCING REDUCE THE OBLIGATION OF THE RELEVANT LICENSE (OR BUYER, IF SUCH OBLIGATION IS TRANSFERRED TO IT IN CONNECTION WITH THE RELEVANT OUTSOURCING) TO PAY ANY UPGRADE LICENSE FEES, BUYER MAY PERFORM ANY OF ITS OBLIGATIONS UNDER THIS SOW THROUG H ITS AFFILIATES, SUBCONTRACTORS, AND OTHER COMPANIES AFFILIATED WITH BUYER, SUCH AS BUYER'S BUSINESS PARTNERS. 'THE USE OF SUCH ENTITIES BY BUYER DOES NOT RELIEVE H OF ITS OBLIGATIONS UNDER THIS SOW, THE RELEVANT WA OR SOW FOR CUSTOMER AND BUYER SHALL ENS URE THAT SUCH ENTITIES COMPLY WITH THE OBLIGATIONS OF THIS SOW. THIS SOW DOES NOT GRANT BUYER OR ANY SUCH ENTITIES ANY OWNERSHIP OF COPYRIGHT IN PROGRAM PRODUCTS 01 PREEXISTING MATERIALS RESTRICTIONS BUYER SHALL NOT AND SHALL NOT PERMIT OTHERS TO, SAVE AS EXPRESSLY SET OUT IN THIS SECTION 6, (I) REPRODUCE, COPY, PUBLISH, DISPLAY, DISCLOSE, RENT, LEASE, SUB - LICENSE, MODIFY, LOAN, DISTRIBUTE OR CREATE DERIVATIVE WORKS BASED ON PROGRAM PRODUCTS, OR ANY PART THEREOF; (SI) TRANSLATE, REVERSE ENGINEER, DECOMPILE, DISASSEMBLE, RE - ENGINEER OR OTHERWISE ATTEMPT TO DISCOVER THE SOURCE CODE OR THE STRUCTURAL FRAMEWORK OF PROGRAM PRODUCTS, OR ANY PORTION THEREOF. BUYER SHALL REPRODUCE ALL COPYRIGHT, TRADEMARK AND OTHER PROPRIETARY NOTICES AFFIXED TO THE PROGRAM PRODUCTS , AND/OR ANY PORTION THEREOF; AS APPLICABLE, ON ALL COPIES MADE PURSUANT TO THE AGREEMENT, BUYER AGREES NEVER TO REMOVE ANY SUCH NOTICES OR ANY OTHER FORM OF PRODUCT IDENTIFICATION. PROGRAM PRODUCTS THE PARTIES HEREBY AGREE THAT ALL TITLE TO, OWNERSHIP OF AND INTERESTS IN ALL OR ANY PORTION OR COMPONENT OF THE PROGRAM PRODUCTS (WHETHER DELIVERABLES OR NOT AND INCLUDING ALL UPDATES, UPGRADES, MODIFICATIONS AND PAGE 22 OF 46 ENHANCEMENTS THERETO, AND RELATED DOCUMENTATION THEREFORE, IF ANY, WHETHER LICENSED HERALDS OR PROV IDED IN CONNECTION WITH THE PROVISION OF ANY SERVICES HEREUNDER) AS WELL AS ALL RIGHTS PERTAINING THERETO, INCLUDING BUT NOT LIMITED TO PATENT, COPYRIGHT AND TRADEMARK RIGHTS OR ANY OTHER LEGALLY PROTECTED PROPRIETARY RIGHT, SHALL BELONG TO AND REMAIN EXCL USIVELY WITH SUPPLIER. BUYER ACQUIRES ONLY THE RIGHT TO TRANSFER THE EULA IN RESPECT OF THE PROGRAM PRODUCTS TO CUSTOMERS STRICTLY IN ACCORDANCE WITH THIS AGREEMENT, AND DOES NOT ACQUIRE ANY RIGHT OF OWNERSHIP, TITLE OR INTEREST IN THE PROGRAM PRODUCT BY V IRTUE OF SUCH TRANSFER ALL RIGHTS NOT EXPRESSLY GRANTED TO BUYER ARE RESERVED BY SUPPLIER. BUYER ACKNOWLEDGES THAT THE PROGRAM PRODUCTS AND ITS SEQUENCES, STRUCTURE AND ORGANIZATION ARE PROPERTY OF SUPPLIER, THAT SUPPLIER RETAINS EXCLUSIVE OWNERSHIP THEREO F, AS SET FORTH ABOVE, AND THAT THE SAME CONSTITUTES CONFIDENTIAL INFORMATION OF SUPPLIER THAT SHALL BE SUBJECT TO THE UNDERTAKINGS AS TO CONFIDENTIALITY AND NON - USE SET FORTH IN THE AECI 7. SUPPLIER'S RESPONSIBILITIES SUPPLIER PROPOSALS FOR CUSTOMERS WHEN PROVIDING PROPOSALS IN RESPONSE TO BUYER OR POTENTIAL CUSTOMER REQUESTS FOR SOLUTIONS SUPPLIER SHALL ENDEAVOUR TO PROPOSE PROGRAM PRODUCTS THAT SUPPORT BUYER'S HARDWARE AND SOFTWARE PLATFORMS IN ITS PRIMARY PROPOSAL WHEN NO SPECIFIC THIRD PARTY PLATFORMS HAVE BEEN REQUESTED. SUPPLIER SHALL NOT BE OBLIGED TO PROVIDE PROPOSALS WHEN NO SPECIFIC PLATFORMS WHERE SUCH PROPOSALS ARE NOT TECHNICALLY VIABLE. DELIVERY' OF DELIVERABLE SUPPLIER AGREES TO DELIVER THE SERVICES AND DELIVERABLES SPECIFIED IN THE RELEVANT SOW FOR CUSTOMER, AND WILL USE ITS COMMERCIALLY REASONABLE EFFORTS TO MEET THE AGREED DELIVERY DATES AND QUANTITIES 12. PAYMENTS EXCEPT AS OTHERWISE EXPRESSLY AGREED BY THE PARTIES IN A SOW FOR CUSTOMER, THE FOLLOWING SHALL APPLY: 11 - 1 PRICES FAR PROGRAM PRODUCTS A) PRICES TOR PROGRAM PRODUCTS WITH PUBLISHED OR ESTABLISHED LICENSE FEES FOR PROGRAM PRODUCTS THAT SUPPLIER HAS A PUBLISHED OR ESTABLISHED LICENSE FEE AMOUNTS AS SPECIFIED IN ATTACHMENT 2 ('HEREINAFTER IN THIS ITEM A REFER RED TO AS 'LICENSE FEES') PAGE 23 OF 46 T H E A B OVE PRICES FOR PROGRAM PRODUCTS APPLY ONLY UPON BUYER'S ISSUANCE OF WORK AUTHORIZATIONS FOR SUPPLY OF THE RELEVANT PROGRAM PRODUCTS TO BUYER FOR CUSTOMERS WITHIN THE D AGREED BY THE AS MAY BY DEFINED IN THE SUPPLIER'S RELEVANT QUOTATIONS FOR SUPPLY OF THE RELEVANT PROGRAM PRODUCTS TO BUYER FOR EACH CUSTOMER REQUIREMENT OR PROJECT PRICES FOR PROGRAM PRODUCTS WITHOUT PUBLISHED OR ESTABLISHED LICENSE FEES FOR PROGRAM PRODUCTS IN RESPECT OF WHICH SUPPLIER HAS NO PUBLISHED OR ESTABLISHED LICENSE FEE PROGRAM PRODUCTS FOR NEW IMPLEMENTATIONS, NEW OFFERINGS AND CERTAIN LICENSING CONFIGURATIONS AS MAY BE DETERMINED BY SUPPLIER, SUPPLIER SHALL PROVIDE PRICES FOR SUCH PROGRAM PRODUCTS IN ITS RESPONSE TO BUYER'S REQUE ST FOR PROPOSALS AND QUOTATIONS TO SUPPORT SPECIFIC CUSTOMER BIDS. SUPPLIER AGREES THAT THE PRICES FOR SUCH PROGRAM PRODUCTS SHALL IN ANY EVENT NOT BE LESS FAVOURABLE THAN THE RATE THAT IT OFFERS TO OTHER SIMILAR COMPANIES WITH SIMILAR ENGAGEMENTS. NOTWITH STANDING THE ABOVE, IN THE EVENT THAT PRICES FOR PROGRAM PRODUCTS DO NOT FACILITATE BUYER'S ABILITY TO OFFER COMPETITIVE PRICING FOR CUSTOMER BIDS THAT THE PARTIES HAVE AGREED TO BE SIGNIFICANT BIDS. SUPPLIER AGREES TO CONSIDER, WHETHER IT WOULD BE COMMERC IALLY VIABLE LO PROVIDE ADDITIONAL DISCOUNTS OR REDUCTIONS TO PRICES, TO ENHANCE OR FACILITATE BUYER'S ABILITY TO OFFER MORE COMPETITIVE PRICING TO CUSTOMER. UNLESS OTHERWISE AGREED BY DIE PARTIES IN WRITING, ANY CHANGES TO PRICES ABOVE FOR SUCH SIGNIFICAN T CUSTOMER BIDS SHALL ONLY APPLY FOR THE SPECIFIC CUSTOMER BID. BUYER AT ALL TIMES REMAINS FREE TO DETERMINE ITS OWN PRICES WITH AND TO CUSTOMERS FOR DELIVERABLES, INCLUDING PROGRAM PRODUCTS AND SERVICES. EXCEPT AS OTHERWISE STATED IN A SOW FOR CUSTOMER, ALL PRICES ARE EXCLUSIVE OF TAXES, DUTIES AND THE LIKE (COLLECTIVELY, FOR PURPOSES OF THIS SECTION, 'TAXES'), ALL SUCH TAXES, EXCLUDING TAXES BASED ON SUPPLIERS NET INCOME, IF ANY, ARE THE RESPONSIBILITY OF BUYER. ALL PAYMENTS SHALL BE MADE WITHOUT WITHHOL DING OR DEDUCTION FOR OR ON ACCOUNT OF ANY PRESENT OR FUTURE TAXES OF WHETHER NATURE IMPOSED OR LEVIED BY OR ON BEHALF OF THE COUNTRY OF DESTINATION, BUYER WILL PAY SUCH ADDITIONAL AMOUNTS AS NECESSARY, IN ORDER THAT THE NET AMOUNTS RECEIVED BY SUPPLIER AF TER SUCH WITHHOLDING OR DEDUCTION SHALL EQUAL THE PRICES PAYABLE TO SUPPLIER UNDER A WA. !F REQUESTED BY SUPPLIER, BUYER SHALL PROMPTLY PROVIDE SUPPLIER WITH COPIES OF DOCUMENTATION EVIDENCING THAT IT HAS PAID ANY AND ALL WITHHOLDING AND LIKE TAXES M ACCOR DANCE WITH THE LAWS OF THE COUNTRY DESTINATION. 11.2 PRICES FOR SUPPLIER MAINTENANCE SUPPORT UP TO 499,999 70% 500,000 LO . 999,999 68% 1,000,000 TO 1,999,999 66% 2,000,000 TO 2,999,999 64% 3,000,000 TO 3,999,999 62% 4,000,000 TO 4,999,999 60% 5,000,000 AND ABOVE 58% PAGE 24 OF 46 PRICES FOR SUPPLIER MAINTENANCE SUPPORT FOR PROGRAM PRODUCTS WILL BE SUPPLIER'S APPLICABLE STANDARD MAINTENANCE AND SUPPORT SERVICES CHARGES AND PER QUOTATIONS TO BUYER HOWEVER, IN THE EVENT THAT BUYER PROVIDES SUPPORT SERVICES TO CUSTOMER, I.E., FIRST LINE SUPPORT END HELPDESK SERVICES, THE PRICES FOR SUPPLIER MAINTENANCE SUPPORT FOR PROGRAM PRODUCTS SHALL BE BASED ON SUPPLIER'S APPLICABLE STANDARD MAINTENANCE AND SUPPORT SERVICES CHARGES LESS THE DISCOUNTS AS OUTLINED BELOW: SUPPLIER MAINTENANCE DISCOUNT OF SUPPLIERS STANDARD CHARGES SUPPORT CATEGORY STANDARD COVER TIME (8 HRSX 5DAYS/WEEK) 13.33% EXTENDED COVER TIME (8 HRS X7DAYS/WEEK 16.67% FUL L COVER TIME (24 HRS X 7 DAYS/WEEK) 16.00% THE ABOVE DISCOUNTS SHALL APPLY ONLY WHEN BUYER IS PROVIDING SUPPORT SERVICES TO CUSTOMERS AT EQUIVALENT SUPPORT PERIODS AS PROVIDED BY SUPPLIER 31.3 PRICES FOR SERVICES PRICES FOR SERVICES SHALL BE AS DEFINED IN THE SPECIFIC SOW FOR CUSTOMER, CONSISTENT WITH QUOTATIONS SUBMITTED BY SUPPLIER OR AS MAY BE SUBSEQUENTLY AGREED BY THE PARTIES. WHERE SERVICES RELATE TO PROVISION OF STOW, THE PRICE FOR SUCH SERVICES SHALL BE CHARGED ON A TIME AND MATERIAL BA SIS. IN THE EVENT THAT BUYER REQUIRES SIGNIFICANT SERVICES FOR A CUSTOMER ENGAGEMENT AND WHERE USE OF SUPPLIER'S STANDARD SERVICES RATES SUBSTANTIALLY LIMITS BUYER'S ABILITY TO BE COST COMPETITIVE IN BUYER'S PRICING PROPOSALS TO CUSTOMER, SUPPLIER AGREES T O REVIEW PRICES OFFERED FOR SUCH SERVICES AND CONSIDER PROVIDING DISCOUNTS OFF ITS STANDARD PROFESSIONAL SERVICE RATES, PROVIDED, HOWEVER, THAT THE SUPPLIER IS NOT OBLIGED TO PROVIDE ANY DISCOUNTS THAT IT DOES NOT SEE AS COMMERCIALLY VIABLE. 11 - 4 BUYERS TE RMS OF PAYMENT EXCEPT AS OTHERWISE STATED IN A SOW FOR CUSTOMER, BUYER'S PAYMENT SHALL BE MADE NET FORTY - FIVE (45) DAYS FROM DATE OF RECEIPT OF INVOICE BY BUYER SHALL BE DEEMED TO HAVE RECEIVED EACH INVOICE LATEST ON THE DALE THAT THE RELEVANT INVOICE IS S ENT PER FACSIMILE TO BUYER, AS CONFIRMED BY THE TRANSMISSION REPORT OF THE FACSIMILE MACHINE. TITLE: STATEMENT OF 'WORK MATER AGREEMENT #49003UKOI84 PA #49G4IN0575 STATEMENT OF WORK 490 ANY OTHER ITEMS THAT COMPTEL MAY REQUIRE TO PROVIDE THIS THAT ARE NOT INCLUDED ID IBM'S RESPONSIBILITIES, 3.0 DESCRIPTION O F DELIVERABLES AND SERVICES THE FOLLOWING DELIVERABLES SHALL BE SUPPLIED BY THE SUPPLIER LO THE BUYER: COMPTEL LICENSES, AS DETAILED IN EXHIBIT C: PAGE 26 OF 46 > COINPTEL ONLINE LINK BASIC LICENSE O LOOKUP SERVER LICENSE COMPTEL ONLINE LINK NE INTERFACE TO D2CP VOLU BIU E COMPTEL ONLINE LINK NE INTERFACE TO ERICSSON IN (DIAMETER) COMPTE! DOCUMENTATION, AS DETAILED IN EXHIBIT A: COMPTEL ONLINE LINK 2.2 CUSTOMER LIBRARY TOC COMPTEL ONLBE LINK 1.2 RELEASE NOTES ' COMPTEL ONLINE LINK FUNCTIONAL DESCRIPTION '> COMPTEL ONLINE LINK INSTALLATION GUIDE COMPTEL ONLINE LINK OPERATION & MAINTENANCE GUIDE COMPTEI TRAINING, AS DETAILED !N EXHIBIT A: O COMPTE! ONLINE LINK OVERVIEW (0.5 DAY) > COMPTEL ONLINE LINK ADMINISTRATION (0.5 DAY) O COMPTEL ONLINE LINK CONFIGURATION (0.5 DAY) ' COMPLEL ONLINE LINK CONFIGURATION - LABORATORY EXERCISE (O.SDAY) COMPTEL SERVICES INCLUDING CONFIGURATION AND IMPLEMENTATION ARE DETAILED IN EXHIBIT A: 4.0 SUPPLIER'S RESPONSIBILITIES 4.1 TO DELIVER THE DELIVERABLES AND SERVICES DEFINED IN SECT ION 3.0 IN ACCORDANCE WITH THE TERMS OF THIS SOW, THE AGREEMENT AND THE RELEVANT WORK AUTHORIZATION. 4.2 PARTICIPATE IN PROGRESS REVIEWS, AS REASONABLY REQUESTED BY IBM, TO DEMONSTRATE SUPPLIER'S PERFORMANCE OF ITS OBLIGATIONS. 4J THE SUPPLIER WILL COMPLY WITH THE CUSTOMER'S AND IBM'S PUBLISHED GENERAL POLICIES AS MODIFIED FROM TIME TO TIME INCLUDING THOSE POLICIES RELATING TO HEALTH AND SAFETY AT WORK IN SO FAR AS THEY APPLY TO THE SUPPLIER'S OBLIGATIONS UNDER THIS SOW 4.4 THE SUPPLIER WILL ONLY USE INDIVI DUALS IN THE PROVISION OF THE SERVICES IF THEY ARE SUITABLE, COMPETENT AND CAPABLE FOR THE TASKS WHICH THEY ARE TO UNDERTAKE 4.5 PROMPT NOTIFICATION OF PROBLEMS AND ISSUES THAT WILL IMPACT CONFORMANCE TO THE SUPPLIER'S OBLIGATIONS STATED IN THIS SOW. 4.6 P ROVIDE BUYER WITH SUPPLIER MAINTENANCE SUPPORT (IN ACCORDANCE WITH ATTACHMENT OF THE MASTER STATEMENT OF WORK), PROVIDED THAT SUCH SUPPLIER MAINTENANCE SUPPORT SHALL . LIMITED TO PROVISION OF 2ND AND 3RT LINE SUPPORT SERVICES TO BUYER. THE DIVISI ON OF 1 - RESPONSIBILITIES IN RESPECT OF SUCH SUPPORT SERVICES BETWEEN SUPPLIER AND BUYER ARE DEFINED IN 5.0 QUALITY MEASURMENTS 5 - 1 SUPPLIER HAS AND WILL MAINTAIN DURING THE TERM OF THIS AGREEMENT A PRODUCT AND SERVICE QUALITY PROGRAM THAT INCLUDES THE ASS ESSMENT OF SOFTWARE ENGINEERING, DEVELOPMENT, TEST, CONFIGURATION AND CHANGE MANAGEMENT PROCESS, ASSESSMENT OF THE QUALITY OF DELIVERABLES, PRODUCTS AND SERVICES, AND SUPPLIER WILL DOCUMENT NON - CONFORMANCES, AND PERFORMANCE TARGETS. SUPPLIER ALSO HAS AND C AN DEMONSTRATE THE USE OF PROCESSES TO CORRECT ERRORS OR OTHER NON - CONFORMANCES. 6.0 BUYER'S RESPONSIBILITIES 6.1 THE BUYER AGREES LO ENABLE ACCESS TO THE APPROPRIATE BUSINESS AND TECHNICAL RESOURCES WITHIN BUYER AND CUSTOMER ORGANIZATIONS IN A TIMELY FASH ION. 6.2 THE BUYER AGREES LO PROVIDE TIMELY REVIEW AND APPROVAL OF PROJECT DELIVERABLES, AND TO FACILITATE TIMELY REVIEW AND APPROVAL OF PROJECT DELIVERABLES BY THE CUSTOMER. PAGE 27 OF 46 6.3 PROMPT NOTIFICATION OF PROBLEMS AND ISSUES THAT WILL IMPACT CONFORMANCE TO TH E BUYER'S OBLIGATIONS STATED IN THIS SOW OR IN THE AGREEMENT. 6.4 PROVIDE THE END CUSTOMER (BHARTI TELE VENTURES LTD) WITH THE 1 LINE SUPPORT SERVICES, AS FURTHER DEFINED IN EXHIBIT D. 7,0 MUTUAL RESPONSIBILITIES NO CHANGES CAN BE MADE LO THIS SOW WITHOUT THE PRIOR WRITTEN AGREEMENT OF BOTH PARTIES. THE DETAILED RESPONSIBILITIES ARE ILLUSTRATED IN EXHIBIT A 8.0 DELIVERY SCHEDULE/PROJECT PLAN THIS IS ATTACHED IN EXHIBIT A, 9.0 PRICE AND PAYMENT SCHEDULE THE BILL MATERIAL AND INDICATIVE PRICING, BASED ON PRO JECTED GROWTH OVER THE GAMINE 10 YEARS, IS ATTACHED AS EXHIBIT C PLEASE NOTE THAT THE YEARS GIVEN IN EXHIBIT C ARE CALENDAR YEARS, WITH YEAR 1 BEING 2004. THE COMPTEL PRODUCT LICENSES AND DELIVERY SERVICES PROVIDED FOR YEAR 1 ARC SOLD AT A FIXED PRICE, IN EUROS. IT IS IMPORTANT TO NOTE THAT WHILE COMPTEL INITIALLY GRANT THE RIGHT TO USE THE COMPTEL ONLINE LINK PRODUCT TO A CAPACITY LEVEL OF 300 IPS, THE PAYMENTS ARE PHASED OVER A 3 YEAR PERIOD, STARTING FROM 2004. WITH A PAYMENT FOR 50 TPS CAPACITY, FOLLOWE D BY AN ADDITIONAL PAYMENT FOR AN UPGRADE TO 150 TPS IN 2005, AND THE FINAL PAYMENT FOR THE 300 TPS LEVEL, AS WELL AS DEFERRED PAYMENT FOR THE LOOKUP SERVERS FOR THE 4 SITES, TO BE MADE IN YEAR 2006 THE MINIMUM COMMITMENT OF THE CUSTOMER COVERED Y THIS CONTRACT, IS THE PURCHASE OF ALL LICENSE AND STALED SERVICES, AND DETAILED IN EXHIBIT C, TO A TPS CAPACITY OF 300. IF DURING YEARS 2004 AND 2005, OR FROM YEAR 2006 ONWARDS, THE USED TPS CAPACITY LEVEL EXCEEDS 300, A LICENSE UPGRADE WILL BE INVOICED AS AD W HEN THE THRESHOLD IS EXCEEDED, AT THE UPGRADE PRICE DETAILED IN EXHIBIT C. NOTE: TPS = AVERAGE AMOUNT OF GPRS, WAP AND MMS TRANSACTIONS PER SECOND DURING BUSY HOUR (15% OF DAILY TRAFFIC). 9.1 TERMS OF PAYMENT THE TERMS OF PAYMENT WILL BE AS IS ACT FORTH IN THIS AGREEMENT, IN THE EVENT SUPPLIER HAS NOT RECEIVED PAYMENT AS AGREED, SUPPLIER WILL NOTIFY BUYER AND BUYER WILL MAKE PROMPT PAYMENT THE PAYMENT SHALL BE MADE NET 60 DAYS INSTEAD OF NET 45 DAYS FROM DATE OF RECEIPT OF INVOICE BY BUYER BASED ON MILESTONE COMPLETION. PAYMENTS WILL BE ACCORDING TO THE FOLLOWING PAYMENT MILESTONES: ' 20% OF TOTAL PRICES UPON RECEIPT OF W A.; ;>. 10% OF TOTAL PRICES UPON DELIVERY OF ASSOCIATED FUNCTIONAL SPECIFICATION; < 30% OF TOLA] PRICES UPON DELIVERY OF THE S YSTEM 20% OF TOTAL PRICES UPON ACCEPTANCE OF DELHI O 20% OF TOTAL PRICES UPON ACCEPTANCE OF ALL FOUR SITES ONCE ACCEPTANCE AND A 3 MONTH WARMTH PERIOD HAVE PASSED, SUPPORT AND MAINTENANCE WILL BE PROVIDED BASED ON A PERCENTAGE OF THE SOFTWARE LICENSE VAL UE PRICING FOR THIS SUPPORT AND MAINTENANCE GIVEN IN EXHIBIT C, IS BASED ON THE ASSUMPTION THAT ACCEPTANCE AND WARRANTY WILL HAVE FINISHED BY THE END OF MAY, SO PAYABLE FOR 7 MONTHS ONLY IN PAGE 28 OF 46 CALENDAR YEAR 2005. IF THIS ASSUMPTION IS NOT CORRECT, THE SUPP ORT AND MAINTENANCE PRICE MAY BE ADJUSTED ACCORDINGLY THE GIVEN SUPPORT AND MAINTENANCE PRICING IS BASED ON THE UNDERSTANDING THAT IBM PROVIDE FIRST LINE SUPPORT A ND HELPDESK SERVICES FOR THE COM PTEL SOLUTION. 30.0 TAXES, DUTIES AND FEES AS PER THE AGREEMENT, THE MILESTONE PAYMENT ABOVE ARE EXCLUSIVE OF VAT WHICH IS PAYABLE AT THE RATE RULING ON THE DAY OF INVOICE, THE APPLICABLE WITHHOLDING TAX WILL BE DEDUCTED FROM THE AMOUNT PAYABLE TO COMPTEL AND TDS CERTIFICATE WILL BE RELEASED ON REGULAR FREQ UENCY. 11.0 TRAVEL EXPENSE GUIDELINES AS PER THE AGREEMENT 12,0 OTHER CLAUSES OUTSOURCING LICENSE SUBJECT TO THE DUE PAYMENT BY BUYER OF ALL AGREED CONSIDERATION DEFINED IN THIS SOW, SUPPLIER GRANTS TO BUYER A NON - EXCLUSIVE, NON - TRANSFERABLE (EXCEPT AS DEFINED HEREIN BELOW), NON - SUB LICENSABLE AND PERSONAL RIGHT AND LICENSE TO USE THE PROGRAM PRODUCTS FOR THE PERFORMANCE OF OUTSOURCING SERVICES FOR THE EXCLUSIVE BENEFIT OF BHARTI TELE VENTURES LTD.(OUTSOURCING SERVICES) SUBJECT TO THE PRECED ING SENTENCE THE TERMS AND CONDITIONS OF THE SUPPLIERS EULA (ATTACHMENT TO THE MASTER STATEMENT OF WORK) SHALL BE APPLICABLE TO BUYER (AS IF BUYER WERE THE CUSTOMERS) BUYER SHALL HAVE THE RIGHT TO ASSIGN THE LICENSE TO USE THE PROGRAM PRODUCTS TO ITS CUST OMER AT NO ADDITIONAL COST, PROVIDED THAT BUYER GIVES SUPPLIER THIRTY (30) DAYS PRIOR WRITTEN NOTICE OF ITS INTENT TO ASSIGN SUCH RIGHTS AND PROVIDED FURTHER THAT BUYERS CUSTOMER SIGNS SUPPLIERS END USER LICENSE AGREEMENT (EULA) AND/ OR SUCH OTHER CONTRAC TUAL DOCUMENT (S) AS MAY BE REASONABLY REQUIRED FOR SUCH PROGRAM PRODUCT SUPPORT. 12 . A T PARA NO 4 TO 8 OF ASSESSMENT ORDER , LD. AO HAS HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FALLS IN THE CATEGORY OF ROYALTY BOTH UNDER THE INCOME TAX ACT U/S 9 (1) (VI) CLAUSES ( I), (III), (IVA) AND CLAUSE (V) OF EXPLANATION 2 AND ARTICLE 13 (3) ( A) & (B) OF INDO FINLAND DTAA. ACCORDING TO HIM A . THE SOFTWARE FOR USE OF WHICH THE LICENSE IS GRANTED IS A TECHNICAL OR COMMERCIAL EQUIPMENT AND THEREFORE THE CONSIDERATION RECEIVED BY THE ASSESSEE IS FOR THE USE OF COMMERCIAL CUM SCIENTIFIC EQUIPMENT. B . THE SOFTWARE WHICH ARE BEING LICENSED FOR USE BY THE ASSESSEE COMPANY ARE SPECIALIZED SOFTWARE THEREFORE, T HE NATURE OF SOFTWARE IS NOT SHRINK - WRAP OR OFF THE SHELF SOFTWARE AS IS BEING CLAIMED BY THE ASSESSEE. ACCORDING TO HIM PRESENT SOFTWARE WHICH ARE BEING LICENSED BY THE ASSESSEE EMBODIES THE PAGE 29 OF 46 PROCESS WHICH IS REQUIRED TO CONTROL AND MANAGE THE SPECIFIC SE T OF ACTIVITIES INVOLVED IN THE BUSINESS OF TELECOM USER PLANS, QUANTIFICATION OF USE, FAILING ETC. THEREFORE, THIS SOFTWARE MAKES AVAILABLE A 'PROCESS' TO THE CUSTOMERS WHO 'USE' THE PROCESS WHILE CARRYING OUT THEIR BUSINESS. IT IS, THEREFORE, THIS SPECIALI ZED SOFTWARE ALSO REPRESENT A 'PROCESS' WHICH CAN BE USED IN A PARTICULAR INDUSTRY SPECIFIC CORE ACTIVITY. C . ACCORDING TO HIM, IT IS NOT A SALE OF COPYRIGHTED PRODUCT BUT IT IS COPYRIGHT. 13 . HE THEREFORE HELD THAT RS 12 , 03, 75,730 / - SHOWN AS SOFTWARE CONSID ERATION IS HELD TO BE ROYALTY AND APPLIED RATE OF TAX @ 10%. FURTHER, THE OTHER GROSS RECEIPT OF USD 3362355/ - FROM DIRECT CUSTOMER WHERE THE TAX IS BORNE BY THE ASSESSEE GROSSED UP AMOUNT OF USD 3955712/ - IS FURTHER TAXED @ 15 % AS PER DTAA. 14 . AGA INST THE DRAFT ORDER ASSESSEE PREFERRED APPLICATION BEFORE LD. DRP WHO DID NOT FIND ANY INFIRMITY IN THE ORDER OF LD . AO AND HENCE THE AO PASSED FINAL ORDER. 15 . BEFORE US THE LD AR CONTENDED THAT : - A ) THE APPELLANT AT THE REQUEST HAS DEVELOPED NO SOFTWARE OR R EQUIREMENT OF ITS CUSTOMER AND IT IS ONLY THE PROGRAMME PRODUCTS IN THE NATURE OF STANDARD SOFTWARE, WHICH HAVE BEEN SUPPLIED BY THE APPELLANT. B ) I SSUE IN QUESTION HAS ALREADY BEEN DECIDED ON IDENTICAL FACTS BY THE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF DIT VS. INFRASOFT LTD [264 CTR 329] WHEREIN IT WAS HELD THAT THE RECEIPTS FROM TRANSFER OF SHRINK WRAPPED SOFTWARE IS NOT TAXABLE IN INDIA BY STATING THAT THE LICENSING OF COMPUTER SOFTWARE INVOLVES LIMITED RIGHT TO USE 'COPYRIGHTED' MATERIAL & DOES NOT GIVE RISE TO ANY ROYALTY INCOME. FOR THIS, HE SUBMITTED A CHART DEMONSTRATING THE FACTS BEFORE THE HONOURABLE DELHI HIGH COURT ARE ON IDENTI CAL ISSUE. THEREFORE HE SUBMITTED THAT ACCORDINGLY, IN ALL CIRCUMSTANCES, THE CASE OF THE APPELLANT IS COVERED BY THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT WHEREIN THE HONBLE HIGH COURT ON SIMILAR FACTS HELD THAT RECEIPTS ARE NOT IN THE NATURE OF ROYALTY AND NOT TAXABLE IN INDIA. PAGE 30 OF 46 S.NO. FACTS COMPTEL OYJ INFRASOFT LTD. 1 . SUBJECT MATTER OF TRANSFER IS A STANDARD SOFTWARE USED FOR A PARTICULAR INDUSTRY USED FOR TELECOM INDUSTRY USED FOR CIVIL ENGINEERING WORK 2 . LICENSING AGREEMENT SHOWS THAT THE LICENSE IS NON - EXCLUSIVE, NON - TRANSFERABLE AND THE SOFTWARE HAS TO BE USED IN ACCORDANCE WITH THE AGREEMENT 3 . AS PER THE AGREEMENT, ALL THE INTELLECTUAL PROPERTY RIGHTS IN THE FORM OF PATENT, COPYRIGHT, TRADEMARK ETC. ARE THE PROPERTY OF THE SELLER ONLY AND AT NO POINT OF TIME,IT HAS BEEN TRANSFERRED TO EITHER THE BUYER/ CUSTOMER. 4 . AS PER THE AGREEMENT, THE RIGHTS ACQUIRED IN RELATION TO THE COPYRIGHT ARE LIMITED TO THOSE NECESSARY TO ENABLE THE USER TO OPERATE THE PROGRAM, FOR EXAMPLE, WHERE THE TRANSFEREE IS GRANTED LIMITED RIGHTS TO REPRODUCE THE PROGRAM. 5 . THE AGREEMENT CATEGORICALLY RESTRICTS THE USER TO COPY, PUBLISH, DISPLAY, DISCLOSE, MODIFY, MERGE ETC THE SOFTWARE EXCEPT FOR ARCHIVAL PURPOSES. PAGE 31 OF 46 6 . THE LICENSEE IS NOT ALLOWED TO EXPLOIT THE COMPUTER SOFTWARE COMMERCIALLY. IN OTHER WORDS, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION TO DO. C ) THEREAFTER LD. AR REFERRED TO V ARIOUS CLAUSES OF THE AGREEMENTS / DOCUMENTS AND SUBMITTED THAT I . SUBJECT MATTER OF TRANSFER IS A STANDARD SOFTWARE IN THE FORM OF A MEDIATION SOFTWARE AND THEY ARE A COPY RIGHTED ARTICLE II . ALL THE INTELLECTUAL PROPERTY RIGHTS IN THE FORM OF PATENT, COPYRIGHT, TRADEMARK ETC. ARE THE PROPERTY OF THE APPELLANT ONLY AND AT NO POINT OF TIME SAME HAS BEEN TRANSFERRED TO EITHER THE BUYER OR THE CUSTOMER; III . THE BUYER I.E. IBM HAS GOT ONLY A RIGHT TO TRANSFER THE EULA IN FAVOUR OF A PARTICULAR CUSTOMER; IV . ACCORDING TO EULA, THE END CUSTOMER DOES NOT GET ANY RIGHT TO THE INTELLECTUAL PROPERTY IN THE STANDARD SOFTWARE; V . FURTHER RESTRICTIONS HAS ALSO BEEN PUT ON THE END CUSTOMER TO USE THE STANDARD SOFTWARE TO USE FOR ONLY ITS BUSINESS OPERATIONS; D ) HE FURTHER STATED THAT WHAT WAS TRANSFERRED WAS NEITHER THE COPYRIGHT IN THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWARE, BUT WHAT WAS TRANSFERRED WAS THE RIGHT TO US E THE COPYRIGHTED MATERIAL, WHICH WAS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT. HENCE , WHERE THE PAYMENT MADE IS IN CONNECTION WITH TRANSFER OF A COPYRIGHTED ARTICLE THEN IT REPRESENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDERED AS ROY ALTY EITHER UNDER THE ACT OR UNDER THE TREATY; RATHER IT IS BUSINESS INCOME OF THE APPELLANT. PAGE 32 OF 46 E ) HIS NEXT ARGUMENT WAS THE AN INCOME TO BE CATEGORIZED AS ROYALTY, TWIN CONDITIONS SHOULD BE SATISFIED I.E. THERE HAS TO BE CONSIDERATION AND THIS CONSIDERATION S HOULD BE FOR TRANSFER OF ALL OR ANY RIGHT (INCLUDING THE GRANTING OF THE LICENSE ) IN RESPECT OF THE COPYRIGHT, PATENT, INVENTION, DESIGN, SECRET FORMULA OR PROCESS, SCIENTIFIC WORK. ACCORDINGLY, UNLESS THE PAYMENT IS MADE FOR ACQUISITION OF A RIGHT TO USE A COPYRIGHT, THE PAYMENT CANNOT BE REGARDED AS ROYALTY UNDER EXPLANATION 2 TO SECTION 9(1 ) ( VI) OF THE ACT. ACCORDING TO HIM, THE PAYMENT RECEIVED BY THE APPELLANT IS NOT FOR ACQUISITION OF A RIGHT TO USE A COPYRIGHT, BUT IS FOR ACQUISITION OF A COPYRIGHTED ARTICLE AND, THEREFORE, THE CONSIDERATION CANNOT BE ASSESSED AS ROYALTY. F ) ON THE ASPECT OF DEFINITION OF ROYALTY AS PER INDO FINLAND DTAA HE SUBMITTED THAT DEFINITION OF ROYALTY AS PER ARTICLE 13(3) OF THE TREATY IS NARROWER THAN THE DEFINITION CONTAINED UNDER SECTION 9(1 ) ( VI) OF THE ACT. ACCORDING TO HIM UNDER THE TREATY THE INCOME OF THE APPELLANT SHOULD HAVE BEEN GENE RATED BY THE 'USE OF OR THE RIGHT TO USE OF' ANY COPYRIGHT TO BE TAXABLE AS ROYALTY INCOME. G ) HE FURTHER SUBMITTED THAT IT IS THE SETTLED PROPOSITION THAT IN CASE OF THE ASSESSEE WHO IS A NON - RESIDENT AND HAVING TAX RESIDENCY CERTIFICATE THEN THE PROVISI ON OF DTAA WILL PREVAIL OVER DOMESTIC TAX LAWS. THEREFORE, HIS CONTENTION WAS THAT IT IS THE SALE OF STANDARD SOFTWARE CANNOT BE ROYALTY IN TERMS OF DOMESTIC TAX LAWS AS WELL AS PER INDO FINLAND DTAA AND THEREFORE IT IS CHARGEABLE TO TAX AS BUSINESS INCOM E OF THE ASSESSEE ACCORDING TO ARTICLE 7 OF DTAA. HENCE, THE TAXABILITY OF THESE SOFTWARE SALES IS NOT ROYALTY AS HELD BY AO. 16 . BEFORE US,LD . DR VEHEMENTLY CONTENDED AND SUBMITTED THAT THE SOFTWARE IS A NOT A STANDARD SOFTWARE AS PER REASONS GIVEN BY LD. AO IN HIS ORDER. HE FURTHER STRESSED UP ON THE ORDER OF DRP FOR SUBSEQUENT YEARS AND STATED THAT PAGE 33 OF 46 RETROSPECTIVE AMENDMENT OF SECTION 9 (1 ) HAS BEEN CONSIDERED BY DRP. HE FURTHER SUBMITTED THAT WHEN THERE IS AN AMENDMENT IN THE LAW THERE IS NO N EED OF AMENDMENT IN DTAA AND AMENDED LAW SHOULD PREVAIL AS PER ARTICLE 3 (2) OF THE DTAA. HE FURTHER SUBMITTED THAT AFTER THE CLARIFICATORY RETROSPECTIVE AMENDMENT (W.R.E.F. 01.06.1976) BROUGHT IN SECTION 9 BY THE FINANCE ACT, 2012, EVEN A PLAIN READING OF THE ACT ALONG WITH DTAA SHOWS THAT THE RECEIPTS OF ASSESSEE IN RESPECT OF THE COMPUTER SOFTWARE ARE TAXABLE AS ROYALTY. HE SUBMITTED THAT THE COURT COULD NOT READ ANYTHING INTO A STATUTORY PROVISION, WHICH IS PLAIN AND UNAMBIGUOUS. HE SUBMITTED THAT EXP LANATION 4, 5, AND 6 INSERTED UNDER SECTION 9(1) BY THE FINANCE ACT, 2012 W.R.E.F. 01.06.1976 CLEARLY COVERS THE ISSUE IN FAVOUR OF REVENUE. FOR THIS, THAT CORRESPONDING AMENDMENT TO THE DTAA IS NOT REQUIRED FOR THE ASSESSEE'S RECEIPTS IN RESPECT OF COMPUTER SOFTWARE TO BE TAXED AS 'ROYALTY'. FOR THIS, HE VEHEMENTLY RELIED ON THE TERMS 'RIGHT' AND / OR 'RIGHTS' AND / OR 'INFORMATION' ARE NOT DEFINED IN DTAA. THEREFORE, THE MEANING OF SUCH TERMS UNDER THE ACT SHALL APPLY BY VIRTUE OF ARTICLE 3(2) OF INDIA - FINLAND DTAA. FOR THIS ARGUMENT, HE RELIED ON TWO DECISIONS OF COORDINATE BENCHES I.E. VIACOM 18 MEDIA (P.) LTD. [2014] 44 TAXMANN.COM 1 (MUMBAI - TRI B.) AND VODAFONE SOUTH LTD. [2015] 53 TAXMANN.COM 441 (BANGALORE - TRIB.). 17 . IN REJOINDER LD., AR SUBMITTED THAT AMENDMENT TO THE LAW COULD NOT AMEND THE DEFINITION IN DTAA. HE RELIED UP ON THE DECISION OF HONORABLE DELHI HIGH COURT IN CASE OF 25 TAXMANN.CO M 225 (DELHI) DIRECTOR OF INCOME TAX V. NOKIA NETWORKS OY WHERE HONORABLE HIGH COURT HAS CONSIDERED THE RETROSPECTIVE AMENDMENT IN SECTION 9 OF THE INCOME TAX ACT FOR AND HELD THAT AMENDMENT CANNOT BE READ IN TO THE TREATY. 18 . WE HAVE CAREFULLY CONSIDER ED THE RIVAL CONTENTIONS . WE HAVE ALSO PERUSED THE DECISION OF HONORABLE DELHI HIGH COURT IN CASE OF [ 2013] 39 TAXMANN.COM 88 (DELHI) DIRECTOR OF INCOME TAXV. INFRASOFT LTD. IN THAT DECISION, ALSO THE ASSESSEE PAGE 34 OF 46 WAS DEVELOPING CUSTOMIZED SOFTWARE TO BE USED FOR DESIGNING HIGHWAYS, RAILWAYS, AIRPORTS, PORTS, MINES, ETC. THE SOFTWARE SO CUSTOMIZED WAS LICENSED TO AN INDIAN CUSTOMER AND THE BRANCH OFFICE OF THE ASSESSEE IN INDIA PERFORMED SERVICES INVOLVING INTERFACE TO PERIPHERAL INSTALLATION AND TRAINING ETC. ON THE SALE OF SOFTWARE REVENUE RAISED S IMILAR OBJECTION WHICH ARE AS UNDER : - 11. WITH REGARD TO THE DEFINITION OF ROYALTY AS GIVEN IN SECTION 9 (1) (VI) OF THE ACT AS WELL AS ARTICLE 12 OF THE DTAA, THE AO CAME TO THE CONCLUSION THAT THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY FROM SALES/LICENSING OF THE SOFTWARE WAS ROYALTY IN TERMS OF THE SAID DEFINITION. THE REASONING OF THE AO TO ARRIVE AT THIS CONCLUSION IS AS UNDER: (I). THE SOFTWARE IS LICENSED NOT SOLD. THE COPYRIGHT OF THE SOFTWARE REMAINS WITH THE ASSESSEE HOWEVER IT ALLOWS THE USE OF COPYRIGHT TO THE PERSON MAKING PAYMENT T O IT. AS PER THE INDIAN COPYRIGHT ACT, 1957 AS AMENDED IN 1994 SOFTWARE ARE ENTITLED TO COPYRIGHT PROTECTION. THE ASSESSEE POSSESSES COPYRIGHT IN THE SOFTWARE, WHICH IT CAN ENFORCE IN INDIA IF ANY VIOLATION OF SUCH RIGHT IS NOTICES BY IT. FURTHER THE INDIA N COPYRIGHT ACT RECOGNIZES 'COPYRIGHT' AS DOING OR AUTHORIZING THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF NAMELY, - IN CASE OF A COMPUTER PROGRAMME TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FO R COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAM. IT IS THEREFORE CLEAR THAT THE ASSESSEE HAS AUTHORIZED TO USE OF THE COPYRIGHT OF THE CUSTOMER IN INDIA. ( II ) THE SOFTWARE OWNED BY THE ASSESSEE IS PATENTED SOFTWARE. CONSIDERATION FOR ALLOWING THE USE OF THE PATENTED ARTICLE FALLS WITHIN THE DEFINITION OR ROYALTY PAYMENT. EVEN IF IT IS CONSIDERED THAT THE SOFTWARE OWNED HAS NOT BEEN PATENT, THERE IS NO DENIAL OF THE FACT THAT IT IS ESSENTIALLY AN INVENTION. THE DEVELOPMENT OF SUCH SOFTWARE REQUIRES HIG HLY TECHNICAL MANPOWER, WITH HIGHLY SOPHISTICATED INFRASTRUCTURE AND HUGE INVESTMENTS. SIMILARLY, THE SOFTWARE CAN ALSO BE CONSIDERED AS A SCIENTIFIC WORK. THEREFORE, THE SOFTWARE CAN ALSO BE SAID TO BE INFORMATION DEVELOPED OUT OF SCIENTIFIC EXPERIENCE. (III) T HE PAYMENT IS ALSO QUALIFIED FOR THE USE OF SECRET FORMULA OR PROCESS. THE SOFTWARE DEVELOPED BY INFRASOFT WHEN INSTALLED IN A COMPUTER RESPONDS TO EVERY INSTRUCTION IN A SPECIFIC WAY. IT RECOGNIZES THE COMMAND AND AS PER ITS PROGRAMMING YIELDS THE DESIRED RESULT AND REFLECTS THE SAME ON THE OUTPUT DEVICES. THIS ARGUMENT IS FURTHER STRENGTHEN FROM THE FACT THAT COST OF THE MEDIUM VIZ. COMPUTER DISCS, FLOPPY ETC., ON WHICH THE PROGRAM IS WRITTEN IS NEGLIGIBLE AS COMPARED TO THE OVERALL PRICE OF SOFTWA RE. HAD IT NOT BEEN A SECRET PROGRAMMING, ANYBODY COULD HAVE WRITTEN THESE TYPES OF PROGRAMS AND SOLD IT AT A VERY LOW PRICE AS COMPARED TO THE PRICE OF THE ORIGINAL SOFTWARE. PAGE 35 OF 46 (IV) THE SOFTWARE DEVELOPED BY INFRASOFT IS CUSTOMIZING SOFTWARE WHICH ARE USED FOR SPECIFIC PURPOSES LIKE DESIGN OF HIGHWAYS, RAILWAYS, AIRPORT, PORT, MINES ETC. THIS SOFTWARE ARE PURCHASED BY PRIVATE CONSULTANT OR END USERS AND THEY FURTHER EXPLOITS FOR COMMERCIAL PURPOSES. THIS CLEARLY FALLS UNDER DEFINITION OF 'ROYALTY'.' 19 . IN THAT DECISION HONORABLE DELHI HIGH COURT HAS HELD THAT THE CONSIDERATION OF SALE OF SOFTWARE IS NOT ROYALTY AS UNDER : - 84. TO FURTHER ELUCIDATE THE NATURE OF THE TRANSACTION IN THE CASE OF THE ASSESSEE IT IS NECESSARY TO EXAMINE SOME OF THE CLAUSES OF THE LICENSING SOFTWARE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS CUSTOMERS: INFRASOFT LICENCE AGREEMENT. 2. GRANT, SUPPLY AND USE OF LICENSE ( A ) INFRASOFT GRANTS LICENSEE A NON - EXCLUSIVE, NON - TRANSFERABLE LICENSE TO USE THE SOFTWARE IN ACCORDANCE WITH THIS AGREEMENT AND THE INFRASOFT LICENSE SCHEDULE. THE LICENSE IS PERPETUAL UNLESS IDENTIFIED AS BEING FOR A SPECIFIED TERM IN THE INFRASOFT LICENSE SCHEDULE. ( B ) ANY THIRD PARTY SOFTWARE INCORPORATED IN THE SOFTWARE IS LICENSED ONLY FOR USE WITH THE SOFTWARE. ( C ) INFRASOFT WILL SUPPLY ONE COPY OF THE SOFTWARE FOR EACH SITE AND, WHEN APPLICABLE, ONE SET OF SUPPORT INFORMATION TO THE LICENSEE. LICENSEE SHALL PAY INFRASOFT A FEE FOR ADDITIONAL COPIES OF ANY P RINTED SUPPORT INFORMATION SUPPLIED BY INFRASOFT. ( D ) LICENSEE MAY MAKE ONE COPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION FOR BACKUP PURPOSES, PROVIDED THAT THE COPY SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE SHALL BE THE EXCLUSIVE PROPERTY OF INFRASOFT. ( E ) THE SOFTWARE INCLUDES A LICENSE AUTHORISATION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE AS SPECIFIED IN THE INFRASOFT LICENSE SCHEDULE. ( F ) THE SOFTWARE SHALL BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENSE SCHEDULE AND SHALL NOT, WITHOUT PRIOR WRITTEN CONSENT FROM INFRASOFT: ( I ) BE LOANED, RENTED, SOLD, SUB - LICENSED OR TRANSFERRED TO ANY THIRD PARTY ( I I ) USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENTITY OF LICENSEE ( USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR PAGE 36 OF 46 I I I ) DATA PROCESSING ( G ) IF LICENSEE WAS GRANTED AN EDUCATIONAL LICENSE , AS IDENTIFIED ON THE INFRASOFT LICENSE SCHEDULE, THE SOFTWARE MAY ONLY BE USED FOR INSTRUCTION OR RESEARCH PURPOSES AND NOT FOR ANY COMMERCIAL PURPOSES. ( H ) LICENSEE MAY NOT COPY, DECOMPILE, DISASSEMBLE OR REVERSE - ENGINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE LICENSEE'S RIGHTS SHALL NOT BE RESTRICTED BY THIS CLAUSE 2(H) TO THE EXTENT THAT LOCAL LAW GRANTS LICENSEE A RIGHT TO DO SO FOR THE PURPOSE OF ACHIEVING INTEROPERABILITY WITH OTHER SOFTWARE AND IN ADDITION THERETO INFRASOFT UNDERTAKES TO MAKE INFORMATION RELATING TO INTEROPERABILITY AVA ILABLE TO LICENSEE SUBJECT TO SUCH REASONABLE CONDITIONS AS INFRASOFT MAY FROM TIME TO TIME IMPOSE INCLUDING A REASONABLE FEE FOR DOING SO. TO ENSURE LICENSEE RECEIVES THE APPROPRIATE INFORMATION, LICENSEE MUST FIRST GIVE INFRASOFT SUFFICIENT DETAILS OF IT S OBJECTIVES AND THE OTHER SOFTWARE CONCERNED. REQUESTS FOR THE APPROPRIATE INFORMATION SHOULD BE DIRECTED TO THE VICE PRESIDENT TECHNICAL OF INFRASOFT. 3. LICENCE FEES, PAYMENT AND TAXES ( A ) LICENSEE SHALL PAY INFRASOFT A LICENSE FEE FOR THE USE OF THE SOFTWARE AS AGREED IN THE ORDER. INFRASOFT CONFIRMS THAT WHERE THE LICENSEE HAS PURCHASED THE SOFTWARE THROUGH AN AUTHORISED RESELLER OF THE SOFTWARE THE LICENSEE SHALL OWE NO LICENSE FEES TO INFRASOFT WHERE THE LICENSEE HAS MADE PAYMENT OF THE LICENSE FEES TO THE AUTHORISED RESELLER. ( B ) ALL LICENSE FEES ARE EXCLUSIVE OF AND NET OF ANY TAXES, DUTIES OR OTHER SUCH ADDITIONAL SUMS INCLUDING, BUT WITHOUT PREJUDICE TO THE FOREGOING GENERALITY, VALUE ADDED/PURCHASE TAX, EXCISE TAX (TAX ON SALES, PROPERTY OR USE), IMPORT OR OTHER DUTIES AND WHETHER LEVIED IN RESPECT OF THIS AGREEMENT, THE SOFTWARE ITS USE OR OTHERWISE. ALL SUCH TAXES SHALL BE THE RESPONSIBILITY OF THE LICENSEE AND SHALL BE PAYABLE IN ADDITION TO THE LICENSE FEE. ( C ) INFRASOFT ADVISES THE LICENSEE THAT THE SOFTWARE CONTAINS A MECHANISM WH ICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. 4. ** ** ** 5. OWNERSHIP, INTELLECTUAL PROPERTY AND INDEMNITY ( A ) ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. INFRASOFT WARRANTS THAT IT HAS THE POWER TO GRANT THE LICENSE RIGHTS CONTAINED IN THIS AGREEMENT. 85. THE LICENSING AGREEMENT SHOWS THAT THE LICENSE IS NON - EXCLUSIVE, NON - TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACCORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE LICENSEE IS PERMITTED TO MAKE ONLY ONE C OPY OF THE SOFTWARE AND ASSOCIATED SUPPORT INFORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATED THAT PAGE 37 OF 46 THE COPY SO MADE SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY O F INFRASOFT. THE SOFTWARE INCLUDES A LICENSE AUTHORISATION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENSE SCHEDULE. WITHOUT THE CONSENT OF THE ASSESSEE TH E SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUB - LICENSED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENTITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSING. THE LICENSEE IS FURTHER RESTR ICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVERSE - ENGINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OTHER PROVISIONS OF THIS AGREEMENT. ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. 86. THE LICENSING AGREEMENT SHOWS THAT T HE LICENSE IS NON - EXCLUSIVE, NON - TRANSFERABLE AND THE SOFTWARE HAS TO BE USES IN ACCORDANCE WITH THE AGREEMENT. ONLY ONE COPY OF THE SOFTWARE IS BEING SUPPLIED FOR EACH SITE. THE LICENSEE IS PERMITTED TO MAKE ONLY ONE COPY OF THE SOFTWARE AND ASSOCIATED SU PPORT INFORMATION AND THAT ALSO FOR BACKUP PURPOSES. IT IS ALSO STIPULATED THAT THE COPY SO MADE SHALL INCLUDE INFRASOFT'S COPYRIGHT AND OTHER PROPRIETARY NOTICES. ALL COPIES OF THE SOFTWARE ARE THE EXCLUSIVE PROPERTY OF INFRASOFT. THE SOFTWARE INCLUDES A LICENSE AUTHORISATION DEVICE, WHICH RESTRICTS THE USE OF THE SOFTWARE. THE SOFTWARE IS TO BE USED ONLY FOR LICENSEE'S OWN BUSINESS AS DEFINED WITHIN THE INFRASOFT LICENSE SCHEDULE. WITHOUT THE CONSENT OF THE ASSESSEE THE SOFTWARE CANNOT BE LOANED, RENTED, SOLD, SUB - LICENSED OR TRANSFERRED TO ANY THIRD PARTY OR USED BY ANY PARENT, SUBSIDIARY OR AFFILIATED ENTITY OF LICENSEE OR USED FOR THE OPERATION OF A SERVICE BUREAU OR FOR DATA PROCESSING. THE LICENSEE IS FURTHER RESTRICTED FROM MAKING COPIES, DECOMPILE, DISASSEMBLE OR REVERSE - ENGINEER THE SOFTWARE WITHOUT INFRASOFT'S WRITTEN CONSENT. THE SOFTWARE CONTAINS A MECHANISM WHICH INFRASOFT MAY ACTIVATE TO DENY THE LICENSEE USE OF THE SOFTWARE IN THE EVENT THAT THE LICENSEE IS IN BREACH OF PAYMENT TERMS OR ANY OT HER PROVISIONS OF THIS AGREEMENT. ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN AND TO THE SOFTWARE, AND COPIES MADE BY LICENSEE, ARE OWNED BY OR DULY LICENSED TO INFRASOFT. 87. IN ORDER TO QUALIFY AS ROYALTY PAYMENT, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF ANY LICENSE ) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. IN ORDER TO TREAT THE CONSIDERATION PAID BY THE LICENSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT THE LICENS EE, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WORK. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED ARTICLE'. COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJECT, COPYRIGHTED . COPYRIGHT IS AN INTANGIBLE INCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTANCE, SUCH AS A MANUSCRIPT. JUST BECAUSE ONE HAS THE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HAS ALSO THE COPYRIGHT IN IT. IT DOES NOT AMOUNT TO TRANSFER OF ALL OR ANY RIGHT INCLUDING LICENSE 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 I S NOT ROYALTY. 88. THE LICENSE GRANTED BY THE ASSESSEE IS LIMITED TO THOSE NECESSARY TO ENABLE THE LICENSEE TO OPERATE THE PROGRAM. THE RIGHTS TRANSFERRED ARE SPECIFIC TO THE PAGE 38 OF 46 NATURE OF COMPUTER PROGRAMS. COPYING THE PROGRAM ONTO THE COMPUTER'S HARD DRIVE O R RANDOM ACCESS MEMORY OR MAKING AN ARCHIVAL COPY IS AN ESSENTIAL STEP IN UTILIZING THE 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 DISREGA RDED IN ANALYZING THE CHARACTER OF THE TRANSACTION FOR TAX PURPOSES. PAYMENTS 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 PAID ON TRANSFER OF COPYRIGHT RIGHTS AND CONSIDERATION FOR TRANSFER OF COPYRIGHTED ARTICLES. RIGHT TO USE A COPYRIGHTED ARTICLE OR PRODUCT WITH THE OWNER RETAINING HIS COPYRIGHT, IS NOT THE SAME THING AS TRANSFERRING OR ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF S OME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO INVOKE THE ROYALTY DEFINITION. VIEWED FROM THIS ANGLE, A NON - EXCLUSIVE AND NON - TRANSFERABLE LICENSE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUED AS AN AUTHORITY TO ENJOY ANY OR ALL OF THE ENUMERATED RIGHTS INGRAINED IN ARTICLE 12 OF DTAA. WHERE THE PURPOSE OF THE LICENSE 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 COP YRIGHT ITSELF OR RIGHT TO USE COPYRIGHT HAS BEEN TRANSFERRED TO ANY EXTENT. THE PARTING OF INTELLECTUAL PROPERTY RIGHTS INHERENT IN AND ATTACHED TO THE SOFTWARE PRODUCT IN FAVOUR OF THE LICENSEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE TREATY. MERELY AUTHOR IZING OR ENABLING A CUSTOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTIONS CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONFERMENT OF THE RIGHT OF USING THE COP YRIGHT. THE TRANSFER OF RIGHTS IN OR OVER 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 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 FOR HIS OWN USE IS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYR IGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSE. THE SAID PROCESS IS NECESSARY TO MAKE THE PROGRAMME FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PARAGRAPH BECAUSE IT IS ONLY INTEGRAL TO THE US E OF COPYRIGHTED PRODUCT. APART FROM SUCH INCIDENTAL FACILITY, THE LICENSEE HAS NO RIGHT TO DEAL WITH THE PRODUCT JUST AS THE OWNER WOULD BE IN A POSITION TO DO. 91. THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT BY THE ASSESSEE AND IT IS A CASE OF MERE TRANSFER OF A COPYRIGHTED ARTICLE. THE PAYMENT IS FOR A COPYRIGHTED ARTICLE AND REPRESENTS THE PURCHASE PRICE OF AN ARTICLE AND CANNOT BE CONSIDERED AS ROYALTY EITHER UNDER THE INCOME - TAX ACT OR UNDER THE DTAA. 92. THE LICENSEES ARE NOT ALLOWED TO EXPLOIT THE COMPUTER SOFTWARE COMMERCIALLY, THEY HAVE ACQUIRED UNDER LICENSE AGREEMENT, ONLY THE COPYRIGHTED 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 ONLY 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 EXCLUSIVE PROPERTIES OF INFRASOFT. LICENSEE WAS ALLOWED TO USE THE SOFTWARE ONLY FOR ITS PAGE 39 OF 46 OWN BUSINESS AS SPECIFICALLY IDENTIFIED AND WAS NOT PERMITTED TO LOAN/RENT/SALE/SUB - LICENSE OR TRANSFER THE COPY OF SOFTWARE TO ANY THIRD PARTY W ITHOUT THE CONSENT OF INFRASOFT. 93. THE LICENSEE HAS BEEN PROHIBITED FROM COPYING, DECOMPILING, DE - ASSEMBLING, OR REVERSE ENGINEERING THE SOFTWARE WITHOUT THE WRITTEN CONSENT OF INFRASOFT. THE LICENSE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOME RS STIPULATES THAT ALL COPYRIGHTS AND INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE AND COPIES MADE BY THE LICENSEE WERE OWNED BY INFRASOFT AND ONLY INFRASOFT HAS THE POWER TO GRANT LICENSE RIGHTS FOR USE OF THE SOFTWARE. THE LICENSE AGREEMENT STIPULATES TH AT UPON TERMINATION OF THE AGREEMENT FOR ANY REASON, THE LICENCEE SHALL RETURN THE SOFTWARE INCLUDING SUPPORTING INFORMATION AND LICENSE AUTHORIZATION DEVICE TO INFRASOFT. 94. THE INCORPOREAL RIGHT TO THE SOFTWARE I.E. COPYRIGHTER MAINS WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED BY THE ASSESSEE. THE RIGHT TO USE A COPYRIGHT IN A PROGRAMME IS TOTALLY DIFFERENT FROM THE RIGHT TO USE A 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 R ECEIVED 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 WITH THE OWNER AND THE LICENSEES HAVE ACQUIRED A COMPUTER PROGRAMME FOR BEING USED IN THEIR BUSINESS AND NO RIGHT IS GRANTED TO THEM TO UTILIZE THE COPYRIGHT OF A COMPUTER PROGRAMME AND THUS THE PAYMENT FOR THE SAME IS NOT IN THE NATURE OF ROYALTY. 20 . WE HAVE NOTED THE TERMS AND CONDITIONS OF SOFTWARE LICENSE IN THE DECISION BEFORE HONORABLEDELHI HIGH COURT AND IN THE IMPUGNED CASE BEFORE US. WE FOUND THEM SIMILAR TO THE ISSUE DECIDED BY HONOURABEL DELHI HIGH COURT. THEY ARE SIMILAR AS TO NON - EXCLUSIVE, NON - TRANSFERABLE AND USER RESTRICTIONS OF THE SOFTWARE I.E. THE SOFTWARE HAS TO BE USED IN ACCORDANCE WITH THE AGREEMENT, ALL THE INTELLECTUAL PROPERTY RIGHTS IN THE FORM OF PATENT, COPYRIGHT, TRADEMARK ETC. ARE THE PROPERTY OF THE SEL LER ONLY AND AT NO POINT OF TIME SAME HAS BEEN TRANSFERRED TO EITHER THE BUYER/ CUSTOMER, THE RIGHTS ACQUIRED IN RELATION TO THE COPYRIGHT ARE LIMITED TO THOSE NECESSARY TO ENABLE THE USER TO OPERATE THE PROGRAM, FOR EXAMPLE, WHERE THE TRANSFEREE IS GRANTE D LIMITED RIGHTS TO REPRODUCE THE PROGRAM . THE AGREEMENT CATEGORICALLY RESTRICTS THE USER TO COPY, PUBLISH, DISPLAY, DISCLOSE, MODIFY, MERGE ETC. THE SOFTWARE EXCEPT FOR ARCHIVAL PURPOSES AND NOT ALLOWED TO EXPLOIT THE COMPUTER SOFTWARE COMMERCIALLY. O N ID ENTICAL FACTS AND CIRCUMSTANCES, HONOURABLE DELHI HIGH COURT HAS HELD THAT 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 AR TICLE, 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 LIMITED TO THE RIGHT TO USE THE COPYRIGHTED MATERIAL PAGE 40 OF 46 AND THE SAME DOES NOT GIVE RISE TO ANY ROYALTY INCOME AND WO ULD BE CHARGEABLE TO TAX AS BUSINESS INCOME. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF HONOURABLE DELHI HIGH COURT WE HOLD THAT THAT CONSIDERATION RECEIVED BY THE ASSESSEE ON SALE OF SOFTWARE IS N OT CHARGEABLE TO TAX AS ROYALTY SUCH AS EQUIPMEN T ROYALTY, PROCESS ROYALTY ETC. UNDER ARTICLE 12 OF DTAA BUT AS BUSINESS INCOME UNDER ARTICLE 7 OF THE INDO FINLAND DTAA. 21 . BEFORE US AN ARGUMENT WAS ADVANCED BY THE REVENUE THAT THE RETROSPECTIVE AMENDMENT HAS BEEN MADE WITH EFFECT FROM 1 - 6 - 1976 BY THE FINANCE ACT 2012 BY INSERTING EXPLANATION 4 TO SECTION 9 (1) (VI) WHICH IS AS UNDER : - EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDI NG GRANTING OF A LICENSE ) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. THEREFORE, IT WAS THE ARGUMENT OF THE REVENUE THAT AS THE EXPLANATION SAYS THAT GRANTING OF LICENSE FOR USE OF A COMPUTER SOFTWARE IS TRANSFER OF ALL OR ANY RI GHTS IN RESPECT OF SOFTWARE. THEREFORE, A CCORDING TO LD. DR DESPITE THERE BEING NO AMENDMENT IN DTAA, IF THERE IS ANY AMENDMENT IN THE DOMESTIC TAX LAW, THERE IS NO NEED OF ANY AMENDMENT IN THE DTAA TO CHARACTERIZE THE RECEIPTS OF THE ASSESSEE AS ROYALT Y REGARDING GRANTING OF LICENSE OF SOFTWARE. TO EXAMINE THIS ARGUMENTD EFINITION OF ROYALTY, AS PER DTAA AND AS PER DOM ESTIC TAX LAWS ARE PARI MATERIA SAME AND THEY ARE REPRODUCED AS UNDER: - AS PER INDIA FINLAND DTAA (ARTICLE 12) 3. (A) THE TERM ROYALTIES, AS USED IN THIS ARTICLE, MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, AND FILMS OR TAPES FOR T ELEVISION OR RADIO BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIEN TIFIC EXPERIENCE. AS PER INCOME T AX ACT 1961 EXPLANATION 2. FOR THE PURPOSES OF THIS CLAUSE, ROYALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS) FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE ) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR PAGE 41 OF 46 TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL ; (IVA) THE USE OR RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB ; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE ) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNEC TION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB - CLAUSES (I) TO (IV), (IVA) AND (V). 22 . IT WAS FURTHER ARGUED THAT TERMS RIGHT , RIGHTS OR INFORMATION [ WHICH ARE MENTIONED IN EXPLANATION 4 INSERTED IN IT ACT WEF 1 - 4 - 1976] IS NOT DEFINED UNDER THE DTAA THEREFORE WITH THE AID OF ARTICLE 3 (2) OF THE INDIA FINLAND DTAA , THE MEANING OF THESE WORDS CONTEXTUALLY DEFINED IN THE INCOME TAX ACT SHOULD APPLY FOR THIS PURPOSES. LD. DR RELIED UP ON TWO DECISION NAMELY VIACOM 18 MEDIA (P.) LTD. [2014] 44 TAXMANN.COM 1 (MUMBAI - TRIB.) AND VODAFONE SOUTH LTD. [2015] 53 TAXMANN.COM 441 (BA NGALORE - TRIB.) FOR ADVANCING THIS ARGUMENT . ARTICLE 3 (2) OF THE DTAA PROVIDES THAT 2. AS REGARDS THE APPLICATION OF THE AGREEMENT AT ANY TIME BY A CONTRACTING STATE ANY TERM NOT DEFINED THEREIN SHALL, UNLESS THE CONTEXT OTHERWISE REQUIRES, HAVE THE MEANING THAT IT HAS AT THAT TIME UNDER THE LAW OF THAT STATE FOR THE PURPOSES OF THE TAXES TO WHICH THE AGREEMENT APPLIES, ANY MEANING UNDER THE APPLICABLE TAX LAWS OF THAT STATE PREVAILING OVER A MEANING GIVEN TO THE TERM UNDER OTHER LAWS OF THAT STATE. 23 . A CCORDIN G TO THE PLAIN READING OF THIS ARTICLE, IT IS CLEAR THAT UNLESS THE CONTEXT OTHERWISE REQUIRES, A ) THIS ARTICLE IS SOUGHT HELP OF AT ANY TIME ONLY FOR APPLICATION OF THIS AGREEMENT. B ) THE TERM, WHICH IS SUBJECT MATTER OF REFERENCE, IS NOT DEFINED IN THE TREATY. PAGE 42 OF 46 C ) THEN IT SHALL HAVE MEANING AS PER THE LAWS OF FOR TAXATION OF THAT STATE AT THAT TIME WHEN THE TREATY IS APPLIED . THEREFORE, IN THIS BACKGROUND WE ARE OF THE VIEW THAT THECONTEXT IS DETERMINED BY THE INTENT OF THE CONTRACTING STATES A T THE TIME OF ENTERING IN TO THE CONVENTION. IT IS APPARENT FROM THE DEFINITION OF ROYALTY IN DTAA AS WELL AS IN THE INCOME TAX ACT PREVAILING AT THE TIME OF ENTERING IN TO DTAA DID NOT PROVIDE FOR WHAT IS NOW INSERTED VIDE EXPLANATION 4 TO SECTION 9 (1) (VI) OF THE ACT. THEREFORE, A DEFINITION OR INTERPRETATION / MEANING OF THE WORD MAY NOT BE APPLIED IF ITS APPLICATION RESULTS IN CONSEQUENCES NOT INTENDED BY THE TREATY NEGOTIATORS . SIMPLE SUBMISSION IS THAT RETROSPECTIVE AMENDMENT MADE IN THE ACT SHALL BE APPLIED FOR THE INTERPRETATION OF TREATY. 24 . HONOURABLE DELHI HIGH COURT HAS ALREADY ANSWERED THIS CONTROVERSY IN 25 TAXMANN.COM 225 (DELHI) DIRECTOR OF INCOME - TAX V. NOKIA NETWOR KS OY * AS UNDER: - 23. IT WILL BE OF RELEVANCE TO POINT OUT THAT SECTION 9 OF THE ACT HAS BEEN AMENDED VIDE FINANCE ACT, 2012. THE FOLLOWING PROVISIONS HAVE BEEN ADDED TO SECTION 9 OF THE ACT VIDE SUB - SECTION (B) OF SECT ION 4 OF THE FINANCE ACT, 2012 SEEKING TO CLARIFY THE SCOPE OF CLAUSE (VI) OF SUB - SECTION (1) OF SECTION 9 OF THE ACT: - 'EXPLANATION 4: - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPE RLY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. EXPLANATION 5 - FOR THE REMOVA L OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT - ( A ) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY OR INFORMATION IS WITH THE PAYER; ( B ) SUCH RIGHT, PROPERTY OR INFORMATION IS USED DIRECTLY BY THE PAYER; ( C ) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION IS IN INDIA. EXPLANATION 6 - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE EXPRESSION 'PROCESS' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED TRANSMISSION BY SATELLITE (INCLUDING UP - LINKING, AMPLIFICATION, CONVERSION FOR DOWN LINKING OF ANY SIGNAL), CABLE, OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY, WHETHER OR NOT SUCH PROCESS IS SECRET;' THE ABOVE EXPLANATIONS HAVE BEEN INSERTED WITH RETROSPECTIVE EFFECT FROM 1.6.1976. THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2012, IN THE CONTEXT OF THE ABOVE PROVISIONS STATES: - PAGE 43 OF 46 'SECTION 9(1)(VI) PROVIDES THAT ANY INCOME PAYABLE BY WAY OF ROYALL Y IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION IS DEEMED TO BE ACCRUING OR ARISING IN INDIA. THE TERM 'ROYALTY' HAS BEEN DEFINED IN EXPLANATION 2 WHICH MEANS CONSIDERATION RECEIVED OR RECEIVABLE FOR TRANSFER OF ALL OR ANY RIGHT IN RESPECT OF CERTAIN RI GHTS, PROPERTY OR INFORMATION. SOME JUDICIAL DECISIONS HAVE INTERPRETED THIS DEFINITION IN A MANNER WHICH HAS RAISED DOUBTS AS TO WHETHER CONSIDERATION FOR USE OF COMPUTER SOFTWARE IS ROYALTY OR NOT; WHETHER THE RIGHT, PROPERTY OR INFORMATION HAS TO BE USE D DIRECTLY BY THE PAYER OR IS TO BE LOCATED IN INDIA OR CONTROL OR POSSESSION OF IT HAS TO BE WITH THE PAYER. SIMILARLY, DOUBTS HAVE BEEN RAISED REGARDING THE MEANING OF THE TERM PROCESSED. CONSIDERING THE CONFLICTING DECISIONS OF VARIOUS COURTS IN RESPECT OF INCOME IN NATURE OF ROYALTY AND TO RESTATE THE LEGISLATIVE INTENT, IT IS FURTHER PROPOSED TO AMEND THE INCOME TAX ACT IN FOLLOWING MANNER: - ( I ) TO AMEND SECTION 9(1)(VI) TO CLARIFY THAT THE CONSIDERATION FOR USE OR RIGHT TO USE OF COMPUTER SOFTWARE I S ROYALTY BY CLARIFYING THAT TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION AS MENTIONED IN EXPLANATION 2, INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. ( II ) TO AMEND SECTION 9(1)(VI) TO CLARIFY THAT ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT ( A ) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY OR INFORMATION IS WITH THE PAYER; ( B ) SUCH RIGHT, PROPERTY OR INFORMATION IS USED DIRECTLY BY THE PAYER; ( C ) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION IS IN INDIA ( III ) TO AMEND SECTION 9(1)(VI) TO CLARIFY THAT THE TERM 'PROCESS' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED TRANSMISSION BY SATELLITE (INCLUDING UP - LINKING, AMPLIFICATION, CONVERSION FOR DOWN - LINKING OF ANY SIGNAL), CABLE, OPTIC FIBRE OR BY ANY OTHER SI MILAR TECHNOLOGY, WHETHER OR NOT SUCH PROCESS IS SECRET. THESE AMENDMENTS WILL TAKE EFFECT RETROSPECTIVELY FROM 1ST JUNE, 1976 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 1977 - 78 AND SUBSEQUENT ASSESSMENT YEARS.' ON THE BASIS OF THIS AME NDMENT MADE EFFECTIVE FROM 1.6.1976, MR. PARASARAN ARGUED THAT THE ABOVE AMENDMENTS ARE ONLY CLARIFICATORY IN NATURE DEPICTING THE PARLIAMENT INTENTION VIZ; ( I ) THE MEDIUM THROUGH WHICH THE SOFTWARE IS TRANSFERRED ITSELF WILL NOT AFFECT THE TAXABILITY OF THE ROYALTY PAYMENTS MADE FOR THE TRANSFER OF RIGHT TO USE OR ACTUAL USE OF THE SOFTWARE IN INDIA BY A NON - RESIDENT. ( II ) IT IS NOT NECESSARY THAT THE ACTUAL SOFTWARE BE TRANSFERRED TO AN INDIAN USER OR IN FACT USED IN INDIA SO LONG AS THE RIGHT TO USE HAS BEEN TRANSFERRED TO A RESIDENT TAXPAYER FOR VALUABLE CONSIDERATION. HE, THUS SUBMITTED THAT THE QUESTION OF 'COPYRIGHTED ARTICLE' OR ACTUAL COPYRIGHT DOCS NOT ARISE IN THE CONTEXT OF SOFTWARE BOTH IN THE DTAA AND IN THE INCOME TAX ACT SINCE THE RIGHT TO USE SIMPLICITER OF A SOFTWARE PROGRAM ITSELF IS A PART OF THE COPYRIGHT IN THE SOFTWARE IRRESPECTIVE OF WHETHER OR NOT A FURTHER RIGHT TO MAKE COPIES IS GRANTED. THE DECISION OF THE DELHI BENCH OF THE ITAT HAS DEALT WITH THIS ASPECT IN ITS JUDGMENT IN GRACEMAC CORPN. V. ASSTT. DIT [2010] 42 SOT 550 (DELHI) POINTING OUT THAT EVEN SOFTWARE BOUGHT OFF THE SHELF, DOES NOT CONSTITUTE A 'COPYRIGHTED ARTICLE' AS SOUGHT TO BE MA DE OUT BY THE SPECIAL BENCH OF PAGE 4 4 OF 46 THE ITAT IN THE PRESENT CASE. HOWEVER, THE ABOVE ARGUMENT MISSES THE VITAL POINT NAMELY THE ASSESSEE HAS OPTED TO BE GOVERNED BY THE TREATY AND THE LANGUAGE OF THE SAID TREATY DIFFERS FROM THE AMENDED SECTION 9 OF THE ACT. IT IS CATEGORICALLY HELD IN CIT V. SIEMENS AKTIONGESELLSCHAFT, [2009] 310 ITR 320 / 177 TAXMAN 81 (BOM) THAT THE AMENDMENTS CANNOT BE READ INTO THE TREATY. ON THE WORDING OF THE TREATY, WE HAVE ALREADY HELD IN ERICSSON ( SUPRA ) THAT COPYRIGHTED ARTICLE DOE S NOT FALL WITHIN THE PURVIEW OF ROYALTY. THEREFORE, WE DECIDE QUESTION OF LAW NOS.1 & 2 IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 25 . FURTHER NOW HONOURABLE DELHI HIGH COURT HAS HELD IN CASE OF DIT V NEW SKIES SETTLIETE BV ITA NO 473/2012 DATED 8/2/2016 59. ON A FINAL NOTE, INDIAS CHANGE IN POSITION TO THE OECD COMMENTARY CANNOT BE A FACT THAT INFLUENCES THE INTERPRETATION OF THE WORDS DEFINING ROYALTY AS THEY STAND TODAY. THE ONLY MANNER IN WHICH SUCH CHANGE IN POSITION CAN BE RELEVANT IS IF SUCH CHANGE IS INCORPORATED INTO THE AGREEMENT ITSELF AND NOT OTH ERWISE. A CHANGE IN EXECUTIVE POSITION CANNOT BRING ABOUT A UNILATERAL LEGISLATIVE AMENDMENT INTO A TREATY CONCLUDED BETWEEN TWO SOVEREIGN STATES. IT IS FALLACIOUS TO ASSUME THAT ANY CHANGE MADE TO DOMESTIC LAW TO RECTIFY A SITUATION OF MISTAKEN INTERPRETA TION CAN SPONTANEOUSLY FURTHER THEIR CASE IN AN INTERNATIONAL TREATY. THEREFORE, MERE AMENDMENT TO SECTION 9(1)(VI) CANNOT RESULT IN A CHANGE. IT IS IMPERATIVE THAT SUCH AMENDMENT IS BROUGHT ABOUT IN THE AGREEMENT AS WELL. ANY ATTEMPT SHORT OF THIS, EVEN I F IT IS EVIDENCE OF THE STATES DISCOMFORT AT LETTING DATA BROADCAST REVENUES SLIP BY, WILL BE INSUFFICIENT TO PERSUADE THIS COURT TO HOLD THAT SUCH AMENDMENTS ARE APPLICABLE TO THE DTAAS. 60. CONSEQUENTLY, SINCE WE HAVE HELD THAT THE FINANCE ACT, 2012 WI LL NOT AFFECT ARTICLE 12 OF THE DTAAS, IT WOULD FOLLOW THAT THE FIRST DETERMINATIVE INTERPRETATION GIVEN TO THE WORD ROYALTY IN ASIA SATELLITE , WHEN THE DEFINITIONS WERE IN FACT PARI MATERIA (IN THE ABSENCE OF ANY CONTOURING EXPLANATIONS), WILL CONTINUE TO HOLD THE FIELD FOR THE PURPOSE OF ASSESSMENT YEARS PRECEDING THE FINANCE ACT, 2012 AND IN ALL CASES WHICH INVOLVE A DOUBLE TAX AVOIDANCE AGREEMENT, UNLESS THE SAID DTAAS ARE AMENDED JOINTLY BY BOTH PARTIES TO INCORPORATE INCOME FROM DATA TRANSMISSION S ERVICES AS PARTAKING OF THE NATURE OF ROYALTY, OR AMEND THE DEFINITION IN A MANNER SO THAT SUCH INCOME AUTOMATICALLY BECOMES ROYALTY. IT IS REITERATED THAT THE COURT HAS NOT RETURNED A FINDING ON WHETHER THE AMENDMENT IS IN FACT RETROSPECTIVE AND APPLICAB LE TO CASES PRECEDING THE FINANCE ACT OF 2012 WHERE THERE EXISTS NO DOUBLE TAX AVOIDANCE AGREEMENT. 26 . IN THE ABOVE DECISION OF HONOURABLE HIGH COURT DECISION OF HONORABLE MADRAS HIGH COURT IN CASE OF VERIZONE COMMUNICATION SINGAPORE PTE 361 ITR 575 WAS CONSIDERED AND NOT FOLLOWED HOLDING THAT: - 31. IN A JUDGMENT BY THE MADRAS HIGH COURT IN VERIZON COMMUNICATIONS SINGAPORE PTE LTD. V. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, THE COURT HELD THE EXPLANATIONS TO BE APPLICABLE TO NOT ONLY THE DOMESTIC DEFINITION BUT ALSO CARRIED THEM TO INFLUENCE THE MEANING OF ROYALTY UNDER ARTICLE 12. NOTABLY, IN BOTH CASES, THE 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 HOWEVER LIES IN THE APPLICATION OF THE AMENDMENTS TO THE PAGE 45 OF 46 DTAA. WHILE TV TODAYRECOGNIZES THAT THE QUESTION WILL HAVE TO BE DECIDED AND THE SUB MISSION ARGUED, VERIZON CITES NO REASON FOR THE EXTENSION OF THE AMENDMENTS TO THE DTAA. AS THE LD. DR HAS CITED TWO DECISION OF COORDINATE BENCHES TO SUPPORT THE CASE OF THE REVENUE;HOWEVER, BOTH THE CASES WERE FOLLOWING THE DECISION OF HONOURABL E MADRAS HIGH COURT OF VERIZON COMMUNICATIONS SINGAPORE (P.) LTD. V. ITO (INTL. TAXATION) [2014] 361 ITR 575/39 TAXMANN.COM 70 . DECISION OF HONOURABLE MADRAS HIGH COURT HA S NOT BEEN FOLLOWED BY HONOURABLE DELHI HIGH COURT, THEREFORE RESPECTFULLY FOLLOWING HONOURABLE DELHI HIGH BOTH THE DECISION OF COORDINATE BENCH ARE NOW NOT RELEVANT FOR DECIDING THE CONTROVERSY . 27 . IN VIEW OF THIS WE ALLOW GROUND NO 1 TO 3 OF THE APPEAL OF THE ASSESSEE HOLDING THAT SALE OF SOFTWARE BY THE ASSESSEE IS A STANDARD SOFTWARE WHICH IS CHARGEABLE TO TAX UNDER ARTICLE 7 OF DTAA AS BUSINESS INCOME OF THE ASSESSEE AND NOT UNDER ARTICLE 12 AS ROYALTY . 28 . GROUND NO 4 OF THE APPEAL OF THE ASSESSEE IS NOT ALLOWING CREDIT FOR TDS THOUGH INCOME IS CHARGED AFTER GROSSING UP OF THIS TDS. LD. AR AND LD. DR BOTH AGREED THAT THIS ISSUE MAY BE SET ASIDE TO THE FILE OF AO AND TO GRANT CREDIT OF TDS , IF FOUND IN ACCORDANCE WITH THE LAW . THEREFORE WE SET ASIDE THIS GROUND OF APPEAL TO THE FILE OF AO WITH A DIRE CTION TO GRANT CREDIT OF TDS TO THE ASSESSEE , IF FOUND IN ACCORDANCE WITH THE LAW. IN THE RESULT GROUND NO 4 OF THE APPEAL IS ALLOWED. 29 . GROUND NO 5 TO 7 ARE CONSEQUENTIAL IN NATURE THEREFORE THE Y ARE DISMISSED. 30 . NOW COMING TO THE APPEAL OF THE ASSESSE FOR AY 2008 - 09, GROUND NO 1 TO 3 OF THE APPEAL ARE AGAINST CONSIDERATION OF SALE OF SOFTWARE AS ROYALTY BY LD. AO AND ARE COVERED BY OUR DECISION IN APPEAL OF ASSESSEE FOR AY 2007 - 08. HENCE, WE ALLOW GROUND NO 1 TO 3 OF THE APPEAL. 31 . GROUND NO 4 OF THE APPEAL IS AGAINST NOT GRANTING CREDIT FOR TDS, WE HAVE ALREADY DECIDED THIS ISSUE IN GROUND NO 4 OF THE APPEAL OF THE ASSESSEE FOR AY 2007 - 08 AND THEREFORE WE ALLOW ACCORDINGLY GROUND NO 4 OF THIS AP PEAL. 32 . GROUND NO 5 & 6 ARE CONSEQUENTIAL IN NATURE THEREFORE THEY ARE DISMISSED. 33 . NOW COMING TO THE APPEAL OF THE ASSESSEE FOR AY 2009 - 10. GROUND NO 1 TO 3OF THE APPEAL ARE AGAINST CONSIDERATION OF SALE OF SOFTWARE AS ROYALTY BY LD. AO AND ARE COVERED BY OUR DECISION IN APPEAL OF ASSESSEE FOR AY 2007 - 08. HENCE, WE ALLOW GROUND NO 1 TO 3 OF THE APPEAL. PAGE 46 OF 46 34 . GROUND NO 4 OF THE APPEAL IS AGAINST NOT GRANTING CREDIT FOR TDS, WE HAVE ALREADY DECIDED THIS ISSUE IN GROUND NO 4 OF THE APPEAL OF THE ASSESSEE FOR AY 2007 - 08 AND THEREFORE WE ALLOW ACCORDINGLY GROUND NO 4 OF THIS APPEAL 35 . GROUND NO 4.1 , 5 AND 6 OF THE APPEAL ARE CONSEQUENTIAL IN NATURE THEREFORE THEY ARE DISMISSED. 36 . IN THE RESULT ALL, THE THREE APPEALS OF THE ASSESSE ARE PARTLY ALLOWED. 37 . ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 / 0 4 /2016 . - S D / - - S D / - ( A . T.VARKEY ) ( PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 2 / 0 4 /2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI
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