NCR Corporation India Private Limited, Bangalore V. DDIT, Bangalore

ITA 545/BANG/2011

• Counselvise Citation: 54521114 RSA 2011
• Duration Of Justice: 1 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIIIDR
• Keywords: Double taxation relief; Permanent establishment; Non-deduction of tax
• Section: 201(1); 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.545/BANG/2011 ASSESSMENT YEAR : 2010-11 NCR CORPORATION INDIA PRIVATE LIMITED, C/O. MR. K. HARIHARAN, PARTNER, HARI & VASU, CHARTERED ACCOUNTANTS, 231, KRISHNA, 32-A CROSS, 7 TH BLOCK, JAYANAGAR, BANGALORE 560 082. PAN : AAACN 7149L VS. THE DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI ETWA MUNDA, CIT-III(DR) DATE OF HEARING : 22.05.2012 DATE OF PRONOUNCEMENT : 22.05.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 15.02.2011 OF THE CIT(APPEALS)-III, BANGALORE. ITA NO.545/BANG/2011 PAGE 2 OF 14 2. DURING THE COURSE OF HEARING, NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE, HOWEVER AN APPLICATION FOR ADJOURNMENT WA S FILED BY THE LD. COUNSEL FOR THE ASSESSEE STATING THEREIN AS UNDER:- THE ABOVE APPEAL IS POSTED FOR HEARING ON 22.05.2 012. THE HEARING NOTICE WAS RECEIVED ONLY ON 17-5-2012. AS I HAVE TO ATTEND AN IMPORTANT FAMILY FUNCTION IN KERALA, I AM UNABLE TO ATTEND THE CASE ON 22-5-2012. HENCE, I HUMBLY REQU EST YOU TO ADJOURN THE CASE TO SOME OTHER DATE PREFERABLY IN T HE LAST WEEK OF JULY 2012 AND OBLIGE. WE DID NOT FIND MERIT IN THE SAID APPLICATION, HENC E THE CASE WAS HEARD EX PARTE, QUA THE ASSESSEE . 3. THE ONLY GRIEVANCE OF THE ASSESSEE IN THIS APPEA L RELATES TO THE APPLICABILITY OF THE PROVISIONS CONTAINED IN SECTIO N 9(1)(VI) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] AND IN CONSIDERING THE SALE OF SOFTWARE AS ROYALTY. 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS A PRIVATE LIMITED COMPANY AND WAS ENGAGED IN THE MANUFACTURE AND SALE OF AUTOMATED TELLER MACHINES (ATMS), ATM PARTS AND ACC ESSORIES. THE ASSESSEE IMPORTED SOFTWARE FROM NCR GLOBAL SOLUTION S LTD., IRELAND, HOWEVER WHILE MAKING OUTWARD REMITTANCES, THE ASSES SEE DID NOT DEDUCT TAX AT SOURCE. THE AO HELD THAT THE PAYMENT IN QUE STION AMOUNTED TO PAYMENT OF ROYALTY, FOR FAILURE TO DEDUCT TAX AS RE QUIRED U/S. 195 OF THE ACT, THE AO ASSESSED THE LIABILITY U/S. 201(1) OF THE AC T AND CHARGED INTEREST U/S. 201(1A) OF THE ACT. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND ADMITTED THAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. SAMSUNG ELECTRONICS AS REPORTED IN 320 ITR 209 HAS HELD THE ISSUE AGAIN ST ITA NO.545/BANG/2011 PAGE 3 OF 14 THE ASSESSEE, STILL IT WAS STATED THAT THE HONBLE SUPREME COURT IN THE CASE OF M/S. GE TECHNOLOGY CENTRE V. CIT V. CIT REPORTED AT 327 ITR 456 HAS SET ASIDE THE HONBLE KARNATAKA HIGH COURT JUDGMENT AGAIN FOR RECONSIDERATION. 6. THE LD. CIT(APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING THAT IN THE CASE OF M/S. SAMSUNG ELECTRONICS , IT HAS BEEN HELD THAT PAYMENT MADE TOWARDS SHRINK-WRAPPED SOFTWARE WAS LIABLE FOR WITHHOLDING TAX. HE FURTHER OBSERVED THAT UNLESS T HE HONBLE HIGH COURT REVERSES ITS JUDGMENT, IT WAS OBLIGATORY ON THE PAR T OF THE LOWER AUTHORITIES TO FOLLOW THE JUDGMENT OF THE HONBLE JURISDICTIONA L HIGH COURT. THE LD. CIT(A) HELD THAT THE HONBLE SUPREME COURT THOUGH O N A LIMITED ISSUE OF CHARGEABILITY REMANDED BACK THE MATTER, STILL THE R ULING OF THE HONBLE JURISDICTIONAL HIGH COURT ON THE ISSUE OF PAYMENTS TOWARDS SHRINK-WRAPPED SOFTWARE BEING LIABLE FOR WITHHOLDING THE TAX HAS TO BE FOLLOWED. HE ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING O FFICER. NOW THE ASSESSEE IS IN APPEAL. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DR AND CAREFULLY GONE THROUGH THE MATERIAL ON RECORD. IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS WAS SUBJECT MATTER OF ADJUDI CATION BEFORE THIS BENCH OF THE TRIBUNAL IN THE CASE OF M/S. SAMSUNG ELECTRONICS CO. LTD.. V. DCIT (INTERNATIONAL TAXATION), CIRCLE 2(1), BANGALORE IN ITA NO.299/BANG/2011 FOR THE A.Y. 2005-06 WHEREIN VIDE ORDER DATED 22.03 .2012, THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN ITA NO.2808/20 05 & ORS., IN THE CASE OF M/S. SAMSUNG ELECTRONICS CO. LTD. & ORS. V. DCIT , ORDER DATED 15.10.2011 ITA NO.545/BANG/2011 PAGE 4 OF 14 AND THE RELEVANT FINDINGS ARE GIVEN IN PARAS 7 & 8 OF THE AFORESAID REFERRED TO ORDER DATED 22.03.2012 WHICH READ AS UNDER: 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N RECORD. IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT IN ASSE SSEES OWN CASE, IDENTICAL ISSUE HAS BEEN DECIDED BY THE HONBLE JUR ISDICTIONAL HIGH COURT AND THEIR LORDSHIPS IN THE JUDGMENT DATE D 15.10.2011 WHILE DECIDING THE ITA NO.2808/2005 & OR S., OBSERVED IN PARAS 20 TO 25 AS UNDER: 20. HAVING REGARD TO THE ABOVE SAID DEFINITION OF 'ROYALTY', WE HAVE TO CONSIDER THE CONTENTS OF SOFT WARE LICENCE AGREEMENT ENTERED INTO BY NON-RESIDENT WITH SAMSUNG ELECTRONICS AND ALSO RESPONDENTS IN THE CAS E REPRESENTED BY SRI GANESH, LEARNED SENIOR COUNSEL A ND SRI ARAVIND DATTAR, WHEREIN IT IS A CASE OF PURCHAS E, SALE OR DISTRIBUTION OR OTHERWISE OF THE OFF-THE-SHELF S OFTWARE. IT IS DESCRIBED AS A 'SOFTWARE LICENCE AGREEMENT', WHEREIN IT IS AVERRED THAT CUSTOMER ACCEPTS AN INDIVIDUAL, NON- TRANSFERABLE AND NON-EXCLUSIVE LICENCE TO USE THE LICENSED SOFTWARE PROGRAM(S) PROGAM(S) ON THE TERMS AND CONDITIONS ENUMERATED IN THE AGREEMENT. IT IS F URTHER AVERRED THAT THE CUSTOMER - SAMSUNG ELECTRONICS SHA LL PROTECT CONFIDENTIAL INFORMATION AND SHALL NOT REMO VE ANY COPYRIGHT, CONFIDENTIALITY OR OTHER PROPRIETARY RIGHTS PROVIDED BY THE NON-RESIDENT. HOWEVER, WHAT IS GRAN TED UNDER THE SAID LICENCE IS ONLY A LICENCE TO USE THE SOFTWARE FOR INTERNAL BUSINESS WITHOUT HAVING ANY R IGHT FOR MAKING ANY ALTERATION OR REVERSE ENGINEERING OR CREATING SUB-LICENCES. WHAT IS TRANSFERRED UNDER TH E SAID LICENCE IS THE LICENCE TO USE THE SOFTWARE AND COPY RIGHT CONTINUE TO BE WITH THE NON-RESIDENT AS PER THE AGREEMENT. EVEN AS PER THE AGREEMENT ENTERED INTO W ITH THE OTHER DISTRIBUTORS AS ALSO THE END-USER LICENCE AGREEMENT, IT IS CLEAR THAT THE DISTRIBUTOR WOULD G ET EXCLUSIVE NON-TRANSFERABLE LICENCE WITHIN THE TERRI TORY FOR WHICH HE IS APPOINTED AND HE HAS GOT RIGHT TO DISTRIBUTE VIA RESELLERS THE SOFTWARE, UPON PAYMENT OF THE LICENSES SET FORTH IN EXHIBIT A TO THE AGREEMEN T ONLY TO END USERS PURSUANT TO A VALID ACTUATE SHRINKWRAP OR OTHER ACTUATE LICENSE AGREEMENT AND EXCEPT AS EXPRE SSLY SET FORTH IN THE SAID AGREEMENT, DISTRIBUTOR MAY NO T RENT, LEASE, LOAN, SELL OR OTHERWISE DISTRIBUTE THE SOFTW ARE THE DOCUMENTATION OR ANY DERIVATIVE WORKS BASED UPON TH E ITA NO.545/BANG/2011 PAGE 5 OF 14 SOFTWARE OR DOCUMENTATION IN WHOLE OR IN PART. DISTRIBUTOR SHALL NOT REVERSE ENGINEER, DECOMPILE, OR OTHERWISE ATTEMPT TO DERIVE OR MODIFY THE SOURCE CO DE FOR THE SOFTWARE. DISTRIBUTOR SHALL HAVE NO RIGHTS TO THE SOFTWARE OTHER THAN THE RIGHTS EXPRESSLY SET FORTH IN THE AGREEMENT. DISTRIBUTOR SHALL NOT MODIFY OR COPY ANY PART OF THE SOFTWARE OR DOCUMENTATION. DISTRIBUTOR MAY N OT USE SUB-DISTRIBUTORS FOR FURTHER DISTRIBUTION OF TH E SOFTWARE AND DOCUMENTATION WITHOUT THE PRIOR CONSEN T OF ACTUATE. WHAT IS CHARGED IS THE LICENCE FEE TO B E PAID BY THE DISTRIBUTOR OF THE SOFTWARE AS ENUMERATED IN EXHIBIT A TO THE AGREEMENT. FURTHER, CLAUSE 6.01 OF THE AGREEMENT DEALING WITH TITLE STATES THAT THE DISTRI BUTOR ACKNOWLEDGES THAT ACTUATE AND ITS SUPPLIERS RETAIN ALL RIGHT, TITLE AND INTEREST IN AND TO THE ORIGINAL, A ND ANY COPIES (BY WHOMEVER PRODUCED), OF THE SOFTWARE OR DOCUMENTATION AND OWNERSHIP OF ALL PATENT COPYRIGHT , TRADEMARK, TRADE SECRET AND OTHER INTELLECTUAL PROP ERTY RIGHTS PERTAINING THERETO, SHALL BE AND REMAIN THE SOLE PROPERTY OF ACTUATE. DISTRIBUTOR SHALL NOT BE AN OW NER OF ANY COPIES OF, OR ANY INTEREST IN, THE SOFTWARE, BU T RATHER IS LICENCED PURSUANT TO THE AGREEMENT TO USE AND DISTRIBUTE SUCH COPIES. ACTUATE REPRESENTS THAT IT HAS THE RIGHT TO ENTER INTO THE AGREEMENT AND GRANT THE LIC ENCES PROVIDED THEREIN AND CONFIDENTIALITY IS PROTECTED. THEREFORE, ON READING THE CONTENTS OF THE RESPECTIV E AGREEMENT ENTERED INTO BY THE RESPONDENTS WITH THE NON- RESIDENT, IT IS CLEAR THAT UNDER THE AGREEMENT, WHA T IS TRANSFERRED IS ONLY A LICENCE TO USE THE COPYRIGHT BELONGING TO THE NON-RESIDENT SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT AS REFERRED TO ABOVE AN D THE NON-RESIDENT SUPPLIER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND ALL OTHER INTELLECTUAL PROPERTY RIGHT S. IT IS WELL SETTLED THAT COPYRIGHT IS A NEGATIVE RIGHT. IT IS AN UMBRELLA OF MANY RIGHTS AND LICENCE IS GRANTED FOR MAKING USE OF THE COPYRIGHT IN RESPECT OF SHRINK WRAPPED SOFTWARE/OFF-THE-SHELF SOFTWARE UNDER THE RESPECTIVE AGREEMENT, WHICH AUTHORIZES THE END USER I.E. , THE CUSTOMER TO MAKE USE OF THE COPYRIGHT SOFTWARE CONTAINED IN THE SAID SOFTWARE, WHICH IS PURCHASED OFF THE SHELF OR IMPORTED AS SHRINK WRAPPED SOFTWARE AN D THE SAME WOULD AMOUNT TO TRANSFER OF PART OF THE COPYRI GHT AND TRANSFER OF RIGHT TO USE THE COPYRIGHT FOR INTE RNAL BUSINESS AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS THAT T HERE IS ITA NO.545/BANG/2011 PAGE 6 OF 14 NO TRANSFER OF COPYRIGHT OR ANY PART THEREOF UNDER THE AGREEMENTS ENTERED INTO BY THE RESPONDENT WITH THE NON- RESIDENT SUPPLIER OF SOFTWARE CANNOT BE ACCEPTED. 21. IT IS FURTHER CONTENDED BY THE LEARNED SENIOR COUN SEL APPEARING FOR THE RESPONDENTS THAT IN VIEW OF THE F ACT THAT WHAT IS SUPPLIED BY THE NON-RESIDENT TO THE RESPONDENT IN INDIA IS ONLY A SHRINK WRAPPED SOFTWARE/OFF-THE-SHELF SOFTWARE, WHICH IS NOT CUSTO MISED TO SUIT THE NEEDS OF THE RESPONDENT, THE SAID SOFTW ARE IS TO BE TREATED AS GOODS AND THERE IS SALE OF THE SOF TWARE AND COPY OF THE SOFTWARE. THEREFORE, THE QUESTION O F PAYING ANY ROYALTY WOULD NOT ARISE. IN SUPPORT OF T HE SAID CONTENTION, THE LEARNED SENIOR COUNSEL APPEARI NG FOR THE RESPONDENTS HAS STRONGLY RELIED UPON THE DECISI ON OF THE HON'BLE SUPREME COURT IN TATA CONSULTANCY SERVICES' CASE ( SUPRA ) (HEREINAFTER REFERRED TO AS THE TCS'S CASE), WHEREIN THE HON'BLE SUPREME COURT WAS CONSIDERING THE QUESTION AS TO WHETHER THE CANNED SOFTWARE SOLD BY THE APPELLANTS CAN BE TERMED TO BE 'GOODS' AND AS SUCH ASSESSABLE TO SALES TAX UNDER T HE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. HAVING REGARD TO THE BROAD DEFINITION OF 'GOODS' UNDER SEC TION 2(H) OF THE SAID ACT AND ALSO THE PROVISIONS OF ART ICLE 366(12) OF THE CONSTITUTION OF INDIA, THE HON'BLE SUPREME COURT WAS PLEASED TO ANSWER THE SAID QUESTI ON FOR DETERMINATION BY HOLDING THAT ONCE THE 'INFORMA TION' OR 'KNOWLEDGE' IS TRANSFORMED INTO PHYSICAL EXISTEN CE AND RECORDED IN PHYSICAL FORM, IT IS CORPOREAL PROP ERTY. THE PHYSICAL RECORDING OF THE SOFTWARE IS NOT AN INCORPOREAL RIGHT TO BE COMPREHENDED AND ACCORDINGL Y, HELD THAT THE SOFTWARE MARKETED BY THE APPELLANTS T HEREIN INDISPUTABLY WAS CANNED SOFTWARE AND THUS, SALE OF THE SAME WOULD ATTRACT THE PROVISIONS OF THE ANDHRA PRA DESH GENERAL SALES TAX ACT, 1957. 22. THE QUESTION AS TO WHETHER THE PAYMENT MADE FOR IMPORT OF SOFTWARE OR SUPPLY OF SOFTWARE BY THE NON - RESIDENT COMPANIES WAS ROYALTY OR NOT WAS NOT AT AL L IN ISSUE IN TCS'S CASE AND THE QUESTION WAS WHETHER CA NNED SOFTWARE SOLD BY THE APPELLANTS THEREIN AMOUNTED TO SALE OF GOODS UNDER THE ANDHRA PRADESH GENERAL SALES TAX ACT. FURTHER, THE ISSUE OF TRANSFER OF RIGHT TO USE THE GOODS AS PER THE EXPANDED DEFINITION OF 'SALE' DID NOT COME UP FOR CONSIDERATION IN THAT CASE. ON THE OTHE R HAND THE ISSUE IN THE PRESENT CASE IS AS TO WHETHER THE PAYMENT WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANIN G ITA NO.545/BANG/2011 PAGE 7 OF 14 OF INCOME TAX ACT AND DTTA. IN THE SAID TCS'S CASE, IT HAS BEEN HELD THAT COPYRIGHT IN COMPUTER PROGRAM MA Y REMAIN WITH THE ORIGINATOR OF THE PROGRAM, BUT, THE MOMENT COPIES ARE MADE AND MARKETED, IF BECOMES GOODS, WHICH ARE SUSCEPTIBLE TO TAX. THE CONTENTION OF THE ASSESSEE THAT THE CONSIDERATION RECEIVED BY THE NON- RESIDENT SUPPLIER TOWARDS THE SOFTWARE PRODUCTS WOU LD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF DTAA WITH RESPECTIVE COUNTRY WAS NOT AT ALL CONSIDERED IN THE SAID CASE. THEREFORE, THE SAID DECISION IN TCS'S CASE IS NOT HELPFUL TO THE RESPONDENTS IN THE PRESENT CASES. IT IS WELL SETTLED THAT THE INTENT OF THE LEGISLATURE IN IMPOS ING SALES TAX AND INCOME TAX ARE ENTIRELY DIFFERENT AS INCOME TAX IS A DIRECT TAX AND SALES TAX IS AN INDIRECT TA X AND WHEREFORE, MERE FINDING THAT THE COMPUTER SOFTWARE WOULD BE INCLUDED WITHIN THE TERM 'SALES TAX' WOULD NOT PRECLUDE THIS COURT FROM HOLDING THAT THE SAID PAYM ENTS MADE BY THE RESPONDENTS TO THE NON-RESIDENT COMPANY IN THE PRESENT CASES WOULD AMOUNT TO 'ROYALTY' UNLESS THE RESPONDENTS ARE ABLE TO PROVE THAT THE SAID PAYMENT IS FOR THE SALE OF COMPUTER SOFTWARE, WHEREIN THE INCOME WOULD BE FROM THE BUSINESS AND IN THE ABSENCE OF AN Y PERMANENT ESTABLISHMENT OF THE NON-RESIDENT SUPPLIE R, THERE IS NO OBLIGATION ON THE PART OF THE PAYEE TO MAKE DEDUCTION UNDER SECTION 195(1) OF THE ACT. 23. IT IS WELL SETTLED THAT IN THE ABSENCE OF ANY DEFI NITION OF 'COPYRIGHT' IN THE INCOME TAX ACT OR DTAA WITH T HE RESPECTIVE COUNTRIES, IN VIEW OF CLAUSE 3 OF THE DT AA, REFERENCE IS TO BE MADE TO THE RESPECTIVE LAW REGAR DING DEFINITION OF 'COPYRIGHT', NAMELY, COPYRIGHT ACT, 1 957, IN INDIA, WHEREIN IT IS CLEARLY STATED THAT 'LITERA RY WORK' INCLUDES COMPUTER PROGRAMMES, TABLES AND COMPILATIO NS INCLUDING COMPUTER [DATABASES]. SECTION 16 OF THE COPYRIGHT ACT, 1957 STATES THAT NO PERSON SHALL BE ENTITLED TO COPYRIGHT OR ANY SIMILAR RIGHT IN ANY W ORK, WHETHER PUBLISHED OR UNPUBLISHED, OTHERWISE THAN UN DER AND IN ACCORDANCE WITH THE PROVISIONS OF THE SAID A CT OR OF ANY OTHER LAW FOR THE TIME BEING IN FORCE, BUT N OTHING IN THIS SECTION SHALL BE CONSTRUED AS ABROGATING AN Y RIGHT OR JURISDICTION TO RESTRAIN A BREACH OF TRUST OR CO NFIDENCE. SECTION 14 OF THE SAID ACT DEALING WITH MEANING OF 'COPYRIGHT' READS AS FOLLOWS:- '14. MEANING OF COPYRIGHT. - FOR THE PURPOSES OF THIS ACT, 'COPYRIGHT' MEANS THE EXCLUSIVE RIGHT SUBJECT TO TH E PROVISIONS OF THIS ACT, TO DO OR AUTHORISE THE DOIN G OF ANY OF ITA NO.545/BANG/2011 PAGE 8 OF 14 THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBS TANTIAL PART THEREOF, NAMELY: - ( A ) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WO RK, NOT BEING A COMPUTER PROGRAMME,- ( I ) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUD ING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; ( II ) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEI NG COPIES ALREADY IN CIRCULATION; ( III ) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; ( IV ) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORDING IN RESPECT OF THE WORK; ( V ) TO MAKE ANY TRANSLATION OF THE WORK: ( VI ) TO MAKE ANY ADAPTATION OF THE WORK, ( VII )TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATI ON OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSES ( I ) TO ( VI ); ( B ) IN THE CASE OF A COMPUTER PROGRAMME,- ( I ) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE ( A ); ( II ) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMME: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. ( C ) IN THE EASE OF AN ARTISTIC WORK,- ( I ) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUD ING DEPICTION IN THREE DIMENSIONS OF A TWO-DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE-DIMENSIONAL WORK; ( II ) TO COMMUNICATE THE WORK TO THE PUBLIC: ( III ) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEI NG COPIES ALREADY IN CIRCULATION; ( IV ) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; ( V ) TO MAKE ANY ADAPTATION OF THE WORK; ( VI ) TO DO IN RELATION TO AN ADAPTATION OF THE WORK AN Y OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUS ES ( I ) TO ( IV ); ( D ) IN THE CASE OF A CINEMATOGRAPH FILM,- ( I ) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGRAP H OF ANY IMAGE FORMING PART THEREOF; ITA NO.545/BANG/2011 PAGE 9 OF 14 ( II ) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIR E, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BE EN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; ( III ) TO COMMUNICATE THE FILM TO THE PUBLIC; ( E ) IN THE CASE OF A SOUND RECORDING,- ( I ) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; ( II ) TO SELL OR GIVE ON HIRE, ON OFFER FOR SALE OR HIR E, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH C OPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS ; ( III ) TO COMMUNICATE THE SOUND RECORDING TO THE PUBLIC. EXPLANATION .- FOR THE PURPOSES OF THIS SECTION, A COPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALR EADY IN CIRCULATION. IT MAY ALSO BE NOTED THAT UNDER SECTION 51 OF THE A CT DEALING WITH 'WHEN COPYRIGHT INFRINGED' STATES THAT COPYRIGHT IN A WORK SHALL BE DEEMED TO BE INFRINGED - WHEN ANY PERSON, WITHOUT A LICENCE GRANTED BY THE O WNER OF THE COPYRIGHT OR THE REGISTRAR OF COPYRIGHTS UND ER THE ACT OR IN CONTRAVENTION OF THE CONDITIONS OF A LICENCE SO GRANTED OR OF ANY CONDITION IMPOSED BY A COMPETE NT AUTHORITY UNDER THE ACT: DOES ANYTHING, THE EXCLUSI VE RIGHT TO DO WHICH IS BY THE ACT CONFERRED UPON THE OWNER OF THE COPYRIGHT. SECTION 52 OF THE ACT DEALING WIT H CERTAIN ACTS NOT TO BE INFRINGEMENT OF COPYRIGHT ST ATES THAT THE FOLLOWING ACTS SHALL NOT CONSTITUTE AN INFRINGEMENT OF COPYRIGHT, NAMELY- XXXX ( AA ) THE MAKING OF COPIES OR ADAPTATION OF A COMPUTER PROGRAMME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FROM SUCH COPY. ( I ) IN ORDER TO UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED; OR ( II ) TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROT ECTION AGAINST LOSS, DESTRUCTION OR DAMAGE IN ORDER ONLY T O UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED.' 24. IT IS CLEAR FROM THE ABOVE SAID PROVISIONS OF THE COPYRIGHT ACT THAT THE RIGHT TO COPYRIGHT WORK WOUL D ALSO CONSTITUTE EXCLUSIVE RIGHT OF THE COPYRIGHT HO LDER ITA NO.545/BANG/2011 PAGE 10 OF 14 AND ANY VIOLATION OF THE SAID RIGHT WOULD AMOUNT TO INFRINGEMENT UNDER SECTION 51 OF THE ACT. HOWEVER, IF SUCH COPYING OF COMPUTER PROGRAM IS DONE BY A LAWFU L POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, THE SAME WOULD NOT CONSTITUTE INFRINGEMENT OF COPYRIGHT AND WHEREFORE, BUT FOR THE LICENCE GRANTED IN THESE CAS ES TO THE RESPONDENT TO MAKE COPY OF THE SOFTWARE CONTAIN ED IN SHRINK-WRAPPED/OFF-THE-SHELF SOFTWARE INTO THE H ARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE, A COPY FOR BACKUP PURPOSES, THE END USER HAS NO OTHER RIGHT AN D THE SAID TAKING BACKUP WOULD HAVE CONSTITUTED AN INFRINGEMENT, BUT FOR THE LICENCE. THEREFORE, LICEN CE IS GRANTED FOR TAKING COPY OF THE SOFTWARE AND TO STOR E IT IN THE HARD DISK AND TO TAKE A BACK UP COPY AND RIGHT TO MAKE A COPY ITSELF IS A PART OF THE COPYRIGHT. THER EFORE, WHEN LICENCE TO MAKE USE OF THE SOFTWARE BY MAKING COPY OF THE SAME AND TO STORE IT IN THE HARD DISK O F THE DESIGNATED COMPUTER AND TO TAKE BACK UP COPY OF THE SOFTWARE, IT IS CLEAR THAT WHAT IS TRANSFERRED IS R IGHT TO USE THE SOFTWARE, AN EXCLUSIVE RIGHT, WHICH THE OWNER O F THE COPYRIGHT I.E. , THE RESPONDENT-SUPPLIER OWNS AND WHAT IS TRANSFERRED IS ONLY RIGHT TO USE COPY OF THE SOFTWA RE FOR THE INTERNAL BUSINESS AS PER THE TERMS AND CONDITIO NS OF THE AGREEMENT. THE DECISION OF THE DELHI HIGH COURT IN DYNAMIC VERTICAL SOFTWARE INDIA (P.) LTD.'S CASE ( SUPRA ) RELIED UPON BY SRI ARAVIND DATTAR, LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS IN SOME OF TH E CASES IN SUPPORT OF HIS CONTENTION THAT BY NO STRET CH OF IMAGINATION, PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT SUPPLIERS CAN BE TREATED AS 'ROYALTY' IS NOT HELPFUL TO THE RESPONDENTS IN THE PRESENT CASES AS IN THE SAID CASE, DELHI HIGH COURT WAS CONSIDERING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT AND THE O RDER OF THE HIGH COURT READS AS FOLLOWS :- 'WHAT IS FOUND, AS A MATTER OF FACT, IS THAT THE AS SESSEE HAS BEEN PURCHASING THE SOFTWARE FROM MICROSOFT AND SOL D IT FURTHER IN INDIAN MARKET BY NO STRETCH OF IMAGINATI ON, IT WOULD BE TERMED AS ROYALTY.' THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COU NSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRAN SFER OF ANY PART OF COPYRIGHT OR COPYRIGHT UNDER THE IMPUGN ED AGREEMENTS OR LICENSES CANNOT BE ACCEPTED. ACCORDIN GLY, WE HOLD THAT RIGHT TO MAKE A COPY OF THE SOFTWARE A ND USE IT FOR INTERNAL BUSINESS BY MAKING COPY OF THE SAME AND STORING THE SAME IN THE HARD DISK OF THE DESIGN ATED ITA NO.545/BANG/2011 PAGE 11 OF 14 COMPUTER AND TAKING BACK UP COPY WOULD ITSELF AMOUN T TO COPYRIGHT WORK UNDER SECTION 14(1) OF THE ACT AN D LICENCE IS GRANTED TO USE THE SOFTWARE BY MAKING CO PIES, WHICH WORK, BUT FOR THE LICENCE GRANTED WOULD HAVE CONSTITUTED INFRINGEMENT OF COPYRIGHT AND LICENCEE IS IN POSSESSION OF THE LEGAL COPY OF THE SOFTWARE UNDER THE LICENCE. THEREFORE, THE CONTENTION OF THE LEARNED S ENIOR COUNSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRANSFER OF ANY PART OF COPYRIGHT OR COPYRIGHT AND TRANSACTION ONLY INVOLVES SALE OF COPY OF THE COPYR IGHT SOFTWARE CANNOT BE ACCEPTED. IT IS ALSO TO BE NOTED THAT WHAT IS SUPPLIED IS THE COPY OF THE SOFTWARE OF WHI CH THE RESPONDENT-SUPPLIER CONTINUES TO BE THE OWNER OF TH E COPYRIGHT AND WHAT IS GRANTED UNDER THE LICENCE IS ONLY RIGHT TO COPY THE SOFTWARE AS PER THE TERMS OF THE AGREEMENT, WHICH, BUT FOR THE LICENCE WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT AND IN VIEW OF THE LICENC E GRANTED, THE SAME WOULD NOT AMOUNT TO INFRINGEMENT UNDER SECTION 52 OF THE COPYRIGHT ACT AS REFERRED T O ABOVE. THEREFORE, THE AMOUNT PAID TO THE NON-RESIDE NT SUPPLIER TOWARDS SUPPLY OF SHRINK-WRAPPED SOFTWARE, OR OFF-THE-SHELF SOFTWARE IS NOT THE PRICE OF THE C.D. ALONE NOR SOFTWARE ALONE NOR THE PRICE OF LICENCE GRANTED . THIS IS A COMBINATION OF ALL AND IN SUBSTANCE, UNLESS LI CENCE IS GRANTED PERMITTING THE END USER TO COPY AND DOWNLOA D THE SOFTWARE, THE DUMB C.D. CONTAINING THE SOFTWARE WOULD NOT IN ANY WAY BE HELPFUL TO THE END USER AS SOFTWARE WOULD BECOME OPERATIVE ONLY IF IT IS DOWNLOADED TO THE HARDWARE OF THE DESIGNATED COMPUT ER AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT AN D THAT MAKES THE DIFFERENCE BETWEEN THE COMPUTER SOFTWARE AND COPYRIGHT IN RESPECT OF BOOKS OR PRERECORDED MUSIC SOFTWARE AS BOOK AND PRERECORDED MUSIC C.D. CAN BE USED ONCE THEY ARE PURCHASED, BUT SO FAR AS SOFTWAR E STORED IN DUMB C.D. IS CONCERNED, THE TRANSFER OF D UMB C.D. BY ITSELF WOULD NOT CONFER ANY RIGHT UPON THE END USER AND THE PURPOSE OF THE C.D. IS ONLY TO ENABLE THE END USER TO TAKE A COPY OF THE SOFTWARE AND TO STOR E IT IN THE HARD DISK OF THE DESIGNATED COMPUTER IF LICENCE IS GRANTED IN THAT BEHALF AND IN THE ABSENCE OF LICENC E, THE SAME WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT, WHI CH IS EXCLUSIVELY OWNED BY NON-RESIDENT SUPPLIERS, WHO WOULD CONTINUE TO BE THE PROPRIETOR OF COPYRIGHT. THEREFORE, THERE IS NO SIMILARITY BETWEEN THE TRANS ACTION OF PURCHASE OF THE BOOK OR PRERECORDED MUSIC C.D. O R THE C.D. CONTAINING SOFTWARE AND IN VIEW OF THE SAM E, ITA NO.545/BANG/2011 PAGE 12 OF 14 THE LEGISLATURE IN ITS WISDOM, HAS TREATED THE LITE RARY WORK LIKE BOOKS AND OTHER ARTICLES SEPARATELY FROM 'COMPUTER' SOFTWARE WITHIN THE MEANING OF THE 'COPYRIGHT' AS REFERRED TO ABOVE UNDER SECTION 14 O F THE COPYRIGHT ACT. 25. IT IS ALSO CLEAR FROM THE ABOVE SAID ANALYSIS OF T HE DTAA INCOME TAX ACT, COPYRIGHT ACT THAT THE PAYMENT WOULD CONSTITUTE 'ROYALTY' WITHIN THE MEANING OF AR TICLE 12(3) OF THE DTAA AND EVEN AS PER THE PROVISIONS OF 9(1)( VI ) OF THE ACT AS THE DEFINITION OF 'ROYALTY' UNDER CLAUSE 9(1)( VI ) OF THE ACT IS BROADER THAN THE DEFINITION OF 'ROYALTY' UNDER THE DTAA AS THE RIGHT THAT IS TRANSFERRED IN THE PRESENT CASE IS THE TRANSFER OF COPYRIGHT INCLUDING THE RIGHT TO MAKE COPY OF SOFTWARE FOR IN TERNAL BUSINESS, AND PAYMENT MADE IN THAT REGARD WOULD CONSTITUTE 'ROYALTY' FOR IMPARTING OF ANY INFORMATI ON CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL AS PER CLAUSE ( IV ) OF EXPLANATION 2 TO SECTION 9(1)( VI ) OF THE ACT. IN ANY VIEW OF THE MATTER, IN VIEW OF THE PROVISIONS OF SECTION 90 OF THE ACT, AGREEMENTS WITH FOREIGN COUNTRIES DTAA WOU LD OVERRIDE THE PROVISIONS OF THE ACT. ONCE IT IS HELD THAT PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT COMPANIES WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12 OF THE DTAA WITH THE RESPECTI VE COUNTRY, IT IS CLEAR THAT THE PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT SUPPLIER WOULD AMOU NT TO ROYALTY. IN VIEW OF THE SAID FINDING, IT IS CLEA R THAT THERE IS OBLIGATION ON THE PART OF THE RESPONDENTS TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT A ND CONSEQUENCES WOULD FOLLOW AS HELD BY THE HON'BLE SUPREME COURT WHILE REMANDING THESE APPEALS TO THIS COURT. ACCORDINGLY, WE ANSWER THE SUBSTANTIAL QUEST ION OF LAW IN FAVOUR OF THE REVENUE AND AGAINST THE ASS ESSEE BY HOLDING THAT ON FACTS AND CIRCUMSTANCES OF THE C ASE, THE ITAT WAS NOT JUSTIFIED IN HOLDING THAT THE AMOU NT(S) PAID BY THE RESPONDENT(S) TO THE FOREIGN SOFTWARE SUPPLIERS WAS NOT 'ROYALTY' AND THAT THE SAME DID N OT GIVE RISE TO ANY 'INCOME' TAXABLE IN INDIA AND WHEREFORE , THE RESPONDENT(S) WERE NOT LIABLE TO DEDUCT ANY TAX AT SOURCE AND PASS THE FOLLOWING ORDER:- ALL THE APPEALS ARE ALLOWED. THE ORDER PASSED BY TH E INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH 'A' IMPUGNED IN THESE APPEALS IS SET ASIDE AND THE ORDE R PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) ITA NO.545/BANG/2011 PAGE 13 OF 14 CONFIRMING THE ORDER PASSED BY THE ASSESSING OFFICE R (TDS)-I IS RESTORED . (EMPHASIS SUPPLIED). 8. FROM THE AFORESAID REFERRED TO JUDGMENT DATED 1 5.10.2011 IN ITA NO.2808/2005 & OTHERS, IT IS CRYSTAL CLEAR T HAT THE ISSUE UNDER CONSIDERATION HAS BEEN SETTLED BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE AND IT HAS BEEN H ELD THAT PAYMENT MADE BY THE ASSESSEE TO NON-RESIDENT COMPAN IES WOULD AMOUNT TO ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF THE DTAA WITH THE RESPECTIVE COUNTRIES AND THERE WAS OBLIGAT ION ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE U/S. 195 OF THE I.T. ACT. WE THEREFORE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), AS SUCH WE DO NOT FIND ANY MERIT IN THIS AP PEAL OF THE ASSESSEE. 8. SINCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE OF SAMSUNG ELECTRONICS CO. LTD. V. DCIT (INTERNATIONAL TAXATION) IN ITA NO.299/BANG/2011 , THEREFORE RESPECTFULLY FOLLOWING THE SAID ORDER DATED 22.03.2012 PASSED BY THE ITAT A BENCH BANGALORE, WE DO NOT SEE ANY MERIT IN THIS APPEAL O F THE ASSESSEE. 9. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF MAY, 2012. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 22 ND MAY , 2012. DS/- ITA NO.545/BANG/2011 PAGE 14 OF 14 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.