KANSAI NEROLAC PAINTS LTD ( ERESTWHILE KNOWN AS GOODLASS NEROLAC PAINTS LTD), MUMBAI V. ADDL CIT (IT)-1(1), MUMBAI

ITA 568/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1425 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 18-02-2010
• Assessment Year: misc
• Appeal Filed On: 28-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R ITAKUIMARI DOKANIA
• Assessee Lawyers: MRS AARTI VISSANJI
• Keywords: Double taxation relief; Permanent establishment; TDS
• Section: 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L,MUMBAI BEFORE SHRI D. MANMOHAN (VICE-PRESIDENT) & SHRI R.K. PANDA (ACCOUNTANT MEMBER) I.T.A.NO.568/MUM/2009 (ASST.YEAR: NOT APPLICABLE) M/S.KANSAI NEROLAC PAINTS LTD., NEROLAC HOUSE, G.K. MARG, LOWER PAREL, MUMBAI-13. PAN: AAACG1376N VS. THE ADDL. DIT (INTERNATIONAL TAXATION)-1(1), SCINDIA HOUSE, BALLARD PIER, MUMBAI-400 001. APPELLANT RESPONDENT APPELLANT BY MRS .AARTI VISSANJI. RESPONDENT BY MRS.R ITAKUIMARI DOKANIA. O R D E R PER BENCH : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 22 ND OCTOBER, 2008 OF THE CIT(A)-XXXIII, MUMBAI. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE, GOODLASS NEROLAC PAINTS LTD., VIDE ITS APPLICATION U/S.195(2) OF THE ACT DATED 11 TH FEBRUARY, 2002 REQUESTED THE ASSESSING OFFICER TO ISSUE CERTI FICATE DETERMINING THE SUM CHARGEABLE TO TAX AND TAX TO BE DEDUCTED AT SOURCE UNDER THE PROVISIONS OF SECTION 195 OF THE INCOME-TAX ACT, 1961 IN RESPECT OF FEE FOR COMPUTER SOFTWARE OF US$ 43,000 TO THE NON-RESIDENT M/S. IXO S SOFTWARE ASIA PVT. LTD., SINGAPORE. THE ASSESSEE VIDE ITS LETTER DATE D 11 TH FEBRUARY, 2002 SUBMITTED ITS CONTENTION BEFORE THE ASSESSING OFFIC ER AS UNDER: 1. ALL THE AFORESAID LOCATIONS ARE CONNECTED TO EACH O THER BY AN ONLINE REAL TIME ACCOUNTING SYSTEM. EVERYDAY A HUG E VOLUME OF DATA IS GENERATED AND STORED ON THE MAIN SERVER SITUATED AT HEAD OFFICE. THIS ADVERSELY AFFECTS TH E PROCESSING SPEED OF THE ACCOUNTING SYSTEM. 2. TO OVERCOME THE ABOVE PROBLEM, WE ARE PLANNING TO B UY A SOFTWARE WHICH WILL REGULARLY TRANSFER THE DATA FRO M MAIN ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 2 SERVER TO AN AUXILIARY SERVER IN A COMPRESSED FORM AND WILL RETRIEVE THE DATA IN UNCOMPRESSED FORM WHENEVER REQ UIRED. 3. WE, THEREFORE, PLACED A PURCHASE ORDER WITH M/S. IX OS SOFTWARE ASIA PTE. LTD., NO. 6 TEMASEL BOULEVARD, # 2-06, SUNTECH TOWER FOUR, SINGAPORE 038986 FOR SUPPLY OF A SOFTWARE CALLED IXOX ECON TEST FOR R/3. A COPY O F PROFORMA INVOICE OF USD 43,000 RECEIVED IS ENCLOSED HEREWITH FOR YOUR PERUSAL. THE PRICE STATED IS NET OF WITHHOLDING TAX, IF ANY. 4. THE DETAILS OF PAYMENTS TO BE MADE ARE GIVEN IN THE ANNEXURE TO IS LETTER. 5. AS PER THE TERMS OF PURCHASE WE WILL OBTAIN A RIGHT TO MAKE COPIES OF THE PROGRAM TO ENABLE OPERATION OF THE PR OGRAM WITHIN OUR OWN BUSINESS ONLY. NO SOURCE CODE OR PROGRAMMING LANGUAGE OR TECHNIQUE WILL BE PROVIDED TO US WITH THE PROGRAM. 6. AS PER PROVISIONS OF SECTION 9(1)(VI) THE PRICE CHA RGED BY M/S. IXOS SOFTWARE ASIA PTE. LTD. WILL BE INCOME D EEMED TO ACCRUE OR ARISE IN INDIA AND WE ARE REQUIRED TO DEDUCT TAX AT SOURCE AS PER SECTION 195 OF THE ACT. 7. HOWEVER, AS PER COMMENTARY OF OECD (WHICH IS USED F OR INTERPRETATION OF DOUBLE TAXATION AVOIDANCE AGREEME NTS) ON ARTICLE 12, WHEN ONLY RIGHTS IN RELATION TO ACT OF COPYING IS TRANSFERRED TO ENABLE THE EFFECTIVE OPERATION OF PR OGRAM BY USER, THE PAYMENT FOR THE SAME WILL BE CONSIDERED A S COMMERCIAL INCOME IN ACCORDANCE WITH ARTICLE 7. A COPY OF EXTRACT FROM OECD COMMENTARY IS ENCLOSED HEREWITH F OR YOUR PERUSAL. 8. THE ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGRE EMENT (DTAA) BETWEEN INDIA AND SINGAPORE, THE PROFITS OF M/S. IXOS SOFTWARE ASIA PTE. LTD. SHALL BE TAXABLE IN IN DIA ONLY IF IT CARRIES ON BUSINESS IN INDIA THROUGH A PERMANENT ESTABLISHMENT SITUATED IN INDIA. 9. AT PRESENT, M/S. IXOS SOFTWARE ASIA PTE. LTD. IS NO T AUTHORISED TO CARRY ON BUSINESS IN INDIA. THUS, AS PER DTAA THE PAYMENT TO BE MADE M/S. IXOS SOFTWARE ASIA PTE. LTD. FOR THE SOFTWARE WILL NOT BE TAXABLE IN I NDIA. 10. SECTION 90(2) OF THE INCOME-TAX ACT STATES THAT WHE RE THE CENTRAL GOVERNMENT HAS ENTERED INTO ANY AGREEMENT W ITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA, THEN I N RELATION TO ASSESSEE WHOM SUCH AGREEMENT APPLIES, T HE ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 3 PROVISIONS OF THE ACT SHALL APPLY TO THE EXTENT THE Y ARE MORE BENEFICIAL TO THE ASSESSEE. 11. IN RELATION TO PAYMENT TO BE MADE TO M/S. IXOS SOFT WARE ASIA PTE. LTD. FOR THE SOFTWARE, THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA A ND SINGAPORE WILL PREVAIL OVER PROVISIONS OF SECTION 9 (1)(VI) OF THE INCOME-TAX ACT, 1961 AS THEY ARE MORE BENEFICIA L AND THE SAID PAYMENT WILL NOT BE TAXABLE IN INDIA. THU S, THE QUESTION OF DEDUCTION OF TAX AT SOURCE U/S. 915 WIL L NOT ARISE. 12. ASSUMING WITHOUT ADMITTING THAT THE PAYMENT IS TAXA BLE IN INDIA AS PER PROVISIONS OF SECTION 9(1)(VI) AND TAX IS REQUIRED TO BE DEDUCTED AT SOURCE U/S. 195 OF THE ACT. IN S UCH CASE, AS THE MATTER IS INCLUDED IN THE INDUSTRIAL POLICY OF THE GOVERNMENT OF INDIA AND OUR TERMS OF IMPORT ARE IN ACCORDANCE WITH THE INDUSTRIAL POLICY, E3XEMPTION U /S. 10(6A) SHOULD BE ALLOWED FOR TAX PAYABLE ON PAYMENT TO BE MADE TO M/S. IXOS SOFTWARE ASIA PTE. LTD. 13. IN VIEW OF ABOVE, WE REQUEST YOU TO KINDLY DETERMIN E THE SUM CHARGEABLE TO TAX AND TAX TO BE DEDUCTED AT SOU RCE UNDER PROVISION OF SECTION 195 OF THE ACT. 3. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE. HE NOTED THAT THE ASSESSEE ITSELF IS DOU BTFUL ABOUT ITS CLAIM THAT THE PAYMENT TO BE MADE TO M/S. IXOS SOFTWARE ASIA P TE. LTD. IS COMMERCIAL INCOME IN ACCORDANCE WITH ARTICLE 7 OF THE TREATY B ETWEEN INDIA AND SINGAPORE. HE OBSERVED THAT THIS CLAIM OF THE ASSE SSEE HAS NO BASIS. THE ASSESSING OFFICER THEREAFTER ANALYSED THE LICENCE A GREEMENT BETWEEN THE ASSESSEE AND M/S. IXOS SOFTWARE ASIA PTE. LTD. AND NOTED THAT THE SINGAPORE COMPANY HAS GRANTED TO THE ASSESSEE A NON EXCLUSIVE NON TRANSFERABLE LICENCE TO USE THE LICENSED SOFTWARE AND THE DOCUME NTATION FOR THE TERM AND IN THE TERRITORY IN RESPECT OF THE NUMBER OF USERS AND INSTALLATIONS AS REFERRED TO IN SCHEDULE I OF THE AGREEMENT AND MAY USE ONLY THE SOFTWARE COMPONENT OF IXOS_ECON SOLUTION SUITE. THIS CLEARLY SHOWS TH AT THE ASSESSEE HAS TO MAKE PAYMENT TO THE SINGAPORE COMPANY A LICENCE FEE FOR COMPUTER SOFTWARE. THE TERMS AND CONDITIONS OF THE LICENCE AGREEMENT, ACCORDING TO THE ASSESSING OFFICER, CLEARLY SHOW THAT THE SINGAPORE COMPANY REMAINS THE ABSOLUTE OWNER OF THE COMPUTER SOFTWARE AND THE ASS ESSEE HAS BEEN ALLOWED TO USE THE LICENSED SOFTWARE FOR A FEE IN ACCORDANC E WITH THE NORMAL ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 4 OPERATION PROCEDURE SET OUT IN THE DOCUMENTATION OR AS NOTIFIED BY THE SINGAPORE COMPANY, ETC. THE ASSESSING OFFICER HELD THAT THE PAYMENT MADE BY THE ASSESSEE TO SINGAPORE COMPANY IS IN THE NATU RE OF ROYALTY AS PER INDIA-SINGAPORE TREATY. THE ASSESSING OFFICER ACCO RDINGLY DIRECTED THE ASSESSEE TO DEDUCT TAX AT SOURCE @ 15% ON THE AMOUN T OF USD 49,500 BEING THE GROSSED UP AMOUNT EQUAL TO USD 43,000 + TAX AT 15%. THE ASSESSING OFFICER ALSO REJECTED THE ASSESSEES CLAIM OF EXEMP TION U/S. 10(6A) ON THE GROUND THAT THE ASSESSEE COULD NOT SUPPORT ITS CLAI M WITH ANY DOCUMENTARY EVIDENCE. 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT IT H AS PURCHASED CERTAIN SOFTWARE, IXOS_ECON TEST FOR R/3 FROM M/S. IXOS SOF TWARE ASIA PTE. LTD., SINGAPORE (THE SINGAPORE COMPANY) UNDER AN AGREEMEN T. A LUMP SUM AMOUNT OF USD 43,000 WAS THE CONSIDERATION PAID FOR THE SAME. IT WAS SUBMITTED THAT THE CONSIDERATION OF USD 43,000 PAID TO THE SINGAPORE COMPANY IS NOT LIABLE TO TAX IN INDIA AS THE PRICE PAID FOR THE PURCHASE OF THE LICENSED SOFTWARE FOR ITS OWN USE AND REPRESENTS CO MMERCIAL PROFITS OF THE SINGAPORE COMPANY. IT WAS SUBMITTED THAT SINCE THE SINGAPORE COMPANY DOES NOT HAVE ANY PE IN INDIA, ITS PROFITS ARE NOT SUBJECT TO TAX IN INDIA. THE MEANING OF COMPUTER SOFTWARE AND COMPUTER PROGRAMME WAS EXPLAINED TO THE CIT(A). THE EXPLANATION 3 TO SECTION 9(1)(VI), EXPLANATION 2 TO SECTION 10A, EXPLANATION (B) TO SECTION 80HHE WERE BROUGHT TO THE NOTICE OF THE CIT(A) AND IT WAS SUBMITTED THAT THE AMOUNT PAID TO WARDS PURCHASE OF THE SOFTWARE REPRESENTS THE COMMERCIAL PROFITS OF THE S INGAPORE COMPANY AND IS NOT LIABLE TO TAX UNDER ARTICLE 7 OF THE INDO-SING APORE DTAA. 5. HOWEVER, THE CIT(A) WAS NOT CONVINCED WITH THE ARGU MENTS ADVANCED BY THE ASSESSEE. HE NOTED THAT AS POINTED OUT BY T HE ASSESSING OFFICER, ARTICLES 2, 3(1)(A), 3(1)(B), 3.3, 4.1, 4.2. 45., 4 .7, 4.8, 9, 14.3 AND SCHEDULE I OF THE AGREEMENT MAKES IT VERY CLEAR THAT THE ASSES SEE IS ONLY GIVEN LICENCE TO USE THE SOFTWARE AND IT IS NOT OWNING ANY SOFTWARE. HE NOTED THAT THE LICENCE TO USE THE SOFTWARE IS FOR 50 OPERATIONAL USERS, I. E., 50 USERS CAN USE THE SOFTWARE. THEY CAN STORE THE SOFTWARE IN THE COMPU TER. THEREFORE, COPYING THE SOFTWARE IN THE COMPUTER IS GIVEN FOR 50 USERS. MOREOVER THE INTELLECTUAL ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 5 PROPERTY OF THE AUTHOR OF A SOFTWARE IS PROTECTED T HROUGH A COPYRIGHT. THE INTELLECTUAL PROPERTY OWNER CAN EXPLOIT THE INTELLE CTUAL PROPERTY BY ALLOWING ANY PERSON TO COPY THE SOFTWARE FOR A FEE. HE OBSE RVED THAT WHEN THEY PERMIT THE CUSTOMERS TO USE THE SOFTWARE THROUGH A LICENCE , IT IS NOTHING BUT GRANTING A RIGHT TO COPY THE SOFTWARE PROGRAMME OF THE COMPUTER IN THE COMPUTER. THE PAYMENT IS MADE FOR ONLY GETTING SUC H A RIGHT AND WITHOUT THAT RIGHT, THE ASSESSEE CANNOT USE THE INTELLECTUA L PROPERTY CONTAINED IN THE COMPACT DISC. HE ALSO EXPLAINED THE MEANING OF COP YRIGHT AS PER SECTION14 OF THE COPYRIGHT ACT, 1957. HE NOTED THAT AS PER S ECTION 14(A)(I) OF THE COPYRIGHT ACT, 1957 ONE OF THE COPYRIGHT AVAILABLE IS REPRODUCTION OF THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS. IN THE INSTANT CASE, THE SINGAPO RE COMPANY HAS ALLOWED THE COPYING OF THE WORK TO THE PURCHASER AND THEREB Y EARN CONSIDERATION. THE PURCHASER HAD USED THE COPYRIGHT AVAILABLE WITH THE SINGAPORE COMPANY FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, HE WAS OF THE VIEW THAT THE CONSIDERATION PAID BY THE ASSESSEE IS ROYALTY. 6. THE LEARNED CIT(A) THEREAFTER ANALYSED EXPLANATION 2 TO SECTION 9(1)(VI) OF THE INCOME-TAX ACT, HE NOTED THAT SUB-CLAUSE (V ) OF THE EXPLANATION USES THE WORDS TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF LICENCE) IN RESPECT OF ANY COPYRIGHT. HE NOTED THAT THE SOFTW ARE IS A LITERARY WORK OR SCIENTIFIC WORK IN WHICH COPYRIGHT EXISTS. IF THE OWNER OF THE COPYRIGHT ALLOWS SOMEBODY TO USE THE SOFTWARE BY GRANTING A LICENCE, NATURALLY THE CONSIDERATION RECEIVED IS FOR ROYALTY. HE NOTED TH AT SUB-CLAUSES (B) AND (F) OF SECTION 14 OF THE COPYRIGHT ACT, 1957, AUTHORISE TH E RIGHT TO SELL COPIES OF THE SOFTWARE OR FILM AS COPYRIGHT. SUB CLAUSE (B) OF EXPLANATION TO SECTION 9(1)(VI) OF THE INCOME-TAX ACT ONLY EXEMPTS THE SAL E OF FILM FROM THE PURVIEW OF THE DEFINITION OF ROYALTY AND IT DOES NOT ALLOW THE EXEMPTION OF THE SALE OF SOFTWARE FROM THE PURVIEW OF THE DEFINITION OF ROY ALTY. THEREFORE, ACCORDING TO THE CIT(A) THIS SHOWS THAT THE LEGISLATURE WANTE D TO TREAT THE CONSIDERATION FOR THE SALE OF SOFTWARE AS ROYALTY . 7. THE CIT(A) FURTHER ANALYSED THE DTAA WHICH DEFINES ROYALTY AS PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 6 USE ANY COPYRIGHT. THEREFORE, BY THIS DEFINITION A LSO THE CONSIDERATION PAID BY THE ASSESSEE IS ROYALTY. ACCORDING TO THE CIT (A) SALE OF COPYRIGHT PRODUCT IS DIFFERENT FROM ISSUE OF LICENCE TO USE A COPYRIG HT. 8. HE THEREAFTER ANALYSED SECTION 117(B) OF THE COPYRI GHT LAW OF THE USA AND NOTED THAT AS PER SECTION 117(B) IF IT IS A SAL E OF COPYRIGHTED COMPUTER PROGRAMME THE OWNER CAN LEASE, SELL OR OTHERWISE TR ANSFER THE COMPUTER PROGRAMME. HOWEVER, IN THE ASSESSEES CASE THE ASS ESSEE HAS NO SUCH RIGHT, THEREFORE, THE TRANSACTION CANNOT BE CONSIDERED AS A SALE OF A COPYRIGHTED ARTICLE. 9. SIMILARLY, HE NOTED THAT IF IT IS A SALE OF THE PRO DUCT THEN THE RIGHT TO FURTHER TRANSFER THE ARTICLE ALSO PASSES TO THE PUR CHASER SIMULTANEOUSLY. BUT IN THE INSTANT CASE NO SUCH RIGHT IS GIVEN. THEREF ORE, BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE CONSIDERATION I S FOR SALE OF A COPYRIGHTED ARTICLE. 10. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE SOFTWA RE IS A SECRETE PROCESS OR FORMULA. HE DISCUSSED AS TO HOW A SOFTW ARE WORKS IN A SERIES OF INSTRUMENTS/OPERATIONS TO ACHIEVE THE DEFINED RESUL T. HE NOTED THAT WHAT THE SINGAPORE COMPANY GRANTED TO THE ASSESSEE IS ON LY A RIGHT TO USE THE SOFTWARE I.E., THE RIGHT TO USE THE SECRET PROCESS AND OBTAIN THE RESULTS. RELYING ON A COUPLE OF DECISIONS, HE WAS OF THE VIE W THAT THE PAYMENT MADE BY THE ASSESSEE IS FOR THE USE OF THE SECRET PROCES S OWNED BY THE SINGAPORE COMPANY AND, THEREFORE, THE PAYMENT IS A ROYALTY. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF THE AAR IN THE CASE OF P. NO.30 OF 1999 REPORTED IN 238 ITR 296. DISTINGUISHING THE VARIOUS DECISIONS CITED BEFORE HIM, HE HELD THAT THE PAYMENT TO BE MADE BY THE ASSESSEE FOR THE USE OF COMPUTER SOFTWARE OR RIGHT TO USE THE COMPUTER SOFTWARE IS T AXABLE IN INDIA AS ROYALTY UNDER ARTICLE 12 OF THE DTAA BETWEEN INDIA AND SING APORE. HE ACCORDINGLY UPHELD THE ORDER OF THE ASSESSING OFFICER. 11. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS OF APPEAL: ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 7 1. A. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS ERRED IN UPHOLDING THAT PAYMENTS TO BE MADE FOR THE USE OF COMPUTER SOFTWARE OR THE RIGHT TO USE THE COMPUTER SOFTWARE OWNED BY M/S. IXOX SOFTWARE ASIA PTE. LTD. (A SINGA PORE BASED COMPANY) IS TAXABLE IN INDIA AS ROYALTY UND ER ARTICLE 12 OF THE DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND SINGAPORE. B. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN UPHOLDING THE DECISION OF THE ADDITIONAL D IRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) DIRECTING THE A PPELLANT TO DEDUCT TAX AT SOURCE OF USD 7,417.50. II. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN UPHOLDING THE DECISION OF THE ADDITIONAL D IRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) DISALLOWING THE CLAIM OF EXEMPTION U/S. 10(6A) IF THE PAYMENT IS TAXABLE IN INDIA. 12. THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE CIT(A). SHE SUBMITTED THAT AS PER THE REVENUE THE PAYMENTS TO BE MADE FOR THE USE OF THE COMPUTER SOFTWARE OR THE RIGHT T O USE THE COMPUTER SOFTWARE IS ROYALTY WHEREAS ACCORDING TO THE ASSE SSEE IT IS AN OUTRIGHT PURCHASE OF THE SOFTWARE. SHE SUBMITTED THAT THE S OFTWARE GIVES THE ASSESSEE A LICENSE TO USE LIKE ANY OTHER SOFTWARE. BY MAKIN G THE PAYMENT, THE PURCHASER DOES NOT GET ANY RIGHT IN COPYRIGHT BUT G ETS A RIGHT ONLY TO USE. SHE SUBMITTED THAT THE ASSESSEE CAN COMMERCIALLY EX PLOIT THE SOFTWARE AND CAN DO ANYTHING. BY GIVING AN EXAMPLE, SHE SUBMITT ED THAT THERE IS NO DIFFERENCE BETWEEN A BOOK AND A COPY RIGHTED SOFTWA RE. REFERRING TO THE ORDER OF THE CIT(A), SHE SUBMITTED THAT THE CIT(A) HAS WRONGLY HELD THAT THE PAYMENT IS FOR COPYRIGHT, SECRET PROCESS AND SCIENT IFIC EQUIPMENT AND THEREFORE AMOUNTS TO PAYMENT OF ROYALTY. REFERRING TO PAGE 1 OF THE PAPER BOOK, WHICH IS THE COPY OF THE PURCHASE ORDER, SHE SUBMITTED THAT THE ASSESSEE PURCHASED IXOX ECON FOR R/3 WHICH IS FOR 50 USERS. REFERRING TO PAGE 3 OF THE PAPER BOOK, WHICH IS THE SALES ORDER, SHE SUBMITTED THAT THE UNIT PRICE PER USER WAS US$ 1250 AND THE SINGAPORE COMPANY HAS RAISED A BILL FOR USD 62,500 @ USD 1250 FOR 50 USERS. AFTER GIVING A DISCOUNT OF USD 19,500, THE INVESTMENT AS PER THE SALES ORDER IS U SD 43,000. REFERRING TO PAGE 15 OF THE PAPER BOOK, SHE DREW THE ATTENTION O F THE BENCH TO THE PHOTOGRAPH OF THE IXOX-ECON SERVER WHICH IS A SECUR ED AND COST EFFECTIVE ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 8 SOLUTION FOR THE SAP DATA ARCHIVING NEED. REFERRIN G TO PAGES 26 TO 50 OF THE PAPER BOOK, SHE DREW THE ATTENTION OF THE BENCH TO VARIOUS CLAUSES OF THE SOFTWARE AGREEMENT BETWEEN THE ASSESSEE AND THE SIN GAPORE COMPANY. REFERRING TO PAGE 31 OF THE PAPER BOOK SHE DREW THE ATTENTION OF THE BENCH TO THE DEFINITION OF THE LICENCE FEE WHICH MEANS THE F EES SPECIFIED IN SCHEDULE I PAYABLE BY THE CUSTOMER TO THE SINGAPORE COMPANY FO R THE USE OF THE LICENSED SOFTWARE. SIMILARLY, THE LICENSED SOFTWAR E MEANS THE SOFTWARE WHICH IS IN SCHEDULE I CONSISTING OF A SET OF INSTRUCTION S OR STATEMENTS FOR MAKING READABLE MEDIUM AND FOR ENHANCEMENT, MODIFICATIONS, NEW VERSIONS OR NEW RELEASE OF THAT SOFTWARE OR PART THEREOF. REFERRIN G TO PAGE 33 OF THE PAPER BOOK SHE DREW THE ATTENTION OF THE BENCH TO CLAUSES 2 AND 3 OF THE AGREEMENT WHICH DEFINES GRANT OF LICENCE, DELIVERY AND INSTALLATION OF THE SOFTWARE. SHE DREW THE ATTENTION OF THE BENCH TO C LAUSE 4 WHICH DEFINES LICENCE CONDITIONS AS PER PAPER BOOK PAGE 34. AS P ER CLAUSE 6 OF THE AGREEMENT, WHICH SPEAKS OF LICENCE CONDITIONS, SOFT WARE MAY BE USED BY THE CUSTOMER AS DIRECTLY OR THROUGH ANY CONTRACTOR OR R EPRESENTATIVE OF THE CUSTOMER IN THE COURSE OF ACTING ON BEHALF OF THE CUSTOMER AND AT THE SITE OR ANY OTHER SITE APPROVED IN WRITING BY M/S. IXOS SOF TWARE ASIA PTE. LTD. WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD. REFERRING TO CLAUSE 6 OF THE AGREEMENT WHICH SPEAKS OF MODIFICATIONS SHE SUB MITTED THAT THE CUSTOMER MUST NOT MODIFY OR EXTEND THE LICENSED SOF TWARE OR ANY OTHER SOFTWARE WITHOUT THE WRITTEN PERMISSION OF THE SING APORE COMPANY. REFERRING TO THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF TATA CONSULTANCY SERVICES VS. STATE OF AP, REPORTED IN 2 71 ITR 401, SHE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENA BLE THE COMPUTER TO PERFORM THE DESIGNATED TASKS. THE COPYRIGHT IN THA T PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAMME. BUT THE MOME NT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS WHICH ARE SUSCEPTIBLE TO SALES TAX. REFERRING TO THE DECISION OF THE AAR IN THE CASE OF DASSAULT SYS TEMS KK VS. DIT, SHE DREW THE ATTENTION OF THE BENCH TO PARAS 17.1 AND 17.2 O F THE SAID ORDER. SHE ALSO RELIED ON THE DECISIONS REPORTED IN 93 TTJ 658 AT P AGE 659, THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MO TOROLA INC., REPORTED IN 95 ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 9 ITD 269 (PARA 163), THE DECISION REPORTED IN 120 TT J 929 (PARA 25 AND 26), 125 TTJ 53, 9 SOT 756. 13. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUPPORT ED THE ORDER OF THE CIT(A). HE SUBMITTED THAT THE VARIOUS DECISIONS RE LIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE BASED ON FACTUAL ASPEC TS OF EACH CASE. REFERRING TO PAGE 2 OF THE ASSESSMENT ORDER, HE DREW THE ATTE NTION OF THE BENCH TO PARA 3 OF THE ORDER WHERE THE ASSESSING OFFICER HELD THA T THE CLAIM OF THE ASSESSEE HAS NO BASIS FOR WHICH THE SAME IS NOT ACCEPTABLE. REFERRING TO PARAS 4 AND 5 OF THE ORDER HE SUBMITTED THAT DOCUMENTATION OF T HE TERM AND IN THE TERRITORY IN RESPECT OF NUMBER OF USERS IS VERY IMP ORTANT. HE SUBMITTED THAT IT IS NOT A CASE OF SALE BECAUSE NO AGREEMENT IS RE QUIRED IN CASE OF A SALE. IN CASE OF NORMAL SALE ANYBODY CAN PAY AND BUY ANYTHIN G WHEREAS IN THE CASE OF COPYRIGHT SALE OR IN CASE OF RESTRICTED SALE AN AGREEMENT IS NECESSARY. THEREFORE, IT IS NOT AN ORDINARY SALE AS CLAIMED BY THE LEARNED COUNSEL FOR THE ASSESSEE. REFERRING TO THE SOFTWARE AGREEMENT, A C OPY OF WHICH IS PLACED AT PAPER BOOK PAGES 27-53 THE LEARNED DR DREW THE ATT ENTION OF THE BENCH TO VARIOUS CLAUSES. REFERRING TO CLAUSE C OF THE RE CITALS, HE SUBMITTED THAT THE SINGAPORE COMPANY HAS OFFERED TO GRANT THE ASSESSEE A NON-TRANSFERABLE AND NON-EXCLUSIVE LICENCE TO USE THE COMPUTER SOFTWARE AND HAS OFFERED TO PROVIDE THE ASSESSEE WITH SUPPORT SERVICES AND CONS ULTING SERVICES IN RESPECT OF THE COMPUTER SOFTWARE. REFERRING TO PAGE 32 OF THE PAPER BOOK HE SUBMITTED THAT THE TERM OF THE LICENCE IS ONLY FOR A PERIOD OF 25 YEARS. REFERRING TO PAGE 43 OF THE PAPER BOOK, HE SUBMITTE D THAT THE ASSESSEE IS ONLY HAVING A RIGHT TO USE THE SOFTWARE AND THERE I S NO OWNERSHIP VESTED IN THE ASSESSEE AND EVEN BEYOND THE PERIOD OF 25 YEARS THE ASSESSEE HAS NO RIGHT TO USE THE SOFTWARE. REFERRING TO THE DECISI ON REPORTED IN 172 TAXMAN 284, HE SUBMITTED THAT THIS IS NOT A CASE OF SALE A ND ONLY A ROYALTY AGREEMENT. HE ACCORDINGLY SUPPORTED THE ORDER OF T HE CIT(A) AND SUBMITTED THAT THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE D ISMISSED. 14. THE LEARNED COUNSEL FOR THE ASSESSEE IN HER REJOIND ER SUBMITTED THAT THE ASSESSEE IS CONCERNED WITH SINGAPORE AND GOVERN ED BY CLAUSE 3(A) AND ARTICLE 12 OF THE TREATY. SHE DREW THE ATTENTION O F THE BENCH TO CLAUSE 6.1 OF ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 10 THE AGREEMENT AND SUBMITTED THAT THE ASSESSEE HAS P AID ONLY FOR THE SOFTWARE AND NO PAYMENT HAS BEEN MADE FOR ANY SUPPO RT SERVICES. SHE SUBMITTED THAT THESE ARE ONLY WORDS USED IN STANDAR D AGREEMENT AND IT IS NOBODYS CASE THAT SUPPORT SERVICES HAVE BEEN PROVI DED. AS REGARDS THE ARGUMENT OF THE LEARNED DR THAT THE TERM IS ONLY FO R 25 YEARS AND THE SITE IS IN INDIA, SHE SUBMITTED THAT IN CASE OF A SOFTWARE THE LIFE IS HARDLY 5 YEARS. THEREFORE, 25 YEARS IN THE AGREEMENT IS A VERY LONG PERIOD AND IS AS GOOD AS A 99 YEARS LEASE. AS REGARDS THE OBSERVATION OF THE CIT(A) AND THE DR THAT THE ASSESSEE ACQUIRED ONLY A RIGHT TO USE THE LICENSED SOFTWARE AND DOCUMENTATION UNDER THIS AGREEMENT AND DOES NOT ACQ UIRE ANY OWNERSHIP RIGHT OR TITLE IN OR TO THE LICENSED SOFTWARE OR DO CUMENTATION, SHE SUBMITTED THAT IT IS A CUSTOMISED SOFTWARE. AS REGARDS THE D ECISION OF THE AAR RELIED ON BY THE LEARNED DR, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE LATER DECISION OF THE AAR IN THE CASE OF DASSAULT S YSTEMS KK (SUPRA) IS APPLICABLE WHICH IS IN FAVOUR OF THE ASSESSEE. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE COMPANY HAS PLACED AN ORDER FOR SUPPLY OF IXOS-ECON TEST FOR R/3 FOR 50 USERS FROM THE SINGAPORE COMPANY. WE FIND THE SING APORE COMPANY VIDE THEIR SALES ORDER DATED 18 TH DECEMBER, 2001 HAS SUPPLIED THE LICENSED SOFTWARE TO THE ASSESSEE FOR A CONSIDERATION OF USD 43,000. ACCORDING TO THE REVENUE, TAX IS DEDUCTIBLE FROM SUCH PAYMENT TO THE SINGAPORE COMPANY SINCE IT IS IN THE NATURE OF PAYMENTS TOWARDS ROYA LTY, WHEREAS, ACCORDING TO THE ASSESSEE, THE SAME IS FOR PURCHASE OF GOODS AND , THEREFORE, NO TAX IS DEDUCTIBLE. 16. WE FIND THAT ARTICLE 12 CLAUSE 3(A) OF THE INDO-SIN GAPORE TREATY READS AS UNDER : ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 11 ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. .. 2. .. 3. THE TERM ROYALTIES AS USED IN THIS ARTICLE ME ANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE : (A) ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCI ENTIFIC WORK, INCLUDING CINEMATOGRAPH FILM OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECR ET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT, PROPERTY OR INFORMATION ; .. .. .. . .. 17. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH AS REPORTED IN 271 ITR 401, WHILE DECIDING A SALES-TAX MATTER, HAS HELD AS UNDER (SHORT NOTES) : THE TERM GOODS, FOR THE PURPOSES OF SA LES TAX, CANNOT BE GIVEN A NARROW MEANING. PROPERTIES WHICH ARE CAPABL E OF BEING ABSTRACTED, CONSUMED AND USED AND/OR TRANSMITTED, TRANSFERRED, DELIVERED, STORED OR POSSESSED, ETC., ARE GOODS FOR THE PURPOSE OF SAL ES TAX. THE TEST TO ASCERTAIN WHETHER A PROPERTY IS GOODS FOR THE PURPOSES OF SALES TAX IS SNOT WHETHER THE PROPERTY IS TANGIBLE OR INCORPOREAL. THE TEST IS WH ETHER THE CONCERNED ITEM IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHE THER IT CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POSSESSED, ETC. IN THE CASE OF SOFTWARE, BOTH CANNED AND UNCANNED, ALL OF THESE ARE POSSIBLE. INT ELLECTUAL PROPERTY WHEN IT IS PUT ON A MEDIA BECOMES GOODS. A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS CO MMANDS WHICH ENABLE THE COMPUTER TO PERFORM A DESIGNATED TASK. T HE COPYRIGHT IN THE PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF THE PRO GRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS WHIC H ARE SUSCEPTIBLE TO SALES TAX. EVEN INTELLECTUAL PROPERTY, ONCE IT IS PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS (IN THE CASE OF PAINTING) O R COMPUTER DISCS OR CASSETTES, AND MARKETED WOULD BECOME GOODS. THERE IS NO DIFF ERENCE BETWEEN SALE OF A SOFTWARE PROGRAMME ON A CD/FLOPPY DISC AND SALE OF MUSIC ON A CASSETTE/CD OR SALE OF A FILM ON A VIDEO CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECTUAL PROPERTY HAS BEEN INCORPORATED ON A MEDIA FOR PURPOSES OF TR ANSFER. SALE IS NOT JUST OF THE MEDIA WHICH BY ITSELF HAS VERY LITTLE VALUE. TH E SOFTWARE AND THE MEDIA ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 12 CANNOT BE SPLIT UP. WHAT THE BUYER PURCHASES AND PA YS FOR IS NOT THE DISC OR THE CD. AS IN THE CASE OF PAINTINGS OR BOOKS OR MUSIC O R FILMS THE BUYER IS PURCHASING THE INTELLECTUAL PROPERTY AND NOT THE ME DIA, I.E., THE PAPER OR CASSETTE OR DISC OR CD. A TRANSACTION OF SALE OF COMPUTER SOFTWARE PACK AGE OFF THE SHELF IS CLEARLY A SALE OF GOODS WITHIN THE MEANI NG OF THAT TERM IN SECTION 2(N) OF THE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. THE TERM ALL MATERIALS, ARTICLES AND COMMODI TIES IN SECTION 2(H) OF THE ACT INCLUDES BOTH TANGIBLE AND INTANGIBLE/INCORPOREAL PROPERTY WHICH IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHICH CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POSSESSED, ETC. THE SOFTWARE PROGRAMMES HAVE ALL THESE ATTRIBUTES. 18. WE FIND THE BANGALORE BENCH OF THE TRIBUNAL, IN THE CASE OF SAMSUNG ELECTRONICS CO.LTD. V. ITO (TDS)-I REPOR TED IN 94 ITD 91 AT PARAS 18 TO 20 OF THE ORDER, HAS HELD AS UNDER : 18.ON PERUSAL OF THE AGREEMENT BETWEEN THE PARTIES, WE ARE OF THE VIEW THAT IN THE PRESENT CAS E ALSO WHAT THE ASSESSEE HAD ACQUIRED IS ONLY A COPY OF THE COPYRIGHTED ARTICLES I.E., SOFTWARE, WHEREAS TH E COPY RIGHT REMAINS WITH THE OWNER, I.E., FOREIGN PA RTIES. THE DECISIONS RELIED UPON BY THE LEARNED DR ARE DISTINGUISHABLE ON FACTS OF THE CASE. 19.FROM THE AFORESAID DISCUSSION, WE FIND THAT THE INCORPOREAL RIGHT TO SOFTWARE I.E., COPYRIGHT REMAI NED WITH THE OWNER AND THE SAME WAS NOT TRANSFERRED TO THE ASSESSEE. WE HAVE ALSO NOTICED THAT THE DEFINITION OF ROYALTY IN THE DTAA, WHICH HAS BEEN QUOTED ABOVE. THE PRIMARY CONDITION FOR BRINGING WITHIN THE DEFINITIO N OF ROYALTY IN DTAA IS THAT THE PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT T O USE ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK ETC., RIGHT TO USE OF A COPYRIGHT IS TOTALLY DIFFERENT FR OM RIGHT TO USE THE PROGRAMME EMBEDDED IN A CASSETTE OR CD O R IT MAY BE A SOFTWARE. 20.IN THIS CASE, THE ASSESSEE HAD ACQUIRED A READY MADE OFF THE SHELF COMPUTER PROGRAMME FOR BEING USED IN ITS BUSINESS. NO RIGHT WAS GRANTED TO THE ASSESSEE TO U TILIZE THE COPYRIGHT OF THE COMPUTER PROGRAMME. THE ASSESS EE HAD MERELY PURCHASED A COPY OF THE COPYRIGHTED ARTI CLE, NAMELY, A COMPUTER PROGRAMME WHICH IS CALLED SOFTWARE. LOOKING TO THE CIRCUMSTANCES OF THE CAS E AND ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 13 CONSIDERING THE FACT THAT THE DEFINITION OF ROYALT Y AS PROVIDED IN THE TREATIES DOES SNOT APPLY TO THE FAC TS OF THE CASE.WE ARE OF THE VIEW THAT THE FINDING RECORD ED BY THE AUTHORITIES BELOW CANNOT BE SUSTAINED. ACCORDIN GLY, WE HOLD THAT THE REMITTANCE MADE BY THE APPELLANT F OR PURCHASE OF SOFTWARE IS NOT AN INCOME IN INDIA, HEN CE, NO TAX IS TO BE DEDUCTED IN INDIA UNDER SECTION 195 OF THE INCOME-TAX ACT, 1961. SINCE WE HAVE DECIDED THE ISSUE ON MERIT, THEREFORE, WE ARE NOT GOING INTO TH E TECHNICAL OBJECTIONS RAISED ON BEHALF OF THE ASSESS EE. 19. SIMILARLY, WE FIND THAT THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INX. VS. DCIT REPORTED IN 95 ITD 269 (S B) AT PARA 163 HAS HELD AS UNDER : 163. WE MAY NOW BRIEFLY DEAL WITH THE OBJECTIO NS OF MR.G.C. SHARMA, THE LEARNED COUNSEL FOR THE DEPARTMENT. HE CONTENDED THAT IF A PERSON OWNS A COPYRIGHT ARTICLE THEN HE A UTOMATICALLY HAS A RIGHT OVER THE COPYRIGHT ALSO. WITH RESPECT, THIS OBJECTION DOES NOT APPEAR TO US TO BE CORRECT. MR. DASTUR FIL ED AN EXTRACT FROM IYENGARS COPYRIGHT ACT (3 RD EDITION) EDITED BY R.G. CHATURVEDI. THE FOLLOWING OBSERVATIONS OF THE AUTHO R ARE ON THE POINT : (H) COPYRIGHT IS DISTINCT FROM THE MATERIAL OBJEC T, COPYRIGHTED: IT IS AN INTANGIBLEINCORPOREAL RIGHT IN THE NATURE OF A PRIVILEGE, QUITE INDEPENDENT OF ANY MATERIAL SUBSTA NCE, SUCH AS A MANSUSCRIPT. THE COPYRIGHT OWNER MAY DISP OSE OF IT ON SUCH TERMS AS HE MAY SEE FIT. HE HAS AN IN DIVIDUAL RIGHT OF EXCLUSIVE ENJOYMENT. THE TRANSFER OF THE MANUSCRIPT DOES NOT, OF ITSELF SERVE TO TRANSFER TH E COPYRIGHT THEREIN. THE TRANSFER OF THE OWNERSHIP OF A PHYSICAL THING IN WHICH COPY RIGHT EXISTS GIVEN TO THE PURCHASER THE RIGHT TO DO WITH IT (THE PHYSICAL THI NG) WHATEVER HE PLEASES, EXCEPT THE RIGHT TO MAKE COPIE S AND ISSUE THEM TO THE PUBLIC [EMPHASIS SUPPLIED]. THE ABOVE OBSERVATIONS OF THE AUTHOR SHOW THAT ONE CANNOT HAVE THE COPYRIGHT RIGHT WITHOUT THE COPYRIG HTED ARTICLE BUT AT THE SAME TIME JUST BECAUSE ONE HAS T HE COPYRIGHTED ARTICLE, IT DOES NOT FOLLOW THAT ONE HA S ALSO THE COPYRIGHT IN IT. MR. SHARMAS OBJECTION CANNOT BE ACCEPTED. WE FIND THE LD. CIT(A), WHILE HOLDING THAT THE FEE PAID FOR ACQUISITION OF THE SOFTWARE AMOUNTS TO ROYALTY, HAS RELIED ON THE DECI SION OF AUTHORITY FOR ADVANCE ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 14 RULINGS (AAR) IN THE CASE OF P.NO.30 OF 1999 AS REP ORTED IN 238 ITR 296. HOWEVER, WE FIND THAT THE AAR IN THE CASE OF DASSAU LT SYSTEMS K.K. VS. DIT VIDE AAR NO.821 OF 2009 ORDER DATED 29-01-2010, A COPY O F WHICH WAS FILED DURING THE COURSE OF HEARING, AFTER CONSIDERING THE DECISI ON OF AAR AS RELIED UPON BY THE CIT(A) AT PARAS 17.1 AND 17.2 OF HIS ORDER, HAS HEL D AS UNDER : 17.1 PASSING ON A RIGHT TO USE THE FACILITATIN G THE USE OF A PRODUCT FOR WHICH THE OWNER HAS A COPYRIGH T IS NOT THE SAME THING AS TRANSFERRING OR ASSIGNING RIGHTS IN RELATION TO THE COPYRIGHT. THE ENJOYMENT OF SOME OR ALL THE RIGHTS WHICH THE COPYRIGHT OWNER HAS, IS NECESSARY TO TRIGGER THE ROYALTY DEFINITION. VIEWED FROM THIS AN GLE, A NON-EXCLUSIVE AND NON-TRANSFERABLE LICENCE ENABLING THE USE OF A COPYRIGHTED PRODUCT CANNOT BE CONSTRUCTED AS AN AUTHORITY TO ENJOY ANY OR ALL THE ENUMERATED RIGHTS INGRAINED IN A COPYRIGHT. WHERE THE PURPOSE OF THE LICENCE OR THE TRANSACTION IS ONLY TO ESTABLISH ACCESS TO T HE COPYRIGHTED PRODUCT FOR INTERNAL BUSINESS PURPOSE, IT WOULD NOT BE LEGALLY CORRECT TO STATE THAT THE COPYRIGHT ITSELF HAS BEEN TRANSFERRED TO ANY EXTENT. IT DOES NOT MAKE AN Y DIFFERENCE EVEN IF THE COMPUTER PROGRAMME PASSED ON TO THE USER IS A HIGHLY SPECIALIZED ONE. THE PARTING O F INTELLECTUAL PROPERTY INHERENT IN AND ATTACHED TO T HE SOFTWARE PRODUCT IN FAVOUR OF THE LICENCEE/CUSTOMER IS WHAT IS CONTEMPLATED BY THE DEFINITION CLAUSE IN THE ACT AS WELL AS THE TREATY. AS OBSERVED EARLIER, THOSE RIGHTS AR E INCORPORATED IN SECTION 14. MERELY AUTHORIZING OR E NABLING A CUSTOMER TO HAVE THE BENEFIT OF DATA OR INSTRUCTION S CONTAINED THEREIN WITHOUT ANY FURTHER RIGHT TO DEAL WITH THEM INDEPENDENTLY DOES NOT, IN OUR VIEW, AMOUNT TO TRANSFER OF RIGHTS IN RELATION TO COPYRIGHT OR CONF ERMENT OF THE RIGHT OF USING THE COPYRIGHT. HOWEVER, WHERE, F OR EXAMPLE, THE OWNER OF COPYRIGHT OVER A LITERARY WOR K GRANTS AN EXCLUSIVE LICENSE TO MAKE OUT COPIES AND DISTRIB UTE THEM WITHIN A SPECIFIED TERRITORY, THE GRANTEE WILL PRAC TICALLY STEP INTO THE SHOES OF THE OWNER/GRANTOR AND HE ENJOYS T HE COPYRIGHT TO THE EXTENT OF ITS GRANT TO THE EXCLUSI ON OF OTHERS. AS THE RIGHT ATTACHED TO COPYRIGHT IS CONVE YED TO SUCH LICENCEE, HE HAS THE AUTHORITY TO COMMERCIALLY DEAL WITH IT. IN CASE OF INFRINGEMENT OF COPYRIGHT, HE C AN MAINTAIN A SUIT TO PREVENT IT. DIFFERENT CONSIDERAT IONS WILL ARISE IF THE GRANT IS NON-EXCLUSIVE THAT TOO CONFIN ED TO THE USE PURELY FOR IN-HOUSE OR INTERNAL PURPOSE. THE TR ANSFER OF RIGHTS IN OR OVER COPYRIGHT OR THE CONFERMENT OF TH E RIGHT OF USE OF COPYRIGHT IMPLIES THAT THE TRANSFEREE/LICENC EE SHOULD AQUIRE RIGHTS EITHER IN ENTIRELY OR PARTIALLY CO- EXTENSIVE WITH THE OWNER/TRANSFEROR WHO DIVESTS HIMSELF OF TH E RIGHTS HE POSSESES PRO TANTO. THAT IS WHAT, IN OUR VIEW, F OLLOWS ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 15 FROM THE LANGUAGE EMPLOYED IN THE DEFINITION OF RO YALTY READ WITH THE PROVISIONS OF COPYRIGHT ACT, VIZ., SE CTION 14 AND OTHER COMPLEMENTARY PROVISIONS. 17.2 WE MAY REFER TO ONE MORE ASPECT HERE. IN THE DEFINITION OF ROYALTY UNDER THE ACT, THE PHRASE INCLUDING THE GRANTING OF A LICENCE IS FOUND. THA T DOES NOT MEAN THAT EVEN A NON-EXCLUSIVE LICENCE PERMITTING USER FOR IN-HOUSE PURPOSE WOULD BE COVERED BY THAT EXPRESSION. ANY AND EVERY LICENCE I S NOT WHAT IS CONTEMPLATED. IT SHOULD TAKE COLOUR FRO M THE PRECEDING EXPRESSION TRANSFER OF RIGHTS IN RES PECT OF COPYRIGHT. APPARENTLY, GRANT OF LICENCE HAS B EEN REFERRED TO IN THE DEFINITION TO DISPEL THE POSSIBL E CONTROVERSY A LICENCE WHATEVER BE ITS NATURE, CAN BE CHARACTERIZED AS TRANSFER. IN VIEW OF THE ABOVE DECISIONS, WE ARE OF THE CONS IDERED OPINION THAT A COMPUTER SOFTWARE WHEN PUT INTO A MEDIA AND SOLD, IT BECOMES GOODS LIKE ANY OTHER AUDIO CASSETTE OR PAINTING ON CANVASS OR BOOK. IN VIEW OF THE DECISIONS CITED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT PAID BY THE ASSESSEE TOWARDS PURCHASE OF IXOS-ECON FOR R/3 50 USERS CANNOT BE T REATED AS PAYMENT OF ROYALTY TAXABLE IN INDIA UNDER ARTICLE 12 OF DTAA B ETWEEN INDIA AND SINGAPORE. THEREFORE, THE ASSESSEE, IN OUR OPINION, IS NOT LIA BLE TO DEDUCT TAX AT SOURCE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 22ND DAY OF JUNE, 2010 . SD/- SD/- (D. MANMOHAN) (R.K. PANDA) VICE-PRESIDENT ACCOUNTANT MEMBER MUMBAI: 22ND JUNE , 2010. NG: ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 16 COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-XXXIII,MUMBAI. 4.DIT(INTL.TAXN.),MUMBAAI. 5.DR,L BENCH,MUMBAI. 6. MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA 568/M/09 KANSAI NEROLAC PAINTS LTD. 17 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 14-05-2010 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 02-06-2010 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 08-06-2010 JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 09-06-2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 09-06-2010 SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER