Appeal details
Counselvise Citation
[2021] 104 COUNSELVISE.COM (IT) 5866 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-12-2021
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
B
Assessment Year
2011-2012
Appeal Filed On
30-06-2020
Judgement Text
आयकर अपील य अ धकरण, ‘बी’ यायपीठ, चे नई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI ी महावीर संह, उपा य एवं ी जी. मंज ु नाथ, लेखा सद%य के सम BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER आयकरअपीलसं./I . T. A. N os . 6 5 6 & 6 5 7/ C h n y/ 2 0 2 0 ( नधा रणवष / A ss e ssm en t Ye a r s : 20 1 1 - 1 2 & 2 0 12 - 1 3) The Deputy Commissioner of Income Tax, Circle-2(1), International Taxation, Chennai. V s M/s. Petrofac Engineering Services Pvt.Ltd. 7 th floor, Block 9A DLF Infocity SEZ 1/124 Shivaji Gardens, Nandambakkam Post Manapakkam, Chennai-600089. PA N: A AE CP 1 2 1 1 H (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओरसे/ Appellant by : Mr. K.N.Dhandapani, Addl.CIT यथ क ओरसे/Respondent by : Mr. Ashik Shah, C.A स ु नवाईक तार ख/D a t e o f h e a r i n g : 08.12.2021 घोषणाक तार ख /D a t e o f P r o n o u n c e m e n t : 22.12.2021 आदेश / O R D E R PER G.MANJUNATHA, AM: These two appeals filed by the Revenue are directed against separate, but identical orders of the learned Commissioner of Income Tax (Appeals)-3, Chennai, both dated11.02.2020 and pertain to assessment years 2011-12 & 2012-13. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order. 2 ITA No. 656 & 657/Chny/2020 2. The Revenue has more or less filed common grounds of appeal for both assessment years, therefore, for the sake of brevity, grounds of appeal filed for the assessment year 2011- 12 are reproduced as under:- “1. The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case. 2. The Ld. CIT(A) has not appreciated the fact that as per Section 9 (1)(vi), Explanation 4 read with Article 12 of the India-USA DTAA, the right to use a computer software including granting of license is taxable as Royalty. 3. The Ld. CIT(A) has erred in relying on Vinzas Solutions India (P) Ltd [2017) 77 taxmann.com 279 and Visteon Technical & services Centre (P) Ltd vs DCIT (International Taxation) 2(2) [2017] 81 taxmann.com 390 treating payment for obtaining the right for the usage of software as sale of copyrighted article. 4. The Ld. CIT(A) failed to consider the decision of the jurisdictional High Court in the case of Zylog systems Limited vs. ITO [2020] 116 taxmann.com 927 (Madras), India was passed after the decision in the case of Vinzas Solutions India (P) Ltd [2017] 77 taxmann.com 279 and Visteon Technical & services Centre (P) Ltd vs DCIT (International Taxation) 2(2) [2017] 81 taxmann.com 390. 5. The Ld. CIT(A) has not considered that transfer of exclusive rights in a copyright is not the only condition for a payment to be considered Royalty. 6. The Hon’ble Karnataka High Court in the case of Synopsis International Old Ltd [(2012) 28 taxmann.com 162 (Kar.)] held that the payment for non- exclusive right to use information embedded in a computer software also qualifies as Royalty. This decision was relied upon by the Hon’ble Madras High Court in the case of Zylog Systems Ltd to treat payment for software as Royalty. The Ld. CIT(A) has erred in law by not considering this. 3 ITA No. 656 & 657/Chny/2020 7. The Ld. CIT(A) has erred in treating the membership fees paid to APNIC as business income when this payment is in the nature of fees for Technical Services. 8. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the Learned CIT(A) may be set aside and that of the Assessing Officer be restored.” 3. At the outset, we find that both appeals filed by the Revenue are barred by limitation. At the time of hearing, the learned DR submitted that the Department has filed appeals during Covid-19 lockdown period and in view of general exemption granted by the Hon’ble Apex Court for extending limitation applicable to various proceedings pending before appellate authorities, delay may be condoned and appeals filed by the Revenue may be admitted for hearing. The learned AR for the assessee, on the other hand, fairly agreed that so called delay in filing of appeals by the Revenue is covered by specific extension provided by the Hon'ble Supreme Court for filing appeals before appellate authority and thus, there is no objection from the assessee for admitting appeals filed by the Revenue. 4. Having heard both sides and considered arguments of both sides, we deem it appropriate to condone delay in filing appeals by the Revenue for both assessment years and hence, 4 ITA No. 656 & 657/Chny/2020 delay in filing appeals is condoned and appeals filed by the Revenue are admitted for hearing. 5. Brief facts of the case are that the assessee is engaged in the business of providing computer aided design and engineering services. A TDS survey was conducted in the assessee premises on 01.02.2018 and various foreign remittances were scrutinized. During the course of assessment proceedings, the Assessing Officer on the basis of findings of survey observed that the assessee has not withheld TDS on certain remittances made to non-residents u/s.195 of the Act. A notice u/s.201(1) & 201(1A) of the Act dated 19.2.2018 was issued to the assessee seeking details of payment towards purchase of software products to Ace Structural Engineering .Applications LLC, Aspen Technology Inc, & Integraph Corporation, USA and payment towards membership fees amounting to Rs.1,82,531/- to Asia Pacific Network Information Centre, Australia. In response, the assessee vide letter dated 01.03.2018 explained in detail nature of payments and reasons for not withholding taxes. The assessee further explained that nature of software purchased by the assessee 5 ITA No. 656 & 657/Chny/2020 did not give rise to royalty income for the vendor as per definition in tax treaty between India and USA and further, it was purchase of copyrighted article and not copyright itself. The assessee had also justified payment for membership fees and argued that it does not partake character of fees for technical services based on the provisions of tax treaty. The Assessing Officer however, was not convinced with explanation furnished by the assessee and according to him, payments made by the assessee to various non-resident vendors for purchase of software and rendering services is in the nature of royalty, as per provisions of section 9(1)(vi) of the Income Tax Act, 1961 and tax treaty between respective countries and thus, held that assessee to be an assessee in default u/s.201(1) & 201(1A) of the Act, and thus, computed short deduction of tax and interest for both assessment years. 6. Being aggrieved by the assessment order, the assessee preferred an appeal before learned CIT(A). Before the learned CIT(A), the assessee has filed detailed written submissions on the issue vide its letter dated 17.09.2019, which has been reproduced at para 4 on pages 3 to 23 of the learned CIT(A) 6 ITA No. 656 & 657/Chny/2020 order. The assessee has also relied upon plethora of decisions in support of his argument. The sum and substance of arguments of the assessee before the learned CIT(A) are that payment made by the assessee to various non-resident vendors for purchase of copyrighted article does not give rise of royalty within the meaning of section 9(1)(vi) of the Act, and tax treaty and thus, the assessee does not require to deduct TDS u/s.195 of the Act, on said payment and consequently, assessee cannot be held to be an assessee in default u/s.201(1) & 201(1A) of the Act. 7. The learned CIT(A), after considering relevant submissions and also by relied upon various judicial precedents, including decision of the Hon’ble Gujarat High Court in the case of Tata Teleservices Vs. UOI (2016) 385 ITR 497 held that payments made by the assessee to various non- resident vendors for purchase of copyrighted article does not give rise to any royalty within meaning of section 9(1)(vi) of the Act and tax treaty and thus, the assessee need not deduct TDS u/s.195 of the Act, on such payment and consequently, the assessee cannot be held to be an assessee in default u/s. 7 ITA No. 656 & 657/Chny/2020 201(1) & 201(1A) of the Income Tax Act, 1961. Insofar as payment made by the assessee to Asia Pacific Network Information Centre, the learned CIT(A) has restored issue to the file of the Assessing Officer and directed him to reexamine claim of the assessee to ascertain facts with regard to existence of permanent establishment of their recipients in India and consequential tax liability. Aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 8. The learned counsel appearing for the assessee and learned DR present for the Revenue, at the time of hearing, made a statement at bar that issue involved in both these appeals filed by the Revenue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT (2021) 125 taxmann.com 42 (SC), where the Hon'ble Supreme Court after analyzing various facts and also by considering judgements of various courts held that amount paid by resident Indian end-users / distributors to non-resident computer software manufacturers/suppliers as consideration for resale / use of computer software through EULAs/ distribution 8 ITA No. 656 & 657/Chny/2020 agreements is not payment of royalty for use of copyright in computer software and thus, payment does not give rise to any income taxable in India. 9. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that controversy of payment made by the Indian end-users/distributors to non-resident computer software manufacturer as consideration for resale /use of computer software through EULAs / distribution has been resolved by the Hon'ble Supreme Court in series of cases and after considering various facts and also by analyzing number of decisions held that amount paid by resident Indian end-users / distributors to non-resident computer software manufacturer/suppliers as consideration for resale / use of computer software through EULAs/ distribution agreement is not payment of royalty for use of copyright in computer software and thus, payment does not give rise to any income taxable in India. The relevant findings of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT (supra) are as under:- 9 ITA No. 656 & 657/Chny/2020 “The assessee-company (EAC) was a resident Indian end-user of shrink-wrapper computer software, directly imported from the United State of America (USA). • The Assessing Officer after applying article 12(3) of the Double Taxation Avoidance Agreement (DTAA), between India and USA, and upon applying section 9(l)(vi), found that what was in fact transferred in the transaction between the parties was copyright which attracted the payment of royalty and thus, it was required that tax be deducted at source by the Indian importer and end-user, EAC. Since this was not done for both the assessment years. EAC was held liable to pay the amount that it had not deducted as TDS, along with interest under section 201(IA). The appeal before the Commissioner (CIT) was dismissed. However, the appeal before the Income Tax Appellate Tribunal (ITAT) succeeded in which the ITAT followed its previous order dated 18-2-2005, passed in Samsung Electronics Co. Ltd. v. ITO [20051 94 lTD 91 (Bang.). • The High Court of Karnataka, on an examination of the End- User Licence Agreement (EULA) involved in the transaction, found that what was sold by way of computer software included a right or interest in copyright, which thus gave rise to the payment of royalty and would be an income deemed to accrue in India under section 9(1)(vi) , requiring the deduction of tax at source. • On appeal to the Supreme Court: HELD • Once a DTAA applies, the provisions of the Income-tax Act can only apply to the extent that they are more beneficial to the assessee and not otherwise. Further, by Explanation 4 to section 90 of the Income-tax Act it has been clarified by the Parliament that where any term is defined in a DTAA, the definition contained in the DTAA is to be looked at. It is only where there is no such definition that the definition in the Income-tax Act can then be applied. [Para 26] The Copyright Act, 1957 • The making of copies or adaptation of a computer programme in order to utilise the said computer programme for the purpose 10 ITA No. 656 & 657/Chny/2020 for which it was supplied, or to make up back-up copies as a temporary protection against loss, destruction or damage so as to be able to utilise the computer programme for the purpose for which it was supplied, does not constitute an act of infringement of copyright under section 52(1)(aa) of the Copyright Act. In short, what is referred to in section 52(I)(aa) would not amount to reproduction so as to amount to an infringement of copyright. • Section 52(1)(ad) is independent of section 52(1)(aa) of the Copyright Act and states that the making of copies of a computer programme from a personally legally obtained copy for non-commercial personal use would not amount to an infringement of copyright. However, it is not possible to deduce from this what is sought to be deduced by the Additional Solicitor General, namely, that if personally legally obtained copies of a computer programme are to be exploited for commercial use, it would necessarily amount to an infringement of copyright. Section 52(1)(aa) of the Copyright Act cannot be read to negate the effect of section 52(l)(aa), since it deals with a subject matter that is separate and distinct from that contained in section 52(1)(aa) of the Copyright Act. [Paras 38 & 39] End-user licence agreements and distribution agreements • A reading of the distribution agreement between parties would show that what is granted to the distributor is only a non- exclusive, non-transferable licence to resell computer software, it being expressly stipulated that no copyright in the computer programme is transferred either to the distributor or to the ultimate end-user. This is further amplified by stating that apart from a right to use the computer programme by the end-user himself, there is no further right to sub-licence or transfer, nor is there any right to reverse-engineer, modify, reproduce in any manner otherwise than permitted by the licence to the end-user. What is paid by way of consideration, therefore, by the distributor in India to the foreign, no-resident manufacturer or supplier, is the price of the computer programme as goods, either in a medium which stores the software or in a medium by which software is embedded in hardware, which may be then further resold by the distributor to the end-user in India, the distributor making a profit on such resale. Importantly, the 11 ITA No. 656 & 657/Chny/2020 distributor does not get the right to use the product at all. [Para 451 • When it comes to an end-user who is directly sold the computer programme, such end-user can only use it by installing it in the computer hardware owned by the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. [Para 46] • In all these cases, the ‘licence’ that is granted vide the EULA, is not a licence in terms of section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in sections 14(a) and 14(b) of the Copyright Act, but is a ‘licence’ which imposes restrictions or conditions for the use of computer software. Thus, it cannot be said that any of the EULAs in question are referable to section 30 of the Copyright Act, inasmuch as section 30 Copyright Act speaks of granting an interest in any of the rights mentioned in sections 14(a) and 14(b) of the Copyright Act. The EULAs in all the appeals do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid position will suffice. If an English publisher sells 2000 copies of a particular book to an Indian distributor, who then resells the same at a profit, no copyright in the aforesaid books is transferred to the Indian distributor, either by way of licence or otherwise, inasmuch as the Indian distributor only makes a profit on the sale of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way of licence or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterised as royalty for the exclusive right to reproduce the book in the territory mentioned by the licence. [Para 47] • What is ‘licensed’ by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly 12 ITA No. 656 & 657/Chny/2020 supplied to the resident end-user, is in fact the sale of a physical object which contains an embedded computer programme, and is therefore, a sale of goods. [Para 52] Definition of royally in the DTAAs vis-a-vis the Income-tax Act • Firstly, it will be seen that when article 12 of the India- Singapore DTAA defines the term ‘royalties’ in sub-article (3) thereof, it does so stating that such definition is exhaustive - it uses the expression ‘means’. Secondly, the term ‘royalties’ refers to payments of any kind that are received as a consideration for the use of or the right to use any copyright in a literary work. As opposed to this, the definition contained in Explanation 2 to section 9(1)(vi), of the Income-tax Act is wider in at least three respects: i. It speaks of ‘consideration’, but also includes a lump-sum consideration which would not amount to income of the recipient chargeable under the head ‘capital gains’; ii. When it speaks of the transfer of ‘all or any rights’, it expressly includes the granting of a licence in respect thereof; and iii. It states that such transfer must be ‘in respect of’ any copyright of any literary work. [Para 63] • However, even where such transfer is ‘in respect of copyright, the transfer of all or any rights in relation to copyright is a sine quanon under Explanation 2 to section 9(1)(vi) of the Income- tax Act. In short, there must be transfer by way of licence or otherwise, of all or any of the rights mentioned in section 14(b) with section 14(a) of the Copyright Act. [Para 64] Royalty under the Income-tax Act • Even if one were to consider the ambit of’royalty’ only under the Income-tax Act on the footing that none of the DTAAs apply to the facts of these cases, the definition of royalty that is contained in Explanation 2 to section 9(1)(vi) of the Income-tax Act would make it clear that there has to be a transfer of ‘all or any rights’ which includes the grant of a licence in respect of any copyright in a literary work. The expression ‘including the granting of a licence’ in clause (v) of Explanation 2 to section 9(1)(vi), of the Income-tax Act would necessarily mean a licence 13 ITA No. 656 & 657/Chny/2020 in which transfer is made of an interest in rights ‘in respect of copyright, namely, that there is a parting with an interest in any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act. To this extent, there will be no difference between the position under the DTAA and Explanation 2 to section 9(1)(vi) of the Income-tax Act. [Para 73] • It is therefore difficult to accept argument that Explanation 4 does not expand the scope of the expression ‘royalty’ as contained in Explanation 2 to section 9(1)(vi) of the Income-tax Act Para 76] • It is equally difficult to accept the Additional Solicitor General’s submission that Explanation 4 to section 9(1)(vi) of the Income- tax Act is clarificatory of the position as it always stood, since 1- 6-1976, for which he strongly relied upon CBDT Circular No. 152, dated 27-11-1974. Quite obviously, such a circular cannot apply as it would then be explanatory of a position that existed even before section 9(1)(vi) was actually inserted in the Income- tax Act vide the Finance Act, 1976. Quite clearly, Explanation 4 cannot apply to any right for the use of or the right to use computer software even before the term ‘computer software’ was inserted in the statute. Likewise, even qua section 2(o) of the Copyright Act, the term ‘computer software’ was introduced for the first time in the definition of a literary work, and defined under section 2(ffc) only in 1994 vide Act 38 of 1994 [Para 77] • Furthermore, it is equally ludicrous for the aforesaid amendment which also inserted Explanation 6 to section 9(1)(vi), of the Income-tax Act to apply with effect from 1-6- 1976, when technology relating to transmission by a satellite, optic fibre or other similar technology, was only regulated by the Parliament for the first time through the Cable Television Networks (Regulation) Act, 1995, much after 1976. For all these reasons, it is clear that Explanation 4 to section 9(l)(vi) of the Income-tax Act is not clarificatory of the position as on 1-6- 1976, but in fact, expands that position to include what is stated therein, vide the Finance Act, 2012. [Para 78] Whether persons liable to deduct TDS under section 195 of the Income-tax Act can be held liable to deduct such sums at a time when Explanation 4 was factually not on the statute book, all 14 ITA No. 656 & 657/Chny/2020 deductions liable to be made and the assessment years in question being prior to the year 2012 • This question is answered by two Latin maxims, lex non cogit ad impossibilia, i.e., the law does not demand the impossible and impotentia excusat legem, i.e., when there is a disability that makes it impossible to obey the law, the alleged disobedience of the law is excused. Recently, in the judgment in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal [Civil Appeal No. 20825 of 2017, dated 14-7-2020], this Court applied the said maxims in the context of the requirement of a certificate to produce evidence by way of electronic record under section 65B of the Evidence Act, 1872 and held that having taken all possible steps to obtain the certificate and yet being unable to obtain it for reasons beyond his control, the respondent in the fact of the case, was relieved of the mandatory obligation to furnish a certificate. [Para 81] • It is thus clear that the ‘person’ mentioned in section 195 of the Income-tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of ‘royalty’ inserted by Explanation 4 to section 9(1)(vi), of the Income-tax Act for the assessment years in question, at a time when such Explanation was not actually and factually in the statute. [Para 85] • When, under a non-exclusive licence, an end-user gets the right to use computer software in the form of a CD, the end-user only receives a right to use the software and nothing more. The end-user does not get any of the rights that the owner continues to retain under section 14(b) of the Copyright Act read with sub- section (a)(i)-(vii) thereof. Thus, the conclusion that when computer software is licensed for use under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act. [Para 97] 15 ITA No. 656 & 657/Chny/2020 The conclusions that can be derived on a reading of the some judgments are as follows: (i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. (ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. (iii) Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of the physical substance, in which copyright subsists, gives the purchaser the right to do with it whatever he pleases, except the right to reproduce the same and issue it to the public, unless such copies are already in circulation, and the other acts mentioned in section 14 of the Copyright Act. (iv) A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the ‘licensed’ computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by section 52(1)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customized to its specifications or otherwise. (v) A non-exclusive, non-transferable licence, merely enabling the use of a copyrighted product, is in the nature of restrictive conditions which are ancillary to such use, and cannot be 16 ITA No. 656 & 657/Chny/2020 construed as a licence to enjoy all or any of the enumerated rights mentioned in section 14 of the Copyright Act, or created any interest in any such rights so as to attract section 30 of the Copyright Act. (vi) The right to reproduce and the right to use computer software are distinct and separate rights, as has been recognized in State Bank of India v. Collector of Customs 2000 taxmann.com 1053 (SC), the former amounting to parting with copyright and the latter, in the context of non-exclusive EULAs, not being so. [Para 117] • Consequently, the view contained in the determinations of the AAR in Dassault Systems, KK, In re [20210] 188 Taxman 223/322 ITR 125 (AAR —New Delhi) and Geoquest Systems B.V., In re [2010] 193 Taxnian 8 1/327 ITR 1 (AAR - New Delhi) and the judgments of the High Court of Delhi in DIT v. Ericsson A.B., [2011] 16 taxmann.com 371/[20l2] 204 Taxman 192/343 ITR 470, DIT v. Nokia Networks OY [2012] 25 taxmann.com 225/[2013] 212 Taxman 68/358 ITR 259 (Delhi) DIT v. Infrasoft Ltd. [2013] 39 taxmann.com 38/[2014] 220 Taxman 273 (Delhi) CIT v. ZTE Corporation [2017] 77 taxmann.com 304/245 Taxman 252/392 ITR 80 (Delhi) state the law correctly and have this Court’s express approval. [Para 118] • The language of section 14(b)(ii) of the Copyright Act makes it clear that it is the exclusive right of the owner to sell or to give on commercial rental or offer for sale or for commercial rental ‘any copy of the computer programme’. Thus, a distributor who purchases computer software in material form and resells it to an end-user cannot be said to be within the scope of the aforesaid provision. The sale or commercial rental spoken of in section 14(b)(ii) of the Copyright Act is of’ any copy of a computer programme’, making it clear that the section would only apply to the making of copies of the computer programme and then selling them, i.e., reproduction of the same for sale or commercial rental. [Para 142] Conclusion Given the definition of royalties contained in article 12 of the DTAAs (between India and Singapore), it is clear that there is no obligation on the persons mentioned in section 195 of the 17 ITA No. 656 & 657/Chny/2020 Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income-tax Act (section 9(1)(vi), along with Explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. • Thus, the amounts paid by resident Indian end- users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. [Paras 168 & 169]” 10. In this view of the matter and by respectfully following the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT (supra), we are of the considered view that payment made by the assessee to various non-resident vendors for purchase of copyrighted article does not give rise to any royalty as defined u/s.9(1)(vi) of the Act, and tax treaty and thus, the assessee does not require to deduct TDS as required u/s.195 of the Income Tax Act, 1961, on such payment and consequently, assessee cannot be held to be an assessee in default u/s.201(1) & 201(1A) of the Income Tax Act, 1961. The learned 18 ITA No. 656 & 657/Chny/2020 CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. 11. In the result, appeals filed by the revenue for both assessment years are dismissed. Order pronounced in the open court on 22 nd December, 2021 Sd/- Sd/- (महावीर संह) (जी. मंज ु नाथ) (Mahavir Singh) (G. Manjunatha ) उपा य / Vice-President लेखा सद&य / Accountant Member चे(नई/Chennai, )दनांक/Dated 22 nd December, 2021 DS आदेश क त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आय ु .त (अपील)/CIT(A) 4. आयकर आय ु .त/CIT 5. ,वभागीय त न2ध/DR 6. गाड फाईल/GF.
Mehul