Appeal Details
Counselvise Citation
[2018] 121 COUNSELVISE.COM (IT) 7313 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 year(s) 6 month(s) 25 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-05-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
L
Assessment Year
2003-2004
Appeal Filed On
08-10-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ........ ITA NU MBERS 837/M/07, 5076/M/08, 5077/M/08, 5078/M/08, 5079/M/08 5080/M/08, 5081/M/08, 5082/M/08, 5083/M/08, 5084/M/08 5085/M/08, 5086/M/08, 5087/M/08, 5088/M/08, 5089/M/08, 5090/M/08, 5091/M/08, 5092/M/08, 5467/M/08, 5469/M/08, 5470/M/08, 5474/M/08, 5475/M/08, 5476/M/08, 5477/M/08, 6093/M/08, 3431/M/08, 3432/M/08, 3433/M/08, 3434/M/08, 3435/M/08, 3436/M/08, 3437/M/08, 3438/M/08, 3439/M/08, 3440/M/08, 3441/M/08, 3442/M/08, 3443/M/08, 3444/M/08, 4278/M/08, 4279/M/08, 4280/M/08, 4281/M/08, 4282/M/08, 4283/M/08, 4284/M/08, 4285/M/08, 4286/M/08, 4287/M/08, 4244/M/08, 4245/M/08, 4246/M/08, 4247/M/08, 4248/M/08, 4249/M/08, 4250/M/08, 4251/M/08, 4252/M/08, 4253/M/08, 4254/M/08, 4255/M/08, 4256/M/08, 4257/M/08, 4258/M/08, 4259/M/08, 4260/M/08, 4261/M/08, 4291/M/08, 4305/M/08, 4306/M/08, 4307/M/08, 4308/M/08, 4309/M/08, 4310/M/08, 4873/M/07, 4874/M/07, 4875/M/07, 4876/M/07, 4877/M/07, 4878/M/07, 4899/M/07, 4900/M/07, 4901/M/07, 4902/M/07, 4903/M/07, 4904/M/07, 4905/M/07, 4906/M/07, 4907/M/07, 4908/M/07, 4909/M/07, 4910/M/07, 4916/M/07, 4917/M/07, 4918/M/07, 4919/M/07, 4920/M/07, 4921/M/07 , 4922/M/07, 4923/M/07 , 4924/M/07, 4925/M/07, 4926/M/07 , 4927/M/07, 4928/M/07, 5373/M/07, 5374/M/08, 4672/M/07 , 4673/M/07, 4674/M/07, 4675/M/07, 4676/M/07, 4677/M/07, 5071/M/08, 5072/M/08, 5073/M/08, 5074/M/08, 5075/M/08. (119 APPEALS) SR.NO. APPELLANT RESPONDENT 1 DDIT(IT)-2(1) R.NO.120, 1 ST FLOOR SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI-400 038. M/S. RELIANCE INFOCOM LTD. (NOW KNOWN AS, RELIANCE COMMUNICATIONS LTD ) , C-BLOCK, 1 ST FLOOR, DHIRUBHAI AMBANI KNOWLEDGE CITY, KOPERKHAIRNE NAVI MUMBAI-400 710. PAN-AAACR265 RELIANCE AND LUCENT GROUP 2 ITA NOS. 5468/M/08, 5471/M/08, 5472/M/08, 5473/M/08, 729/M/09, 4501/M/09. SR.NO. APPELLANT RESPONDENT 2 DDIT(IT)-2(1) R.NO.120, 1 ST FLOOR SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI-400 038. RELIANCE COMMUNICATIONS INFRASTRUCTURE LTD ITA. NO.730/MUM/09. SR.NO. APPELLANT RESPONDENT 3 DDIT(IT)-2(1) R.NO.120, 1 ST FLOOR SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI-400 038. RELIANCE INFOSTREAM PRIVATE LIMITED (NOW RELIANCE BPO LIMITED) ITA NOS. 5093/M/08, 5094/M/08, 5095/M/08, 5096/M/08 SR.NO. APPELLANT RESPONDENT 4 DDIT(IT)-2(1) R.NO.120, 1 ST FLOOR SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI-400 038. RELIANCE TELECOM LTD. ITA NOS. 7001/M/10, 7002/M/10, 7003/M/10, 7004/M/10 FOR ASST. YEARS 2003-04, 2004-05, 2005-06 & 2007-08 . SR.NO. APPELLANT RESPONDENT 5 ADDL. DIT ( INTERNATIONAL TAXATION), RANGE-4, MUMBAI M/S. LUCENT TECHNOLOGIES GRL LLC, USA RELIANCE AND LUCENT GROUP 3 REVENUE BY : SHRI PARAG VYAS RELIANCE BY LUCENT BY : : SHRI J.D. MISTRI SHRI P. J PARDIWALA DATE OF CONCLUSION OF HEARING : 28/06/2013 DATE OF PRONOUNCEMENT : 06/09/2013 O R D E R PER BENCH THIS BUNCH OF APPEALS IS BY REVENUE AGAINST VARIOUS COMPANIES OF RELIANCE (ADAG) GROUP, HEREINAFTER REFERRED AS REL IANCE FOR THE SAKE OF CONVENIENCE, WHICH INCLUDE RELIANCE COMMUNICATIONS LTD., RELIANCE TELECOM LTD. RELIANCE BPO LTD., RELIANCE COMMUNICAT IONS INFRASTRUCTURE LTD. THE LAST FOUR IN THE GROUP LISTED ABOVE ARE AP PEALS BY M/S. LUCENT TECHNOLOGIES GRL LLC, USA (REFERRED AS LUCENT) AGAI NST REVENUE. IN THE COURSE OF HEARING THE LEARNED CIT-DR REQUESTED FOR CLUBBING THE FOUR APPEALS OF M/S LUCENT AS THEY ARE INTERRELATED. IN THE REVENUE APPEALS ISSUE IS WHETHER THE PAYMENTS MADE FOR ACQUIRING SOFTWARE FROM NO- RESIDENT COMPANIES IS TAXABLE UNDER THE PROVISIONS OF IT ACT . THE SAME ISSUE IS ALSO IN THE LUCENT APPEALS. IN ADDITION ISSUE OF PE, TAX CREDIT AND LEVY OF INTEREST WERE OTHER ISSUES IN LUCENT APPEALS. SINCE COMMON I SSUES ARE INVOLVED IN THESE APPEALS THEY ARE HEARD TOGETHER. 2. BRIEFLY STATED, RELIANCE INFOCOMM LTD., NOW KNOWN A S RELIANCE COMMUNICATIONS LTD. WANTED TO ESTABLISH WIRELESS TE LECOMMUNICATIONS NETWORK IN INDIA. AS A PART OF THAT IT HAS ENTERED INTO A WIRELESS NETWORK GENERAL TERMS AND CONDITIONS CONTRACT AND WIRELESS SOFTWARE CONTRACT DATED 31.07.2002 WITH LUCENT TECHNOLOGIES HINDUSTAN PVT. LTD. (LTHPL), AN INDIAN COMPANY OF M/S. LUCENT GROUP, USA. WIRELESS SOFTWARE ASSIGNMENT AND ASSUMPTION AGREEMENT DATED 05.08.2002 WITH LTHP L AND LUCENT TECHNOLOGIES GRL LLC (LTGL) USA TOWARDS SUPPLY OF S OFTWARE REQUIRED FOR TELECOM NETWORK. WHEN RELIANCE PLACED FIRST SUPPLY ORDERS FOR SOFTWARE FOR RELIANCE AND LUCENT GROUP 4 AN AMOUNT OF US$11,06,56,855, IT MADE APPLICATIONS UNDER SECTION 195(2) BEFORE DDIT-2(1) MUMBAI REQUESTING PAYMENT FOR PURC HASE OF SOFTWARE WITHOUT DEDUCTION OF TAX AT SOURCE. IT WAS RELIANCE S CONTENTION THAT IT WAS FOR PURCHASE OF SOFTWARE AND LTGL HAS NO PE IN INDI A AND AS PER DTAA BETWEEN INDIA AND USA, THE AMOUNT PAID IS NOT TAXAB LE IN INDIA. AO AFTER EXAMINING THE DETAILS OF AGREEMENTS HELD THAT THE A SSESSEE WAS GETTING ONLY LICENSE TO USE THE SOFTWARE AND IS IN THE NATURE OF ROYALTY, TAXABLE AT 20% IN INDIA UNDER THE PROVISIONS OF INCOME TAX ACT 1961. NOT ONLY IN THE CASE OF LUCENT, RELIANCE ALSO SIMILARLY PLACED ORDERS WITH VARIOUS OTHER SUPPLIERS OF TELECOM SOFTWARE IN OTHER COUNTRIES AND SOUGHT NO D EDUCTION CERTIFICATES ON SIMILAR CONTENTIONS. AO PASSED SIMILAR ORDERS IN AL L THE CASES WHERE RELIANCE WAS TO REMIT THE MONIES OVER A PERIOD OF T IME. AFTER DEDUCTING TAX AS DIRECTED BY THE AO, RELIANCE HOWEVER PREFERRED A PPEALS BEFORE THE LD.CIT(A) AS PER THE THEN EXISTING PROVISIONS OF SE CTION 248 OF THE IT ACT. THE LEARNED CIT(A), VIDE HIS ORDERS, HELD THAT THE AMOUNTS PAID CANNOT BE CONSIDERED AS ROYALTY AS RELIANCE PURCHASED GOODS WHICH IS A COPYRIGHTED ARTICLE AND SO, SINCE THE SELLER DO NOT HAVE PE IN INDIA THE AMOUNT IS NOT TAXABLE. ACCORDINGLY, HE GAVE RELIEF TO RELIANCE. T HE REVENUE IS AGGRIEVED ON THESE ORDERS. THE LEAD ORDER OF THE AO AND CIT(A) P ERTAINS TO ITA NO. 837/MUM/2007 IN WHICH THE AO ORDER UNDER SECTION 1 95(2) DATED 12.03.2003 WAS CONSIDERED BY THE CIT(A) IN HIS APPE AL NO. CITA XXXI/DDIT (IT) 2(1)/IT 448/02-03/06-07 DATED 26.10.2006. IT WAS ADMITTED THAT THE FACTS ARE MORE OR LESS SIMILAR TO THE ABOVE APPEAL AND MAIN ARGUMENTS WERE RENDERED IN THIS APPEAL. 3. SINCE MAIN AGREEMENT WAS WITH M/S. LTHPL, INDIA AND SOFTWARE WAS SUPPLIED BY M/S. LUCENT USA, THE AO INITIATED PROCE EDINGS UNDER SECTION 147 TO TAX THE AMOUNTS AND THE ORDERS WERE PASSED H OLDING THAT THE AMOUNTS ARE TAXABLE IN INDIA. THIS ORDER WAS PASSED , COMMONLY FOR FOUR ASSESSMENT YEARS, WHICH WAS APPROVED BY THE DRP AS PER THE PROVISIONS OF SECTION 144C(13) OF THE I.T. ACT. THEREFORE, LUCENT PREFERRED DIRECT APPEALS TO ITAT ON THESE ORDERS OF AO. RELIANCE AND LUCENT GROUP 5 4. REVENUE WAS REPRESENTED BY SHRI PARAG VYAS, SPEC IAL COUNCIL AND RELIANCE WAS REPRESENTED BY SR. COUNSEL SHRI J.D. M ISTRY WHEREAS LUCENT WAS REPRESENTED BY SR. COUNSEL SRI. P.J. PARDIWALA. REVENUE HAS PLACED VARIOUS AGREEMENTS FROM PAGE NO. 1 TO 1697 AND CASE LAW FROM 1968 TO 2129 IN THREE VOLUMES. RELIANCE ALSO PLACED RELEVAN T DOCUMENTS ON RECORD. LUCENT HAS PLACED A VOLUME CONTAINING PAGES 1 TO 62 2. THE CASES WERE HEARD OVER A PERIOD OF TIME AND VARIOUS CLARIFICATI ONS SOUGHT WERE ALSO PLACED ON RECORD. 5. FOR THE SAKE OF CONVENIENCE, THE APPEAL IN ITA N O. 837/MUM/2007 AND LUCENTS APPEALS WERE DEALT WITH IN DETAIL. THE ARGUMENTS AND FINDINGS ARE MUTATIS MUTANDIS APPLY TO OTHER CASES ALSO, WHICH WILL BE DEALT WIT H LATER. ITA NO. 837/MUM/2007 6. IN THIS REVENUE APPEAL, REVENUE HAS RAISE D THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DECIDING THAT THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN DIRECTING TO DEDUCT TAX AT SOURCE U/S. 195 OF THE I.T. ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NO INCOME ACCRUES TO M/S. LUCENT TECHNOLOGIES GRL LLC IN INDIA AGAINST THE PAYMENT O F US$ 11,06,56,855/- FOR THE SUPPLY OF SOFTWARE FOR USE I N THE RELIANCE TELECOM NETWORK. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT FO R OBTAINING COMPUTER SOFTWARE IS IN THE NATURE OF ROYALTY AS DEFINED BY THE DTAA AND LIABLE FOR TAXATION IN INDIA. 7. RELIANCE INFOCOMM LIMITED, (RESPONDENT), NOW KNO WN AS RELIANCE COMMUNICATIONS LTD HAD ENTERED INTO A WIRELESS SOFT WARE CONTRACT AND WIRELESS NETWORK GENERAL TERMS AND CONDITIONS CONTR ACT (GTC) DATED 31.07.2002 WITH LUCENT TECHNOLOGIES HINDUSTAN PRIVA TE LTD (LTHPL) AND ANOTHER WIRELESS SOFTWARE ASSIGNMENT AND ASSUMPTION AGREEMENT DATED 05.08.2002 WITH LTHPL AND LUCENT TECHNOLOGIES GRL L LC (LTGL), USA FOR PURCHASE OF CERTAIN SOFTWARE FOR THE PURPOSES OF OPERATION OF WIRELESS TELECOMMUNICATION NETWORK. INITIALLY, RELIANCE PLAC ED SEVEN PURCHASE ORDERS RELIANCE AND LUCENT GROUP 6 OF TOTAL AMOUNT OF US$ 11,06,56,855/-. THE RELIANCE FILED A APPLICATIONS U/S.195(2) BEFORE THE DDIT(IT)-2(1), MUMBAI (AO) RE QUESTING FOR PAYMENT FOR PURCHASE OF SOFTWARE WITHOUT DEDUCTION OF TAX AT SO URCE U/S.195. THE AO DID NOT ALLOW THE PETITION AND HELD THAT THE TAX HA S TO BE DEDUCTED AT SOURCE. THE RELIANCE HAS MENTIONED THAT LTGL IS A COMPANY R ESIDENT IN USA AND DOES NOT HAVE ANY PE IN INDIA. THEREFORE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA (DTAA) WO ULD BE AVAILABLE TO LTGL, SINCE SECTION 90(2) PROVIDES THAT THE PROVISI ONS OF INCOME-TAX ACT WOULD APPLY ONLY IF THEY ARE MORE BENEFICIAL TO LTG L AND HAS RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF AZ ADI BACHAO ANDOLAN & ANOTHER (2003) 263 ITR 706. THE AO HAS REJECTED THE CLAIM AND HAS GIVEN VARIOUS REASONS FOR REJECTION. 8. THE AO EXAMINED PARA-15.L OF THE WIRELESS SOFTWA RE ASSIGNMENT AND ASSUMPTION AGREEMENT AND PARA-3.1 OF THE SAME AGREE MENT AND HELD THAT THE RELIANCE WAS GETTING ONLY LICENSE TO USE THE SO FTWARE AND NO OTHER TITLE OR INTEREST IN THE SOFTWARE IS BEING TRANSFERRED TO TH E RELIANCE. THE RELIANCE HAD CLAIMED THAT THE LICENSE IN PERPETUITY AMOUNTS TO SALE. THE AO REJECTED IT AND HELD THAT THE LICENSE REMAINS ONLY A LICENSE , IRRESPECTIVE OF THE PERIOD INVOLVED AND FURTHER IN THIS FAST PACED TECHNOLOGIC AL PROGRESS, RATE OF OBSOLESCENCE IN SOFTWARE IS VERY HIGH AND THEREFORE LIFE OF SOFTWARE IS LIMITED. THE TITLE AND PROPRIETARY RIGHTS WOULD REMAIN WITH LTGL AND THE RELIANCE WOULD NOT BE THE OWNER OF THE SOFTWARE BUT WOULD, B E ONLY A LICENSEE FOR THE USE OF OR THE RIGHT TO USE OF THE COPYRIGHT. THE AO THEREAFTER EXAMINED THE PROVISIONS OF INCOME-TAX ACT AND HELD AFTER EXAMINI NG THE COPYRIGHT ACT AND SECTION 9(1)(VI) THAT LICENSING, IS ONLY MERELY FO R THE USE OF SOFTWARE AND THEREFORE PAYMENT MADE FOR THE LICENSE TO USE SOFTW ARE AMOUNTS TO ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI). 9. THE AO ALSO HELD THAT THE SOFTWARE CAN BE TERMED AS PATENT OR INVENTION AND ALSO SCIENTIFIC WORK AND THEREFORE PA YMENT FOR THE USE OF SOFTWARE WOULD BE COVERED UNDER THESE CATEGORIES AL SO AS PER SECTION 9(1)(VI). THE AO ALSO HELD THAT SOFTWARE CAN BE, TERMED A SEC RET FORMULA OR PROCESS. THE AO FURTHER REFERRED TO THE CIRCULAR OF GOVERNME NT OF SINGAPORE RELIANCE AND LUCENT GROUP 7 EXEMPTING SHRINK-WRAP SOFTWARE FROM WITHHOLDING TAX AS PER CIRCULAR 29.12.2000. THE AO REFERRED TO THE US IRS RULING AN D HELD THAT THE PAYMENT FOR SOFTWARE EVEN FOR A FIXED OR UNLIMITED PERIOD WOULD CONSTITUTE ROYALTY. THE AO REFERRED TO THE RULING OF AUSTRALIA N COURT WHEREIN IT WAS HELD THAT THE AMOUNT RECEIVED IN RESPECT OF COMPUTE R SOFTWARE WOULD NOT BE ROYALTY IF IT DOES NOT GIVE ANY RIGHTS IN THE COPYR IGHT. THE AO HELD THAT THE SOFTWARE IS AN INTELLECTUAL PROPERTY AND FALLS IN T HE CATEGORY OF COPYRIGHTS, PATENTS, DESIGNS, TRADE MARKS, FORMULA, PROCESS, CO MMERCIAL/SCIENTIFIC KNOWLEDGE AND THEREFORE CONSIDERATION RECEIVED FOR THE LICENSE TO USE THE SOFTWARE WOULD CONSTITUTE ROYALTY. THE AO THEREAFTE R REFERRED TO DEFINITION, OF ROYALTY IN ARTICLE-12(3) OF THE DTAA AND HELD THAT THAT PAYMENT FOR THE LICENSE OF SOFTWARE, WOULD ALSO AMOUNTS TO ROYALTY WITHIN THE PROVISIONS OF DTAA. THE AO ALSO RELIED UPON THE DECISION OF AARS RULING IN THE CASE OF ABC VS. RE (154 CTR 2.46). THE AO RELIED UPON THE D ECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF LEONHARDT ANDRA UND PARTNER, GMBH 249 ITR 418. THE AO ALSO RELIED UPON THE DECISION OF HO NBLE AAR IN P.NO.30/1999 REPORTED IN 238 ITR 296. THE AO HELD T HAT THE PAYMENT FOR PURCHASE OF SOFTWARE AMOUNTS TO ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE LT. ACT AND ARTICLE-12(3) OF THE DT AA. HE ACCORDINGLY DIRECTED RELIANCE TO DEDUCT TAX AT 20% AS ROYALTY. AFTER DED UCTING TAX, RELIANCE APPEALED TO LD CIT(A). 10. LEARNED CIT(A), VIDE HIS ORDER, HAS CONSIDERED THE ISSUES AS UNDER: 2.14 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF T HE AR AND I HAVE ALSO PERUSED THE RECORDS AND GONE THROUGH THE ARGUM ENTS OF THE A0. IT IS SEEN THAT IN THE ORDER U/S. 195(2), FACTS BROUGHT O UT ARE VERY SCANTY. THE NATURE OF THE TRANSACTIONS AND THE PURPOSES OF ACQU ISITION OF SOFTWARE HAS NOT BEEN EXAMINED. THE APPELLANT WAS ACCORDINGL Y REQUIRED TO FILE COPY OF AGREEMENTS, DETAILS OF PURCHASE BILLS, PURP OSES OF THE SOFTWARE ACQUISITION AND THE ROLE OF USE OF SOFTWARE WITH TH E HARDWARE ACQUIRED. IT IS SEEN THAT LTHPL HAD ENTERED INTO A WIRELESS EQUI PMENT CONTRACT WITH THE APPELLANT DATED 31.07.2002 FOR THE SUPPLY OF WI RELESS EQUIPMENT. WIRELESS SOFTWARE CONTRACT WAS ENTERED INTO BETWEEN LTHPL AND THE APPELLANT ON 31.07.2002 FOR THE SUPPLY OF WIRELESS SOFTWARE. WIRELESS SERVICES CONTRACT WAS ENTERED INTO BETWEEN LTHPL AN D THE APPELLANT ON 31.07.2002 FOR THE SERVICES IN RELATION TO WIRELESS HARDWARE CONTRACT. WIRELESS NETWORK GENERAL TERMS AND CONDITIONS CONTR ACT WAS ENTERED INTO BETWEEN LTHPL AND THE APPELLANT ON 31.07.2002, WHICH IS RELIANCE AND LUCENT GROUP 8 APPLICABLE TO THE SOFTWARE CONTRACT AND THE LICENSI NG OF SOFTWARE TO THE APPELLANT. WIRELESS SOFTWARE ASSIGNMENT AND ASSUMPT ION AGREEMENT (ASSIGNMENT CONTRACT) WAS ENTERED INTO BETWEEN THE APPELLANT AND LTHPL (ASSIGNOR) ON ONE SIDE AND LTGL(ASSIGNEE) ON THE OTHER SIDE. AS PER THIS CONTRACT LTHPL HAD TRANSFERRED OR ASSIGNED TO LTGL THE SOFTWARE CONTRACT ALONGWITH ALL RIGHTS AND ENTITLEM ENT. SECTION 1 & 2 OF THIS CONTRACT READ AS UNDER: SECTION 1. ASIGNMENT AND ASSUMPTION. ASSIGNOR HEREBY TRANSFERS AND ASSIGNS TO THE ASSIGNEE (I) THE SOFTWARE CONTRACT, TOGETHER WITH ALL RIGHTS, ENTITLEMENTS, COVENANTS AND OBLIGATIONS OF THE ASSI GNOR UNDER THE SOFTWARE CONTRACT, INCLUDING BUT NOT LIMITED TO THE SUPPLY AND DELIVERY OF SOFTWARE TO THE PURCHASER, AND (II) ALL RIGHTS, ENT ITLEMENTS, COVENANTS AND OBLIGATIONS OF THE ASSIGNOR UNDER SECTION 15 OF THE GENERAL TERMS AND CONDITIONS, RELATING TO SOFTWARE. ASSIGNEE HEREBY A SSUMES, AND, AGREES WITH ALL OF THE PARTIES HERETO, TO PERFORM, OBSERVE AND BE BOUND BY EACH AND ALL OF THE FOREGOING OBLIGATIONS AND COVENANTS OF ASSIGNOR. NOTWITHSTANDING THE FOREGOING ASSIGNMENT AND ASSUMP TION, AS BETWEEN ASSIGNOR AND PURCHASER, THE PARTIES AGREE THAT ASSI GNOR SHALL OBSERVE AND PERFORM AND SHALL CONTINUE, TO BE BOUND BY ALL OF THE TERMS AND CONDITIONS OF THE SOFTWARE CONTRACT AND ALL OF THE TERMS AND CONDITIONS OF SECTION 15 OF THE GENERAL TERMS AND CONDITIONS AND SHALL REMAIN FULLY LIABLE TO PURCHASER UNDER THE CONTRACTS TO THE SAME EXTENT AS IF THE FOREGOING ASSIGNMENT AND ASSUMPTION HAD NOT OCCURRE D. SECTION 2. ASSIGNEE ACKNOWLEDGEMENT. ASSIGNEE ACKN OWLEDGES THAT IT IS FULLY AND COMPLETELY AWARE OF ALL THE TERMS AND CON DITIONS SET FORTH IN THE GENERAL TERMS AND CONDITIONS, INCLUDING WITHOUT LIM ITATION AND IN PARTICULAR WITH ALL PROVISIONS RELATING TO THE SUPP LY, DELIVERY AND LICENSING OF SOFTWARE TO THE PURCHASER (THE SOFTWARE PROVISI ONS). ASSIGNEE AGREES (I) TO BE BOUND BY AND SUBJECT TO ALL TERMS AND CON DITIONS SET FORTH IN THE GENERAL TERMS AND CONDITIONS RELATING TO THE SOFTWA RE CONTRACT AND/OR THE OBLIGATIONS AND COVENANTS ASSUMED BY ASSIGNEE P URSUANT TO SECTION 1 ABOVE, AND (II) THAT IN THE EVENT OF ANY BREACH O F ANY OF THE SOFTWARE CONTRACT AND/OR THE OBLIGATIONS AND COVENANTS ASSUM ED BY ASSIGNEE PURSUANT TO SECTION 1 ABOVE OR ANY BREACH OF ANY OF THE SOFTWARE PROVISIONS BY ASSIGNEE OR ASSIGNOR, PURCHASER MAY P ROCEED DIRECTLY AGAINST, AND MAY SEEK MONETARY DAMAGES AND/OR EQUIT ABLE RELIEF FROM, ASSIGNEE TO THE EXTENT PROVIDED UNDER THE PROVISION S OF THE GENERAL TERMS AND CONDITIONS AND THE SOFTWARE CONTRACT. 2.15 AS PER THIS CONTRACT LTGL TOOK OVER THE RESPON SIBILITY FOR THE SUPPLY OF SOFTWARE WHEREAS THE HARDWARE WAS BEING S UPPLIED BY LTHPL. LTHPL WAS ALSO PROVIDING THE SERVICES IN RELATION T O THE CONTRACT. THE AR HAS EXPLAINED THAT THE TELECOM SOFTWARE ACQUIRED TH ROUGH THE AGREEMENT WITH LTGL AND THE HARDWARE ACQUIRED THROUGH LTIIPL HAS BEEN USED TO SETUP WIRELESS COMMUNICATION NETWORK IN INDIA. THE BRIEF NOTE, PROVIDED BY THE APPELLANT READS AS UNDER: TELECOM SOFTWARE , RELIANCE AND LUCENT GROUP 9 THE TELECOM EQUIPMENT (FWS- FLEXENT WIRELESS SOLUTI ON OR THE SWITCH BTS- BASE TRANSCEIVER STATION. ETC) REQUIRE CERTAIN SOFTWARE TO EXECUTE THE BASIC FUNCTIONS THE SOFTWARE ARE SYSTEM SOFTWARE , OFFICE DEPENDENT SOFTWARE SYSTEM SOFTWARE IS REQUIRED TO MAKE THE TELECOM HAR DWARE TO FUNCTION PROPERLY. THESE SOFTWARE ARE EMBEDDED WITH HARDWARE . IT CANNOT BE COPIED OR REUSED UNTIL AND UNLESS THE HARDWARE IS C HANGED. THE HARDWARE EMBEDDED WITH THIS SOFTWARE WILL PERFORM F OLLOWING FUNCTIONS: CALL PROCESSING & CALL CONTROL CDR (CALL DATA RECORD) GENERATION FCAPS (FAULT MANAGEMENT, CONFIGURATION MANAGEMENT , ACCOUNTING, PERFORMANCE, SECURITY) SUPPORT BSS (BUSINESS SUPPORT SYSTEM) CONTROL ETC. THE OFFICE DEPENDANT SOFTWARE HELPS, THE EQUIPMENT TO CONTROL THE FUNCTIONS AS PER THE SITE REQUIREMENTS. THIS SOFTWA RE ARE DESIGNED OR MODIFIED AS PER THE NETWORK REQUIREMENT. IN LUCENT SUPPLIED TELECOM EQUIPMENT, THERE ARE THR EE BASIC SOFTWARE (WHICH COMPRISE BOTH SYSTEM SOFTWARE AND OFFICE DEP ENDENT SOFTWARE) USED. 1. DCS (DIGITAL CELLULAR SWITCH) SOFTWARE ... THIS SOFTWARE AIDS THE FWS HARDWARE TO PERFORM CALL PROCESSING & CALL CONTROL AND CHARGING. 2. FMM (FLEXENT MOBILITY MANAGER) SOFTWARE ... THIS SOFTWARE AIDS THE FMM HARDWARE TO PERFORM THE MANAGEMENT FUN CTION. 3. UTS SOFTWARE .... THIS SOFTWARE AIDS THE 8TH HARDWARE TO PERFORM THE RADIO NETWORK CONTROL. CENTRAL LOCATION THE DCS SOFTWARE & FMM SOFTWARE ARE PART OF FWS SOF TWARE AND ARE ALWAYS REQUIRED AS PART OF THE HARDWARE. THIS CANNO T BE REUSED. THE BTS SOFTWARE IS APPLIED AS PER THE REQUIREMENT. FWS AND BTS SOFTWARE ARE ORDERED EVER/TIME THE HARD WARE IS ORDERED. FWS AND BTS SOFTWARE CAN BE USED ONLY WITH LUCENT EQUIPMENT. 2.16 THE AR HAS SUBMITTED THAT THE APPELLANT HAD PL ACED 7 PURCHASE ORDERS WITH LTHPL FOR THE PURCHASE OF HARDWARE AND HAD PLACED 7 PURCHASE ORDERS WITH LTGL FOR THE SUPPLY OF SOFTWAR E. THE AR HAS EXPLAINED THAT THE SOFTWARE SUPPLIED THROUGH THIS P URCHASE ORDERS WAS MEANT FOR THE USE IN THE HARDWARE SUPPLIED THROUGH THE PURCHASE ORDERS RELIANCE AND LUCENT GROUP 10 BY LTHPL. THE AR HAS FILED THE COPY OF PURCHASE ORD ERS ALSO TO EXPLAIN THE SOFTWARE SUPPLIED IS MEANT FOR THE USE OF HARDW ARE ONLY. THE CHART OF PURCHASE ORDERS OF HARDWARE AND SOFTWARE READS AS U NDER: H/W S/W SR.NO. PO DATE VALUE $ PO DATE VALUE $ 1 13012535 16-NOV.2002 70,203,104 13012536 16-NOV-2002 30,157,500 2 13012539 16-NOV-2002 67,163,336 13012540 16-NOV-2002 28,848,070 3 13012363 12-NOV-2002 26,364,714 13014732 25-DEC-2002 11,299,252 4 13012361 12-NOV-2002 73,156,266 13014730 25-DEC-2002 31,464,456 5 13012891 23-NOV-2002 5,388,950 13012918 23-NOV-2002 299,177 6 13013459 4-DEC-2002 2,433,224 13013460 4-DEC-2002 194,300 7 13014935 28-DEC-2002 19,586,150 13014936 28-DEC-2002 8,394,100 264,295,744 110,656,855 2.17 THE AR HAS EXPLAINED THAT THROUGH THE HARDWARE PURCHASE ORDERS APPELLANT HAS PURCHASED HARDWARE, NAMELY, FLEXENT W IRELESS SOLUTION, BASE TRANSCEIVER STATION, SPARES FOR FLEXENT WIRELE SS SOLUTION, UPGRADE FOR FLEXERIT WIRELESS SOLUTION. AGAINST THE HARDWAR E, NAMELY, FLXENT WIRELESS SOLUTION, BASE TRANSCEIVER STATION, SPARE PARTS FOR THESE TWO, CORRESPONDING SOFTWARE INDUCING UPGRADES OF SOFTWAR E HAS BEEN SUPPLIED THROUGH THE CORRESPONDING PURCHASE ORDER OF SOFTWAR E. THE AR HAS EXPLAINED THAT BASE TRANSCEIVER STATION (BTS) IS IN STALLED AT REMOTE STATION WHEREAS FLEXENT MOBILITY MANAGER AND DIGITA L CELLULAR SWITCH SOFTWARE ARE INSTALLED AT THE CENTRAL LOCATION. THE AR HAS ACCORDINGLY EXPLAINED THAT, FOR MAKING THE HARDWARE OPERATIONAL THE CORRESPONDING SOFTWARE WAS PURCHASE FROM LTGL AND INSTALLED ON VA RIOUS LOCATIONS NAMELY CENTRAL LOCATION AND BTS. 2.18 WITH THESE FACTS THE TAXABILITY OF PAYMENT REC EIVED BY LTGL IS EXAMINED. SECTION 3.1 OF THE WIRELESS NETWORK GENER AL TERMS AND CONDITIONS CONTRACT DATED 31.07.2002 PROVIDES FOR T HE TOTAL SCOPE OF THE WORK NAMELY, PROVIDING HARDWARE, SOFTWARE, EQUIPMEN T, COMMUNICATIONS CIRCUITS, NETWORKS, SERVICES TO THE APPELLANT BY LT HPL. SECTION 3.1.1 READS AS UNDER: 3.1.1 VENDOR DESIRES TO PROVIDE HARDWARE, SOFTWARE, EQUIPMENT, COMMUNICATIONS CIRCUITS, NETWORKS, SERVICES, MAINTE NANCE, MANAGEMENT AND OTHER WORK TO RELIANCE, THE RELIANCE AFFILIATES AND THE USERS, AND RELIANCE DESIRES THIS WORK BE PERFOR MED. RELIANCE IS ENTITLED TO ACQUIRE PRODUCTS AND SERVICES THAT VENDOR OR ANY VENDOR AFFILIATE GENERALLY MAKES AVAILABLE TO OTHER CUSTOM ERS OR THAT ARE SET FORTH IN A DOCUMENT OR AS MUTUALLY AGREED UPON IN W RITING BY THE PARTIES, PURSUANT TO TERMS AND CONDITIONS NO LETS F AVORABLE TO RELIANCE THAN THE PRICES, SERVICE LEVELS, TERMS AND CONDITIONS SET FORTH IN ANY THEN-CURRENT DOCUMENT. COMMENCING ON THE APPLICABLE COMMENCEMENT DATE, VENDOR SHALL PERFORM THE WORK DESCRIBED IN TH E DOCUMENTS. ALL WORK PROVIDED BY OR FOR THE VENDOR SHALL COMPLY WIT H ALL RELEVANT APPLICABLE LAWS, APPLICABLE PERMITS, SPECIFICATIONS , AND BEST PRACTICES. VENDOR SHALL ALSO ENSURE THAT ALL PRODUC TS AND SERVICES WILL, RELIANCE AND LUCENT GROUP 11 AS A MINIMUM, MEET THE PERFORMANCE AND DESIGN REQUI REMENTS, FUNCTIONALITY AND CAPABILITY DEFINED IN THE APPROPR IATE STANDARD AS SET FORTH IN THE SPECIFICATIONS. IN FULFILLING THE OBLI GATIONS HEREUNDER, VENDOR AND ITS SUBCONTRACTORS AND SUPPLIERS SHALL A BIDE BY ALL APPLICABLE LAWS, RULES, REGULATIONS, CODES INCLUDIN G TAX LAWS, AND REGULATIONS PREVAILING IN INDIA AND ALL OTHER APPLI CABLE JURISDICTIONS. 2.18 UNDER THE ASSIGNMENT CONTRACT, RIGHTS, ENTITLE MENTS, COVENANTS AND OBLIGATIONS OF LTHPL HAVE PASSED TO LTGL AS PER SECTION-1 OF THE ASSIGNMENT CONTRACT (ALREADY QUOTED ABOVE IN PARA 2 .14) SECTION-15.1 OF THE WIRELESS NETWORK GENERAL TERMS AND CONDITIONS C ONTRACT READS AS UNDER: 15.1 LICENSE GRANTS 15.1.1 SUBJECT TO THE TERMS OF THIS SECTION 15, UPO N DELIVERY OF SOFTWARE, VENDOR HEREBY GRANTS TO RELIANCE OR ITS A FFILIATES (AND TO THIRD PARTIES WHOM RELIANCE OR ITS AFFILIATES HAVE CONTRACTED TO OPERATE THE WIRELESS RELIANCE NETWORK ON THEIR BEHA LF (AND TO THE EXTENT OF THE SAME) UPON PAYMENT, OR AGREEMENT TO P AY, THE RELEVANT LICENSE FEES BY RELIANCE AND/ OR ITS AFFILIATES, A PERPETUAL, IRREVOCABLE, NON-EXCLUSIVE, UNRESTRICTED (WITHIN THE WIRELESS RE LIANCE NETWORK), UNLIMITED (WHERE SPECIFICALLY SO IDENTIFIED IN THE RELEVANT DOCUMENTS), ROYALTY-FREE LICENSE, TO USE SUCH SOFTWARE FOR THE BENEFIT OF RELIANCE IN CONNECTION WITH THE OWNERSHIP, OPERATION AND MAINTE NANCE OF THE WIRELESS RELIANCE NETWORK IN THE TERRITORY AND THE PROVISION OF RELEVANT SERVICES IN THE TERRITORY TO RELIANCES CU STOMERS. THE SOFTWARE SHALL BE USED IN ACCORDANCE WITH THE RELEV ANT DOCUMENTS. 15.1.2 FOR THE AVOIDANCE OF DOUBT, THE LICENSES REF ERRED TO IN SECTION 15.1.1 ABOVE ARE NOT INTENDED TO RESTRICT T HE PROVISION BY RELIANCE OF TELECOMMUNICATIONS SERVICES BETWEEN TH E WIRELESS RELIANCE NETWORK AND CUSTOMERS OUTSIDE THE TERRITOR Y VIA APPROPRIATE GATEWAYS EITHER THROUGH APPROPRIATE INTERCONNECT AG REEMENTS THAT RELIANCE MAY ENTER INTO WITH OTHER OPERATORS OR OTH ERWISE, PROVIDED, ALWAYS THAT, UNLESS OTHERWISE AGREED IN WRITING, RE LIANCE AND ITS AFFILIATES SHALL NOT BE PERMITTED TO DEPLOY OR USE THE SOFTWARE ACTING AS A CARRIER OUTSIDE THE TERRITORY. 15.1.3 THE AFOREMENTIONED LICENSES SET FORTH IN SEC TION 15.1.1 SHALL HEREINAFTER BE REFERRED TO AS THE SOFTWARE L ICENSES. SUCH SOFTWARE LICENSES SHALL NOT BE TRANSFERRED, ASSIGNE D, SUBLICENSED BY, OR USED BY OUTSOURCES OF, RELIANCE WITHOUT VENDORS CONSENT EXCEPT WITH RESPECT TO (I) THE SALE OF THE WIRELESS RELIAN CE NETWORK (OR ANY RELEVANT COMPONENT THEREOF); (II) THE FINANCING OF THE WIRELESS RELIANCE NETWORK (OR ANY COMPONENT THEREOF); OR (III) THE OU TSOURCING BY RELIANCE OF ANY OPERATING OR MAINTENANCE FUNCTIONS RELATED TO THE WIRELESS RELIANCE NETWORK; (OR ANY COMPONENT THEREO F); OR (III) THE OUTSOURCING BY RELIANCE OF. ANY OPERATING OR MAINTENANCE FUNCTIONS RELATED TO THE WIRELESS NET WORK; OR (IV) THE TRANS FER, ASSIGNMENT OR SUBLICENSE BY RELIANCE OF THE SOFTWARE LICENSES TO THE RELIANCE RELIANCE AND LUCENT GROUP 12 AFFILIATE) (OR VICE VERSA) OR BETWEEN RELIANCE AFFI LIATES, IN CONJUNCTION WITH A TRANSFER OF A PORTION OF THE WIRELESS RELIAN CE NETWORK, PROVIDED THAT IN EACH SUCH CASE, SUCH TRANSFEREE, ASSIGNEE, SUBLICENSEE OR OUTSOURCEE AGREES IN WRITING TO ABIDE BY ALL THE TE RMS AND CONDITIONS SET FORTH IN THIS SECTION 15 AND THE VENDOR IS INFO RMED OF THE SAME IN WRITING BY RELIANCE AND PROVIDED FURTHER THAT THE R IGHTS, TRANSFERRED, ASSIGNED, SUBLICENSED OR GRANTED TO OUTSOURCEES, AS THE CASE MAY BE, SHALL BE THOSE REASONABLY NECESSARY TO FULFILL THE COMMERCIAL PURPOSES OF SUCH TRANSACTION. THE ASSIGNEE OR SUBLICENSEE SH ALL NOT BE A DIRECT COMPETITOR OF THE VENDOR INVOLVED IN THE MANUFACTUR E OF TELECOMMUNICATIONS EQUIPMENT. 15.1.4 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN T HE DOCUMENTS, RELIANCE SHALL USE SUCH SOFTWARE ONLY FOR THE OPERA TION OF THE WIRELESS RELIANCE NETWORK, OR, IN THE CASE WHERE THE SOFTWAR E IS PURCHASED BY OR ON BEHALF OF RELIANCE AFFILIATES, FOR THE OPERAT IONS OF SUCH RELIANCE AFFILIATES IN THE WIRELESS RELIANCE NETWORK. THE SO FTWARE LICENSES GRANT RELIANCE OR RELIANCE AFFILIATES NO RIGHT TO A ND RELIANCE OR RELIANCE AFFILIATES WILL NOT, SUBLICENSE SUCH SOFTW ARE OR MODIFY, DECOMPILE, REVERSE ENGINEER, OR DISASSEMBLE, OR IN ANY OTHER MANNER DECODE SOFTWARE FURNISHED AS OBJECT CODE FOR ANY RE ASON. RELIANCE AND RELIANCE AFFILIATES SHALL NOT COPY THE SOFTWARE , INCLUDING FIRMWARE EXCEPT FOR THE PURPOSES OF MAKING A LIMITE D NUMBER OF ARCHIVAL COPIES (FOR BACKUP USE IN OPERATING AND MA INTAINING THE WIRELESS RELIANCE NETWORK) IN ACCORDANCE WITH THE D OCUMENTATION AND/ OR THE RELEVANT AGREEMENT; OR AS OTHERWISE AUT HORIZED IN WRITING BY THE, VENDOR OR AS OTHERWISE SET, OUT IN THE RELE VANT DOCUMENTATION. EXCEPT AS PROVIDED BELOW, NO LICENSE IS GRANTED TO RELIANCE TO USE THE SOFTWARE OUTSIDE OF THE TERRITORY. FOR THE AVOIDANC E OF DOUBT, THE CHANGING BY RELIANCE OR RELIANCE AFFILIATES OF TABL ES AND VALUES IN THE SOFTWARE, MODIFICATION BY RELIANCE AND/OR ITS AFFIL IATES OF THE SOFTWARE BY USING THE TOOLS PROVIDED IN OR WITH THE SOFTWARE OR ANY MODIFICATION, IN ACCORDANCE WITH AND PURSUANT TO TH E RELEVANT DOCUMENTATION, SHALL NOT CONSTITUTE MODIFICATION OF THE SOFTWARE PROVIDED ALWAYS THAT RELIANCE MAY ONLY CHANGE, AMEN D OR MODIFY SOFTWARE WHICH IS DESIGNED FOR CUSTOMER ACCESS AN D TO BE SO MODIFIED. 15.1.5 RELIANCE AGREES THAT THE SOFTWARE, WHETHER O R NOT MODIFIED, AND ALL COPIES THEREOF MADE BY RELIANCE, ARE OWNED BY, AND ARE COPYRIGHTS OF. VENDOR, ITS SUBCONTRACTORS OR ITS SU PPLIERS, AS APPROPRIATE, AND RELIANCE SHALL: (A) ENSURE THAT ALL COPIES OF THE SOFTWARE SHALL, U PON ANY REPRODUCTION BY RELIANCE AUTHORIZED BY VENDOR (WHER E SUCH AUTHORIZATION IS REQUIRED UNDER THE DOCUMENTS) AND WHETHER OR NOT IN THE SAME FORM OR FORMAT AS SUCH SOFTWARE, CONTAIN T HE SAME PROPRIETARY, CONFIDENTIALITY AND COPYRIGHT NOTICES OR LEGENDS (IF ANY) WHICH APPEAR AN THE SOFTWARE PROVIDED PURSUANT HERE TO; AND (B) HOLD SECRET AND NOT DISCLOSE THE SOFTWARE TO A NY PERSON, EXCEPT RELIANCE AND LUCENT GROUP 13 TO: (I) SUCH OF ITS EMPLOYEES, CONTRACTORS, AGENTS REPRESENTATIVES OR RELIANCE AFFILIATES THAT ARE INVOLVED IN THE OPERAT ION, MAINTENANCE OR MANAGEMENT OF THE WIRELESS RELIANCE NETWORK, AND NE ED TO HAVE ACCESS THERETO TO FULFILL THEIR DUTIES IN SUCH CAPA CITY, OR (II) OTHER PERSONS WHO NEED TO USE SUCH SOFTWARE TO PERMIT INT EGRATION OF EQUIPMENT WITH OTHER PRODUCTS AND SOFTWARE OF OTHER SUPPLIERS AND CUSTOMERS; PRO VIDED THAT SUCH PERSONS AGREE, OR AR E OTHERWISE OBLIGATED, TO HOLD SECRET AND NOT DISCLOSE THE SOFT WARE TO THE SAME EXTENT AS IF THEY WERE SUBJECT TO THE DOCUMENTS, AN D PROVIDED FURTHER THAT IF ANY SUCH PERSON IS A COMPETITOR OF VENDOR, INVOLVED IN THE MANUFACTURE OF COMMUNICATIONS EQUIPMENT VENDOR MUST APPROVE (SUCH APPROVAL NOT TO BE UNREASONABLY, WITHHELD OR DELAYED,) SUCH USE ON A CASE-BY-CASE BASIS ON COMMERCIALLY REASONABLE TERMS AND SUCH USE SHALL BE SUBJECT TO AN APPROPRIATE NON-DISCLOSU RE AGREEMENT AND (C) WHEN AND IF RELIANCE DETERMINES THAT IT NO LONGER NEEDS THE SOFTWARE OR IF RELIANCES SOFTWARE LICENSES ARE CAN CELLED OR FINALLY TERMINATED IN ACCORDANCE WITH AND PURSUANT TO THE T ERMS OF THIS SECTION 15 OF THESE GENERAL TERMS, RETURN ALL COPES (EXCEPT FOR ANY REQUIRED BACK-UP OR ARCHIVAL COPIES) OF SUCH SOFTWA RE TO VENDOR OR FOLLOW COMMERCIALLY REASONABLE WRITTEN DISPOSITION INSTRUCTIONS PROVIDED BY THE VENDOR. IF THE VENDOR AUTHORIZES DI SPOSITION BY ERASURE OR DESTRUCTION, RELIANCE SHALL REMOVE FROM THE MEDIUM ON WHICH SOFTWARE RESIDES ALL ELECTRONIC EVIDENCE OF THE SOFTWARE, BOTH IN ITS ORIGINAL FORM AND IN ALL COPIES AND DERIVATI ONS THEREOF, IN SUCH MANNER THAT PREVENTS SUBSEQUENT RECOVERY OF SUCH OR IGINAL OR DERIVED SOFTWARE. 15.1.6 IF AS CONTEMPLATED IN SECTION 15.1.3. RELIAN CE OR ITS AFFILIATE(S): (I) ELECTS TO TRANSFER, ASSIGN OR SUBLICENSE ANY SO FTWARE IN CONJUNCTION WITH ANY PORTION OF THE WIRELESS RELIAN CE NETWORK TO A THIRD PARTY, AND WHERE SUCH SOFTWARE SHALL REMAIN I N PLACE OR BE MOVED WITHIN THE TERRITORY AND USED FOR SUBSTANTIAL LY THE SAME PURPOSE AS USED BY RELIANCE AND WHERE SUCH THIRD PA RTY RESIDES IN THE TERRITORY AND IS APPROVED BY THE VENDOR (WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED); OR (II) ELECTS TO TRANSFER, ASSIGN OR SUBLICENSE SOFT WARE TO A RELIANCE AFFILIATE, IN CONJUNCTION, WITH ANY PORTION OF THE WIRELESS RELIANCE NETWORK. THEN RELIANCE MAY SO TRANSFER, ASSIGN OR SUBLICENSE ITS SOFTWARE LICENSES FOR THE SOFTWARE FURNISHED UNDER THE DOCUM ENTS FOR USE WITH SUCH PORTION OF THE WIRELESS, RELIANCE NETWORK, WIT HOUT THE PAYMENT OF ANY ADDITIONAL FEES OR MONIES OF THE VENDOR. IF, HOWEVER, THE SOFTWARE LICENSES FOR THE SOFTWARE CONTAINS USAGE O R PER SUBSCRIBER LIMITS AND/OR THE PROCESSOR TO BE USED BY TRANSFERE E, ASSIGNEE OR SUBLICENSEE, AS APPLICABLE, REQUIRES ADDITIONAL MEM ORY OR HARD DISK SPACE TO MEET THE TRANSFEREES, ASSIGNEES OR SUBLI CENSEES NEW OR DIFFERENT REQUIREMENTS, THEN, UNLESS OTHERWISE AGRE ED IN WRITING, RELIANCE AND LUCENT GROUP 14 RELIANCE SHALL ONLY TRANSFER ITS EXISTING RIGHTS TO THE TRANSFEREE AND THE TRANSFEREE MAY BE REQUIRED TO ENTER INTO AN APPROPRIATE AGREEMENT WITH THE VENDOR TO COVER REQUIREMENTS OVER AND ABOV E THE RIGHTS WHICH RELIANCE HAS ALREADY PURCHASED AND HAS TRANSF ERRED. THE FOLLOWING CONDITIONS SHALL APPLY TO TRANSFERS, ASSI GNMENTS OR SUBLICENSES AND RELOCATIONS PURSUANT TO THIS SECTIO N 15.1.6: (A) THE RIGHT TO USE OF SUCH SOFTWARE MAY BE TRANSF ERRED, ASSIGNED OR SUBLICENSED, ONLY TOGETHER WITH THE RIGHT TO USE IN THE ENVIRONMENT UNDER WHICH IT IS GENERALLY UTILIZED. (B) BEFORE ANY SUCH SOFTWARE. IS TRANSFERRED, ASSIG NED OR SUBLICENSED, RELIANCE SHALL NOTIFY VENDOR OF SUCH T RANSFER, ASSIGNMENT OR SUBLICENSE AND THE TRANSFEREE, ASSIGNEE OR SUBLI CENSEE, AS APPLICABLE, SHALL HAVE AGREED IN WRITING (A COPY OF WHICH SHALL BE PROVIDED TO VENDOR) TO KEEP THE SOFTWARE IN CONFID ENCE AND TO CORRESPONDING CONDITIONS RESPECTING POSSESSION AND USE OF SOFTWARE AS THOSE IMPOSED ON RELIANCE UNDER THIS SECTION 15; AND (C) THE TRANSFEREE, ASSIGNEE OR SUBLICENSEE, AS APP LICABLE, SHALL HAVE THE SAME RIGHT AND OBLIGATIONS TO SOFTWARE WARRANTY AND SOFTWARE MAINTENANCE FOR SUCH SOFTWARE AS THE TRANSFEROR, PR OVIDED THE TRANSFEREE CONTINUES TO PAY THE FEES, INCLUDING REC URRING FEES, IF ANY, ASSOCIATED WITH SUCH SOFTWARE WARRANTY OR MAINTENAN CE PURSUANT TO THE RELEVANT DOCUMENTS. 15.1.7 EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 15 OR IN ANY OF THE DOCUMENTS. RELIANCE, OR ANY SUCCESSOR TO RELIAN CES TITLE IN THE RELEVANT PORTION OF THE WIRELESS RELIANCE NETWORK, SHALL HAVE NO RIGHT TO TRANSFER, ASSIGN OR SUBLICENSE, SOFTWARE FURNISH ED BY VENDOR UNDER THE DOCUMENTS WITHOUT THE CONSENT OF VENDOR, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED. IF RELIANCE OR SUCH SUCCESSOR ELECTS TO TRANSFER OR ASSIGN ANY PORTION OF THE WIR ELESS RELIANCE NETWORK PURCHASED UNDER THE DOCUMENTS FOR WHICH IT DOES NOT, UNDER THE DOCUMENTS, HAVE THE RIGHT TO TRANSFER, ASSIGN O R SUBLICENSE RELATED SOFTWARE, VENDOR AGREES THAT, UPON WRITTEN REQUEST OF THE TRANSFEREE OR ASSIGNEE AS APPLICABLE, OF SUCH PORTION OF THE W IRELESS RELIANCE NETWORK, OR OF RELIANCE OR SUCH SUCCESSOR, VENDOR S HALL NOT UNREASONABLY REFUSE OR FALL TO GRANT TO THE TRANSFE REE, ASSIGNEE OR SUBLICENSEE, AS APPLICABLE, AS LICENSE TO USE SUCH SOFTWARE WITHIN THE TERRITORY UPON PAYMENT BY THE TRANSFEREE OF A RE-LI CENSING FEE TO VENDOR ON COMMERCIALLY REASONABLE TERMS. 15.1.8 THE RIGHTS AND OBLIGATIONS OF RELIANCE UNDER THE SOFTWARE LICENSES, SHALL SURVIVE THE TERMINATION OF ALL OR A NY PORTION OF THE DOCUMENTS, REGARDLESS OF THE CAUSE OF TERM/NATION, PROVIDED RELIANCE HAS MET ITS MATERIAL OBLIGATIONS AS SET FORTH IN TH IS SECTION 15. IN THE EVENT THAT RELIANCE FALLS TO PAY APPLICABLE AND UND ISPUTED CHARGES, VENDOR MAY TERMINATE RELIANCES RIGHT TO USE THE, S OFTWARE TO WHICH SUCH CHARGES APPLY; PROVIDED THAT VENDOR HAS GIVEN WRITTEN NOTICE AND DETAILS OF SUCH BREACH TO RELIANCE AND HAS ADVI SED RELIANCE OF ITS INTENTION TO TERMINATE, AND RELIANCE HAS FAILED TO MAKE SUCH PAYMENT RELIANCE AND LUCENT GROUP 15 WITHIN THIRTY (30) DAYS FROM VENDORS NOTICE THEREO F. SUCH TERMINATED RIGHTS SHALL BE IMMEDIATELY REINSTATED UPON PAYMENT OF ALL APPLICABLE LICENSE FEES. IN NO EVENT OTHER THAN AS SET FORTH I N THIS SECTION 15.1.8 MAY VENDOR TERMINATE THE SOFTWARE LICENSES OR, RELI ANCES RIGHT TO USE, THE SOFTWARE NOTWITHSTANDING ANY OTHER PROVISI ON OF THE DOCUMENTS, IF THERE IS A DISPUTE HEREUNDER, PENDING FINAL RESOLUTION OF SUCH DISPUTE, ALL OF RE/LANCES RIGHTS UNDER THE DO CUMENTS SHALL CONTINUE IN FULL FORCE AND EFFECT, AND VENDOR WILL NOT TERMINATE THE SOFTWARE LICENSES, AND SO LONG AS RELIANCE CONTINUE S TO PAY VENDOR APPLICABLE FEES, VENDOR WILL NOT TERMINATE, SUSPEND , INTERRUPT OR DELAY MAINTENANCE AND SUPPORT OF THE SOFTWARE. 2.19 PERUSAL OF SECTLON-15.1 OF THE AGREEMENT REVEA LS THAT THE APPELLANT HAS NOT RECEIVED ANY RIGHT FOR TRANSFERRING THE SOFTWARE LICENSE OR DECOMPILING, REVERSE ENGINEERING, OR DISASSEMBLING IT. THE APPELLANT HAS ALSO GOT NO POWER TO DECODE THE MACHINE CODE OF SOFTWARE . THE APPELLANT HAS GOT NO POWER TO MAKE COPIES OF SOFTWA RE EXCEPT FOR BACKUP PURPOSES. FROM THE SECTION-15.1 OF THE AGREEMENT, I T IS VERY APPARENT THAT THE APPELLANT HAS GOT THE RIGHT TO USE SOFTWARE FOR ITS BUSINESS OR PERSONAL PURPOSES AND HAS OBTAINED NO OTHER RIGHTS. 2.20 THE ISSUE WHETHER SOFTWARE IS GOODS OR INTELLECTUAL PROPERTY HAS BEEN DETERMINED BY HONBLE SUPREME COURT IN THE CAS E OF TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH (2004) 271 ITR 401. IT WAS ARGUED ON BEHALF OF ANDHRA PRADESH GOVERNMENT THAT THE COMPUTER SOFTWARE IS A INTELLECTUAL PROPERTY AND PROVIDING IT TO ANYB ODY FOR CONSIDERATION RESULTS IN ROYALTY INCOME BEING G ENERATED TO THE SOFTWARE DEVELOPER. HONBLE SUPREME COURT EXAMINED THE ISSUE IN DETAIL AND IT WAS HELD THAT SOFTWARE IS AN INTELLECTUAL PR OPERTY SO LONG AS IT REMAINS WITH THE SOFTWARE DEVELOPER. AS SOON AS A C OPY OF THE SOFTWARE IS PRODUCED AND IS PLACED ON A MEDIA, IT BECOMES GO ODS. SOFTWARE ON MEDIA IS NOT DIFFERENT FROM ANY BOOK OR CANVAS (IN CASE OF PAINTING) OR COMPACT DISCS OR CASSETTES IN RESPECT OF SONGS AND PICTURES. HONBLE SUPREME COURT HELD THAT THE SOFTWARE AND THE MEDIA CANNOT BE SPLIT UP SINCE THE MEDIA HAS A LITTLE VALUE. HONBLE SUPREME COURT HAS OBSERVED AS UNDER: A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMAN DS WHICH ENABLE THE COMPUTER TO PERFORM A DESIGNATED TASK. T HE COPYRIGHT IN THAT PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF TH E PROGRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOME S GOODS, WHICH ARE SUSCEPTIBLE TO SALES TAX. EVEN INTELLECTUAL PRO PERTY, ONCE IT IS PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS OR C ANVAS (IN CASE OF PAINTING) OR COMPUTER DISCS OR CASSETTES, AND MARKE TED WOULD BECOME GOODS. WE SEE NO DIFFERENCE BETWEEN A SALE OF A S OFTWARE PROGRAMME ON A CD/FLOPPY DISC FROM A SALE OF MUSIC ON A CASSETTE/CD OR A SALE OF A FILM AS A VIDEO CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECTUAL PROPERTY HAS BEEN INCORPORATED ON A ME DIA FOR PURPOSES OF TRANSFER. SALE IS NOT JUST OF THE MEDIA WHICH BY ITSELF HAS VERY LITTLE VALUE. THE SOFTWARE AND THE MEDIA CANNOT BE SPLIT U P. WHAT THE BUYER PURCHASES AND PAYS FOR IS NOT THE DISC OR THE CD. A S IN THE CASE OF RELIANCE AND LUCENT GROUP 16 PAINTINGS OR BOOKS OR MUSIC OR FILMS THE BUYER IS P URCHASING THE INTELLECTUAL PROPERTY AND NOT THE MEDIA I.E. THE PA PER OR CASSETTE OR DISC OR CD. THUS A TRANSACTION OF SALE OF COMPUTER SOFTWARE IS CLEARLY A SALE OF GOODS WITHIN THE MEANING OF THE TERM AS D EFINED IN THE SAID ACT. 2.21 IT IS THEREFORE NOW ESTABLISHED LAW THAT COMPU TER SOFTWARE AFTER BEING PUT ON TO A MEDIA AND SOLD HAS BECOME GOODS L IKE ANY OTHER AUDIO CASSETTE OR PAINTING ON CANVAS OR A BOOK. THE AO WAS THEREFORE NOT JUSTIFIED IN HOLDING THAT THE COMPUTER SOFTWARE ON A MEDIA CONTINUES TO BE INTELLECTUAL PROPERTY RIGHT. THE IS SUE OF PAYMENT FOR ACQUISITION OF COPY OF SOFTWARE PROGRAMME HAS B EEN CONSIDERS BY HONBLE ITAT BANGALORE BENCH IN THE CASE OF LUCE NT TECHNOLOGIES HINDUSTAN LTD. VS. ITO (2005) 92 ITD 3 66. IN THIS CASE THE TAXPAYER HAD PURCHASED FROM US COMPANY AN INTEG RATED EQUIPMENT WHICH CONSISTED OF BOTH HARDWARE AND SOFTWARE AS ON E CANNOT FUNCTION WITHOUT HELP OF OTHER. THE ACQUISITION OF SOFTWARE WAS INEXTRICABLY LINKED TO THE ACQUISITION OF HARDWARE AND ONE COULD NOT FU NCTION WITHOUT THE OTHER. THE ASSESSEE COMPANY WHICH WAS ENGAGED IN TH E BUSINESS OF MANUFACTURING AND SALE OF ELECTRONIC SWITCHING SYST EMS REQUIRED FOR THE TELECOMMUNICATION INDUSTRY, DID NOT DEDUCT TAX AT S OURCE WHILE MAKING PAYMENT ON THE GROUND THAT ACQUISITION OF SOFTWARE WAS INEXTRICABLY LINKED TO THE ACQUISITION OF HARDWARE AND AS THE TR ANSFER OF SOFTWARE HAD TAKEN PLACE OUTSIDE INDIA, NO PROFIT ACCRUED OR ARO SE OR COULD BE DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA. THE AO DIRECTED FOR DEDUCTION OF TAX AT SOURCE U/S.195. HONBLE ITAT, AFTER APPRECIATING TH E PROVISIONS OF ARTICLE- 12 OF THE INDO-US DTAA AND THE PROVISIONS OF SECTIO N 9(1)(VI) OF THE I.T. ACT, HAS HELD THAT THE ASSESSEE DID NOT ACQUIRE ANY RIGHT IN THE SOFTWARE. THE ASSESSEE HAD ONLY ACQUIRED INTEGRATED EQUIPMENT BOTH OF HARDWARE AND SOFTWARE FROM LUCENT, USA. THE ASSESSEE DID NOT ACQUIRE ANY RIGHT TO DUPLICATE THE SOFTWARE IN MAKING USE OF SAME. TH E SOFTWARE SUPPLIED BY LUCENT, USA IS CUSTOMER-SPECIFIC AND CANNOT BE R EUSED OR DUPLICATED IN ANY OTHER EXCHANGE WHERE IDENTICAL ORDERS WERE P LACED BY THE DOT. IT WAS HELD THAT THE PAYMENT MADE FOR THE PURCHASE OF SOFTWARE DID NOT PARTAKE THE CHARACTER OF ROYALTY AND AS SUCH THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE. THE FACTS IN THE CASE OF APPE LLANT ARE QUITE SIMILAR TO THIS DECISION. THE HARDWARE IS BEING PURCHASED A ND SIMULTANEOUSLY SOFTWARE IS ALSO BEING PURCHASED FROM LTGL. THE SOF TWARE IS FOR THE USES IN THE HARDWARE PURCHASED SIMULTANEOUSLY. AS PER TH E CONTRACT CONDITIONS MENTIONED IN SECTION-15 OF THE AGREEMENT APPELLANT DID NOT ACQUIRE ANY RIGHT OF DUPLICATION OF SOFTWARE EXCEPT FOR USE IN ITS OWN SYSTEM. 2.22 SECTION 9 OF THE I.T. ACT PROVIDES FOR INCOME DEEME D TO ACCRUE OR ARISE IN INDIA. SECTION 9(1)(VI) REFERS TO ACCRUAL OF INCOME BY WAY OF ROYALTY. EXPLANATION-2 TO SECTION 9(1)(VI) P ROVIDES THE DEFINITION OF ROYALTY WHICH READS AS UNDER: 9. INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA: RELIANCE AND LUCENT GROUP 17 (VI) IN COME BY WAY OF ROYALTY PAYABLE BY- (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE RO YALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORM ATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSID E INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE ROYAL TY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION US ED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSI ON CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: EXPLANATION 2. -FOR THE PURPOSES OF THIS CLAUSE, R OYALTY MEANS CONSIDERATION (INDUCING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCO ME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS ) FOR- (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENSE) IN RESPECT OF A PATENT, INVENTION, MODEL D ESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DES IGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL, (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONN ECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV),(IVA) AND (V ). 2.23 CLAUSE (V) OF EXPLANATION-2 PROVIDES THAT THE CONSIDERATION RECEIVED ON TRANSFER OF ALL OR ANY RIGHTS (INCLUDIN G THE GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK WOULD BE DEEMED TO BE ROYALTY. CLAUSE (I) OF EXPLAN ATION-2 SIMILARLY PROVIDES THAT CONSIDERATION RECEIVED ON THE TRANSFE R OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF A PATENT, INVENTION, MODEL, SECRET FORMULA OR PROCESS OR SIMILAR PROPERT Y WOULD AMOUNT TO ROYALTY. CLAUSE (III) OF EXPLANATION-2 PROVIDES THA T CONSIDERATION FOR THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS RELIANCE AND LUCENT GROUP 18 WOULD AMOUNT TO ROYALTY. 2.24 ON THE OTHER HAND, THE DEFINITION OF ROYALTY IN ARTICLE-12(3) OF THE INDO-US DTAA PROVIDES AS UNDER: ARTICLE-12(3). THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS : (A) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTI STIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TE LEVISION BROADCASTING, ANY PATENT, TRADEMARK DESIGN OR MODEL , PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING I NDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAIN S DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE OR DISPOSITION THEREOF; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRI BED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM AC TIVITIES DESCRIBED IN PARAGRAPH 2(C) OR 3 OF ARTICLE 8. 2.25 IT CAN CLEARLY BE SEEN THAT THE DEFINITION OF ROYALTY IN ARTICLE-L2(3) OF THE DTAA IS MORE RESTRICTIVE THAN WHAT IS PROVID ED IN SECTION 9(1)(VI). 2.26 LTGL IS A TAX RESIDENT OF USA AND THEREFORE IS ENTI TLED TO THE BENEFIT OF DTAA OVER THE PROVISIONS OF THE INCO ME-TAX ACT. CONSEQUENTLY IF THE PAYMENT OF SOFTWARE IS NOT COVE RED BY THE DEFINITION OF ROYALTY IN ARTICLE-12 BEING COVERED B Y SECTION 9(1)(VII) WOULD BE IRRELEVANT . DEFINITION OF ROYALTY IN ARTFCLE-L2(3) IS IN FOLL OWING PARTS: A) CONSIDERATION FOR THE USE OF, OR THE RIGHT TO US E, ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. B) CONSIDERATION FOR THE USE OF OR RIGHT TO USE OF ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS. C) CONSIDERATION FOR THE USE OF OR RIGHT TO USE CIN EMATOGRAPH FILM OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION OF THE USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING. D) CONSIDERATION FOR THE INFORMATION CONCERNING IND USTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. E) INCLUDING GAINS DERIVED FROM THE ALIENATION OF A NY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE OR DISPOSITION THEREOF THE COMPUTER SOFTWARE CAN ONLY BE COVERED IN ITEM (A) OR (B) ABOVE. 2.27 COMPUTER SOFTWARE AS COPYRIGHT. ARTICLE-12(3)(A) PROVIDES THAT THE CONSIDERATION F OR THE USE OF ANY COPYRIGHT OR RIGHT TO USE OF ANY COPYRIGHT IS ROYAL TY. RELIANCE AND LUCENT GROUP 19 DEFINITION OF COPYRIGHT IS NOT PROVIDED IN THE DTAA AND THEREFORE DEFINITION OF COPYRIGHT PROVIDED IN THE COPYRIGHT A CT, 1957 IS RELEVANT. SECTION-13 OF THE COPYRIGHT ACT PROVIDES AS UNDER: 13. WORKS IN WHICH COPYRIGHT SUBSISTS . (1) SUBJECT TO THE PROVISIONS OF THIS SECTION AND THE OTHER PROVISIONS OF THIS AC T, COPYRIGHT SHALL SUBSIST THROUGHOUT INDIA IN THE FOLLOWING CLASSES OF WORKS, THAT IS TO SAY,- (A) ORIGINAL LITERARY, DRAMATIC, MUSICAL AND ARTISTIC W ORKS; (B) CINEMATOGRAPH FILMS; AND (C) SOUND RECORDING. (2) COPYRIGHT SHALL NOT SUBSIST IN ANY WORK SPECIF IED IN SUB-SECTION(1), OTHER THAN A WORK TO WHICH THE PROVISIONS OF SECTIO N 40 OR SECTION 41 APPLY, UNLESS, (I) IN THE CASE OF A PUBLISHED WORK, THE WORK IS FI RST PUBLISHED IN INDIA, OR WHERE THE WORK IS FIRST PUBLISHED OUTSIDE INDIA, THE AUTHOR IS AT THE DATE OF SUCH PUBLICATION, OR IN A CASE WHERE TH E AUTHOR WAS DEAD AT THAT DATE, WAS AT THE TIME OF HIS DEATH, A CITIZEN OF INDIA; (II) IN THE CASE OF AN UNPUBLISHED WORK OTHER THAN A WORK OF ARCHITECTURE, THE AUTHOR IS AT THE DATE OF THE MAKI NG OF THE WORK A CITIZEN OF INDIA OR DOMICILED IN INDIA; AND (III) IN THE CASE OF A WORK OF ARCHITECTURE, THE WO RK IS LOCATED IN INDIA. EXPLANATION. IN THE CASE OF A WORK OF JOINT AUTHORS HIP, THE CONDITIONS CONFERRING COPYRIGHT SPECIFIED IN THIS SUB-SECTION SHALL BE SATISFIED BY ALL THE AUTHORS OF THE WORK (3) COPYRIGHT SHALL NOT SUBSIST- (A) IN ANY CINEMATOGRAPH FILM IF A SUBSTANTIAL PART OF THE FILM IS AN INFRINGEMENT -OF THE COPYRIGHT IN ANY OTHER WORK ; (B) IN ANY SOUND RECORDING MADE IN RESPECT OF A LIT ERARY, DRAMA TIC OR MUSICAL WORK, IF IN MAKING THE SOUND RECORDI NG, COPYRIGHT IN SUCH WORK AHS BEEN INFRINGED. (4) THE COPYRIGHT IN A CINEMATOGRAPH FILM OR A SOUND RECORDING SHALL NOT AFFECT THE SEPARATE COPYRIGHT IN ANY WORK IN RESPEC T OF WHICH OR A SUBSTANTIAL PART OF WHICH, THE FILM, OR, AS THE CAS E MAY BE, THE SOUND RECORDING IS MADE. (5) IN THE CASE OF A WORK OF ARCHITECTURE COPYRIGH T SHALL SUBSIST ONLY IN THE ARTISTIC CHARACTER AND DESIGN AND SHALL NOT EXT END TO PROCESSES OR METHODS OF CONSTRUCTION 2.28 SECTION-13 THEREFORE CLEARLY PROVIDES THAT - T HE COPYRIGHT SHALL SUBSIST ONLY IN RESPECT OF ORIGINAL LITERARY, DRAMA TIC, MUSICAL AND ARTISTIC WORKS, CINEMATOGRAPH FILMS AND SOUND RECORDING. IT IS THEREFORE CLEAR THAT THE COPYRIGHT IS DIFFERENT FROM THE WORK. COPY RIGHT ABOUT WORK IS NOT SYNONYMOUS WITH THAT WORK. COPY RIGHT IS AN INCORPO REAL PROPERTY IN A WORK (A CORPOREAL PROPERTY). RELIANCE AND LUCENT GROUP 20 2.29 SECTION-14 OF THE COPYRIGHT ACT PROVIDES THE DEFINITION OF COPYRIGHT WHICH READS AS UNDER: 14. MEANING OF COPYRIGHT . FOR THE PURPOSE OF THIS ACT, COPYRIGHT MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT TO DO OR AUTHORISE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY- (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAMME, - (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INDUCING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC AND NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICAT E IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECOR DING 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 ANY A DAPTATION 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 S ALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E; PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS N OT THE ESSENTIAL OBJECT OF THE RENTAL. 2.30 THE DEFINITION OF COPYRIGHT IN SECTION-14 IS E XHAUSTIVE DEFINITION SINCE THE WORDS USED ARE COPYRIGHT MEANS. COPYRIG HT IS A BUNDLE OF RIGHTS MENTIONED IN SECTION-14 ABOVE. THIS RIGHT CO NSISTS OF RIGHT TO REPRODUCE THE WORK, ISSUES OF COPIES OF THE WORK IN PUBLIC, PERFORMANCE OF THE WORK IN PUBLIC, MAKING TRANSLATION, ADAPTATION, ETC. IN RESPECT OF COMPUTER PROGRAMME RELEVANT FOR THE ISSUE UNDER CON SIDERATION, COPYRIGHT MAINLY CONSISTS OF FOLLOWING RIGHTS: (A) TO PRODUCE THE WORK IN ANY MATERIAL FORM. (B) TO ISSUE COPIES OF THE WORK TO THE PUBLIC. (C) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER F OR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF COMPUTER PROGRAMME. 2.31 EXAMINATION OF THE AGREEMENT OF THE APPELLANT WITH LTGL REVEALS THAT SECTION-15 OF THE AGREEMENT QUOTED EAR LIER FORBIDS THE APPELLANT FROM TRANSFERRING, ASSIGNING, SUBLICE NSING OR USING RELIANCE AND LUCENT GROUP 21 BY OUTSOURCING THE SOFTWARE. THE AGREEMENT ALSO FOR BIDS THE APPELLANT FROM DECOMPILING, REVERSE ENGINEERING, DI SASSEMBLING OR DECODING THE SOFTWARE. SECTION-15 ALSO CONTEMPLA TES THAT ALL COPIES OF THE SOFTWARE PROVIDED TO THE APPELLANT AR E THE COPYRIGHT OF LTGL. THESE COPIES SHALL BE HELD SECRET AND SOFT WARE SHALL NOT BE DISCLOSED TO ANYBODY ELSE. AGREEMENT PROVIDES TH AT ALL COPIES OF SOFTWARE SHALL BE RETURNED TO LTGL UPON TERMINAT ION OR CANCELLATION OR THE AGREEMENT. AGREEMENT ALSO PROVI DES THAT THE APPELLANT SHALL USE THE SOFTWARE ONLY FOR THE OPERA TION OF WIRELESS RELIANCE NETWORK AND SHALL NOT SUBLICENSE OR MODIFY THE SOFTWARE. THE PERUSAL OF SECTION-15 OF THE AGREEMENT CLEARLY REVEALS THAT THE APPELLANT HAS GOT A COPY OF SOFTWARE FOR BEING USED IN ITS TELECOM NETWORK. THE APPELLANT HAS GOT NO RIGHT AS ENVISAGED IN SECTION-14 OF THE COPYRIGHT ACT TO DUPLICATE THE SO FTWARE, TO ISSUE COPIES OF SOFTWARE IN PUBLIC OR TO GIVE COPIES OF S OFTWARE IN RENT OR EVEN TO REVERSE ENGINEER, DECOMPILE OR MODIFY THE SOFTWARE . THE SUM TOTAL OF THE CONDITIONS MENTIONED IN THE SECTIO N-IS IS THAT LTGL HAS GIVEN NO PART OF COPYRIGHT AS ENVISAGED IN SECTION- 14 OF THE COPYRIGHT TO THE APPELLANT. THUS, SALE OF SOFTWARE BY LTGL TO TH E APPELLANT CANNOT BE SAID TO BE THE TRANSFER OF THE COPYRIGHT TO LTGL EI THER IN PART OR IN WHOLE. THUS, CONSIDERATION PAID BY THE APPELLANT TO LTGL F OR ACQUIRING COPY OF SOFTWARE IS NOT FOR THE USE OF COPYRIGHT OR TRANSFE R OF RIGHT TO USE OF COPYRIGHT. AS MENTIONED ABOVE, COPYRIGHT IS DIFFERE NT FROM THE WORK IN RESPECT OF WHICH COPYRIGHT SUBSIST. THE APPELLANT H AS ONLY GOT A COPY OF SOFTWARE WITHOUT ANY PART OF THE COPYRIGHT OF THE S OFTWARE. THUS, PAYMENT MADE BY THE APPELLANT FOR ACQUIRING COPY OF SOFTWARE DOES NOT AMOUNT TO ROYALTY WITHIN THE DEFINITION OF ARTICLE- 12(3) OF THE DTAA. 2.32 SIMILAR ISSUE THAT WHETHER THE SUPPLY OF A COPY OF SOFTWARE PROGRAMME WITHOUT TRANSFER OF ANY PART OF COPYRIGHT AMOUNTS TO ROYALTY OR NOT HAS BEEN CONSIDERED BY VARIOUS BENCH ES OF ITAT RECENTLY. HONBLE ITAT, BANGALORE BENCH IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. VS. ITO 93 TTJ 658, 276 ITR (A T) 1 HAS HAD A OCCASION TO CONSIDER THE SIMILAR CASE. IT WAS HELD IN THE CASE THAT THE DEFINITION OF ROYALTY U/S.9(1)(VI) IS WIDER THAN TH E DEFINITION OF ROYALTY IN VARIOUS DTAA. SINCE THE PROVISIONS IN THE DTAA HAVE TO BE FOLLOWED, IF THEY ARE MORE BENEFICIAL TO THE TAXPAYER THEN THE D EFINITION OF ROYALTY IN DTAA HAS TO BE CONSIDERED. HONBLE ITAT HAD OBSERVE D THAT AS PER THE AGREEMENT BETWEEN THE PARTIES IS CASE THE TAXPAYER HAD ACQUIRED ONLY A COPY OF THE SOFTWARE OR THE COPYRIGHT ARTICLE WHERE AS THE COPYRIGHT REMAINED WITH THE OWNER I.E. FOREIGN PARTY. IT WAS HELD THAT UPON THE SALE OF COPYRIGHT ARTICLE INCORPOREAL RIGHT TO SOFTWARE I.E. COPYRIGHT WAS NOT TRANSFERRED TO THE ASSESSEE. IT WAS HELD THAT RIGHT TO USE OF A COPYRIGHT IS TOTALLY DIFFERENT FROM RIGHT TO USE THE PROGRAMME E MBEDDED IN A CASSETTE OR CD OR IT MAY BE A SOFTWARE. IT WAS HELD THAT THE SALE OF COPY OF COPYRIGHT ARTICLE CALLED SOFTWARE DID NOT AMOUNT TO ROYALTY WITHIN THE DEFINITION OF ARTICLE-12(3) OF THE INDO-US DTAA. RE LIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TATA CONSULTANCY SERVICES 271 ITR 401. RELIANCE AND LUCENT GROUP 22 2.33 HONBLE SPECIAL BENCH ITAT DELHI HAD AGAIN AN OCCAS ION TO CONSIDER THE SIMILAR ISSUE IN THE CASE OF MOTOROLA INC. (2005) 270 ITR (AT) 62, TTJ 01. IN THIS CASE THE HONBLE ITAT HAD DISCUSSED THE PROVISIONS OF THE COPYRIGHT ACT. THEY EXAMINED THE CONDITIONS IN THE NON- EXCLUSIVE RESTRICTED LICENSE OF THE SOFTWARE AND FO UND-THAT THE SUPPLIER OF SOFTWARE HAD ONLY TRANSFERRED A COPY OF THE SOFTWAR E OR COPYRIGHTED ARTICLE BUT HAD NOT TRANSFERRED ANY OF THE COPYRIGH T. UNDER THESE CIRCUMSTANCES, CONSIDERATION RECEIVED FOR THE SALE OF COPYRIGHT ARTICLE, NAMELY, SOFTWARE WAS HELD NOT TO BE ROYALTY, IT WAS ALSO HELD THAT COPYRIGHT IS DIFFERENT FROM THE COPYRIGHT ARTICLE. IN THIS CASE THE ISSUE OF SOFTWARE PROVIDED TO THE CELLULAR OPERATOR FOR SETT ING UP THE CELLULAR TELEPHONE NETWORK WAS COVERED. IT WAS HELD THAT THE SOFTWARE WHICH IS PROVIDED BY THE SUPPLIER FOR THE USE IN THE CELLULA R NETWORK DOES NOT INVOLVE TRANSFER OF ANY PART OF COPYRIGHT OF THE SO FTWARE BUT ONLY AMOUNTS TO SALE OF A COPYRIGHTED ARTICLE, NAMELY, THE COPY OF COMPUTER PROGRAMME. COPYRIGHT CONTINUE TO REMAIN WITH THE SUPPLIER OF T HE COMPUTER PROGRAMME. 2.34 THE HONBLE DELHI BENCH OF ITAT IN THE CASE OF LOTUS ASIA SPECIFIC ITA NO.564 TO 566/DEL/05 ORDER DATED 28.04.2006 HAV E ALSO EXAMINED THE SAME ISSUE AND HAVE HELD THAT IN THE CASK OF A SALE OF SHRINK-WRAP SOFTWARE BEING A COPYRIGHT~ ARTICLE, CONSIDERATION RECEIVED DOES NOT AMOUNT TO ROYALTY AS THERE -IS NO TRANSFER OF ANY P ART OF COPYRIGHT IN THE, COMPUTED PROGRAMME WHICH CONTINUES TO REMAIN WITH T HE SOFTWARE SUPPLIER. 2.35 THE HONBLE ITAT BANGALORE BENCH IN THE CASE O F SONATA INFORMATION TECHNOLOGIES LTD. ITA NO.1561 TO 1580/B ANG/2004 DATED 31.01.2006 HAVE CONSIDERED THE ISSUE OF PAYMENT REC EIVED ON SALE OF COMPUTER SOFTWARE WITHOUT TRANSFER OF ANY COPYRIGHT . HONBLE ITAT HAD EXAMINED THE ISSUE OF ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) AND AS PROVIDED IN THE DTAA. HONBLE ITAT HAD EXAMINED IN DETAIL THE ISSUE OF ROYALTY IN RESPECT OF SALE OF SHRINK-WRAP SOFTWA RE. THEY ALSO EXAMINED THE COPYRIGHT IN RESPECT OF COMPUTER PROGRAMME BEIN G THE RIGHT TO SELL OR GIVEN A COMMERCIAL RENTAL ANY COPY OF SOFTWARE PROG RAMMES. THE ITAT EXAMINED THE GENESIS OF ADDITIONAL COPYRIGHT GIVEN IN RESPECT OF COMPUTER PROGRAMME IN SECTION 14(B)(II) OF THE COPYRIGHT ACT . THE HONBLE ITAT REFERRED TO BERNE CONVENTION, ROME CONVENTION, WIPO COPYRIGHT TREATY, TRIPS. IT WAS HELD THAT THE COPYRIGHT IN THE SOFTWARE IS DIFFERENT FROM ANY RIGHT IN THE PHYSICAL MANIFESTATION OF THE SOFT WARE CONTAINED IN A CD FLOPPY OR ON A HARD DISC IN WHICH THE SOFTWARE IS D OWNLOADED. IT WAS HELD THAT WHEN A DISTRIBUTOR OF MICROSOFT ACQUIRES THE COPIES OF SOFTWARE, HE DOES NOT ACQUIRES THE DISTRIBUTOR RIGHT WHICH IS A COPYRIGHT WITHIN THE MEANING OF SECTION-14(A)(II) OR THE RIGHT TO SELL O R TO GIVE ON COMMERCIAL RENTAL, A RIGHT UNDER SECTION 14(B)(II). THE DISTRI BUTOR MERELY OBTAINED THE RIGHT TO DISTRIBUTE THE COPYRIGHTED MATERIAL WHICH IS A PROPERTY DIFFERENT FROM THE PROPERTY IN THE COPYRIGHT IN THE SOFTWARE. THE PROPERTY CONTAINED IN COPYRIGHTED MATERIAL AND THE PROPERTY CONTAINED IN THE COPYRIGHT TO SOFTWARE ARE TWO DIFFERENT RIGHTS AND WHEN A PERSON ACTS AS A DISTRIBUTOR RELIANCE AND LUCENT GROUP 23 FOR THE COPYRIGHTED MATERIAL HE HAS NOT ACQUIRED TH E DISTRIBUTION RIGHTS WITHIN THE MEANING OF SECTION-14(A)(II) R.W.S. 14(B )(II). 2.36 HONBLE ITAT ALSO MADE A REFERENCE TO THE OECD - MODEL COMMENTARY IN PARA-12 TO 17 DEALING WITH THE PAYMEN T OF SOFTWARE. REFERENCE TO THE UN COMMENTARY 2001 ON THE UN MODEL CONVENTION RELATING TO ARTICLE 12 WAS ALSO MADE. HONBLE ITAT HELD THAT THE MODEL COMMENTARIES GIVE THE AUTHORITATIVE INTERPRETATION OF THE PROVISIONS OF THE DTAA AND THESE ARE LEGAL AID IN INTERPRETATION OF P ROVISIONS OF DTAA ENTERED INTO BY TWO SOVEREIGN COUNTRIES. HONBLE I TAT ACCORDINGLY HELD THAT THE PAYMENT RECEIVED FOR THE SALE OF COPYRIGHT ED ARTICLE, NAMELY, A COPY OF COMPUTER PROGRAMME WITHOUT TRANSFER OF ANY OF THE COPYRIGHT DOES NOT AMOUNT TO ROYALTY AS PER THE DTAA. 2.37 THE HONBLE ITAT, BANGALORE BENCH IN THE CASE OF HEWLETT PACKARD INDIA (P) LTD. (2006) 5 SOT 660 (BANG) HAS ALSO CONSIDERED A SIMILAR CASE. IN THIS CASE INDIAN COMPANY WAS ENGAG ED IN THE BUSINESS OF PROVIDING NETWORK SOLUTION TO ITS CUSTOMERS. THI S ACTIVITY INCLUDES SALE OF SOFTWARE PACKAGES TO CUSTOMERS. FOR THIS PURPOSE THE INDIAN COMPANY HAD IMPORTED READYMADE SOFTWARE PACKAGES FROM HEWLE TT PACKARD USA. THE INDIAN COMPANY SOLD THESE SOFTWARE PACKAGES TO ITS CUSTOMERS IN THE PACKED CONDITIONS HONBLE ITAT HELD THAT THE CONSID ERATION RECEIVED BY THE FOREIGN COMPANY FOR THE SALE OF SOFTWARE PACKAG ES TO THE INDIAN COMPANY DID NOT AMOUNT TO ROYALTY WITHIN THE MEANIN G OF ARTLCLE-12(3) OF THE INDO-US DTAA. IT WAS HELD THAT THE SALE OF COPY RIGHTED ARTICLE IS DIFFERENT FROM THE TRANSFER OF THE COPYRIGHT IN THE COMPUTER SOFTWARE. 2.38 IT IS THEREFORE VERY APPARENT FROM SEVERAL DEC ISIONS OF HONBLE ITAT THAT IN THE CASE OF SALE OF COPYRIGHTED ARTICL E, NAMELY, A COPY OF COMPUTER PROGRAMME, PAYMENT RECEIVED IS NOT ROYALTY IF THERE IS NO TRANSFER OF COPYRIGHT PARTLY OR WHOLLY. FACTS OBTAI NING IN THE CASE OF APPELLANT CLEARLY POINT THAT NO PART OF THE COPYRIG HT AS ENVISAGED BY SECTION-14 OF THE COPYRIGHT ACT HAS BEEN TRANSFERRE D TO THE APPELLANT BY LTGL. THEREFORE THE PAYMENT FOR PURCHASE OF SOFTWAR E CANNOT AMOUNT TO ROYALTY WITHIN THE MEANING OF ARTICLE-12(3) 2.39 THE AO HAS ALSO HELD THE SOFTWARE CAN BE TREAT ED AS PATENT AND INVENTION AND HAS FAILED TO PROVIDE HOW IT CAN BE TREATED AS PATENT AND INVENTION. UNDER THE COPYRIGHT ACT, COMPUTER PROGRA MME HAS BEEN TREATED AS LITERARY, ARTISTIC WORK WORTHY OF COPYRI GHT. PATENT HAS BEEN DEFINED IN THE PATENTS ACT, 1970 IN SECTION-2(1)(M) MEANING A PATENT FOR ANY INVENTION GRANTED UNDER THIS ACT. INVENTION HAS BEEN DEFINED IN SECTION-2(1)(J) OF THE PATENTS ACT MEANING A NEW PR ODUCT OR PROCESS INVOLVING AN INVENTIVE STEP AND CAPABLE OF INDUSTRI AL APPLICATION. SECTION- 3 OF THE PATENTS ACT PROVIDES WHAT ARE NOT INVENTI ONS, WHICH READS AS UNDER: 3. WHAT ARE NOT INVENTIONS THE FOLLOWING ARE NOT INVENTIONS WITHIN THE MEANING OF THIS ACT, - K) A MATHEMATICAL OR BUSINESS METHOD OR A COMPUTER PROGRAME PER SE OR ALGORITHMS; RELIANCE AND LUCENT GROUP 24 2.40 IT IS THEREFORE VERY APPARENT THAT COMPUTER SO FTWARE CANNOT BE PATENTED. THUS COMPUTER SOFTWARE CANNOT BE TREATED AS PATENT AS IT IS NOT COVERED BY THE PATENTS ACT. FURTHER INVENTION HAS B EEN DEFINED IN THE PATENTS ACT TO MEAN A NEW PRODUCT OR PROCESS INVOLVING AN INVENTIVE STEP AND CAPABLE OF INDUSTRIAL APPLICATION. IT IS THEREF ORE APPARENT THAT THE INVENTION UNDER THE PATENTS ACT MEANS ETHER THE PRO DUCT OR A NEW PROCESS OF THE PRODUCT. IT DOES NOT INCLUDE A COMPU TER SOFTWARE, THEREFORE, THE SOFTWARE CANNOT BE TREATED AS A PATE NT OR INVENTION. ARGUMENTS OF THE AO ARE THEREFORE NOT ACCEPTED. 2.41 THE AO HAS ALSO REFERRED TO A CIRCULAR DATED 2 9.12.2000 OF THE GOVT. OF SINGAPORE EXEMPTING SHRINK-WRAP SOFTWARE F ROM WITHHOLDING TAX. THE AO HAS HELD THAT BECAUSE SINGAPORE HAS GRANTED SPECIFIC EXEMPTION REGARDING PAYMENT FOR THE ACQUISITION OF SHRINK-WRA P SOFTWARE. UNDER THE INCOME-TAX ACT, NO SUCH EXEMPTION HAS BEEN PROVIDED AND THEREFORE PAYMENT RECEIVED FOR SUPPLY OF SOFTWARE IS ROYALTY. THIS ISSUE WAS ALSO BE CONSIDERED BY ITAT BANGALORE IN THE CASE OF SONA TA INFORMATION TECHNOLOGIES LTD. (CITED SUPRA) WHEREIN IT HAS BEEN HELD THAT ONE HAS TO LOOK AT THE POSITION OF LAW UNDER THE INCOME-TAX AC T, 1961 AND NOT BE GUIDED BY PROVISIONS OF FOREIGN STATUTE UNLESS IT IS SHOWN WHAT THE STATUTE DEALS WITH, ITS PROVISIONS AND CONTEXT OF O BSERVATION. NO ASSISTANCE CAN BE DRAWN FROM A CIRCULAR OF GOVT. OF SINGAPORE. THUS IN THE ABSENCE OF THE STUDY OF THE SINGAPORE INCOME-TA X LAW AND SINGAPORE COPYRIGHT LAW, NO RELIANCE CAN BE PLACED ON THE CIR CULAR OF GOVT. OF SINGAPORE. 2.42 HONBLE ITAT IN THE CASE OF SONATA INFORMATION TECHNOLOGIES LTD. HAS ALSO CONSIDERED THE OBSERVATIONS OF USA IN RESP ECT OF ACQUISITION OF A COPYRIGHTED ARTICLE AS WELL AS THE OBSERVATIONS OF AUSTRALIA REGARDING THE ACQUISITION OF SOFTWARE. HONBLE ITAT HAD HELD THAT UNDER BOTH US AND AUSTRALIA VIEWS, PAYMENTS FOR ACQUISITION OF SOFTWA RE BEING A COPYRIGHTED ARTICLE DO NOT AMOUNT TO ROYALTY BUT ARE PAYMENTS O NLY IN RESPECT OF A COPYRIGHTED ARTICLE. THE APPELLANT HAS PRODUCED THE COPY OF AUSTRALIAN TAXATION OFFICE RULING TR93/12 FROM WHICH IT IS SEE N THAT THE PAYMENT RECEIVED FOR A SALE OF COPY OF PROGRAMME IS ONLY PR ICE OF THE SALE OF GOODS AND DOES NOT AMOUNT TO ROYALTY. US OBSERVATION ON T HE COPYRIGHTED ARTICLE AS MENTIONED BY THE AO HAS ALSO BEEN PERUSED BY ME. THERE IS APPARENTLY NO CONTRADICTION BETWEEN THE FINDINGS OF THE SEVERAL BENCHES OF THE ITAT AND THE US & AUSTRALIA TAX RULINGS. 2.43 THE AO HAS ALSO RELIED UPON THE DECISION OF HO NBLE AAR IN THE RULING IN P.NO.30 OF 1999, 238 1TR 296. I HAVE EXAM INED THIS RULING. IN THIS CASE NO SOFTWARE WAS SUPPLIED. ON THE CONTRARY A CENTRAL PROCESSING FACILITY WAS CREATED WHICH WAS BEING USED BY OTHER PARTY AND FOR SUCH USES PAYMENT WAS BEING MADE. IT WAS HELD THAT THE P AYMENT MADE FOR SUCH USES AMOUNTED TO ROYALTY SINCE PROCESS BEING U SED INCLUDED SECRET FORMULA, DESIGN, MODEL AND ALSO PROPRIETARY SOFTWAR E. THE FACTS IN THE CASE OF APPELLANT ARE ENTIRELY DIFFERENT. THE APPEL LANT HAS PURCHASED COPY OF SOFTWARE PROGRAMME. RATIO OF RULING OF ARR IS THEREFORE NOT APPLICABLE. RELIANCE AND LUCENT GROUP 25 2.44 THE AR HAS REFERRED TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF LEONHARDT ANDHRA UND PARTNER, GMBRI VS. COMMISSIONER OF INCOME-TAX (2001) 249 ITR 418. THE AR HAS EXPLAINED THAT THIS DECISION IS NOT APPLICABLE SINCE AT THE R ELEVANT TIME THERE WAS NO DTAA BETWEEN INDIA AND GERMANY AND THE DEFINITION O F ROYALTIES GIVEN IN SEC.9(1)(VI), EXPLANATION (2) WAS APPLIED. I HAVE PERUSED THE ORDER OF THE HONBLE CALCUTTA HI GH COURT. IN THIS CASE, THE DECISION WAS RENDERED ON THE BASIS OF DEF INITION OF ROYALTY UNDER THE PROVISION TO EXPLANATION (2) TO SECT. 9(1 )(VI) IN THE ABSENCE OF DTAA BETWEEN INDIA AND GERMANY. THE DEFINITION OF ROYALTY UNDER EXPLANATION (2) IS MUCH WIDER THEN THE DEFINITION G IVEN IN ARTICLE 12 OF THE DTAA, E.G. THE PAYMENT RECEIVED FOR GIVING LICENSE IN RESPECT OF COPY RIGHT OR A PATENT DESIGN, SECRET FORMAL AMOUNTS TO ROYAL TY UNDER ITEM (I) EXPLANATION (2) TO SEC. 9(1)(VI)., WHEREAS THE DEFI NITION OF ROYALTY UNDER ARTICLE 12(3) UNDER THE DTAA ONLY TALKS ABOUT CONSI DERATION RECEIVED FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLANT, SECRET FORMULA OR PROCESS E TC. THUS DEFINITION OF ROYALTY IS RESTRICTIVE IN DTAA AND THE PROVISIONS O F THE DTAA HAVING OVERRIDING EFFECT OVER THE PROVISION OF THE INCOME- TAX ACT, THE DEFINITION OF ROYALTY IN THE DTAA ONLY WOULD APPLY. IN VIEW OF THIS THE DECISION IN THE CASE OF LEONHARDT ANDHRA UND PARTNER, GMBH VS. CIT (CITED SUPRA) IS NOT APPLICABLE. THE AO HAS WRONGLY RELIED UPON THIS DEC ISION. 2.45 WITH ABOVE DISCUSSION, IT IS HELD THAT THE APP ELLANT UNDER THE SOFTWARE CONTRACT ACQUIRED ONLY A COPY OF SOFTWARE PROGRAMME AND DID NOT ACQUIRE ANY COPYRIGHT OVER SUCH SOFTWARE AS ENV ISAGED BY SECTION-14 OF THE COPYRIGHT ACT. UNDER THESE CIRCUMSTANCES, PA YMENT MADE BY THE APPELLANT TO LTGL CANNOT BE SAID TO BE PAYMENT FOR THE USE OF OR RIGHT TO USE OF COPYRIGHT. THUS, PAYMENT AMOUNTED ONLY FOR P URCHASE OF COPYRIGHTED ARTICLE AND DOES NOT AMOUNT TO ROYALTY WITHIN THE MEANING OF ARTILCE-12(3) OF THE DTAA. IT IS ACCORDINGLY HELD T HAT THE AO WAS NOT JUSTIFIED IN DIRECTING TO DEDUCT THE TAX AT SOURCE U/S.195. NO INCOME ACCRUES TO LTGL IN INDIA AGAINST THE PAYMENT OF US 1106,56,855/- FOR THE SUPPLY OF SOFTWARE FOR USE IN THE RELIANCE TELE COM NETWORK . APPEAL ON GROUND NO. 1 TO 7 IS ALLOWED. 11. THUS THE LEARNED CIT(A) ACCEPTED RELIANCE CONT ENTIONS THAT WHAT IT OBTAINED WAS ONLY A COPYRIGHTED ARTICLE WHICH DOES NOT HAVE ANY COPYRITY AND SECTION 14 OF COPYRIGHT ACT DOES NOT APPLY AS R ELIANCE DOES NOT HAVE ANY RIGHT TO DUPLICATE SOFTWARE, TO ISSUE COPIES OF SOFTWARE. LD CIT(A) RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF SAM SUNG ELECTRONICS 276 ITR (AT) 1, LUCENT TECHNOLOGIES HINDUSTAN LTD. 92 I TD 366, MOTOROLA SPECIAL BENCH DECISION REPORTED IN 270 ITR (AT) 62 AND OTHER BANGALORE BENCH DECISIONS ON THE ISSUE. REVENUE IS AGGRIEVED . RELIANCE AND LUCENT GROUP 26 12. LEARNED SPECIAL COUNSELS ARGUMENTS CENTRED AROUND THE FACT THAT WHAT THE ASSESSEE HAS OBTAINED IS ONLY A LICENSE, W HICH INVOLVED A COPYRIGHT UNDER THE COPYRIGHT ACT AND THE DEFINITION OF ROYAL TY UNDER THE INCOME TAX ACT IS ALSO APPLICABLE. THE DETAILED SUBMISSIONS CA NBE SUMMARISED AS UNDER: - A) RIGHTS IN SOFTWARE ARE IN THE NATURE OF COPYRIG HT, B) LICENSING OF SOFTWARE AMOUNTS TO ROYALTY UNDER THE INCOME TAX EVEN BEFORE AMENDMENT OF 2012. C) EVEN UNDER ARTICLE 12 OF DTAA USE OF COPYRIGHT OF A LITERARY ARTICLE, SCIENTIFIC WORK, SECRET FORMULA, PROCESS AND ALSO F OR USE OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT IS R OYALTY READ WITH COPYRIGHT ACT OF INDIA. LEARNED COUNSEL, RELYING ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF AUTODISK INC. AND MICROSOFT COMPUTER (P LACED IN THE PAPER BOOK AT PAGE 1698 TO 1704) SUBMITTED THAT THERE IS COPYR IGHT INVOLVED AS THE INFRINGEMENT IS PUNISHABLE. HE ELABORATED ON OECD C OMMENTARY, STAND OF INDIA ON OECD COMMENTARY. HE MAINLY RELIED ON THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT ORDER IN THE CASE OF CIT VS. S YNOPSIS INTERNATIONAL OLD LTD. 212 TAXMAN 454 (KAR) AND SAMSUNG ELECTRONI CS LTD. 345 ITR 494 (KAR), CIT VS. LUCENT TECHNOLOGIES 348 ITR 196 (KAR ) AND AAR DECISION IN THE CASE OF CITRIX SYSTEMS ASIA PACIFIC PVT. LTD. 3 43 ITR 1 (AAR). HE ALSO RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF MICROSOFT/GRACEMAC CORPORATION 42 SOT 550 (DEL) AND OTHER DECISIONS FO R SUPPORT. THE LEARNED COUNSEL ALSO SUBMITTED THAT LUCENT HAS PE IN INDIA, SO THE PROFITS ARE TAXABLE IN INDIA. 13. THE LEARNED COUNSEL OF RELIANCE, SHRI J.D. MISTRY, REFERRING TO THE MAIN CONTRACTS RELEVANT FOR THE ISSUE I.E., SOFTWAR E CONTRACT, GTC AND ASSIGNMENT CONTRACTS SUBMITTED THE MAIN PURPOSE OF ENTERING VARIOUS CONTRACTS ARE FOR SETTING UP MOBILE NETWORK AND PLA CED ORDER FOR HARDWARE AND SOFTWARE AND SOFTWARE DOES NOT WORK WITHOUT THE HARDWARE NETWORK. THE SOFTWARE IS NOTHING BUT COMPUTER TECHNOLOGY. AS A SEQUETER BY RELIANCE AND LUCENT GROUP 27 COMPUTER PROGRAMMING, THE EQUIPMENT WORKS WHICH RES ULT IN NETWORK COMMUNICATIONS. THIS SOFTWARE IS SPECIFIC TO THE MA CHINERY ON WHICH IT WORKS AND IS DIFFERENT FROM SHRINK WRAPPED SOFTWARE WHICH IS SOLD OFF THE SELF. THEN REFERRING TO THE COPYRIGHT ARGUMENT, T HE LEARNED COUNSEL SIMPLIFIED THE LOGIC BY REFERRING TO INCOME TAX COM MENTARY OF KANGA & PALKIWALA TO SUBMIT THE PUBLISHER MAY HAVE COPYRIGH TS OF AUTHORS BUT THE ULTIMATE USER BY PURCHASING THE BOOK GETS ONLY A CO PYRIGHTED ARTICLE AND NO COPYRIGHTS. IT WAS THE SUBMISSION THAT RELIANCE HAS NO INTEREST IN INTELLECTUAL RIGHTS OF SELLER AND ONLY INTEREST REL IANCE HAS IS AS TO HOW THE NETWORK FUNCTIONS AND HELPS IN COMMUNICATION SYSTEM . SINCE THE SOFTWARE IS IN BINARY SYSTEM, THE WORD LICENSE IS USED BUT T HIS IS DIFFERENT FROM LICENSE OF COPYRIGHT CONTEMPLATED IN THE ACT. RELIA NCE IS NOT EXPLOITING ANY LICENSE/COPYRIGHT WHILE USING THE SOFTWARE PURCHASE D. 14. CONTINUING THE ARGUMENTS, LEARNED COU NSEL REFERRED TO THE MASTER AGREEMENT WHERE THE CONTRACT IS FOR SUPPLY OF HARDW ARE, SOFTWARE AND SERVICES FOR ESTABLISHING THE NETWORK. IT WAS THE S UBMISSION THAT THE SOFTWARE SUPPLY CONTRACT WAS ASSIGNED TO M/S. LUCEN T LLC USA AND THE SAME WAS TO ENSURE THAT THE SOFTWARE HELPS IN EQUIP MENT USAGE, AS THE EQUIPMENT CAN WORK ONLY WITH THE SOFTWARE. HE REFER RED TO THE PURCHASE ORDER PLACED, AS IS REFERRED BY THE LEARNED CIT(A) THAT EACH PURCHASE OF EQUIPMENT MATCHES WITH PLACING ORDER FOR RELEVANT S OFTWARE AND THE SOFTWARE IS THE MEDIUM/MECHANISM FOR USING THE HARDWARE. RE FERRING TO CLAUSE 15 OF THE AGREEMENT, THE ARGUMENTS WERE THAT THE LICENSE WAS GIVEN FOR USE OF NON-TANGIBLE GOODS UNLIKE HARDWARE REFER TO VARIOUS TERMS SPECIFIED THEREIN TO SUBMIT THAT LICENSE IS ONLY FOR EXCLUSIVE USE BY RELIANCE AND NO INTELLECTUAL PROPERTY RIGHT WERE TRANSFERRED NOR AN Y COPYRIGHTS WERE GIVEN. 15. THE LEARNED COUNSEL REFERRED TO OECD COMM ENTARY ON ROYALTY, SOFTWARE LICENSE AGREEMENTS AND PROVISIONS OF THE A CT, DTAA AND COPYRIGHT ACT. HE ALSO DISTINGUISHED THE CASE LAW RELIED ON B Y THE LEARNED COUNSEL OF REVENUE. THE LEARNED COUNSEL DISTINGUISHED THE DECI SIONS OF AUTODESK AND MICROSOFT RELIED ON BY THE REVENUE SUBMITTING THAT THEY ARE GIVEN IN THE CONTEXT OF VIOLATION OF COPYRIGHT WHICH ARE NOT INV OLVED IN THIS TRANSACTION RELIANCE AND LUCENT GROUP 28 AND DOES NOT APPLY. WITH REFERENCE TO THE REVENUES CONTENTIONS ABOUT THE AMENDED PROVISIONS OF IT ACT, IT WAS SUBMITTED THAT THE DTAA (ARTICLE 12) HAS NOT BEEN AMENDED AND SO IT HAS NO APPLICATION. HE REFERRED TO THE DECISION OF B4U INT.HOLDINGS LTD IN ITA/3326/MUM/20 06 DT. 28/05/12 (PARA 13-17) IN SUPPORT. LIKEWISE DECISIONS OF WNS NORTH AMERICA INC IN ITA 8621/M/2010 DATED 14.12.2012 (PARA 3.6 TO 3.10). IT WAS ALSO SUBMITTED THAT THE DECISIONS OF KARNATAKA HIGH COURT IN THE C ASE OF SYNOPSIS INTERNATIONAL (PAGE 1711 IN PAPER BOOK) IS ABOUT DE SIGNING MECHANISM AND CONSIDERED IN THE CONTEXT OF DEFINITION UNDER SECTI ON 9(1)(VI) OF THE IT ACT WHEREAS DTAA OVERRIDES THE SAID PROVISIONS. MOREOVE R, IT WAS SUBMITTED THAT THE ISSUES INVOLVED IS WITH REFERENCE TO RIGHT IN RESPECT OF COPYRIGHT USED IN DTAA. 16. IT WAS CLARIFIED THAT SERVICE AGREEMENT WA S ASSIGNED TO LUCENT ALCATEL AND REFERRED TO THE FINDINGS OF LEARNED CIT(A) (PAR A 2.14) TO SUBMIT THAT THE RELIANCE IS PURCHASING AS AND WHEN MODULES WERE ADD ED (ADD-ON-MODULES). THE LEARNED COUNSEL ALSO DISTINGUISHED THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRO NICS. IT WAS SUBMITTED THAT THE RELIANCE HAS NOT PURCHASED SHRINK WRAPPED PRODUCT, THERE IS NO RIGHT TO COPY. SO NO COPYRIGHTS AND PROVISIONS OF COPYRIGHT ACT WAS WRONGLY APPLIED. REGARDING THE ARGUMENT OF REVENUE THAT OECD COMMENTARY WAS NOT ACCEPTED/FOLLOWED BY INDIA, THE LEARNED COUNSEL FOR THE RELIANCE REFERRED TO THE DECISIONS OF: - (1) VISAKHAPATNAM PROT TRUST 146 ITR 146 (AP) (2) GRAPHITE INDIA 86 ITD 384 (3) JAMES MACKINTOSH & CO P LTD 93 ITD 466 (PUNE) (4) METCHEM CANADA INC 5 SOT 121 (MUM) IT WAS THE SUBMISSION THAT OECD COMMENTARY WAS RELI ED ON EVEN BY THE SPECIAL BENCH IN THE CASE MOTOROLA (SUPRA) IN ORDER TO INTERPRET THE DTAA. THE LEARNED COUNSEL THEN RELIED ON THE FOLLOWING CA SES IN SUPPORT OF THE CONTENTIONS: 1) DIT VS ERICSON AB 204 TAXMANN 192. 2) SOLID WORKS CORPORATION 51 SOT 34. RELIANCE AND LUCENT GROUP 29 3) ALLIANZ SE IN ITA/1569/PN/08 DT. 14/03/12. 4) SONATA INFORMATION TECH LTD. IN ITA4446/MUM/2011 DT .03/04/12. 5) TATA CONSULTANCY SERVICES LTD 271 ITR 401(SC). 6) BSNL VS UNION OF INDIA 2006(2) S. T. R 161(SC) 17. THE LEARNED COUNSEL ALSO SUBMITTED DETAI LED NOTE ON ROYALTIES UNDER VARIOUS TREATIES AS THE RELIANCE ALSO PURCHAS ED FROM VARIOUS OTHER COUNTRY-RESIDENT COMPANIES. ARGUMENTS WERE ALSO PLA CED ON GOODS, EQUIPMENT USED IN DEFINITIONS. LASTLY, IT WAS ALS O CONTENDED THAT THE ISSUE OF EXISTENCE OF PE IN THE CASE OF LUCENT CANNOT BE CONSIDERED AS AO HAS NOT RAISED THE ISSUE IN HIS ORDER. IT WAS HIS SUBMISSIO N THAT ADDITIONAL GROUNDS CANNOT FASTEN LIABILITY. 18. IN REPLY, THE LEARNED COUNSEL FOR REVENU E RELIED ON THE DECISION OF NTPC TO SUBMIT THAT REVENUE CAN RAISE NEW GROUND/AR GUMENT WHICH IS LEGAL. IT WAS HIS ARGUMENT THAT THE AGREEMENT WAS A SSIGNED TO LTGL AND NOT EXECUTED BY LUCENT INDIA. HE REITERATED THE CONTENT ION THAT LICENSE IS FOR USE OF COPYRIGHT AND NOT FOR COPYRIGHTED ARTICLES. HE REFERRED TO THE OWNERSHIP AND REDESIGNING OF SOFTWARE AT THE END OF 10 YEAR PERIOD TO SUBMIT THAT SOFTWARE IS NOT SOLD, ONLY LICENSE TO U SE WAS GRANTED. REFERRING TO THE TERMS OF AGREEMENT, IT WAS SUBMITTED THAT WH EN SOFTWARE WAS SUPPLIED THROUGH A MEDIUM OF CD, RELIANCE HAS ONLY LICENSE TO USE THE SAME AND IN THE CASE OF SOFTWARE, IT CAN ONLY BE TR EATED AS USE OF COPYRIGHT. AS AN ALTERNATIVE SUBMISSION, IT WAS ALSO CONTENDED THAT THE USE OF SOFTWARE CAN ALSO BE CONSIDERED AS USE OF EQUIPMENT WHEN I T IS LOADED ON CD BECOMES A TANGIBLE ITEM AND WORKS THROUGH THE COMPU TERS. SINCE THE SOFTWARE IS TO BE REFERRED AS PROVIDED IN CLAUSE 15 .1.5, IT IS NOT TAKEN AS USE OF COPYRIGHT, IT CAN ALSO BE TAKEN AS USE OF EQUIPM ENT UNDER DTAA. THE LEARNED COUNSEL FOR REVENUE SUBMITTED THAT IN THE C ASE OF PRODUCT PATENT THERE CAN BE SALE BUT, A PROCESS PATENT CAN ONLY LI CENSED. ITA NOS. 7001/M/10 TO 7004/ M/10 LUCENT TECHN OLOGIES GRL LLC 19. THE FACTS IN THIS CASE ARE, LUCENT IS A COMPANY INCORPORATED IN AND A TAX RESIDENT OF USA. IT SUPPLIED SOFTWARE TO RELI ANCE LNFOCOMM LTD. (NOW KNOWN AS RELIANCE COMMUNICATIONS LTD.) FOR ITS WIRE LESS RELIANCE NETWORK. RELIANCE AND LUCENT GROUP 30 THE ASSESSMENT ORDER U/S.143(3) DATED 30.12.2008 WA S PASSED FOR A.Y. 2006-07 WHERE TOTAL RECEIPTS OF THE LUCENT AMOUNTIN G TO RS.162.77 CRORES WAS BROUGHT TO TAX AS ROYALTY EVEN THOUGH THE LUC ENT HAD CLAIMED THE SAME WAS NON-TAXABLE. IT WAS NOTICED THAT AN AGREEM ENT UNDER WHICH SOFTWARE WAS SUPPLIED WAS OPERATIVE W.E.F. 5.8.2002 AND THE LUCENT WAS IN RECEIPT OF SIMILAR PAYMENT FOR OTHER YEARS ALSO. IN VIEW OF THIS, AFTER RECORDING REASONS, THE A.O. INITIATED PROCEEDINGS U /S .147 FOR ALL YEARS COVERED IN THE ORDER. ON GOING THROUGH THE RELEVANT CLAUSES OF THE AGREEMENT, AO HELD THAT WHAT THE RELIANCE IS GETTIN G IS THE LICENSE TO USE THE SOFTWARE, NO OTHER TITLE OR INTEREST IN THE SOF TWARE IS TRANSFERRED TO THE PAYER, HENCE THERE IS NO QUESTION OF SALE OF SOFTWA RE PER SE. IF, AT ALL THERE IS AN ELEMENT OF SALE, IT IS ONLY IN RESPECT OF THE CA RRIER MEDIA I.E. THE FLOPPY OR CD IN WHICH THE SOFTWARE IS TRANSACTED. HOWEVER, IN VIEW OF THE ENORMOUS DIFFERENCE IN THE VALUES OF THE CARRIER MEDIA AND T HE SOFTWARE, THE SALE OF CARRIER MEDIA IS IGNORED BEING VERY SMALL. AO DID N OT AGREE THAT IT WAS SALE FOR THE FOLLOWING REASONS: - 1. LICENSE REMAINS A LICENSE, IRRESPECTIVE OF THE P ERIOD INVOLVED AND 2. IN THIS FAST PACED TECHNOLOGICAL PROGRESS, THE R ATE OF OBSOLESCENCE IN SOFTWARE IS VERY HIGH. HENCE, LICENSE IN PERPETUITY HAS NO SIGNIFICANCE SI NCE THE ECONOMIC LIFE OF SOFTWARE ITSELF IS LIMITED. THE TITLE AND PROPRIETA RY RIGHTS WOULD REMAIN WITH LUCENT. AO GAVE A FINDING THAT IT IS QUITE CLEAR FR OM THE SECTION 15 OF THE WIRELESS NETWORK GENERAL TERMS AND CONDITIONS CONTR ACT THAT THE SOFTWARE IS THE PROPERTY OF LUCENT. IT HAS ALSO PROVIDED IN THE AGREEMENT THAT THE APPLICANT WOULD NOT BE THE OWNER SOFTWARE BUT WOULD REMAIN THE LICENSEE FOR THE USE OF OR THE RIGHT TO THE COPY RIGHT. IT I S NO WAY TO RECONSTITUTE AS A SALE OF SOFTWARE. 20. LUCENT ARGUED BEFORE AO THAT RELIANCE HAS BEEN GRANTED IN PERPETUITY IRREVOCABLE, NON-EXCLUSIVE, UNRESTRICTED , UNLIMITED ROYALTY FREE LICENSE TO USE THE SOFTWARE FOR ITS BENEFIT IN CONN ECTION WITH THE OWNERSHIP, OPERATION AND MAINTENANCE OF ITS WIRELESS RELIANCE NETWORK. THE INTELLECTUAL PROPERTY RIGHTS IN THE SOFTWARE VESTS WITH THE LUCE NT AND RELIANCE IS NOT PERMITTED TO TRANSFER, ASSIGN, SUB-LICENSE SUCH SOF TWARE OR MODIFY, RELIANCE AND LUCENT GROUP 31 DECOMPILE, REVERSE ENGINEER, OR DISASSEMBLE OR IN A NY OTHER MANNER DECODE THE SOFTWARE FURNISHED, AS OBJECT CODE. RELIANCE IS ALSO NOT PERMITTED TO MAKE COPIES OF THE SOFTWARE EXCEPT FOR BACK UP PURP OSES. THE CONSIDERATION RECEIVED FOR SUPPLY OF SOFTWARE IS NOT IN THE NATUR E OF ROYALTY SINCE RELIANCE HAS NOT BEEN GRANTED ANY RIGHTS IN THE UNDERLYING C OPYRIGHTS OF THE SOFTWARE. THEREFORE, RELIANCE MERELY PURCHASES A COPY OF THE COPYRIGHTED ARTICLE NAMELY, A COMPUTER PROGRAM, CALLED SOFTWARE, WHIC H IS A STANDARD COMMERCIAL SOFTWARE AND CAN BE SUPPLIED TO ANY OTHE R TELEPHONY NETWORK PLAYER. THE LUCENT FURTHER ARGUED THAT THE PAYMENT IS NOT COVERED BY COPYRIGHT ACT ALSO AND SO CANNOT BE CONSIDERED IN T HE NATURE OF ROYALTY. 21. AO DISCUSSED THE ISSUE ABOUT THE RECEIPT S ASSESSABLE AS ROYALTY. HIS DETAILED ORDER ON THE ISSUE IS AS UNDER: TO APPRECIATE THE NATURE OF THE TRANSACTION IT IS NECESSARY TO APPRECIATE THE SPECIAL NATURE OF SOFTWARE, THE NATURE OF TRANS FERS OF SOFTWARE, SALE OF SOFTWARE, THE CONCEPTS OF ROYALTY, ETC WHICH ARE DE ALT WITH IN DETAIL BELOW: 4.1. WHAT IS SOFTWARE? THE PHRASE COMPUTER SOFTWARE IS COMMONLY USED TO DESCRIBE COMPUTER PROGRAMS AND ANCILLARY MATERIALS ASSOCIATE D WITH THE DEVELOPMENT AND OPERATION OF A COMPUTER PROGRAM, BU T WHICH DOES NOT INCLUDE COMPUTER HARDWARE. EXPLANATION 3 TO SECTION 9(1)(VI) SPECIFICALLY DEFINES A SOFTWARE AS UNDER - EXPLANATION 3.---FOR THE PURPOSES OF THIS CLAUSE, COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAM RECORDED ON ANY DISC, TA PE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE AND INCLU DES ANY SUCH PROGRAM OR ANY CUSTOMIZED ELECTRONIC DATA; CLAUSE (B) OF EXPLANATION TO SECTION 8OHHE ALSO DEF INES SOFTWARE AS - (B) COMPUTER SOFTWARE MEANS, (I) ANY COMPUTER PROGRAM RECORDED ON ANY DISC, TAPE , (~ I PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE, OR (II) ANY CUSTOMISED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD, WHICH IS TR ANSMITTED OR EXPORTED FROM INDIA TO A PLACE OUTSIDE INDIA BY ANY MEANS A COMPUTER PROGRAM IS A SERIES OF INSTRUCTIONS WRIT TEN IN A LANGUAGE WHICH COMPUTER CAN UNDERSTAND AND EXECUTE. WHEN A P ROGRAM IS RUN, THREE PROCESSES ARE INVOLVED NAMELY INPUT, PROCESSI NG AND OUTPUT. A PROGRAM IS NORMALLY WRITTEN IN A COMPUTER LANGUAGE SAY COBOL, C+, FORTRAN, BASIC ETC. THIS IS KNOWN AS SOURCE CODE. WHEN THIS PROGRAM IS RELIANCE AND LUCENT GROUP 32 CONVERTED INTO AN EXECUTABLE FORM SO THAT COMPUTER CAN UNDERSTAND THE SAME, IT IS CALLED OBJECT CODE. A USER OF PROGRAM NORMALLY GETS THE OBJECT CODE AND NOT THE SOURCE CODE. THE SOURCE COD E REMAINS SECRET PROPERTY OF THE DEVELOPER. 4.2. TRANSFERS IN RESPECT OF SOFTWARE. IN THE PRESENT CASE, WE ARE CONCERNED WITH GRANTING OF LICENSE TO USE A SOFTWARE DEVELOPED BY THE ASSESSEE TO RELIANCE CO MMUNICATIONS LTD (EARLIER KNOWN AS RELIANCE HNFOCOMM). RELIANCE HAS BEEN GRANTED A NON- TRANSFERABLE RIGHT. THE SELLER HAS INDEMNIFIED THE BUYER/LICENSEE AGAINST ANY BREACH OF ANY INTELLECTUAL PROPERTY OR PATENT R EGULATIONS IN USING, MAINTAINING OR TRANSFERRING OF THE SOFTWARE TOOLS. 4.3. WHETHER SALE OF SOFTWARE IS SALE OF GOODS? 4.3.1 THE TITLE AND PROPRIETARY NOTICES OF THE SOFT WARE WOULD REMAIN WITH ASSESSEE. WHO IS THE OWNER OF THE PROGRAMME. T HE SOFTWARE DISTRIBUTION/ RESELLER AGREEMENT MAKES IT VERY CLEA R THAT THE SOFTWARE IS THE PROPERTY OF THE ASSESSEE. IT IS ALSO PROVIDED I N THE AGREEMENT THAT THE USER WOULD NOT BE THE OWNER OF THE SOFTWARE BUT WOU LD REMAIN THE LICENSEE FOR THE USE OF OR THE RIGHT TO USE OF THE COPYRIGHT. IT IS IN NO WAY TO CONSTITUTE AS A SALE OF SOFTWARE. 4.3.2 THE ASSESSEE HAS RELIED UPON THE DECISION OF CONSTITUTIONAL BENCH OF SUPREME COURT IN THE CASE OF TATA CONSULTANCY SE RVICES VS. STATE OF ANDHRA PRADESH (20041141 TAXMAN 132 (SC). IN THIS C ASE, SUPREME COURT WAS CONCERNED WITH CANNED SOFTWARE (I.E. COMP UTER SOFTWARE PACKAGES OFF THE SHELF). IT WAS CONCERNED WITH SALE OF CANNED SOFTWARE AND WHETHER SUCH CANNED SOFTWARE CAN BE TERMED AS GOODS AND AS SUCH CAN IT BE ASSESSABLE TO SALES TAX. SUPREME COU RT HELD THAT SALE O SOFTWARE IS CLEARLY A SALE OF GOODS WITHIN THE ME ANING OF SEC.2(H) OF ANDHRA PRADESH GENERAL SALES TAX ACT, 1957 AND ARTI CLE 366 OF THE CONSTITUTION OF INDIA. IT WAS ALSO HELD THAT NO DIS TINCTION CAN BE MADE BETWEEN BRANDED AND UNBRANDED SOFTWARE . SUPREME COURT MADE CERTAIN INTERESTING OBSERVATIONS WHICH ARE SUMMARIZED BELOW :- - THE TERM GOODS AS USED IN ARTICLE 366(12) OF TH E CONSTITUTION AND AS DEFINED UNDER THE ACT IS VERY WIDE AND INCLUDES ALL TYPES OF MOVABLE PROPERTIES, WHETHER THOSE PROPERTIES BE TANGIBLE OR INTANGIBLE . A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENA BLE THE COMPUTER TO PERFORM A DESIGNATED TASK. THE COPYRIGHT IN THAT PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAMME, BUT TH E MOMENT COPIES ARE MADE AND MARKETED, THEY BECOME GOODS, WHICH ARE S USCEPTIBLE TO SALES TAX. EVEN INTELLECTUAL PROPERTY, ONCE IT IS PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS&~ CANVAS (IN CASE OF PAINTING ) OR COMPUTER DISCS OR CASSETTES, AND MARKETED WOULD BECOME GOODS. (PARA 17) - THE COPYRIGHT ACT, 1957 AND THE SALEB TAX ACT ARE A LSO NOT STATUTES IN PANI MATERIA AND AS SUCH THE DEFINITION CONTAINE D IN THE FORMER SHOULD NOT BE APPLIED IN THE LATTER . (PARA 30) RELIANCE AND LUCENT GROUP 33 - IN THE INSTANT CASE, THE SUPREME COURT WAS NOT CO NCERNED WITH THE TECHNICAL MEANING OF COMPUTER AND COMPUTEN PROGRAMM E AS IN A FISCAL STATUTE PLAIN MEANING RULE IS APPLIED . (PARA 50) - IN INTERPRETING AN EXPRESSION USED IN A LEGAL SENSE , THE COURTS ARE REQUIRED TO ASCERTAIN THE PRECISE CONNOTATION WHICH IT POSSESSES IN LAW. IT IS FURTHERMORE TRITE THAT A COURT SHOULD NOT BE OVE RZEALOUS IN SEARCHING AMBIGUITIES OR OBSCURITIES IN WORDS WHICH ARE PLAIN. (PARA 51) - IT IS WELL-SETTLED THAT WHEN AN EXPRESSION IS CAPABLE OF MORE THAN ONE MEANINGS, THE COURT WOULD ATTEMPT TO RESOLVE THAT A MBIGUITY IN A MANNER CONSISTENT WITH THE PURPOSE OF THE PROVISIONS AND W ITH REGARD TO THE CONSEQUENCES OF THE ALTERNATIVE CONSTRUCTIONS . (PARA 52) 4.3.3 LET US NOW CONSIDER THE APPLICABILITY OF TATA CONSULTANCY SERVICES CO.S CASE (SUPRA) FOR THE TRANSACTION UND ER CONSIDERATION. IT IS PERTINENT TO CONSIDER THE CONTENTION USUALLY RAISED THAT AS SOFTWARE IS - A TARIFF ITEM BOTH UNDER THE CUSTOMS AND EXCISE LAW S AND SALES TAX ACTS, THE PROVISIONS OF SEC.195 ARE NOT APPLICABLE, AS SEC.195 IS NOT APPLICABLE TO PAYMENTS MADE FOR IMPORT OF GOODS. IN THIS REGARD, IT IS TO NOTE THAT PACKAGE SOFTWANES ARE NEITHER GOODS NOR SERVICES; THEY ARE A SEPARATE GENRE BY ITSELF. I.E. INTELLECTUAL PROPERTY . THE MERE FACT THAT CUSTOMS LAW OR SALES TAX LAW DEEMS IT TO BE GOODS FOR THE PURPOSE OF THEIR ACT, DOES NOT CHANGE THE INHERENT CHARACTER OF THE SOFTWARE. IN FACT, WORLD TRADE ORGANISATION (WTO) WHICH HAS BEEN RATIF IED BY MORE THAN 140 COUNTRIES, HAS 3 MAIN AGREEMENTS: 1. AGREEMENT ON TRADE OF GOODS (GATT) 2. AGREEMENT ON TRADE OF SERVICES (GATS) 3. AGREEMENT ON TRADE OF INTELLECTUAL PROPERTY RI GHTS (TRIPS) THIS GOES ON TO INDICATE THAT LPRS (SOFTWARE IS AN IPR) ARE A DISTINCT AND DIFFERENT CLASS THAN THOSE OF GOODS AND I OR SERVIC ES. IN FACT, THE SOFTWARE MAY ALSO BE CONSIDERED AS A PROCESS, BUT THIS ASP ECT IS DISCUSSED LATER. 4.3.4 THUS, AS PER THE INCOME TAX ACT IT IS CLEAR THAT THE PAYMENT MADE FOR THE PURCHASE OF SOFTWARE BY THE USER CAN BE CON SIDERED AS PAYMENT FOR USE OF INTELLECTUAL PROPERTY AND NOT FOR THE PU RCHASE OF GOODS. THE ONLY EXCEPTION PROVIDED IS BY THE SECOND PROVISO TO SEC. 9(1) (VI), WHICH EXCLUDES THE COMPUTER SOFTWARE SUPPLIED BY A NON-RE SIDENT MANUFACTURERS ALONG WITH A COMPUTER OR COMPUTER BAS ED EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPU TER SOFTWARE EXPORT, SOFTWARE DEVELOPMENT AND TRAINING, 1986 OF THE GOVERNMENT OF INDIA. 4.3.5 THE DECISION OF THE TATA CONSULTANCY SERVICES (SUPRA) RELIED UPON BY THE ASSESSEE IS DISTINGUISHABLE WITH THE FACTS O F THE PRESENT CASE. THE HONBLE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX N EW DELHI) IN THE CASE OF AIRPORTS AUTHORITY OF INDIA, IN THEIR JUDGE MENT IN A.A.R. NOS.755- 756 OF 2007 DATED 28.07.2008 DISCUSSED THE ISSUE IN LENGTH AND IT WAS OF OPINION THAT DECISION IS NOT APPLICABLE IN SUCH TYPE OF CASES. THE RELEVANT PORTION IS REPRODUCED HEREINUNDER: RELIANCE AND LUCENT GROUP 34 WE MAY NOW TURN TO THE CONTENTION OF THE APPLICANT THAT SOFTWARE IS GOODS AND THAT THE PRESENT CASE INVOLVES SALE OF CO PYRIGHTED ARTICLE. AS WE HAVE MENTIONED ABOVE, THE APPLICANT HAS DERIV ED SUPPORT FROM TATA CONSULTANCY SERVICES COS CASE (SUPRA) FOR THE FIRST PROPOSITION AND ARTICLE 12 OF THE OECD MODEL TAX CONVENTION FOR THE SECOND PROPOSITION. TATE CONSULTANT SERVICES CO. ~S CASE ( SUPRA) IS A DECISION RENDERED BY A CONSTITUTION BENCH OF THE SUPREME COU RT IN A SALES TAX MATTER THE APPELLANT THEREIN PROVIDED CONSULTANCY S ERVICES, INCLUDING COMPUTER CONSULTANCY SERVICES. AS PER THEIR BUSINES S, THEY PREPARED AND LOADED ON CUSTOMERS COMPUTERS CUSTOM MADE SOFT WARE (UNCANNED SOFTWARE) AND ALSO OFF THE SHELF SOLD STA NDARD SOFTWARE (CANNED SOFTWARE). THE CANNED SOFTWARE WERE COPYRIG HTED PRODUCTS OF ORACLES, LOTUS, MASTER KEY. ETC. THE COMMERCIAL TAX OFFICER OF ANDHRA PRADESH ASSESSED SALES OF CANNED SOFTWARE TO SALES TAX. THE QUESTION THAT AROSE FOR THE CONSIDERATION OF THE SUPREME COU RT WAS WHETHER THE CANNED SOFTWARE SOLD BY THE APPELLANT COULD BE TERMED AS GOODS AND ASSESSED TO TAX UNDER THE ANDHRA PRADESH GENERA L SALES TAX ACT, 1957. THE COURT HELD THAT THE EXPRESSION GOOD S AS DEFINED IN ARTICLE 366(12) OF THE CONSTITUTION OF INDIA AND AS ALSO DEFINED UNDER SECTION 2(H) OF THE ANDHRA PRADESH GENERAL SALES TA X ACT, 1957 WAS VERY WIDE AND INCLUDED ALL TYPES OF MOVABLE PROPERT Y WHETHER TANGIBLE OR INTANGIBLE GOODS FOR THE PURPOSE OF SA LES TAX COULD NOT THUS BE GIVEN NARROW MEANING. THE REAL TEST WHETHER AN ARTICLE WAS GOODS OR NOT WAS WHETHER IT WAS CAPABLE OF ABSTRA CTION, CONSUMPTION AND USE AND WHETHER IT COULD BE TRANSMI TTED, TRANSFERRED, DELIVERED, STORED OR POSSESSED. A SOFT WARE PROGRAMME MIGHT CONSIST OF VARIOUS COMMANDS WHICH ENABLE THE COMPUTERS TO PERFORM A DESIGNATED TASK BUT THE MOMENT IT WAS PUT ON A DISC AND COPIES WARE MADE AND MARKETED. IT BECAME CHATTEL EX IGIBLE TO SALES TAX. INTELLECTUAL PROPERTY, ONCE IT WAS PUT ON TO M EDIA, WHETHER IN THE FORM OF BOOKS, CANVAS, COMPUTER DISC OR CASSETTES A ND MARKETED, WOULD BECOME GOODS. THE SUPREME COURT REFERRED TO I TS EARLIER DECISION IN ASSOCIATED CEMENT COMPANIES LTD V COMMI SSION OF CUSTOMS 2001 AIR (SC) 862 WHICH IT FELT DIRECTLY DE ALT WITH THE QUESTION IN ISSUE. THE QUESTION IN ASSOCIATED CEMEN T COMPANIES LTD.S CASE (SUPRA) WAS WHETHER CUSTOMS DUTY WAS LE VIABLE ON TECHNICAL MATERIAL SUPPLIED IN THE FORM OF DRAWINGS , MANUALS AND COMPUTER DISC, ETC. THE COURT OBSERVED THAT THE CUS TOMS ACT DEFINED GOODS TO INCLUDE ALL KINDS OF MOVABLE PROPERTY IT HELD THAT WHAT WAS BEING TAXED UNDER THE CUSTOMS ACT READ WITH CUSTOMS TARIFF ACT AND THE CUSTOMS VALUATION RULES WAS NOT THE INTELLECTUA L INPUT ALONE BUT GOODS WHOSE VALUE HAD BEEN ENHANCED BY THE SAID INP UT. THE FINAL PRODUCT AT THE TIME OF IMPORT WAS EITHER THE MAGAZI NE OR THE ENCYCLOPAEDIA OR THE ENGINEERING DRAWINGS OR DISC, AS THE CASE MAY BE, AND THE CHARGE OF DUTY WAS ON THE FINAL PRODUCT . THERE WAS NO SCOPE FOR SPLITTING THE ENGINEERING DRAWING OR THE ENCYCLOPAEDIA INTO INTELLECTUAL INPUT ON THE ONE HAND AND THE PAPER ON WHICH IT IS SCRIBED ON THE OTHER. RELIANCE AND LUCENT GROUP 35 IT MAY BE MENTIONED THAT THE LEGISLATIVE SCHEME OF SALES TAX LAW AND INCOME TAX LAW ARE VERY DIFFERENT. WHILE THE OBJECT OF SALES TAX LAW IS TO TAX TRANSACTIONS OF SALE OF MOVABLE PROPERTIES, INCOME TAX LAW IS CONCERNED WITH TAXING INCOMES AND PROFITS OF INDIVI DUALS, COMPANIES AND OTHER ENTITIES IN WHATEVER MANNER EARNED. FOR THIS PURPOSE, INCOME HAS BEEN CLASSIFIED INTO DIFFERENT TYPES, LI KE BUSINESS INCOME, INCOME FROM HOUSE PROPERTY, SALARY INCOME, CAPITAL GAINS, ROYALTY INCOME, ETC., WHICH HAVE BEEN GIVEN TAX TREATMENTS. UNDER THE SALES TAX LAW, THE DEFINITIONS OF THE TERMS GOODS AND SALE HAVE BEEN KEPT VERY WIDE. GOODS INCLUDES ALL KINDS OF MOVABLE PR OPERTIES, INCLUDING INTANGIBLE THINGS LIKE ELECTRICITY. DELIVERY OF GOO DS ON HIRE PURCHASE AND THE TRANSFER OF RIGHT TO USE GOODS ARE DEEMED U NDER THIS OF LAW AS AMOUNTING TO SALE. THERE IS NO PROVISION WITH REGAR D TO ROYALTY UNDER THE SALES TAX LAW. AS COULD BE SEEN FROM TATA CONSU LTANCY SERVICES CASE (SUPRA). THE COURT HAS TREATED THE DISC / FLOP PY CONTAINING THE SOFTWARE AS GOODS, WHOSE VALUE HAS BEEN GREATLY ENH ANCED BECAUSE OF THE INTELLECTUAL PROPERTY AS SUCH HAS NOT BEEN R EGARDED AS A TAXABLE EVENT. ON THE OTHER HAND, UNDER THE INCOME TAX ACT AS WELL AS DTAA THE PAYMENT MADE IN LIEU OF TRANSFER OF RIGHT TO USE COPYRIGHT IS A ROYALTY INCOME. THE TRANSFER OF DISC / FLOPPY ON WHICH THE COPYRIGHTED SOFTWARE HAS BEEN INSCRIBED IS IMMATERI AL FOR THIS PURPOSE. IT IS WELL SETTLED THAT LEGAL PROPOSITIONS ARE ONLY AUTHORITATIVE IN SO FAR AS THEY ARE RELEVANT TO THE FACTS IN ISSUE IN A CAS E. THE RATIO DECIDENDI OF A COURT DECISION, WHICH HAS BINDING AUTHORITY, M UST THUS BE READ IN THE LIGHT OF THE FACTS OF THE CASE AND THE ISSUE CO NSIDERED. THE SUPREME COURT HAS POINTED OUT THE FOLLOWING IN CIT VS. SUN ENGINEERING WORKS (P) LTD. (1992) 198 ITR 297 (SC): .. IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PI CK OUT A WORD OR A SENTENCE FROM THE JUDGEMENT OF THIS COURT, DIVORCED FROM THE CONTEXT OF QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THIS COURT. THE JUDGEMENT MUST BE MAD A S A WHOLE AND THE OBSERVATIONS FROM THE JUDGEMENT HAVE TO BE CONS IDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT. A DE CISION OF THIS COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND, WHILE APPLYING THE DECISION TO A LATE R CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND TO PICK OUT WORDS OR SEN TENCES FROM THE JUDGEMENT, DIVORCED FROM THE CONTEXT OF THE QUESTIO NS UNDER CONSIDERATION BY THIS COURT, TO SUPPORT THEIR REASO NINGS... AS WE HAVE POINTED OUT ABOVE, IN TATA CONSULTANCY S ERVICES CASE (SUPRA) THE ISSUE UNDER CONSIDERATION WAS WHETHER S ALE OF DISC / FLOPPY CONTAINING SOFTWARE PROGRAMME AMOUNTED TO SA LE OF GOODS UNDER THE SALES TAX LAW OF ANDHRA PRADESH. IN FACT, THE ISSUE OF TRANSFER OF RIGHT TO USE THE GOODS (AS PER EXPANDED DEFINITION OF SALE) DID NOT COME UP FOR CONSIDERATION IN THAT CASE. ON THE OTHER HAND, THE ISSUE UNDER CONSIDERATION IN THE PRESENT CASE IS DI FFERENT. THE QUESTION HERE IS WHETHER THE CONSIDERATION IS PAID FOR THE USE OR RIGHT RELIANCE AND LUCENT GROUP 36 TO USE COPY RIGHT IN WHICH CASE IT WILL BE ROYALTY INCOME. AS IS CLEAR FROM THE CONTRACT PROVISIONS, THERE IS NO OUTRIGHT TRANSFER OF COPYRIGHT OR SALE OF DISC/ FLOPPY CONTAINING SOFTWARE PROGRAM ME IN THE PRESENT CASE. THE FACTUAL BACKGROUND AND THE LEGISLATIVE PR OVISIONS WITH REFERENCE TO WHICH TATA CONSULTANCY SERVICES CASE (SUPRA) WAS DECIDED, ARE QUITE DIFFERENT FROM THOSE OF THE PRES ENT CASE. THUS THE APPLICANT CAN SEEK NO SUPPORT FROM THE SAID DECISIO N IN ORDER TO ASSAIL THE CORRECTNESS OF THE VIEW TAKEN BY THE AUTHORITY IN THE EARLIER CASE OF THE APPLICANT 4.3.6 THE SOFTWARE IS ALSO COVERED WITHIN THE SCOPE OF EX PLANATION (2)(VIA) TO SEC. 9(1)(VI) WHICH DEALS WITH THE USE OR TIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT . HONBLE ITAT, HYDERABAD ALSO HELD IN CASE OF M/S FRONTLINE SOFT L IMITED ITA NO 1080- 1081/HYDERABAD/03 HELD VIDE PARA 25 AS BELOW: 25 THE APEX COURT IN THE CASE OF TATA CONSULTANCY SERVICES V. STATE OF A.P. 271 ITR 401 (SC) = (2004-TIOL-87-SC-C T-LB) HELD THAT NOTWITHSTANDING THE FACT THAT COMPUTER SOFTWAR E IS INTELLECTUAL PROPERTY, WHETHER IT IS CONVEYED IN DI SKETTES, MAGNETIC TAPES OF C. D. ROMS. WHETHER CANNED OR UNCANNED. WH ETHER IT CONIES AS PART OF THE COMPUTER OR INDEPENDENTLY, WH ETHER IT IS BRANDED OR UNBRANDED, TANGIBLE OR INTANGIBLE, IT IS A COMMODITY CAPABLE OF BEING TRANSMITTED, TRANSFORMED, DELIVERE D, STORED, PROCESSED ETC. THEREFORE IT IS GOODS LIABLE TO SA LES-TAX. THE ABOVE JUDGEMENT IS IN RESPECT OF A.P. SALES TAX ACT. BY T HE EXPEDIENT OF DEEMED FICTION OR INCLUSIVE DEFINITION PARLIAME NT AND STATE LEGISLATURES ARE COMPETENT TO GIVE A SPECIFIC STATU TE ONLY. SUCH DEFINITION CANNOT BE IMPORTED IN DIFFERENT STATUTES WHICH DEFINE THE SAME TRANSACTIONS DIFFERENTLY. ROYALTY HAS SPECIFIC ALLY DEFINED IN INCOME-TAX PROVISIONS, 9(1) (VI) EXPLANATION 2 (IVA ). THEREFORE, SAME IS ONLY REQUIRED TO BE CONSIDERED FOR THE PURP OSES OF INCOME- TAX. THE DECISION IN THE CASE OF SONATA SOFTWARE LT D. VS. ITO (6 SOT 700) (BAN GALORE) = (2006-TIOL-270-LTAT-BANG) I S DISTINGUISHABLE ON FACTS AS IN THAT CASE CLAUSE (IV A) TO EXPLANATION 2 TO SECTION 9(1) (VI) INSERTED BY THE FINANCE ACT 2001 W. E. F. 2002-03 HAS NOT BEEN CONSIDERED. 4.3.7 IN VIEW OF THE ABOVE THE RELIANCE ON THE CASE OF TATA CONSULTANCY LIMITED BY THE ASSESSEE IS MISPLACED. IT MAY ALSO B E MENTIONED HERE THAT VARIOUS OTHER DECISIONS WHICH HAVE BEEN RELIED UPON BY THE ASSESSEE ALSO CONSIDERED AND RELIED UPON THE DECISION IN CAS E OF TATA CONSULTANCY LIMITED, AND SO ALL THESE DECISIONS WILL NOT HELP T HE ASSESSEE. 4.4. CONCEPT OF ROYALTY 4.4.1 THE TERM ROYALTY NORMALLY CONNOTES THE PAYM ENT MADE TO A PERSON WHO HAS EXCLUSIVE RIGHT OVER A THING FOR ALL OWING ANOTHER TO MAKE USE OF THAT THING WHICH MAY BE EITHER PHYSICAL OR I NTELLECTUAL PROPERTY OR A THING. THE EXCLUSIVITY OF THE RIGHT IN RELATION T O THE THING FOR WHICH ROYALTY IS PAID SHOULD BE WITH THE GRANTOR OF THAT RIGHT. INTELLECTUAL PROPERTY LAW IS THAT AREA OF LAW, WHICH IS CONCERNE D WITH THE PROTECTION RELIANCE AND LUCENT GROUP 37 OF IDEAS, THE EXPRESSION OF IDEAS, INVENTION AND CO MMERCIAL GOODWILL. IT INCLUDES COPYRIGHT LAW, THE LAW OF PATENTS, BREACH OF CONFIDENCE, DESIGN LAW, TRADEMARK LAW AND THE LAW OF PASSING-OFF. 4.4.2 THE KARNATAKA HIGH COURT IN THE CASE OF CITIZ EN WATCH CO. LTD. [148 ITR 774 (KAR.) AND THE CALCUTTA HIGH COURT IN THE CASE OF DAVY ASHMORE INDIA LTD. (190 ITR 626 (CAL) HAVE ALSO CLE ARLY HELD THAT THE ROYALTY IS A PAYMENT FOR GRANT OF RIGHT TO USE ANY PROPERTY, THE OWNERSHIP OF WHICH CONTINUES TO VEST WITH THE GRANTOR. THIS M EANS THAT ONLY IN CASES WHERE OWNERSHIP OF THE ASSET IN QUESTION IS R ETAINED AND THE RIGHT TO USE IS GRANTED, THE PAYMENT OF THE SAME WILL CON STITUTE ROYALTY. 4.4.3 FOR THE PURPOSES OF INTERPRETATION OF THE DTA A, ONE HAS TO GO BY THE GENERAL MEANING OF THE TERM ROYALTY IN VIEW O F THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SIEMEN S AKTIENGESELLSCHAFT V. ITO (1987) 22 LTD 87 (BORN.) AND NOT BY THE DEFINIT ION AS CONTAINED IN EXPLANATION 2 TO SECTION 9(1)(VI). THE GENERAL MEAN ING OF ROYALTY, AFTER CONSIDERING THE CALCUTTA HIGH COURT DECISION IN CIT V. STANTON & STAVELY (OVERSEAS) LTD. T19841 146 ITR 405, ITS DEFINITION MEANING GIVEN IN ENCYCLOPEDIA BRITANNICA (1972 EDITION) AND GUJARAT HIGH COURT DECISION IN CIT V. AHMEDABAD MFG. & CALICO PRINTING CO. (198 31 139 ITR 806 AND OTHERS, THE HONBLE ITAT OBSERVED AS UNDER: IT IS THUS CLEAR THAT THE GENERAL CONCEPT OF THE T ERM ROYALTY DOES NOT RULE OUT LUMP SUM PAYMENTS BEING CONSIDERED AS R OYALTY AS WELL AS PAYMENTS MADE FOR KNOW-HOW. THE MERE FACT THAT A PA RTICULAR KNOWLEDGE, WHICH IS IMPARTED MAY NOT BE STATUTORILY PROTECTED AS IN THE CASE OF A PATENT OR TRADE MARK WOULD NOT TAKE I T OUTSIDE THE PURVIEW OF THE TERM ROYALTY. IT MAY BE THAT THE K NOWLEDGE IMPARTED IS ONLY CONTRACTUALLY PROTECTED. IT MAY EVEN BE THA T THERE IS NO PROTECTION FOR THE KNOWLEDGE SO GRANTED. EVEN SO TH E OBSERVATIONS WHICH WE HAVE SET OUT ABOVE CLEARLY SHOW THAT THE F ORM OF LEGAL PROTECTION HAS NO CONCLUSIVE IMPACT IN DETERMINING WHETHER PAYMENT IS ROYALTY OR NOT, NOR THE NATURE AND MODE OF PAY MENT WHETHER LUMP SUM, SINGLE, OR PERIODIC, NOR THE QUESTION THAT IT DOES NOT COVER KNOW- HOW. THE DICTIONARY MEANINGS OF THE TERM ROYALTY RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE AND ADVERTED TO IN PARAGRAPH 18 OF OUR ORDER ARE ONLY INDICATIVE OF CIRCUMSTANCES TO W HICH PAYMENTS CAN BE CONSIDERED TO BE ROYALTY AND ARE NOT EXHAUSTIVE AS TO THE CONTENT OF THE TERM. 4.4.4 IN GENERAL, THE CONCEPT OF ROYALTY IS A PAYME NT FOR USE OF A PROPERTY, THE OWNERSHIP OF WHICH REMAINS WITH THE D EVELOPER AND ONLY A LIMITED RIGHT IS GIVEN TO THE USER. IT IS NOT NECES SARY THAT THE PROPERTY SHOULD BE PROTECTED BY A STATUTE. 4.5. WHY SEPARATE CLAUSES FOR ROYALTY AND FTS 4.5.1 THE SECTION 9(1)(VI) OF THE ACT WAS INTRODUCE D BY THE FINANCE ACT, 1976 W.E.F 01.01.1977. THE CBDT CIRCULAR NO. 202 EX PLAINED THE INTENTION OF THE LEGISLATION IN THIS REGARD AS UNDE R - SOURCE RULE FOR ROYALTY--SECTION 9(1)(VI) RELIANCE AND LUCENT GROUP 38 15.1 A NON-RESIDENT TAXPAYER IS CHARGEABLE TO TAX I N INDIA IN RESPECT OF INCOME BY WAY OF ROYALTY, WHICH IS RECEIVED OR IS D EEMED TO BE RECEIVED IN INDIA OR WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA. THE INCOME-TAX ACT, HOWEVER, DOES NOT CONTAI N ANY DEFINITION OF THE TERM ROYALTY NOR IS THERE ANY CLEAR-CUT SOURCE RU LE SPECIFYING THE CIRCUMSTANCES IN WHICH ROYALTY INCOME CAN BE REGARD ED AS ACCRUING OR ARISING IN INDIA. FURTHER, LUMP SUM PAYMENTS MADE F OR THE SUPPLY OF KNOW-HOW ARE NOT CHARGEABLE TO TAX WHERE SUCH KNOW- HOW IS SUPPLIED FROM ABROAD AND THE PAYMENT THEREFORE IS MADE OUTSI DE INDIA EVEN THOUGH THE KNOW-HOW IS USED IN INDIA, IF NO PART TH EREOF IS ATTRIBUTABLE TO ANY SERVICES RENDERED IN INDIA. 15.2 THE FINANCE ACT HAS INSERTED A NEW CLAUSE (VI) IN SECTION 9(1) OF THE INCOME-TAX ACT CLEARLY SPECIFYING THE CIRCUMSTANCES IN WHICH THE ROYALTY INCOME WILL BE DEEMED TO ACCRUE OR ARISE IN INDIA A ND ALSO DEFINING THE TERM ROYALTY 15.4 IN VIEW OF THE AFORESAID AMENDMENT, ROYALTY IN COME CONSISTING OF LUMP SUM CONSIDERATION FOR THE TRANSFER OUTSIDE IND IA OF, OR THE IMPARTING OF INFORMATION OUTSIDE INDIA IN RESPECT OF, ANY DAT A, DOCUMENTATION, DRAWINGS OR SPECIFICATIONS RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY, WILL ORDINARILY BECOME CHARGEABLE TO TAX IN INDIA. 15.5 FOR THE PURPOSES OF THE AFORESAID SOURCE RULE, ROYALTY HAS BEEN DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI). IT WI LL BE SEEN THAT THE DEFINITION IS WIDE ENOUGH TO COVER BOTH INDUSTRIAL ROYALTIES AS WELL AS COPYRIGHT ROYALTIES. FURTHER, THE DEFINITION SPECIF ICALLY EXCLUDES INCOME WHICH WOULD BE CHARGEABLE TO TAX UNDER THE HEAD CA PITAL GAINS AND ACCORDINGLY SUCH INCOME WILL BE CHARGED TO TAX AS C APITAL GAINS ON A NET BASIS UNDER THE RELEVANT PROVISIONS OF THE LAW. 4.5.2 FROM THE ABOVE IT CAN BE SEEN THAT THE INTENT ION OF THE LEGISLATION IS VERY CLEAR AND THE SAME IS TO BRING TO TAX ALL P AYMENTS MADE FOR THE ACQUISITION OF KNOW HOW IN ANY FORM, WHERE THE SOUR CE OF PAYMENT IS IN INDIA. THIS IS IN ACCORDANCE WITH THE INTERNATIONAL LY RECOGNIZED AND ACCEPTED PRINCIPLE ON DISTRIBUTION OF TAX REVENUE B ETWEEN SOURCE STATE AND RESIDENT STATE. THE OECD MODEL AND UN MODEL CON VENTION ON TAX TREATIES HAVE SEPARATE CLAUSE FOR TAXATION OF ROYAL TY IN THE SOURCE STATE. 4.6. DEFINITION OF ROYALTY UNDER DOMESTIC LAW 4.6.1 THE RELEVANT SECTION 9(1 )(VI) OF THE INCOME TAX ACT 1961 READS AS UNDER 9(1). THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCR UE OR ARISE IN INDIA: (VI) INCOME BY WAY OF ROYALTY PAYABLE BY- (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE RO YALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR RELIANCE AND LUCENT GROUP 39 THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARN ING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE ROYAL TY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: 4.6.2 IT CAN BE SEEN THAT SECTION 9(1)(VI)(B) PROV IDES THAT IF A RESIDENT MAKES A PAYMENT TO A NON-RESIDENT, THE SUCH SUM PAY ABLE SHALL BE DEEMED TO BE INCOME OF THE PAYEE ACCRUING OR ARISIN G IN INDIA IF THE FOLLOWING TWO CONDITIONS ARE SATISFIED - I. THE PAYMENT SHOULD BE IN THE NATURE OF ROYALTY AS DEFINED UNDER EXPLANATION 2 TO THE SUB SECTION. II. THE PURPOSE OF THE PAYMENT SHOULD BE NEITHER FO R THE BUSINESS CARRIED OUT BY SUCH PERSON OUTSIDE INDIA NOR FOR MAKING OR EARNING AN INCOME FROM A SOURCE OUTSIDE INDIA. 4.6.3 THE ASSESSEES BASIC ARGUMENT IS THAT THE PA YMENT DOES NOT FALL UNDER THE MISCHIEF OF EXPLANATION 2 TO SECTION 9(1( VI) OF THE ACT. THE TERM ROYALTY HAS BEEN DEFINED UNDER EXPLANATION 2 TO SE CTION 9(1)(VI) OF THE ACT TO MEAN: CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATIO N BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS) FOR - (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENSE) IN RESPECT OF A PATENT INVENTION, MODEL, D ESIGN , SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PRO PET TY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING T HE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SEC RET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SE CRET FORMULA OR PROCESS OR TRADEMARK, OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL; (IVA) THE USE OR RIGHT TO USE, ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENT, BUT NOT INCLUDING THE AMOUNTS REFERRED T O IN SECTION 4488; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT LITERARY, ARTI STIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTR IBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR RELIANCE AND LUCENT GROUP 40 (VI) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND ( V) 4.6.4 AN ANALYSIS OF THE ABOVE DEFINITION OF ROYALT Y WOULD SHOW THE FOLLOWING CATEGORIES FALL UNDER THE SCOPE OF ROYALT Y - (I) PATENTS, DESIGNS, INVENTION, SECRET FORMULA, PR OCESS ETC. (II) INFORMATION CONCERNING TECHNICAL, INDUSTRIAL O R COMMERCIAL OR SCIENTIFIC KNOWLEDGE ETC. (III) EQUIPMENT - INDUSTRIAL, COMMERCIAL OR SCIENTIFIC. (IV) LITERARY, ARTISTIC OR SCIENTIFIC WORK 4.6.5 IN THE CASE OF FIRST THREE CATEGORIES, PAYMEN T FOR MERE USE IS THE ROYALTY WHEREAS IN THE FOURTH CATEGORY, THE ROYALTY ARISES ONLY WHEN COPYRIGHT RIGHT IS TRANSFERRED. THE NEXT QUESTION W OULD BE, WHETHER ITEMS LIKE DESIGN, INVENTION ETC. ARE NOT THE SCIENTIFIC WORK OR IN OTHER WORDS WHETHER CATEGORIES (I) TO (III) AND (IV) ARE MUTUAL LY EXCLUSIVE OR OVERLAPPING? THERE CAN NOT BE ANY DISPUTE ON THE FA CT THAT INVENTION, DESIGN, SECRET FORMULA OR PROCESS ARE IN THE NATURE OF SCIENTIFIC WORK. THUS, THE FOUR CATEGORIES ARE NOT MUTUALLY EXCLUSIV E. THE ONLY INFERENCE ONE CAN DRAW IS THAT THE FIRST TWO CATEGORIES REPRE SENT INTANGIBLE PROPERTIES WHEREAS THE THIRD AND FOURTH CATEGORY IN CLUDES ALL KINDS OF PROPERTIES. IN THE CASE OF INTANGIBLE PROPERTY, EVE N A MERE USE OF IT WOULD ATTRACT THE PROVISIONS OF ROYALTY WHEREAS IN THE CA SE OF TANGIBLE PROPERTIES, ONLY WHEN A COPYRIGHT RIGHT IS TRANSFER RED, IT WOULD FALL UNDER THE SCOPE OF ROYALTY. ONLY EXCEPTION IN THE CASE OF TANGIBLE PROPERTIES IS THE EQUIPMENT. THE USE OF EQUIPMENT IS ALSO COVERED BY THE SCOPE OF ROYALTY W.E.F. 01/04(2002. 4.6.6 THE CLAUSES (I) AND (III) REFERS TO THE SAME CATEGORY OF PROPERTIES I.E PATENT, INVENTION, MODEL ETC. IN CLAUSE (I). PA YMENT OF TRANSFER OF ANY RIGHT IN RESPECT OF SUCH PROPERTIES BUT CLAUSE (II I) REFERS TO ACTUAL USE OF SUCH PROPERTIES. WHAT IS THE DISTINCTION BETWEEN A RIGHT TO USE AND USE. IT CAN BE UNDERSTOOD BY A SIMPLE EXAMPLE OF TAKING A HOUSE ON RENT VIS-A VIS SUBLETTING TO A THIRD PARTY- IN THIS CASE, A TE NANT AS WELL AS SUBTENANT PAY RENT. A TENANT MAKES THE PAYMENT FOR HIS RIGHT TO USE WHEREAS THE SUB TENANT PAYS FOR ACTUAL USE OF THE HOUSE. SIMILA R IS THE SITUATION WHEN A VENDOR IN INDIA ACQUIRES KNOW-HOW FROM ABROAD AND SELLS IT TO ACTUAL USER. IN THIS CASE THE VENDOR ACQUIRES A RIGHT TO U SE COVERED BY CLAUSE (I) WHEREAS THE ACTUAL USER PAYS FOR ACTUAL USE COVERED BY CLAUSE (III) OF THE EXPLANATION. 4.6.7 THUS AS PER THE PROVISIONS OF SEC.9(1)(VI) OF THE INCOME TAX ACT 1961, ANY PAYMENT ON ACCOUNT OF ROYALTY MADE BY THE RESIDENT OF INDIA TO ANY PERSON OUTSIDE INDIA IS DEEMED TO BE INCOME OF THE RECIPIENT IN INDIA, AND WOULD BE DEEMED TO BE THE INCOME CHARGEA BLE TO INCOME TAX IN INDIA. ONE HAS NOW TO EXAMINE WHETHER SUCH PAYMENTS PARTAKE THE CHARACTER OF ROYALTY AS DEFINED IN THE SEC.9(1)(V I) ITSELF, AS DISCUSSED ABOVE, CLAUSE (I) TO (IV) ARE APPLICABLE IN THE CAS E OF INTANGIBLE PROPERTY AND PAYMENT FOR ITS MERE USE IS IN THE NATURE OF RO YALTY. AS MENTIONED RELIANCE AND LUCENT GROUP 41 ABOVE, SOFTWARE IS NOT GOODS BUT AN INTANGIBLE PROP ERTY. HENCE CONSIDERATION PAID FOR ITS USE OR RIGHT TO USE IS I N THE NATURE OF ROYALTY. 4.7. WHETHER PROCESS? - 4.7.1 ALTERNATIVE TO THE ABOVE DISCUSSION, IT IS TO BE SEEN WHETHER SOFTWARE FITS INTO ONE OF THE CATEGORIES MENTIONE D IN CLAUSE (I) AND (III) OF EXPLANATION 2 TO SEC.9(1)(VI). KLAUS VOGEL IN HIS C OMMENTARY ON THE PHRASE SECRET FORMULA OR PROCESSES HAS STATED THA T DEFINITION COVER KNOW-HOW IN A NARROWER SENSE OF THE TERM, VIZ, ALL BUSINESS SECRETS OF A COMMERCIAL OR INDUSTRIAL NATURE [PARA 59/ARTICLE 12 ~. IN MOST COUNTRIES, THEY ENJOY AT LEAST A RELATIVE PROTECTION OR ARE CA PABLE OF BEING PROTECTED. 4.7.2 IN NEW SKIES SATELLITES VS. ADIT (ITAT DELHI SPECIAL BENCH) ITA NO 5385-87/2004 (DECISION DATED 16/10(2009) IT WAS HEL D THAT THE PROVISION OF THE TRANSPONDER THROUGH WHICH THE TELE CASTING COMPANIES ARE ABLE TO UPLINK THE DESIRED IMAGES/DATA AND DOWNLINK THE SAME IN THE DESIRED AREA IS A PROCESS. TO CONSTITUTE ROYALTY , IT IS NOT NECESSARY THAT THE PROCESS SHOULD BE A SECRET PROCESS. THE FACT THERE IS A COMMA AFTER THE WORDS SECRET FORMULA OR PROCESS IN THE DTM DOES NOT MEAN THAT A DIFFERENT INTERPRETATION HAS TO BE GIVEN TO THE DIM AS COMPARED TO THE ACT. IT WAS FURTHER HELD THAT THE ARGUMENT THAT THERE IS NO USE OF THE SATELLITE BY THE PAYER AS IT HAS NO CONTROL OR POSS ESSION OF THE SATELLITE IS NOT ACCEPTABLE. TO CONSTITUTE ROYALTY, IT IS NOT NECESSARY THAT THE INSTRUMENTS THROUGH WHICH THE PROCESS IS CARRIED ON SHOULD BE IN THE CONTROL OR POSSESSION OF THE PAYER. THE CONTEXT AND FACTUAL SITUATION HAS TO BE KEPT IN MIND TO DETERMINE THAT WHETHER THE PR OCESS WAS USED BY THE PAYER. IN THE CASE OF SATELLITES PHYSICAL CONTR OL AND POSSESSION OF THE PROCESS CAN NEITHER BE WITH THE SATELLITE COMPANIES NOR WITH THE TELECASTING COMPANIES. THE FACT THAT THE TELECASTIN G COMPANIES ARE ENABLED TO TELECAST THEIR PROGRAMMES BY UPLINKING A ND DOWNLINKING THE SAME WITH THE HELP OF THAT PROCESS SHOWS THAT THEY HAVE USE OF THE SAME. TIME OF TELECAST AND THE NATURE OF PROGRAMME, ALL DEPENDS UPON THE TELECASTING COMPANIES AND, THUS THEY ARE USING THAT PROCESS; 4.7.3 THE PROCESS HAS BEEN DEFINED IN ORDINARY DICTIONARY AS A PARTICULAR COURSE OF ACTION INTENDED TO ACHIEVE A R ESULT. IT IS A CO- CORDINATED SET OF ACTIONS THAT PRODUCE A RESULT. WH ITE INFORMATION TECHNOLOGY HAS AUTOMATED SPECIFIC TASKS FOR PRE-DEF INED WORKFLOW, THE ADVENT OF WEB SERVICES OPENS THE PROSPECT OF AUTOMA TING THE ENTIRE END- TO-END PROCESSES WITHOUT SACRIFICING BUSINESS AGILI TY. 4.7.4 AS PER CORPUS JURIS SECUNDUM, THE MEANING OF THE TERM PROCESS AS UNDERSTOOD N PATENT LAWS IS: * A MODE, METHOD OR OPERATION WHEREB~ A RESULT OR EFFECT IS PRODUCED. * A MEANS DEVISED FOR THE PRODUCTION OF A GIVEN R ESULT. * AN OPERATION DONE BY RULE IN ORDER TO SECURE A RESULT. RELIANCE AND LUCENT GROUP 42 THIS IS EXACTLY HOW A SOFTWARE WORKS - IN A SERIES OF INSTRUCTIONS/ OPERATIONS TO ACHIEVE A DESIRED RESULT. THE PROGRAM WHICH INSTRUCTS A COMPUTER TO PERFORM THE DESIRED OPERATION OFTEN GOE S THROUGH A SERIES OF EVOLUTIONARY STEPS FROM PRELIMINARY CONCEPTION TO D ETAILED AND COMPLEX EXPRESSION. IN THIS PROCESS (WHICH VARIES FROM CASE TO CASE) -A CRUCIAL STAGE IN THE CONCEPTION IS OFTEN THE EXPRESSION OF THE BASIC STEPS TO BE EXECUTED-THE ALGORITHM-IN THE FORM OF A FLOW-CHART OR OTHER LOGICAL FLOW DIAGRAM. THEREAFTER THE STATEMENT OF INSTRUCTIONS I N A COMPUTER LANGUAGE IS RELATIVELY UNSKILLED THOUGH IT MAY BE VERY LABOR IOUS. THE DETAILED WRITING WILL LIKELY BE IN A SO-CALLED HIGH LEVEL LANGUAGE (SUCH AS FORTRAN OR COBOL). GIVING THE DIAGRAM IN SOURCE CODE. THE C OMPUTER ITSELF THEN CONVERTS THIS INTO OPERATIONAL TERMS OF OBJECT CODE , BY MEANS OF A SEPARATE SYSTEM CONTROL PROGRAM. COMPUTER PROGRA M IS A TERM THAT MAY DESCRIBE A WIDE RANGE OF PHENOMENA, FROM BASIC ALGORITHMS CAPABLE OF APPLICATION IN AN INDEFINITE NUMBER OF MORE SPEC IFIC USES TO DETAILED INSTRUCTIONS FOR THE SOLUTION OF PARTICULAR PROBLEM S. A DIFFERENT COMPLICATION IS THIS: THE RESULT OF ACTUALLY USING A PROGRAMMED COMPUTER IS TO PRODUCE INFORMATION WHICH MAY BE TAKEN FOR IT SELF, OR MAY IMMEDIATELY BE PUT TO SOME FURTHER USE, AS WHERE A COMPUTER CONTROLS A STEP IN THE OPERATION OF A PRODUCTION PROCESS. TO A DD TO THE COMPLEXITIES. THERE IS, FOR INSTANCE, THE POSSIBILITY THAT PRINCI PLES WHICH MIGHT BE WRITTEN INTO PROGRAMS ARE INSTEAD GIVEN EXPRESSION IN THE CIRCUITRY OF THE COMPUTER, AND THE POSSIBILITY OF WRITING PROGRAMS T HAT WILL BRING ABOUT THE CO-OPERATION OF A NETWORK OF COMPUTERS. 4.7.5 WHETHER SOFTWARE IS A PROCESS OR NOT CAN BE JUDGED FROM THE LITIGATION THAT EXISTED IN THE DEVELOPED COUNTRIES ON THE ISSUE WHETHER A PARTICULAR SOFTWARE CAN BE PATENTED OR NOT. IN ALL THESE CASES, IT WAS ARGUED THAT AN INVENTION IN THE FORM OF A TECHNICAL PROCESS WAS DEVELOPED. SOME OF THESE CASES ARE AS BELOW:- - I. (KOCH AND STERZEL : PROGRAM GOVERNING THE OPERATION OF A TECHNICAL DEVICE). A CLAIM TO X-RAY APPARATUS CONTR OLLED BY A COMPUTER PROGRAM SO AS TO SECURE OPTIMAL EXPOSURE W ITHOUT OVERLOADING THE X-RAY TUBE WAS HELD PATENTABLE BY A N EPO BOARD OF APPEAL. IT SUFFICED THAT TECHNICAL MEANS WERE INVOLVED AS WELL AS THE MATHEMATICAL METHOD OR ALGO RITHM, WHICH WAS CHARACTERIZED AS NON-TECHNICAL. IT WAS NOT NECESSARY TO SHOW THAT INVENTION LAY EXCLUSIVELY OR LARGELY IN THE FORMER DOMAIN. II. VICTOMS APPLICATION: (COMPUTER OPERATING PROGR AM IN A INDUSTRIAL TECHNIQUE). A CLAIM IS PATENTABLE TO A C OMPUTER SO PROGRAMMED (OR PROVIDED WITH HARDWARE) AS TO BE ABL E TO PROCESS DIGITAL IMAGES IN ACCORDANCE WITH A GIVEN M ATHEMATICAL PROCEDURE EXPRESSED AS AN ALGORITHM. THE PROGRAM HA D BEEN DEVELOPED FOR COMPUTER AIDED DESIGN (CAD) OF ENGINE ERING AND SIMILAR PRODUCTS, AND THE APPLICATION WAS UPHELD ON CE THE CLAIM WAS AMENDED SO AS TO COVER ONLY USES WHICH ST ARTED WITH A COMPUTERIZED IMAGE; THE ORIGINAL CLAIM WAS F OR LESS SPECIFIC METHODS OF USING THE ALGORITHM. THE CLAIM WAS RELIANCE AND LUCENT GROUP 43 ACCEPTED BECAUSE IT WAS DIRECTED TO A TECHNICAL PR OCESS. AT ROOT, WHAT MATTERED WAS THAT CAD IS A WIDELY USED A ND MOST VALUABLE AID TO PRODUCT DESIGN. III. MERRILL LYNCHS APPLICATION : APPLICATION PROG RAM FOR ANALYZING DATA). THE CLAIMED PROGRAM COULD BE USED IN AN AUTO MATED MARKET FOR SHARES AND SIMILAR SECURITIES. IT ANALYS ED CUSTOMERS ORDERS TO BUY AND SELL AGAINST GIVEN CRI TERIA; THOSE WHICH MET THE CRITERIA WERE THEN CARRIED OUT. THE C OURT OF APPEAL HELD THIS UNPATENTABLE UNDER THE 1977 ACT. T HE PROGRAM COULD BE INTRODUCED INTO ANY SUITABLE COMPU TER IN ANY ENCODING LANGUAGE, CAUSING DATA TO BE ACTED UPON S O AS TO CARRY OUT LEGAL TRANSACTIONS, RATHER THAN TECHNICAL PRODUCTION IN ANY ORDINARY SENSE. IV. GALES APPLICATION : NEW METHOD OF CALCULATION) . THE APPLICANTS ESSENTIAL DISCOVERY WAS OF A METHOD OF CALCULATING SQUARE ROOTS IN THE BINARY FUNCTIONING OF A COMPUTER BY ELIMINAT ING DIVISION AND RESTRICTING MULTIPLICATION TO SPECIFIED BINARY FUNCTIONS. THIS COULD BE GIVEN FORM IN THE ELECTRONIC CIRCUITRY OF A READ-ONLY MEMORY (ROM) AND THE CLAIM WAS TO A ROM CARRYING TH E RELEVANT CONTROLS. ALDOUS J. WAS PREPARED TO ACCEPT THE CLAIM; BUT THE COURT OF APPEAL REFUSED THE APPLICATION FOR ITS VERY APPARENT REFERENCE TO MATHEMATICAL PROCEDURES FOR P RODUCING NUMBERS. THE COURT REFUSED TO ACCEPT IN SUCH A CASE THAT EMBODIMENT IN A ROM MADE TO PROGRAM PATENTABLE, WHE RE IT WOULD NOT BE IF EXPRESSED PURELY IN MATHEMATICAL TE RMS OR WAS CONTAINED ON A FLOPPY DISK FOR INSERTION IN A COMPU TER. 4.7.6 THE DISTINCTION BETWEEN THE SECURING OF A TEC HNICAL EFFECT IN THE `NATURE OF A NEW INVENTION AND THE MERE PRODUCTION AND MANIPULATION OF INFORMATION HAS BEEN MADE FOR THE PURPOSE OF DECIDI NG PATENTABILITY BUT THE FACT REMAINS THAT ALL THESE SOFTWARE INVOLVE A PROCESS, THE TERM WHICH IS MUCH WIDER IN SCOPE THAN PATENT IT WAS INTRODUCE D IN ORDER TO CONFINE THE EXCLUSION OF COMPUTER PROGRAMS AS SUCH WITHIN A LIMITED COMPASS, ITSELF AN APPROACH FOUNDED ON A BELIEF THAT THE PAT ENT SYSTEM SHOULD BE OPEN TO INNOVATIVE TECHNOLOGY IN A BROAD SENSE. P ROGRAMMING INCLUDE SPECIALIZED SKILLS SUCH AS MATHEMATICAL PROCEDURE F OR THE CALCULATION OF SQUARE ROOTS; THE CONVERSION OF BINARY DECIMAL NUMB ERS INTO PURE BINARY NUMBERS THE COMPILATION OF A SOURCE PROGRAM IN HIGH -LEVEL LANGUAGE INTO OBJECT CODE, WHETHER A NUMBER IS A PRIME NUMBER OR NOT. SUCH CONCEPTS AND COMBINATIONS OF THEM REPRESENT TECHNICAL KNOW H OW. NETWORKING OF COMPUTERS, WHICH ARE LINKED TOGETHER PHYSICALLY, TH E PROGRAM INSTRUCTIONS WHICH BRING ABOUT THE EFFICIENT CO-OPERATION OF THE VARIOUS STATIONS HAS THE FEEL OF LARGER TECHNOLOGY. 4.7.7 IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD T HAT SOFTWARE IS A PROCESS USED BY A COMPUTER TO ACHIEVE A DESIRED RES ULT. RELIANCE AND LUCENT GROUP 44 4.8. WHETHER A SIMILAR PROPERTY 4.8.1 CLAUSES (I) AND (III) OF THE EXPLANATION 2 TO SECTION 9(1)(VI) DEFINING ROYALTY USE THE TERM A SIMILAR PROPERTY. IT MEA NS A PROPERTY WHICH IS SIMILAR TO A PATENT, DESIGN, TRADEMARK, SECRET FORM ULA, PROCESS ETC. LET US DISCUSS WHAT THESE TERMS MEAN AND WHAT IS COMMON AB OUT ALL OF THEM. 4.8.2. WHAT IS A PATENT? IF YOU HAVE INVENTED SOMETHING, YOU CAN GET A PATEN T TO PROTECT IT. A PATENT IS A DOCUMENT WHICH GIVES YOU THE RIGHT TO STOP OTHER PERSONS FROM MAKING, COPYING, USING OR SELLING YOUR INFORMA TION. PATENTS ARE THE OLDEST AND STRONGEST FORM OF INTELLECTUAL PROPERTY. THERE IS A RIGOROUS EXAMINATION PROCEDURE WHERE THE SCOPE OF THE PATENT CLAIMS IS TESTED, AND SEARCHES ARE MADE FOR ANTICIPATION OF THE INVEN TION BY OTHERS. 4.8.3. WHAT IS A DESIGN? IF YOU HAVE CREATED A NEW DESIGN (A NEW SHAPE, FORM OR APPEARANCE OF AN ARTICLE), YOU CAN PROTECT YOUR DES IGN BY REGISTERING IT. THERE ARE TWO DIFFERENT TYPES OF DESIGNS WHICH CAN BE REGISTERED. I.) AN AESTHETIC DESIGN - JUST FOR THE BEAUTY OF THE SHAPE CONFIGURATION OR ORNAMENTATION. II.) A FUNCTIONAL DESIGN, WHERE THE SHAPE, CONFIGURATION IS NECESSITATED BY THE FUNCTION. 4.9.2 THE SECOND PROVISO TO SECTION 9(1 )(VI) OF TH E ACT ITSELF STATE AS UNDER: PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS C LAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FO R THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFACTURER AL ONG WITH A COMPUTER OR COMPUTER-BASED EQUIPMENT UNDER ANY SCHEME APPROV ED UNDER THE POLICY ON COMPUTER SOFTWARE EXPORT, SOFTWARE DEVELO PMENT AND TRAINING, 1986 OF THE GOVERNMENT OF INDIA. 4.9.3 IT SHOWS THAT WHEN COMPUTER SOFTWARE IS ACQUI RED ALONG WITH EQUIPMENT, THEN CONSIDERATION PAID FOR THE SOFTWARE WILL NOT BE ROYALTY IF THE AGREEMENT IS APPROVED BY THE SPECIFIED AUTHORIT Y OF THE GOVT OF INDIA. IN OTHER WORDS, IF THE AGREEMENT IS NOT APPROVED TH EN PAYMENT FOR ACQUISITION OF SUCH SOFTWARE WOULD BE TAXABLE. IT I S ALSO IMPORTANT TO NOTE HERE THAT THE LEGISLATION HAS NOT USED THE WORD CO PYRIGHT AS USED IN CLAUSE (IV) OF THE EXPLANATION DEFINING ROYALTY. IN THIS REGARD, CIRCULAR NO 621 DATED 19/1211991 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES EXPLAINS THE CIRCUMSTANCES AS UNDER - 34.3 AT PRESENT, THE VALUE OF SOFTWARE IN A PHYSICA L FORM SUCH AS MAGNETIC TAPE OR DISC IMPORTED INTO INDIA IS SUBJEC TED TO CUSTOM DUTY ON THE GROUND THAT WHAT IS IMPORTED IS COMMODITY. AT T HE SAME TIME. SINCE IMPORT OF SOFTWARE IS GENERALLY UNDER A LICENSE FRO M THE FOREIGN LICENSOR, THE LUMP SUM PAYMENTS MADE FOR USING THE SOFTWARE A RE REGARDED AS PAYMENT OF ROYALTY WITHIN THE MEANING UNDER EXPLANATION 2 OF SECTION 9(1 )(VI) OF THE INCOME-TAX ACT AND TAXED ACCORDINGLY . RELIANCE AND LUCENT GROUP 45 34.4 IN ORDER TO PREVENT THIS DUAL LEVY, THE INCOME -TAX ACT HAS BEEN AMENDED TO PROVIDE THAT ANY LUMP SUM PAYMENT FOR OB TAINING USE OF SYSTEMS SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFAC TURER ALONG WITH THE COMPUTER HARDWARE WILL NOT BE SUBJECTED TO INCO ME-TAX. THIS TAX CONCESSION WILL NOT BE AVAILABLE IN RELATION TO PAY MENTS IN RESPECT OF SYSTEM SOFTWARE IMPORTED OTHERWISE THAN UNDER AN AP PROVED COMPUTER SOFTWARE EXPORT SCHEME OR WHERE THE SOFTWARE IS SUP PLIED SEPARATELY OR INDEPENDENTLY OF THE COMPUTER HARDWARE EVEN THOUGH THE SOFTWARE HAS BEEN DEVELOPED OR MARKETED BY THE SUPPLIER OF THE C OMPUTER HARDWARE. 4.9.4 THIS POSITION WAS AGAIN REITERATED IN CIRCULA R NO.794 OF 2000 AS UNDER: 7.1 UNDER THE EXISTING PROVISIONS, SECTION 9 LISTS THE INCOME THAT IS DEEMED TO ACCRUE OR ARISE IN INDIA, HOWEVER, ANY RO YALTY INCOME IN THE HANDS OF THE NON-RESIDENT MANUFACTURER RECEIVED FRO M A RESIDENT PERSON OR THE GOVERNMENT FOR THE TRANSFER OF RIGHTS IN RES PECT OF COMPUTER SOFTWARE ALONG WITH A COMPUTER OR COMPUTER-BASED EQ UIPMENT UNDER AN APPROVED SCHEME IS EXCLUDED FROM THE DEEMING PROVIS IONS OF SECTION 9. THIS CIRCULAR WAS INTENDED TO REMOVE ANY DOUBT THAT A SOFTWARE SUPPLIED WITH A LICENSE IN INDIA WILL BE TAXABLE AS ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. 4.10. SUB SECTION (IA) OF SECTION 115A OF THE ACT 4.10.1 FURTHER, TAXABILITY OF INCOME OF IMPORT OF S OFTWARE HAS BEEN AMPLY CLEAR IN THE INCOME TAX ACT THROUGH SEC. 11 5A (WHI CH DEALS WITH TAX ON DIVIDENDS, ROYALTY AND TECHNICAL SERVICES FEES IN T HE CASE OF FOREIGN COMPANIES) WHEREIN IT HAS BEEN PROVIDED UNDER (1A) AS UNDER: WHERE THE ROYALTY REFERRED TO IN CLAUSE (B) OF SUB -SECTION (1) IS IN CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF COPYRIGHT IN ANY BOOK TO AN INDIAN CONCERN OR IN RESPECT OF ANY COMPUTER SOFTWARE TO A PERSON RESIDENT IN INDIA, THE PROVISIONS OF SUB-SECTION (1) SHALL APPLY IN RELATI ON TO SUCH ROYALTY AS IF THE WORDS THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT OR WHERE IT RELATES TO A MATTER INCLUDED IN THE INDUST RIAL POLICY, FOR THE TIME BEING IN FORCE, OF THE GOVERNMENT OF INDIA, THE AGR EEMENT IS IN ACCORDANCE WITH THAT POLICY OCCURRING IN THE SAID CLAUSE HAD B EEN OMITTED. 4.10.2 SECTION 115 PROVIDES RATES OF TAX IN RESPECT OF ROYALTY, FTS, .DIVIDEND AND INTEREST PAYMENTS TO NON-RESIDENTS. I T MAY BE NOTED THAT DIFFERENT WORDINGS HAVE BEEN USED IN THE SUBSECTION (IA) FOR BOOKS AND FOR SOFTWARE. IN CASE OF BOOKS, IT SAYS PAYMENT FOR TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT WHEREAS IN CASE OF SOFTWAR E IT SIMPLY SAYS TRANSFER OF ANY RIGHT IN RESPECT OF SOFTWARE. THE WORD COPYRIGHT HAS NOT BEEN USED IN THE CASE OF SOFTWARE. RIGHTLYSO, AS DI SCUSSED EARLIER, A BOOK IS A TANALBLE PROPERTY WHEREAS SOFTWARE IS AN INTAN NIBLE PROPERTY . AS PER SECTION 9(1)(VI) DEFINING ROYALTY, IN CASE OF INTAN GIBLE PROPERTY CONSIDERATION FOR MERE USE OF SUCH PROPERTY WILL BE IN THE NATURE OF ROYALTY WHEREAS IN CASE OF TANGIBLE PROPERTY (OTHER THAN EQUIPMENT), ROYALTY WOULD ARISE ONLY FOR TRANSFER OF COPYRIGHT RIGHT. RELIANCE AND LUCENT GROUP 46 4.10.3 SECTION 80HHE WAS INTRODUCED IN THE ACT W.E. F 1.4.1991 FOR GRANTING DEDUCTION IN RESPECT OF PROFITS FROM EXPOR T OF SOFTWARE. THE NEED AROSE MAINLY BECAUSE SUCH PROFITS WERE NOT ENTITLED FOR DEDUCTION U/S 80HHC AS THE SOFTWARE WAS NOT CONSIDERED AS GOODS O R MERCHANDISE. 4.11. MEANING OF COPYRIGHT 4.11.1 IF YOU CREATE AN ORIGINAL WORK THAT PEOPLE C AN SEE OR HEAR, YOU CAN GET COPYRIGHT. HAVING COPYRIGHT MEANS THAT YOU OWN THAT WORK AND YOU CAN CONTROL ITS COMMERCIAL USE. YOUR COPYRIGHT CAN PROTECT YOUR WORK FROM BEING COPIED OR REPRODUCED WITHOUT YOUR PERMISSION. IF YOU HAVE AN ORIGINAL IDEA, YOU CANNOT HAVE COPYRIGHT IN IT. YOU MUST PUT YOUR ORIGINAL IDEA INTO A PHYSICAL FORM, SUCH AS A BOOK, A CARD, A CD, A PAINTING, A PICTURE, A SCREENPLAY OR A FILM. 4.11.2 AUTHORS OF CREATIVE WORKS IN RESPECT OF SUCH WORKS AND BY REASON OF THEIR CREATION, ENJOY A RIGHT OF EXCLUSIVE OWNER SHIP VIS--VIS ALL OTHER PERSONS, REFERRED TO AS COPYRIGHT, THE PROTECTION OF WHICH SHALL BE ORGANIZED BY THE LAW. ACCORDING TO THE COPYRIGHT AC T,1956 OF INDIA, COPYRIGHT EXISTS IN A WORK (SECTION 13). THE WORK HAS BEEN DEFINED UNDER SECTION 2(Y) AS LITERARY, DRAMATIC, MUSICAL O R ARTISTIC WORK, A CINEMATOGRAPHIC FILM AND A SOUND RECORDING. THE CO MPUTER PROGRAM HAS BEEN DEFINED UNDER SECTION 2(FFC) AS A SET OF INSTR UCTIONS EXPRESSED IN WORDS, CODES, SCHEMES OR IN ANY OTHER FORM CAPABLE OF CAUSING A COMPUTER TO PERFORM A PARTICULAR TASK OR ACHIEVE A PARTICULAR RESULT. SECTION 2(O) OF ACT SPECIFIES THAT LITERARY WORK IN CLUDES COMPUTER PROGRAMS. TABLES AND COMPILATIONS INCLUDING COMPUTE R DATABASES. COPYRIGHT UNDER SECTION 14 MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORISE THE DOIN G OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART T HEREOF , NAMELY, (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAM, (I) TO REPRODUCE THE WORK IN MANY MATERIAL FORM INC LUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS. (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORD ING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSACTION OF THE WORK; (VI) TO MAKE ANY ADAPTATION OF THE WORK; (VII) TO DO, IN RELATION OR AN ADAPTATION OF THE WO RK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSE (I) TO (VI). (B) IN THE CASE OF A COMPUTER PROGRAM: (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 RELIANCE AND LUCENT GROUP 47 COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAM: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APP LY IN RESPECT OF COMPUTER PROGRAMS WHERE THE PROGRAM ITSELF IS NO T THE ESSENTIAL OBJECT OF THE RENTAL. 4.11.3 THAT MEANS THE OWNER OF THE COPYRIGHT IN A C OMPUTER SOFTWARE HAS NOW 8 RIGHTS INSTEAD OF CONVENTIONAL 7 RIGHTS [ AS PER CLAUSE (A) OF SECTION 14 (SUPRA) 1. EVEN RIGHT TO SELL OR GIVING ON COMME RCIAL RENT IS INCLUDED IN THE SOFTWARE. IN THE A.A.R. CASE OF FACTSET SYSTEMS (AAR NO.787 OF 2008) THESE RIGHTS APPEAR TO BE NOT CONSIDERED, IT MAY BE WORTHWHILE TO .POINT OUT THAT, SIMILAR RIGHTS WERE ALSO INTRODUCED IN TH E US COPYRIGHT ACT. SEC. 109A OF THE US COPYRIGHT ACT [AS AMENDED IN 1990] S TATES: NOTWITHSTANDING THE PROVISIONS OF THE SUB-SEC.(A), UNLESS AUTHORISED BY THE OWNERS OF THE COPYRIGHT IN THE SOUND RECORDING OR THE OWNER OF COPYRIGHT IN THE COMPUTER PROGRAM (INCLUDING ANY TAPE, DISK OR OTHER MEDIA EMBODYING SUCH PROGRAM), AND THE CASE OF SOUN D RECORDING IN THE MUSICAL WORKS EMBODIED THEREIN, NEITHER THE OWNER O F THE PARTICULAR PHONORECORD NOR ANY PERSON IN POSSESSION OF A PARTI CULAR COPY OF A COMPUTER PROGRAM (INCLUDING ANY TAPE, DISK OR OTHER MEDIA EMBODYING SUCH PROGRAM), MAY FOR THE PURPOSE OF DIRECT OR IND IRECT COMMERCIAL ADVANTAGE, DISPOSE OF, OR AUTHORISE THE DISPOSAL OF THE POSSESSION OF THAT PHONORECORD OR COMPUTER PROGRAM (INCLUDING ANY TAPE , DISK OR OTHER MEDIA EMBODYING SUCH PROGRAM), BY RENTAL, LEASE, OR LENDING, OR BY ANY OTHER ACT OR PRACTICE IN THE NATURE OF RENTAL, LEAS E OR LENDING. NOTHING IN THE PRECEDING SENTENCE SHALL APPLY TO THE RENTAL, L EASE OR LENDING A PHONORECORD FOR NON-PROFIT PURPOSE BY A NON-PROFIT LIBRARY OR NON-PROFIT EDUCATIONAL INSTITUTION. FROM THE ABOVE IT CAN BE SEEN THAT IN THE PRESENT C ASE, A USER OF THE COMPUTER SOFTWARE IN INDIA HAS OBTAINED A COPYRIGHT RIGHT OF THE ASSESSEE I.E. RIGHT TO USE ON COMMERCIAL HIRE. THUS , PAYMENT FOR ACQUISITION OF SOFTWARE BY IT IS ALSO CONSIDERATION FOR TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHT IN SOFTWARE. THUS THE ARGUMENT OF APPLICANT THAT THE COPYRIGHT ACT IS NOT APPLICABLE IS NOT THE CORRECT POSITION. 4.12. WHETHER SALE OF COPYRIGHTED ITEM OR TRANSFER OF COPYRIGHT RIGHT? 4.12.1 IT IS ARGUED THAT SOFTWARE ACQUIRED IS A COP YRIGHTED ITEM AND NOT THE COPYRIGHT RIGHT. FOR INSTANCE IN THE CASE OF A BOOK, WHEN THE BOOKS ARE SOLD, IT IS THE SALE OF COPYRIGHTED ITEM BUT WH EN A RIGHT TO COPY IS GIVEN TO A DISTRIBUTOR WHO IN TURN MAKES COPIES AND SALES BOOKS, IT IS SAID THAT THE DISTRIBUTOR HAS ACQUIRED A COPYRIGHT RIGHT. THE PAYMENT FOR COPYRIGHT RIGHT IS ROYALTY AND NOT FOR COPYRIGHTED ITEM. 4.12.2 THE ABOVE STATEMENT IS CORRECT WHEN WE ARE D EALING WITH TANGIBLE PROPERTIES LIKE BOOKS, PAINTINGS, MODEL ETC BECAUSE THESE ARE THE END PRODUCTS IN THEMSELVES. THIS IS NOT CORRECT IN THE CASE OF INTANGIBLE PROPERTIES LIKE SOFTWARE, DESIGNS ETC. ROYALTIES AR E TWO TYPES - COPYRIGHT ROYALTIES AND KNOW-HOW ROYALTIES. IN CASE OF LATER, THE PAYMENT FOR MERE USE WOULD QUALIFY AS ROYALTY. FOR INSTANCE STANDARD IZED DESIGN FOR RELIANCE AND LUCENT GROUP 48 CONSTRUCTION OF A PARTICULAR TYPE OF BRIDGE. THE DE VELOPER ONLY GIVES A RIGHT TO USE TO THE PAYER. THE DESIGN IS GIVEN IN T HE FORM OF A BOOKLET WITH DETAILED DRAWINGS ETC. IT IS IN THE PHYSICAL FORM B UT IT DOES NOT QUALIFY AS A TANGIBLE PROPERTY OR A COPYRIGHTED ITEM. IT COMES UNDER THE KNOW-HOW ROYALTY. SIMILAR IS THE CASE OF SOFTWARE. EVEN THE STANDARDIZED SOFTWARE WILL FALL UNDER THE CATEGORY OF KNOW HOW ROYALTY. 4.12.3 IF IT IS PRESUMED THAT SOFTWARE ON CARRIER M EDIA DISKS OR TAPES IS AN COPYRIGHTED ARTICLE AND NOT AN INTANGIBLE PROPER TY, THEN SALE OF SOFTWARE ON A CD WILL NOT BE ROYALTY BUT IF THE SAM E SOFTWARE IS DOWNLOADED ON INTERNET WITH THE PERMISSION OF DEVEL OPER, IT WOULD NOT BE AN ARTICLE. CONSEQUENTLY IT WOULD BE IN THE NATURE OF ROYALTY. IT WOULD BE A TOTALLY UNTENABLE INTERPRETATION WHICH CHANGES TA XABILITY OF A PAYMENT FOR ACQUISITION OF THE SAME PROPERTY ON THE BASIS O F METHOD OF DELIVERY. SUCH AN INTERPRETATION CANNOT BE ACCEPTED. 4.12.4 AT THIS JUNCTURE, IT WOULD BE APPROPRIATE TO BORROW FROM THE COMMENTARIES BY EMINENT AUTHORS BEFORE ARRIVING AT A FINDING IN THIS MATTER. OECD COMMENTARY VIDE PARA 15 STATES THAT WH ERE CONSIDERATION IS PAID FOR THE TRANSFER OF THE FULL OWNERSHIP, THE PAYMENT CAN NOT REPRESENT A ROYALTY AND THE PROVISIONS OF THE ARTIC LE ARE NOT APPLICABLE. DIFFICULTIES CAN ARISE WHERE THERE ARE EXTENSIVE BU T PARTIAL ALIENATION OF RIGHTS INVOLVING - - EXCLUSIVE RIGHT OF USE DURING A SPECIFIC PERIOD OR IN A LIMITED GEOGRAPHIC AREA; - ADDITIONAL CONSIDERATION RELATED TO USAGE; - CONSIDERATION IN THE FORM OF A SUBSTANTIAL LUMPSUM PAYMENTS. REFERENCE TO KLAUS VOGELS COMMENTARY ON DOUBLE TAX ATION CONVENTIONS SHOWS THAT IN CANADA, PAYMENT FOR USING OF SOFTWARE BY VIRTUE OF CONTRACT, WHERE THE PROGRAM IS KEPT CONFIDENTIAL, A MOUNTS TO PAYMENT FOR USE OF SECRET FORMULA AND HENCE AMOUNTS TO ROYALTY PAYMENT. A SIMILAR VIEW IS TAKEN IN UNITED STATES AS REFERRED TO IN PA RA 29 OF THE COMMENTARY BY VOGEL WHICH STATES AS UNDER: 29. THE UNITED STATES BELIEVES THAT IN INTERPRETIN G THE DEFINITION OF ROYALTIES IN PARA 2 OF THE ARTICLE, WITH RESPECT TO PAYMENTS FOR SOFTWARE, IT SHOULD BE UNDERSTOOD THAT WHERE A PAYMENT FOR TH E ACQUISITION OF SOFTWARE FOR THE PERSONAL OR BUSINESS USE OF THE PU RCHASER IS MEASURED BY REFERENCE TO THE PRODUCTIVITY OR USE OF SUCH SOF TWARE, THE PAYMENT MAY REPRESENT A ROYALTY UNDER THE ARTICLE. [PARA 3 6B] RELEVANT PARAS FROM VOGELS COMMENTARY AT P.783 (20 05 EDITION, INDIAN REPRINT 2007) ARE REPRODUCED BELOW: 12. [CONSIDERATION FOR SOFTWARE] WHETHER PAYMENTS RECEIVED AS CONSIDERATION FOR COMPUTER SOFTWARE MAY BE CLASSIFI ED AS ROYALTIES POSES DIFFICULT PROBLEMS BUT IS A MATTER OF CONSIDERABLE IMPORTANCE IN VIEW OF THE RAPID DEVELOPMENT OF COMPUTER TECHNOLOGY IN REC ENT YEARS AND THE EXTENT OF TRANSFERS OF SUCH TECHNOLOGY ACROSS NATIO NAL BORDERS. SOFTWARE MAY BE DESCRIBED AS A PROGRAM, OR SERIES OF PROGRAM S, CONTAINING RELIANCE AND LUCENT GROUP 49 INSTRUCTIONS FOR A COMPUTER REQUIRED EITHER FOR THE OPERATIONAL. PROCESSES OF THE COMPUTER ITSELF (OPERATIONAL SOFTWARE) OR FO R THE ACCOMPLISHMENT OF OTHER TASKS (APPLICATION SOFTWARE). IT CAN BE TRANS FERRED THROUGH A VARIETY OF MEDIA, FOR EXAMPLE IN WRITING, ON A MAGNETIC TAP E OR DISC, OR ON A LASER DISC. IT MAY BE STANDARDISED WITH A WIDE RANGE OF A PPLICATIONS OR BE TAILOR MADE FOR SINGLE USERS. IT CAN BE TRANSFERRED AS AN INTEGRAL PART OF COMPUTER HARDWARE OR IN AN INDEPENDENT FORM AVAILAB LE FOR USE ON A VARIETY OF HARDWARE. THE RIGHTS IN COMPUTER SOFTWAR E ARE A FORM OF INTELLECTUAL PROPERTY. RESEARCH INTO THE PRACTICES OF OECD MEMBER COUNTRIES HAS ESTABLISHED THAT ALL BUT ONE PROTECT SOFTWARE RIGHTS EITHER EXPLICITLY OR IMPLICITLY UNDER COPYRIGHT LAW. TRANS FERS OF RIGHTS OCCUR IN MANY DIFFERENT WAYS RANGING FROM THE ALIENATION OF THE ENTIRE RIGHTS TO THE SALE OF A PRODUCT WHICH IS SUBJECT TO RESTRICTIONS ON THE USE TO WHICH IT IS PUT. THE CONSIDERATION PAID CAN ALSO TAKE NUMEROUS FORMS. THESE FACTORS MAY MAKE IT DIFFICULT TO DETERMINE WHERE THE BOUNDA RY LIES BETWEEN SOFTWARE PAYMENTS THAT ARE PROPERLY TO BE REGARDED AS ROYALTIES AND OTHER TYPOS OF PAYMENT. 4.12.5 SEVERAL IMPORTANT POINTS HAVE BEEN CONSIDERE D WHILE COMING TO THE CONCLUSION THAT SUPPLY OF SOFTWARE BY THE ASSES SEE WILL BE CHARGEABLE TO TAX AS ROYALTY. THE DEFINITION OF COPYRIGHT AS P ER SEC.14(B) OF THE COPYRIGHT ACT, 1957 WITH REGARD TO SOFTWARE HAS BEE N CONSIDERED. THE PERUSAL OF THIS DEFINITION CLEARLY INDICATED THAT I N THE CASE OF COMPUTER PROGRAMMES, SELLING OR GIVING ON HIRE OF THE SOFTWA RE OR OFFERING FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER P ROGRAMME REGARDLESS OF WHETHER SUCH A COPY HAS BEEN SOLD OR GIVEN ON HI RE ON EARLIER OCCASION CONSTITUTE THE GRANT OF A RIGHT TO USE COPYRIGHTS. THE SAID DEFINITION MAKES IT CLEAR THAT COPY OF LEGALLY OBTAINED SOFTWA RE CONSTITUTES GRANT OF EXERCISE OF THE COPYRIGHT. ARTICLE 3(2) OF THE INDO -US DTAA MAKES IT MANDATORY TO ADOPT THE DEFINITION OF THE WORD COPY RIGHT AS GIVEN IN THE LAW OF THE STATE APPLYING THE PROVISIONS OF THE TRE ATY AND THEREFORE, DEFINITION AS GIVEN IN INDIAN COPYRIGHT ACT, 1957 S HALL BE APPLICABLE IN THE PRESENT CASE. NEITHER INDIAN COPYRIGHT ACT, 195 7 NOR ANY CIRCULAR ISSUED BY THE CBDT MAKES ANY DISTINCTION BETWEEN CO PYRIGHT AND COPYRIGHTED ARTICLE AND SUCH DISTINCTION MADE IN US REGULATIONS CANNOT BE EXTENDED TO INDIAN TERRITORIES AND ONLY LAWS PRO MULGATED BY THE INDIAN SOVEREIGN HAVE TO BE APPLIED. FURTHER, THE ROYALTY IS A VERY WIDE TERM UNDER THE INCOME TAX ACT AND UNDER THE DTAA AN D IT COVERS OTHER ASPECTS OF THE INTELLECTUAL PROPERTY ALSO BESIDES T HE TRANSFER OF THE COPYRIGHT RIGHT LIKE PROCESS, EQUIPMENT COVERED BY EXPLANATION 2(IVA) TO SEC.9(1)(VI). 4.13. CONCLUSION UNDER DOMESTIC LAW 4.13.1 IT IS AN ADMITTED POSITION OF LAW THAT WHEN THE OWNER OF ANY INTELLECTUAL PROPERTY (IP) LICENSES IT (THE IP) TO OTHERS FOR USE AND/OR EXPLOITATION, HE CHARGES A FEE, WHICH IS CALLED ROY ALTY. COPYRIGHTS, PATENTS, DESIGNS, TRADEMARKS, FORMULA, PROCESS, COM MERCIAL! SCIENTIFIC KNOWLEDGE ETC, ARE ALL CLASSIC FORMS OF INTELLECTUA L PROPERTY RIGHTS AND WHICH HAVE BEEN MENTIONED IN THE DEFINITION -OF ROY ALTY. HOWEVER, WITH THE ADVENT OF MODERN TECHNOLOGY, SOFTWARE HAS NOW BEEN ADDED TO THIS RELIANCE AND LUCENT GROUP 50 LIST OF IPS. AS THERE IS NO DOUBT THAT SOFTWARE ARE IPS, CONSIDERATION PAID FOR THE LICENSE TO USE THE SOFTWARE (EVEN THOUGH TH ESE DO NOT SPECIALLY APPEAR IN THE DEFINITION OF ROYALTY) SHOULD, BY FIR ST PRINCIPLE, FALL UNDER THE CATEGORY-ROYALTY. TO SUM UP A) SOFTWARE IS NOT GOODS OR TANGIBLE PROPERTY BUT I NTANGIBLE INTELLECTUAL PROPERTY. B) SOFTWARE IS PROCESS AS MENTIONED IN CLAUSE (I) AND (III) OF THE EXPLANATION 2 DEFINING ROYALTY. C) ALTERNATELY, SOFTWARE IS A PROPERTY SIMILAR TO P ATENT, INVENTION, DESIGN, SECRET FORMULA, PROCESS ETC. D) THE CBDT IN CIRCULAR NO 621 OF 19/1 2/1991 .HAS CATEGORICALLY STATED THAT PAYMENT FOR ACQUISITION OF SOFTWARE UND ER A LICENSE IS ROYALTY. THE INTENTION OF THE LEGISLATION IN SUBSEQ UENT AMENDMENTS I.E. SECOND PROVISO TO SEC 9(1 )(VI), SECT 11 5A(1 A) AND 8OHHE IS CLEAR IN THIS REGARD. 4.13.2 IN VIEW OF THE ABOVE, IT IS HELD THAT PAYME NT MADE BY THE ASSESSEE FOR USE, OR RIGHT TO USE SOFTWARE IS IN TH E NATURE OF ROYALTY LIABLE TO TAX IN INDIA UNDER DOMESTIC LAW. 4.14 CONCLUSION UNDER TREATY LAW : 4.14.1 THE TERM ROYALTY HAS BEEN DEFINED IN A DIF FERENT WAY UNDER MOST OF THE DOUBLE TAX AVOIDANCE TREATIES INDIA HAS WITH DIFFERENT COUNTRIES. THE DEFINITION OF ROYALTY AS PER ARTICLE 12(3) OF I NDO-USA TREATY IS AS UNDER - (A) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTI STIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TE LEVISION BROADCASTING ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRE T FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIA L OR SCIENTIFIC EXPERIENCE 1 INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVIT Y 1 USE OR DISPOSITION THEREOF; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH I OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVIT IES DESCRIBED IN PARAGRAPH 2(C) OR 3 OF ARTICLE 8. 4.14.2 BASIC STRUCTURE OF THE TERM ROYALTY IN THE T REATY IS SAME AS IN THE DOMESTIC LAW. FOR INSTANCE IT REFERS TO THE FOLLOWI NG CATEGORIES WHICH ARE ALSO THERE IN DOMESTIC LAW- I) PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS II) INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL O R SCIENTIFIC EXPERIENCE RELIANCE AND LUCENT GROUP 51 II) INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT IV) LITERARY, ARTISTIC, OR SCIENTIFIC WORK, INCLUDI NG CINEMATOGRAPH FILMS. 4.14.3 SIMILAR TO DOMESTIC LAW, MERE USE OF FIRST T HREE CATEGORIES IS ROYALTY AND IN THE CASE OF FOURTH CATEGORY IT IS TH E COPYRIGHT RIGHT. THE MINOR DIFFERENCES ARE- I) IN CASE OF FIRST CATEGORY, INSTEAD OF TRANSFER OF ANY RIGHT, THE TREATY USES THE WORD RIGHT TO USE II) THE TREATY USES SPECIFIC WORDS COPYRIGHT OF LI TERARY, ARTISTIC OR SCIENTIFIC WORK WHEREAS DOMESTIC LAW SAYS COPYRIG HT, LITERARY, ARTISTIC OR SCIENTIFIC WORK. III) THE TREATY DOES NOT USE THE WORD A SIMILAR PRO PERTY. IV) THERE IS A COMMA AFTER THE PHRASE SECRET FORMU LA OR PROCESS WHICH IS NOT THERE IN THE DOMESTIC LAW USING THE SA ME PHRASE AS SECRET FORMULA OR PROCESS OR .. IT MEANS THE WO RD SECRET SHOULD ALSO BE APPLIED TO THE WORD PROCESS. SO, TO QUALIFY AS ROYALTY IT SHOULD BE A SECRET PROCESS. 4.14.4 THE ABOVE DIFFERENCES DO NOT CHANGE THE POSI TION IN RESPECT OF SOFTWARE ONCE THEY ARE CLASSIFIED AS PROCESS. THEY ARE ALSO SECRET BECAUSE THE SOURCE CODE IS NOT GIVEN TO THE USER. T HE USE OF SECRET PROCESS IMPLIES USE OF A PROCESS WHICH IS SECRET I. E. NOT AVAILABLE IN PUBLIC DOMAIN. IT IS NOT NECESSARY THAT THE SECRET SHOULD BE DIVULGED TO THE USER. IN THE PRESENT WORLD OF TECHNOLOGY, IT IS POSSIBLE TO ALLOW OTHERS TO USE A PROCESS WITHOUT DISCLOSING THE SECRECY OF THE PROCESS. - FOR INSTANCE, THE WORKING OF A SOFTWARE WHICH CAN DETER MINE WHETHER A NUMBER IS PRIME NUMBER OR NOT, IS A SECRET PROCESS. THE USER OF SUCH SOFTWARE USES THE PROCESS WITHOUT KNOWING HOW THE S OFTWARE WORKS. THUS THE PAYMENT FOR USE OF SOFTWARE IS FOR USE OF A SECRET PROCESS. CONSEQUENTLY, THE PAYMENT WOULD BE IN THE NATURE OF ROYALTY. 4.15 THUS INCOME RELATABLE TO THE SUPPLY OF SOFTWAR E UNDER THE PRESENT CONTRACT ANSWERS TO THE DESCRIPTION OF ROYALTY, AS THE SOFTWARE IN QUESTION ARE COPYRIGHTS WHICH HAVE BEEN GIVEN TO RELIANCE CO MMUNICATIONS LTD., FOR USE. SINCE THE PROVISIONS OF THE ACT AND THE DT M ARE VERY CLEAR ON THIS POINT, NO REFERENCE TO THE COPYRIGHT ACT OR TO ANY OTHER SOURCE APPEARS NECESSARY. 4.16 WITHOUT PREJUDICE TO THE FACT THAT USE OF SOFT WARE PROGRAM ON COMPUTER WILL AMOUNT TO TRANSFER OF COPYRIGHT UNDER SECTION 14 OF THE COPYRIGHT ACT, THE PAYMENT WILL ALSO BE COVERED AS THE PAYMENT FOR USE OF SECRET PROCESS. FURTHER, THE SOFTWARE IN GENERAL IS AN INTELLECTUAL PROPERTY AND ALLOWING ITS USE BY SALE OR BY RENTING IS COVERED BY ROYALTY. 4.17.1 THE IMPACT OF INTRODUCTION OF EXPLANATION 2( IVA) TO SET 9(1)(VI) WAS LUCIDLY CONSIDERED BY THE HONBLE ITAT, HYDERABAD A ND IT HELD IN CASE OF M/S FRONT TINE SOFT LIMITED ITA NO 1080-1O81/HYD/03 HELD VIDE PARA 22,23,24 AND 27 AS BELOW: RELIANCE AND LUCENT GROUP 52 22. WE HAVE HEARD THE (EARNED REPRESENTATIVES OF PA TTIES AND RECORD PERUSED. THE ISSUE TO BE EXAMINED UNDER CONSIDERATI ON IS WHETHER IMPUGNED PAYMENT MADE TO TDT AGAINST PURCHASES OF S OFTWARE OR PAYMENT OF ROYALTY. AFTER ELABORATE DISCUSSION ON T HE ISSUE WHILE DECIDING THE FIRST GROUND WE FIND THAT WHAT IS TAXE D AS ROYALTIES IS THE AMOUNT PAID AS CONSIDERATION FOR THE USE OR THE RIG HT TO USE AND NOT OUTRIGHT PURCHASE OR THE FIGHT TO USE AS AN ASSET R OYALTY IS THUS CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHT INCLUDING THE GRANTING OF A LICENSE IN RESPECT OF A COPYRIGHT, PATENT, TRADE MARK, DESIGN AND MODAL OR SECRET FORMULA, THE USE OR RIGHT TO USE ANY INDU STRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT (SECTION 9(1)(VI), EXPLANATION 2. (IVA)) TRANSFER OF THE FIGHT IN THE PROPERTY IS NOT THE SUBJECT MATTER. IT IS THE TRANSFER OF THE FIGHT IN RESPECT OF THE PROPERTY~ THE TWO TRANSFE RS ARE DISTINCT AND HAVE DIFFERENT LEGAL EFFECTS. IN ONE RIGHT ARE PURCHASED WHICH ENABLES USE OF THOSE FIGHTS, WHILE IN THE OTHER THE PURCHASE IS IN VOLVED, ONLY THE RIGHT TO USE HAS BEEN GRANTED. OWNERSHIP DENOTES THE RELATIO NSHIP BETWEEN A PERSON AND AN OBJECT FORMING THE SUBJECT MATTER OF HIS OWNERSHIP. IT CONSISTS OF A COMPLEX OF RIGHTS ALL OF WHICH RIGHTS ARE TIGHTS IN PM PETTY BEING GOOD AGAINST ALL THE WORLD AND NOT MERELY AGA INST A SPECIFIC PERSON AND SUCH RIGHTS ARE INDETERMINATE IN DURATION AND R ESIDUARY IN CHARACTER. THAT SUM MAY BE AGREED FOR THE TRANSFER OF ONE RIGH T, TWO RIGHTS AND SO ON BUT NOT THE OWNERSHIP. THUS, THE DEFINITION IN R ESPECT OF SOFTWARE ETC. DOES NOT EXTEND TO THE OUTRIGHT PURCHASE OF THE RIG HT TO USE AN ASSET A PAYMENT FOR THE ABSOLUTE ASSIGNMENT AND OWNERSHIP O F RIGHTS TRANSFERRED IS NOT A PAYMENT FOR THE USE OF SOMETHING BELONGING TO ANOTHER PARTY AND THEREFORE, NOT ROYALTY. IN AN OUTRIGHT TRANSFER TO BE TREATED AS SALE/PURCHASE OF PROPERTY AS OPPOSED TO LICENSE, AL IENATION OF ALL RIGHTS IN THE PROPERLY IS NECESSARY. THIS DISTINCTION HAS BEE N RECOGNISED AND GIVEN EFFECT TO IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS. 1) CIT. VS. DAVY ASHMORE INDIA LTD (1991) 190 ITR 6 26 (CAL) = (2OO3- TIOL-2O7-HC-KOL-IT) THE TERM ROYALTY HAS BEEN DEFINED IN THE AGREEMEN T TO MEAN, INTER ALIA, THE PAYMENT OF ANY KIND INCLUDING RENTALS RECEIVED AS A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE ANY PATENT, TRADE MA RK DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS. IT IS IMPORTANT TH AT, IN ORDER THAT A PAYMENT MAY BE TREATED AS ROYALTY FOR THE PURPOSES OF ARTICLE XIII OF THE AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND THE U.K., THE PERSON WHO IS THE OWNER OF SUCH PATENTS, DESIGN S OR MODELS, PLANS, SECRET FORMULA OR PROCESS, ETC., RETAINS THE PROPER TY IN THEM AND PERMITS THE USE OR ALLOWS THE RIGHT TO USE SUCH PATENTS, DE SIGNS OR MODELS, PLANS, SECRET FORMULA, ETC. IN OTHER WORDS, WHERE THE TRAN SFEROR RETAINS THE PROPERTY RIGHT IN THE DESIGNS, SECRET FORMULA, ETC. AND ALLOWS THE USE OF SUCH RIGHT, THE CONSIDERATION RECEIVED FOR SUCH USE R IS IN THE NATURE OF ROYALTY. WHERE, HOWEVER, THERE IS AN OUTRIGHT SALE OR PURCHASE, THE CONSIDERATION IS FOR THE TRANSFER OF SUCH DESIGNS, SECRET FORMULA. ETC., AND CANNOT BE TREATED AS ROYALTY. (RELEVANT HEADNOTE) 2) C.I.T. VS AHMEDABAD MFG. & CALICO PRINTING CO. ( 1983) 139 ITR 806(GUJ) = (2003-TIOL-210-HC-AHM-IT ) RELIANCE AND LUCENT GROUP 53 IN THE CASE OF SECRET PROCESSES, PATENTS, SPECIAL INVENTIONS, WHEN RIGHT OF EXPLOITATION IS GIVEN BY THE OWNER OF THE INVENT IONS, PATENTS ETC., TO A THIRD PARTY INSTEAD OF OUTRIGHT SALE, THEN FOR THE RIGHT TO EXPLOIT THESE INVENTIONS, SECRET PROCESSES, SOME AMOUNT MAY BE PA ID AND THE AMOUNT PAID MAY BE CORRELATED TO THE EXTENT OF EXPLOITATIO N. IT IS IN THIS ~ SENSE THAT LICENSE AGREEMENTS FOR THE EXPLOITATION OF PAT ENTS, INVENTIONS, ETC. ARE BEING ENTERED INTO IN MODEM COMMERCIAL WOULD AN D AS PART OF SUCH AGREEMENTS, EVEN KNOWLEDGE DERIVED FROM HIS OWN EXP ERIENCE AND TECHNICAL KNOW-HOW FOR THE MOST ECONOMICAL AND EFFI CIENT USER OF THE PATENTS, INVENTIONS, ETC. ARE PARTED WITH BY THE LI CENSOR TO THE LICENSE. PAYMENTS OF THIS KIND ARE KNOWN AS ROYALTIES. THIS IS ALSO EVIDENT FROM SEVERAL DOUBLE TAXATION AVOIDANCE AGREEMENTS BETWEE N THE GOVT. OF INDIA AND FOREIGN COUNTRIES SUCH AS SWEDEN IN WHICH THE T ERM ROYALTY HAS BEEN DEFINED. THAT SUCH PAYMENTS ARE ROYALTIES IS A LSO EVIDENT FROM THE DEFINITION OF THE WORD ROYALTY IN SECTION 9(1)(VI ), EXPLANATION 2, WHICH WAS SUBSEQUENTLY INTRODUCED BY THE FINANCE ACT, 197 6, WITH EFFECT FROM JUNE 1, 1976) (RELEVANT HEAD NOTE). 23. IN OECD COMMENTARY IT IS STATED THAT THE CHARAC TER OF PAYMENTS RECEIVED IN TRANSACTIONS INVOLVING THE TRANSFER OF COMPUTER SOFTWARE DEPENDS ON THE NATURE OF THE RIGHTS THAT THE TRANSF EREE ACQUIRES UNDER THE PARTICULAR ARRANGEMENT REGARDING THE USE AND EX PLOITATION OF THE PRO GRAM. THE RIGHTS IN COMPUTER PROGRAMS ARE A FORM OF INTELLECTUAL PROPERTY. RESEARCH INTO THE PRACTICES OF OCED MEMBER COUNTRIE S HAS ESTABLISHED THAT ALL BUT ONE PROTECTS RIGHTS IN COMPUTER PROGRA MS EITHER EXPLICITLY OR IMPLICITLY UNDER COPY RIGHT LAW. ALTHOUGH THE TERM COMPUTER SOFTWARE IS COMMONLY USED TO DESCRIBE BOTH THE PROGRAM IN WHICH THE INTELLECTUAL PROPERTY RIGHTS (COPY RIGHT) SUBSIST AND THE MEDIUM ON WHICH IT IS EMBODIED, THE COPYRIGHT LAW OF MOST OECD MEMBER COU NTRIES RECOGNISES A DISTINCTION BETWEEN THE COPYRIGHT IN THE PROGRAM AND SOFTWARE WHICH INCORPORATES A COPY OF THE COPYRIGHTED PROGRAM. TRA NSFER OF RIGHTS IN RELATION TO SOFTWARE OCCUR IN MANY DIFFERENT WAYS R ANGING FROM THE ALIENATION OF THE ENTIRE RIGHTS IN THE COPYRIGHT IN A PROGRAM TO THE SALE OF A PRODUCT WHICH )~ SUBJECT TO RESTRICTIONS ON THE U SE TO WHICH IT IS ON THE USE TO WHICH IT IS PUT THE CONSIDERATION PAID CAN A LSO TAKE NUMEROUS FORMS. THESE FACTORS MAY MAKE IT DIFFICULT TO DETER MINE WHERE THE BOUNDARY LIES BETWEEN SOFTWARE PAYMENTS THAT ARE PR OPERLY TO BE REGARDED AS ROYALTIES AND OTHER TYPES OF PAYMENT TH E DIFFICULTY OF DETERMINATION IS COMPOUNDED BY THE CASE OF REPRODUC TION OF COMPUTER SOFTWARE, AND BY THE FACT THAT ACQUISITION OF SOFTW ARE FREQUENTLY ENTAILS THE MAKING OF A COPY BY THE ACQUIRER IN ORDER TO MA KE POSSIBLE THE OPERATION OF THE SOFTWARE. VARIOUS COUNTRIES HAVE G IVEN DIFFERENT TREATMENT OF ROYALTIES DESPITE OECD RECOMMENDATION. INDIAN DTAAS ALREADY CONTAINED PRO VISIONS FOR TAXING EQUIPMENT RENTAL AS ROYALTIES, BUT DOMESTIC LAW DID NOT HAVE SPECIFIC PROVISIONS T ILL 2002-03. THE FINANCE ACT 2001 INSERTED CLAUSE (IV) (A) IN SECTIO NS 90) (VI), EXPLANATION 2 TO BRING ABOUT A RESULT DIAMETRICALLY OPPOSITE TO T HE OCED RECOMMENDATIONS. THE SAID CLAUSE IS REPRODUCED AS B ELOW: RELIANCE AND LUCENT GROUP 54 (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COM MERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; 24. WHERE THE DOMESTIC LAW IS CLEAR, UNAMBIGUOUS AN D DOES NOT SUFFER FROM ANY VOID OR GAP, THE SPIRIT OR INTENTIO N OF INTERNATIONAL CONVENTION, UNDER NO CIRCUMSTANCES, CAN OVERRIDE TH E EXPRESS PROVISIONS OF DOMESTIC LAW. . 26. WITH THE ABOVE BACKGROUND OF DISCUSSION NOW WE EXAM INE THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT IN TH E IMPUGNED TRANSACTIONS OF PAYMENT TO TDT WAS FOR THE USE OF TRUE DIAL SOFTWARE AND NOT FOR PURCHASES, AS EVIDENT FROM FOLLOWING CL AUSES OF TERMS AND CONDITIONS OF THE AGREEMENT: . 27. FROM ABOVE TERMS AND CONDITIONS WE FIND THAT TH E SAID PAYMENT WAS NOT FOR TRANSFER OF ABSOLUTE ASSIGNMENT AND OWN ERSHIP OF TRUE DIAL SOFTWARE THE TRANSACTION CLEARLY, FALLS UNDER THE DEFINITION OF ROYALTY AS DEFINED IN SECTION 9FL)(VI) EXPLANATION 2 (IVA). THE ASSESSEE ACQUIRED ONLY RIGHT TO USE OF TRUE DIAL SOFTWARE. IT IS R OYALTY AND ROYALTY PAYMENT TO NRI IS DEEMED TO ACCRUE AND ARISES IN IN DIA AND THEREFORE, PAYMENT IS SUBJECT TO TAX DEDUCTED AT SOURCES. WE T HEM FORE, CONFIRM THE ORDERS OF THE LOWER AUTHORITIES. 4.17.2 RECENTLY KARNATAKA HIGH COURT IN CIT VS. SAMSUNG ELECTRONICS CO. LTD. (2009) 185 TAXMAN 313 (KAR) HELD THAT FOR THE IMPORT OF SOFTWARE THE TAX AS ROYALTY HAS TO BE D EDUCTED AND ANSWERED IN PARA 90 OF THE ORDER Q.NO. 2, 3, 4 AS BELOW: SR. NO. SUBSTANTIAL QUESTIONS RAISED ANSWERS 1 .. 2 WHETHER THE TRIBUNAL IS CORRECT IN HOLDING THAT THE PAYMENTS MADE BY THE ASSESSEE COMPANY FOR PURCHASE OF SOFTWARE FROM AAYMETRIX ASIA PACIFIC, SINGAPORE; PERITUS SOFTWARE SERVICE INC., USA AND ASTRAL COMPUTERS PVT. LTD., SINGAPORE FOR THE AMOUNTS OF RS. 3,43,095, RS. 47,89,419 AND RS. 8,89,611 WAS NOT LIABLE TO INCOME- TAX IN INDIA AND CONSEQUENTLY NO TDS AS HELD BY THE ASSESSING OFFICER AND CONFIRMED BY THE APPELLATE COMMISSIONER NEEDS TO HAVE BEEN DEDUCTED? NOT CORRECT. IN THE NEGATIVE. AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE 3 WHETHER THE TRIBUNAL WAS CORRECT IN MERELY FOLLOWING THE JUDGMENT PASSED BY IT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. WHICH HAS NOT BEEN ACCEPTED BY THE REVENUE AND DEFINITELY WRONG, ANSWERED IN THE NEGATIVE, AGAINST THE ASSESSEE AND RELIANCE AND LUCENT GROUP 55 APPEALED AGAINST BEFORE THIS HONBLE COURT WHERE THE FACTS WERE NOT ENTIRELY IDENTICAL TO ONE SUBSISTING IN THE PRESENT CASE AND THEREFORE THE TRIBUNAL WAS BOUND TO HAVE RECORDED AN INDEPENDENT FINDING AND THEREFORE THE IMPUGNED ORDER IS PERVERSE? IN FAVOUR OF THE REVENUE 4 WHETHER THE TRIBUNAL BASED ON THE FACT THAT THE ASSESSEE HAS IMPORTED SOFTWARE FROM AAYMETRIX ASIA PACIFIC. SINGAPORE; PERITUS SOFTWARE SERVICE INC., USA AND ASTRAL COMPUTERS PVT. LTD. SINGAPORE ON PAYMENT OF RS. 3,43,095, RS. 47,89,419 AND RS 8,89,61! WAS BOUND TO HAVE TAKEN INTO CONSIDERATION THE RULING OF THE ADVANCE RULING AUTHORITY (238 ITR 296); THE DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND (1S4 AND INDIA AND SINGAPORE, PROVISIONS OF SECTION 9(1)(VI ) OF THE INCOME- TAX ACT; INDIAN COPYRIGHT ACT, 1957. THE REVISED ENTRY ON ARTICLE 12 OF OECD; THE INTERNAL REVENUE SERVICE REGULATION OF USA; THE VIEWS OF THE HIGH POWERED COMMITTEE ON COMMERCE AND OTHER FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHICH COULD HAVE CLEARLY SHOWN THAT THE PAYMENTS MADE BY THE ASSESSEE WAS LIABLE TO TAX IN INDIA AND CONSEQUENTLY THE ASSESSEE WAS BOUND TO BE ANSWERED IN THE NEGATIVE, AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE IN THE AGAINST ASSESSEE FAVOUR REVENUE NEGATIVE, THE AND IN OF THE TO DEDUCT TAX AT SOURCE ? IN THE NEGATIVE, AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE 22. THIS ORDER OF AO WAS PASSED WITH THE APPR OVAL OF DRP, MUMBAI. HENCE ASSESSEE LUCENT PREFERRED THE FOUR APPEALS TO ITAT. THE GROUNDS RAISED BY LUCENT COMMON TO ALL YEARS ARE AS UNDER: GROUNDS OF APPEAL 1 . THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ADDITIONAL DIRECTOR OF INCOME TAX (INTERNATIONAL TA XATION), RANGE-4, MUMBAI ( HEREINAFTER REFERRED TO AS THE LEARNED AO) HAS ER RED IN COMPUTING THE INCOME OF THE APPELLANT OF RS.30,72,21,521 AND RAISING A C ONSEQUENT TAX DEMAND OF RS.6,45,16,519 AND INTEREST DEMAND OF S.10,01,61,89 5 FOR A.Y. 2003-04, WHILE ISSUING A SINGLE ASSESSMENT ORDER FOR A.Y. 20 03-04, A.Y. 2004-05, A.Y. 2005-06 AND A.Y. 2007-08 DATED 19 AUGUST 2010 AND T HEREBY NOT ACCEPTING THE APPELLANTS CLAIM FOR REFUND OF RS.4,60,83,230 ALONGWITH INTEREST. RELIANCE AND LUCENT GROUP 56 TAXABILITY OF INCOME 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DISPUTE RESOLUTION PANEL (HEREIN AFTER REFERRED TO AS THE DRP) HAVE ERRED IN HOLDING THAT THE AMOUNTS RECEIV ED BY THE APPELLANT FROM SUPPLY OF SOFTWARE TO RELIANCE COMMUNICATIONS LIMIT ED (PREVIOUSLY KNOWN AS RELIANCE INFOCOMM LIMITED) (HEREINAFTER REFERRED TO AS RELIANCE) ARE ROYALTY IN NATURE UNDER THE PROVISIONS OF THE ACT AND UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND USA (HEREINAFTER REFERRED TO AS DTAA) AND THUS LIABLE TO TAX IN IN DIA. 3 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN HO LDING THAT LUCENT TECHNOLOGIES HINDUSTAN PRIVATE LIMITED BECOMES A PE RMANENT ESTABLISHMENT (HEREINAFTER REFERRED TO AS PE) FOR THE APPELLANT IN INDIA. 4 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN HO LDING THAT THAT THE SALE OF SOFTWARE IS EFFECTIVELY CONNECTED TO THE PE OF THE APPELLANT IN INDIA. 5. WITHOUT PREJUDICE TO THE GROUNDS 2, 3 AND 4 ABOVE, THE ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARN ED AO AND THE DRP AUTHORITIES HAVE ERRED IN NOT HOLDING THAT THE PAYM ENTS RECEIVED BY THE APPELLANT ARE NOT ROYALTY IN NATURE AND THERE IS NO PE OF THE APPELLANT IN INDIA AND ACCORDINGLY, THE RECEIPTS OF THE APPELLAN T ARE NOT TAXABLE IN INDIA. ATTRIBUTION OF INCOME 6 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN CONSIDERING TH AT ENTIRE RECEIPTS FROM SUPPLY OF SOFTWARE TO RELIANCE ARE ATTRIBUTABLE TO THE PE (AS MENTIONED IN GROUND 3 ABOVE) AND TAXABLE AS PER ARTICLE 12(6) RE AD WITH ARTICLE 7(3) OF THE DTAA, THEREBY TAXING THE ENTIRE RECEIPTS FROM SUPPL Y OF SOFTWARE UNDER SECTION 44D READ WITH SECTION 115A (1) (B) (A) OF THE ACT. 7. WITHOUT PREJUDICE TO GROUND 6 ABOVE (WHILE ASSUMIN G BUT NOT ACCEPTING THE EXISTENCE OF A PE IN INDIA), THE DRP AUTHORITIES OUGHT TO HAVE DIRECTED THE LEARNED AO AND CONSEQUENTLY, THE LEARN ED AO OUGHT TO HAVE PROCEEDED TO DETERMINE THE INCOME ATTRIBUTABLE TO T HE OPERATIONS IN INDIA AND THEREAFTER, COMPUTE AND PROFITS ATTRIBUTABLE TO SUC H INCOME OF THE ALLEGED PE IN INDIA (AS THE ENTIRE RECEIPTS FROM THE SALE OF SOFT WARE ARE NOT TAXABLE IN INDIA.) 8 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED AO AND THE DRP AUTHORITIES ERRED IN TAKING A WITHOUT PREJUDICE ARGUMENT THAT IN THE EVEN AT ANY APPELLATE LEVEL, P ROVISIONS OF ARTICLE 12(6) ARE NOT CONSIDERED TO BE APPLICABLE, THEN THE RECEIPTS FROM SUPPLY OF SOFTWARE TO RELIANCE IS TO BE TAXABLE UNDER ARTICLE 12(1)(2) OF THE DTAA. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE DRP AUTHORITIES HAVE ERRED IN TA KING A WITHOUT PREJUDICE ARGUMENT THAT IN THE EVENT IT IS HELD THAT WHERE TH E RECEIPTS FROM SUPPLY OF SOFTWARE TO RELIANCE IS NOT ROYALTY IN NATURE, TH E BUSINESS PROFITS OF THE RELIANCE AND LUCENT GROUP 57 APPELLANT ARE TO BE COMPUTED ON THE BASIS OF THE AC TIVITIES OF THE PE IN INDIA THEREBY TAXING THE SOFTWARE RECEIPT ON NET BASIS IN INDIA. 10. WITHOUT PREJUDICE TO THE ABOVE, THE DRP AUTHORITIE S HAVE ERRED AND CONSEQUENTLY, THE LEARNED AO IN ARBITRARILY ESTIMAT ING THAT 80% OF THE ACTIVITIES ARE CARRIED OUT BY THE PE IN INDIA. FURT HER THE DRP AUTHORITIES HAVE ERRED IN ESTIMATING AN EXTREMELY HIGH NET PROFIT RA TE OF 40% ON THEIR OWN SURMISES AND CONJECTURES AND THE LEARNED AO HAS ERR ED IN CONSEQUENTIALLY GIVING EFFECT TO THE DIRECTIONS OF THE DRP AUTHORIT IES THEREBY RESULTING IN COMPUTING THE PROFITS ATTRIBUTABLE TO THE PE @ 32%, WHICH IS VERY HIGH AS COMPARED TO THE ACTUAL ACTIVITIES CARRIED OUT IN IN DIA IN RELATION TO THE SUPPLY OF SOFTWARE. 11 . WITHOUT PREJUDICE TO THE ABOVE, THE DRP AUTHORITI ES HAVE ERRED IN NOT APPRECIATING THAT ALL THE CRITICAL ACTIVITIES I N RELATION TO THE SALE OF SOFTWARE WERE CARRIED ON BY THE APPELLANT OUTSIDE OF INDIAN AND ALL RISKS RESIDED OUTSIDE OF INDIA AND THE LEARNED AO HAS ERRED IN CO NSEQUENTIALLY GIVING EFFECT TO THE DIRECTIONS OF THE DRP AUTHORITIES THEREBY RE SULTING IN HIGHER AMOUNT OF PROFITS BEING ATTRIBUTED TO THE PE IN INDIA. 12 . ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE DRP AUTHORITIES AND CONSEQUENTIALLY, THE LEARNED AO HAV E ERRED IN NOT CONSIDERING AND NOT TAKING COGNIZANCE OF THE PROFIT ATTRIBUTION STUDY FILED BEFORE THE DRP TO SUBSTANTIATE THE PROFIT ATTRIBUTION RATIO. 13. NON-GRANTING OF TDS CREDIT- I ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP HAS ERRED IN NOT DIRECTING AND CONSEQUENTLY, THE LEARNE D AO HAS ERRED IN NOT GRANTING CREDIT OF TAXES DEDUCTED OF RS.4,60,83,230 BASED ON ORIGINAL TDS CERTIFICATES SUBMITTED ALONGWITH RETURN OF INCOME F OLLOWING THE PROVISIONS OF SECTION 199 OF THE ACT. II WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLANT CONTENDS T HAT IF THE CREDIT OF TDS IS NOT GRANTED TO THE APPELLANT OF RS.4,60,83,230 THE AMOUNT RECEIVED BY THE APPELLANT (WHICH IS NET OF TDS) IS TO BE CONSIDERE D AS THE INCOME OF THE APPELLANT AND NOT THE GROSS RECEIPTS AS DISCLOSED B Y THE APPELLANT IN THE RETURN OF INCOME FILED. LEVY OF INTEREST 14. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN LEVYING INTERE ST UNDER SECTION 234A OF THE ACT. 15. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN LEVYING INTERE ST UNDER SECTION 234 B OF THE ACT. 16 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN DIRECTING TO L EVY INTEREST UNDER SECTION 234D OF THE ACT IF IT IS HELD AT ANY APPELLATE LEVE LS THAT INTEREST UNDER SECTION 234A OR 234B OF THE ACT IS NOT LEVIABLE. RELIANCE AND LUCENT GROUP 58 PENALTY 17 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO AND THE DRP HAVE ERRED IN INITIATING PEN ALTY PROCEEDINGS AGAINST THE APPELLANT UNDER SECTION 271 (1)(C) OF THE ACT. GROUND NO 1 IS GENERAL IN NATURE . 23. THE LEARNED COUNSEL FOR LUCENT, SR. P.J. PARDIWALLA SUMMARISED THE ISSUES AS UNDER: - A) WHETHER PROCEEDINGS UNDER SECTION 147 ARE VALID B) WHETHER THE RECEIPTS CAN BE CONSIDERED AS ROYALTY T O BE TAXED AS GROSS BASIS C) IF THE SAME ARE BUSINESS PROFITS, IS THERE PE AND H OW MUCH TO BE ATTRIBUTED TO PE D) CREDIT FOR TAX E) INTEREST UNDER VARIES PROVISIONS 23.1 WITH REFERENCE TO THE OBJECTION REGARDING REO PENING HE REFERRED TO PAGE 193 OF THE PAPER BOOK AND SUBSEQUENT FILING OF ROI TO SUBMIT THAT DETAILED OBJECTIONS ARE NOT DEALT WITH BY DRP. HOWEVER THERE IS NO GROUND RAISED ON THE ISSUE IN APPEAL BEFORE US. 23.2 WITH REFERENCE TO THE ISSUE OF ROYALTY, HE REL IED ON THE VARIOUS DECISIONS TO SUPPORT THAT THE SALE OF SOFTWARE CANN OT BE CONSIDERED AS ROYALTY. THE LEARNED COUNSEL REFERRED TO THE AGREE MENTS BEFORE DRP TO SUBMIT THAT THE ASSESSEE, LUCENT, SOLD ONLY SOFTWAR E TO RUN THE EQUIPMENT AND REFERRED TO THE SCOPE OF WORK IN THE AGREEMENT (CLAUSE 3.1). HE REFERRED TO VARIOUS TERMS TO SUBMIT THAT THE SALE AND SUPPLY WAS OUTSIDE INDIA, ONLY GOODS WERE SUPPLIED AT UNIT PRICES ON FIXED PRICE B ASIS AND THERE IS NO SEPARATE LICENSE FEE AND THIS SOFTWARE IS SPECIFIED FOR RUNNING THE EQUIPMENT (EQUIPMENT SPECIFIC) AND SO PART OF SUPPLY OF NETWO RK AGREEMENT. HE REFERRED TO THE MAIN GENERAL TERMS AND CONDITIONS AND ASSIGN MENT AGREEMENT TO STRESS THAT THE LUCENT WAS ACTING FOR SUPPLY OF HAR DWARE AND SOFTWARE FOR NETWORK ESTABLISHMENT AND THE PRODUCTS ARE ONLY SOL D. HE RELIED ON THE DECISION OF THE SPECIAL BENCH OF ITAT IN MOTOROLA 9 5 ITD 269 (DEL) WHEREIN IT WAS CONSIDERED THAT SUPPLY OF SOFTWARE CANNOT BE CO NSIDERED AS ROYALTY. IT RELIANCE AND LUCENT GROUP 59 WAS ALSO FURTHER SUBMITTED THAT THE SOFTWARE SUPPLI ED IS CUSTOM WORK AND NO STANDARD SOFTWARE AGREEMENT WERE ENTERED INTO. H E REITERATED THE PRINCIPLES LAID DOWN BY THE DECISION OF MOTOROLA (S UPRA) WHICH WERE IN FACT APPROVED IN THE CASES OF: - 1) DIT VS NOKIA NETWORKS OY, 25 TAXMANN.COM 22 5 2) SEIMENS AKTIENGESELLSCHAFT 19 ITR (TRIB) 336 (MUMBAI) 3) DIT VS ERICSON AB 204 TAXMANN 192. 4) LUCENT TECHNOLOGIES 28 SOT 98 HE ADMITTED THAT THERE IS CLEAR CONFLICT IN THE DE CISIONS OF HIGH COURTS OF KARNATAKA AND DELHI. 23.3 WITH REFERENCE TO THE ARGUMENTS ON PE IT WAS S UBMITTED THAT THE ASSESSEE, LUCENT, ACTED INDEPENDENTLY. HE REFERRED TO THE ARGUMENTS OF THE AO TO SUBMIT THAT RELIANCE ON LATTER AGREEMENT IS N OT CORRECT AS THAT AGREEMENT WAS ALSO SIGNED BY LUCENT IN WHICH PAYMEN T OBLIGATIONS WERE RESTRICTED, BUT INDIAN COMPANY IS NOT ACTING AS AN AGENT. HE THEN REFERRED TO ARTICLE 5.4 OF DTAA FOR TERMS OF AGENT, FORCE OF ATTRACTION. SINCE THERE IS NO FIXED PLACE PE AND AS NOTHING WAS BROUGHT ON REC ORD BY REVENUE, THERE IS NO PE IN INDIA TO THE LUCENT LLC, USA. HE RELIED ON THE PRINCIPLES LAID DOWN IN MOTOROLA (SUPRA) PARA 127, PAGE 159, 124 AN D DECISION IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC 104 ITD 34 (DEL). IT WAS SUBMITTED THAT INDIAN COMPANY IS NOT A SUBSIDIARY OF LUCENT A ND IT HAS NO AUTHORITY TO CONCLUDE AGREEMENTS. IT WAS SUBMITTED THAT AS THE G ROUP COMPANY MAY HAVE A PE BUT THE ASSESSEE LUCENT DOES NOT HAVE PE IN INDIA. 23.4 WITH REFERENCE TO GIVING CREDIT OF TAX , IT WAS THE SUBMISSION THAT THE ISSUE IS DECIDED BY THE ORDER IN THE CASE OF L UCENT TECHNOLOGIES GRL LLC 45 SOT 311( MUM). 23.5 WITH REFERENCE TO LEVY OF INTEREST UNDER SE CTION 234B/C/D IT WAS SUBMITTED THAT THE TDS WAS MADE AS PER THE DIRE CTIONS OF AO, SO AS THE AMOUNT WAS COVERED BY TDS PROVISIONS, NO INTEREST C AN BE LEVIED. FURTHER, HE RELIED ON THE DECISION OF NGC NETWORK 313ITR 186 OF HON'BLE JURISDICTIONAL HIGH COURT TO SUBMIT THAT LEVY OF IN TEREST DOES NOT ARISE. RELIANCE AND LUCENT GROUP 60 24. IN RESPONSE, THE LEARNED COUNSEL FOR THE RE VENUE SUPPORTED THE ORDERS OF AO/DRP. IT WAS HIS SUBMISSION THAT LUCENT CHOOSE NOT TO FILE ROI UNDER SECTION 139(1) AND SO IT CANNOT CLAIM ANY BEN EFITS. PROCEEDINGS UNDER SECTION 148 WERE INITIATED FOR THE BENEFIT OF REVEN UE. HE REFERRED TO THE DOCTRINE OF ELECTION (WRITTEN SUBMISSIONS) AND RELI ED ON CASE LAW OF K SUDHAKAR S SHANBAGH VS ITO 241 ITR 865 ( BOM). IT WAS THE SUBMISSION THAT THE LUCENT CANNOT CLAIM ANY BENEFIT WHICH WAS NOT CLAIMED BY FILING ROI IN TIME. 24.2 WITH REFERENCE TO THE ARGUMENTS ON ROYALTY, LD . COUNSEL RELIED ON THE SUBMISSION MADE IN REVENUE APPEAL. IT WAS THE SUBMI SSION THAT THE DECISION OF SPECIAL BENCH IN THE CASE OF MOTOROLA D OES NOT APPLY AS THE SOFTWARE WAS NOT SUPPLIED ALONG WITH HARDWARE, BUT SEPARATELY BY SEPARATE PURCHASE ORDERS FROM A DIFFERENT COMPANY, SO THE FA CTUAL POSITION IS DIFFERENT. HE REITERATED THE SAME ARGUMENTS ON USE OF COPYRIGHT/USE OF EQUIPMENT/ INTANGIBLE EQUIPMENT, ETC. 24.3 WITH REFERENCE TO THE ISSUE OF PE, HE REITE RATED THE AOS ARGUMENTS AND REFERRED TO ASSIGNMENT AGREEMENT, CLAUSE 7.3. 2 FOR COMMISSIONING OF SOFTWARE AND INDIAN COMPANY IS RESPONSIBLE FOR INST ALLING AND COMMISSIONING OF THE SOFTWARE ALONG WITH HARDWARE, SO AGENCY PE EXISTS. HE RELIED ON THE ORDERS ON THE ISSUE OF ATTRIBUTION OF PROFITS AND LEVY OF INTEREST. 25. WE HAVE HEARD THE CONTENTIONS IN DETAIL AN D PERUSED THE PAPER BOOKS, VARIOUS CASE LAW PLACED ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT RELIANCE PURCHASED VARIOUS EQUIPME NTS FOR ESTABLISHING NETWORK AND ACQUIRED SOFTWARE FROM VARIOUS SOURCES ON VARIOUS AGREEMENTS WHICH GENERALLY ARE CONSIDERED AS END USER LICENSE AGREEMENTS (EULA). IT WAS SUBMITTED THAT THE SOFTWARE SUPPLIED WERE STAND ARD SOFTWARE WHICH COULD BE SUPPLIED TO ANY OTHER PERSON IN TELECOMMUN ICATION BUSINESS WITH WIRELESS TELECOMMUNICATION NETWORK. RELIANCE WAS GR ANTED THE RIGHT TO USE THE SOFTWARE FOR ITS OWN BUSINESS PURPOSE AND IS PE RMITTED TO VALIDLY USE THE SOFTWARE FOR ITS WIRELESS NETWORK. PURSUANT TO THE SUPPLY OF SOFTWARE, THE LTGL IS OBLIGED TO PROVIDE PRODUCT WARRANTEE TO ENS URE THAT ALL THE SOFTWARE SUPPLIED ARE FREE FROM DEFECTS AND DEFICIENCIES. TH E LTGL IS ALSO RESPONSIBLE RELIANCE AND LUCENT GROUP 61 TO PROVIDE SERVICE FOR CORRECTING THE DEFECTIVE SOF TWARE, PROVIDING SOFTWARE UPDATES AND UPDATES WITHOUT ANY ADDITIONAL CONSIDER ATION. IT WAS SUBMITTED THAT LTGL HAS NOT PROVIDED ANY SOFTWARE MANAGEMENT SERVICES TO RELIANCE. AS ALREADY STATED ABOVE LUCENT TECHNOLOGIES HINDUST AN PVT. LTD HAD ENTERED INTO A WIRELESS SOFTWARE CONTRACT WITH RELI ANCE ON 31.07.2002 AS PART OF GTC CONTRACT. THIS CONTRACT WAS SUBSEQUENTL Y ASSIGNED TO LTGL ON 5 TH AUGUST, 2002. LTGL SUPPLIED SOFTWARE UNDER THIS AG REEMENT. THE RELIANCE APPROACHED THE AO FOR PAYMENT WITHOUT DEDU CTING TAXES AND IN ALL THE CASES, TAXES WERE WITHHELD BY RELIANCE AS PER T HE ORDERS OF THE AO. IT WAS THE CONTENTION OF THE PARTIES, CONSIDERING THE TERMS OF THE CONTRACT/AGREEMENT UNDER WHICH SOFTWARE WERE SUPPLI ED TO RELIANCE, THE MEANING OF THE TERM ROYALTY, COPYRIGHT AND COPYRIGH TED ARTICLE, THE COMMENTARIES OF OECD MODEL AND UN MODEL TAX CONVENT IONS AND VARIOUS JUDICIAL PRECEDENTS, IT WAS THE CONTENTION THAT THE CONSIDERATION RECEIVED BY THE PARTIES FROM RELIANCE IS IN THE NATURE OF BUSIN ESS PROFIT AND NOT ROYALTY. IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT OF TH E RESPECTIVE SUPPLIERS IN INDIA, THE SAID BUSINESS PROFIT/INCOME ON SUPPLY OF SOFTWARE IS NOT TAXABLE IN INDIA. THESE CONTENTIONS WERE MORE OR LE SS ACCEPTED BY THE LEARNED CIT(A) IN ALL THE APPEALS PREFERRED BY THE REVENUE ON THE ISSUE. 26. MANY OF THE ARGUMENTS REGARDING PROVISIONS OF SECTION 5(2), SECTION 9(1)(VI), PROVISIONS OF SECTION 14 OF COPYRIGHT ACT AND SECTION 52(1)(AA) OF COPYRIGHT ACT, COMMENTARIES OF OECD, PROVISIONS OF DTAA WITH USA AND OTHER COUNTRIES AND ARGUMENTS THAT SOFTWARE IS GOO DS ON THE BASIS OF THE DECISION OF THE TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH 271 ITR 401, ALL OTHER JUDICIAL PRECEDENTS RAISED BEFOR E US WERE ALSO EXAMINED AND CONSIDERED BY THE HON'BLE SPECIAL BENCH OF THE ITAT, DELHI IN THE CASE OF MOTOROLA INC., ERICSSON RADIO SYSTEMS AND NOKIA CORPORATION, 95 ITD 269 (DEL). THEREFORE, WE ARE NOT EXTRACTING THE DET AILED SUBMISSIONS AS WE HAVE ALREADY EXTRACTED THE ORDERS OF THE CIT(A), WH ICH ACCEPTED RELIANCES CONTENTIONS AND ORDER OF THE AO IN THE CASE OF LUCE NT FOR THE REVENUES STAND. THE HON'BLE SPECIAL BENCH OF THE ITAT EXAMIN ED VARIOUS CONTENTIONS AND HELD THAT THOSE ASSESSEE COMPANIES WERE LEADING SUPPLIERS OF THE SAID COMMUNICATION EQUIPMENTS COMPRISING BOTH HARDWARE A ND SOFTWARE. RELIANCE AND LUCENT GROUP 62 SOFTWARE COULD NOT BE EFFECTIVE WITHOUT HARDWARE, W HICH WAS ALSO SUPPLIED TOGETHER. THE SPECIAL BENCH OF THE ITAT ON THOSE FA CTS WAS OF THE VIEW THAT THE CRUX OF THE ISSUE IS 'WHETHER THE PAYMENT IS FO R COPYRIGHT OR FOR A COPYRIGHTED ARTICLE'. IF IT IS FOR COPYRIGHT, IT SH OULD BE CLASSIFIED AS ROYALTY BOTH UNDER THE INCOME-TAX ACT AND UNDER THE DTAA AN D IT WOULD BE TAXABLE IN THE HANDS OF THE ASSESSEE ON THAT BASIS. IF THE PAYMENT IS REALLY FOR A COPYRIGHTED ARTICLE, THEN IT ONLY REPRESENTS THE PU RCHASE PRICE OF THE ARTICLE AND, THEREFORE, CANNOT BE CONSIDERED AS ROYALTY EIT HER UNDER THE ACT OR UNDER THE DTAA. THIS ISSUE REALLY IS THE KEY TO THE ENTIRE CONTROVERSY AND THEY PROCEEDED TO ADDRESS THE ISSUE. AFTER NOTICING THE DEFINITION OF COPYRIGHT AS GIVEN IN THE COPYRIGHT ACT, 1957 IN SE CTION 14 OF THE SAID ACT AND REFERRING TO THE VARIOUS CLAUSES IN THE AGREEME NT ENTERED INTO BETWEEN THE PARTIES AND AFTER REFERRING TO THE VARIOUS JUDG MENTS RELIED ON, ON BEHALF OF THE PARTIES, IT WAS HELD THAT THE PAYMENT BY THE CELLULAR OPERATOR IS NOT FOR ANY COPYRIGHT IN THE SOFTWARE BUT IS ONLY FOR T HE SOFTWARE, AS SUCH, AS A COPYRIGHTED ARTICLE. IT FOLLOWS THAT THE PAYMENT CA NNOT BE CONSIDERED AS ROYALTY WITHIN THE MEANING OF EXPLANATION 2 BELOW S ECTION 9(1)(VI) OF THE ACT. FURTHER, IT WAS HELD THAT THE SOFTWARE SUPPLIED WAS A COPYRIGHTED ARTICLE AND NOT A COPYRIGHT AND THE PAYMENT RECEIVED BY THE ASS ESSEE IN RESPECT OF THE SOFTWARE CANNOT BE CONSIDERED AS 'ROYALTY' EITHER U NDER THE ACT OR UNDER DTAA. RECOGNIZING THE DISTINCTION BETWEEN COPYRIGHT AND COPYRIGHTED ARTICLE, IT WAS HELD THAT PURCHASE OF SOFTWARE ALON G WITH HARDWARE IS PURCHASE OF COPYRIGHTED ARTICLE AND NO COPY RIGH T WAS INVOLVED. 27. THIS ORDER OF THE MOTOROLA( SUPRA) ON THE SAID FACTS WAS APPROVED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF DIT VS ERICKSON AB 204 TAXMANN 192 AND ALSO IN THE CASE OF DIT VS NOKIA NE TWORKS OY, 25 TAXMANN.COM 225. IN THE ABOVE CASES, THE HON'BLE HI GH COURT WAS CONCERNED WITH THE INCOME EARNED BY THE ASSESSEE AS A RESULT OF SUPPLY OF HARDWARE AND SOFTWARE UNDER THE SUPPLY AGREEMENT WH EREIN SUCH SUPPLIES WERE MADE OVERSEAS. IN THE CASE OF DIT VS. ERICKSON AB 204 TAXMAN 192, HON'BLE DELHI HIGH COURT DID NOT ACCEPT THE ARGUMEN T THAT THE SOFTWARE COMPONENT OF THE SUPPLY SHOULD BE ASSESSED AS ROYA LTY BECAUSE THE SOFTWARE WAS INTEGRAL PART OF GSM MOBILE TELEPHONE SYSTEM AND WAS USED BY RELIANCE AND LUCENT GROUP 63 THE CELLULAR OPERATOR FOR PROVIDING CELLULAR SERVIC ES TO ITS CUSTOMERS. IT WAS EMBEDDED IN THE EQUIPMENT AND COULD NOT BE INDEPEND ENTLY USED. IT MERELY FACILITATED THE FUNCTIONING OF THE EQUIPMENT AND WA S INTEGRAL PART THEREOF. 28. THERE IS NO DISPUTE WITH REFERENCE TO THE PRINCIPLES ESTABLISHED BY THE HON'BLE SPECIAL BENCH AS APPROVED BY THE HON'BLE DE LHI HIGH COURT IN THE CASES CITED SUPRA. HOWEVER, WHAT IS TO BE NOTED IN THE ABOVE JUDGEMENTS IS THAT THE SOFTWARE WAS SUPPLIED ALONG WITH HARDWARE AS PART OF EQUIPMENT AND THERE IS NO SEPARATE SALE OF SOFTWARE. SOFTWARE WAS INTEGRAL PART OF SUPPLY OF EQUIPMENT FOR TELE-COMMUNICATIONS IN THOS E CASES. IT IS GENERALLY CALLED EMBEDDED SOFTWARE. 29. THE FACTS IN THE PRESENT CASE OF SUPPLY OF SOFTWARE TO RELIANCE ARE THAT THE SOFTWARE WAS SUPPLIED SEPARATELY AND NOT A LONGWITH THE EQUIPMENTS, EVENTHOUGH THE SOFTWARE WAS STATED TO B E SPECIFIC FOR CERTAIN EQUIPMENTS SUPPLIED BY LTGL. THE FACT THAT THERE IS SEPARATE AGREEMENT FOR SUPPLY OF SOFTWARE NOT ONLY WITH LUCENT, USA BUT AL SO FROM VARIOUS OTHER NON-RESIDENT COMPANIES, FOR USE IN THE RELIANCE NET WORK BY VIRTUE OF SEPARATE AGREEMENTS DO INDICATE THAT SOFTWARE IS NO T SUPPLIED ALONGWITH HARDWARE. AS SEEN FROM THE COPIES OF AGREEMENTS PLA CED ON RECORD, SOME AGREEMENTS ARE ONLY FOR PURCHASE OF LICENSE/ GRANTI NG OF LICENSE ONLY. BUT MAJORITY OF AGREEMENTS ARE STANDARD IN THEIR FORMAT , WHICH WAS DISCUSSED BY LD CIT(A) IN THE CASE OF AGREEMENT WITH LUCENT. IT WAS ADMITTED THAT THE SOFTWARE WORKS ON THE HARDWARE, BUT THE SUPPLY WAS NOT INTEGRAL PART OF PURCHASE OF EQUIPMENT REQUIRED/ NOR EMBEDDED SOFTWA RE. THEREFORE, THE FACTS AS STATED BEFORE THE SPECIAL BENCH OF ITAT AN D HON'BLE DELHI HIGH COURT ARE ENTIRELY DIFFERENT WHEN COMPARED TO THE F ACTS BEFORE US ALMOST IN ALL THE CASES, WHERE THE SOFTWARE AGREEMENTS ARE ST AND-ALONE AGREEMENTS, NOT WITH PURCHASE OF EQUIPMENT AND NOT SUPPLIED ALO NG WITH EQUIPMENT AS EMBEDDED SOFTWARE. THE DELIVERY WAS SEPARATE, AS ST ATED IN THE FORM OF CDS, MOSTLY ABROAD AND WAS INSTALLED IN INDIA SEPARATELY . AS ALREADY STATED, THE LUCENT HAS NOT BEEN SUPPLYING SOFTWARE AS PART OF E QUIPMENT PURCHASED BUT AS A STAND-ALONE SOFTWARE AGREEMENT ENTERED INTO A S THE END USER LICENSE AGREEMENT. RELIANCE AND LUCENT GROUP 64 30. THE ISSUE OF SUPPLY OF SOFTWARE AND GRANTIN G OF END USER LICENSE AGREEMENT (EULA) WAS CONSIDERED BY THE HON'BLE KARN ATAKA HIGH COURT IN THE CASE OF CIT VS. SYNOPSIS INTERNATIONAL LTD. 212 TAXMAN 454 (KAR). AS IS CLEAR FROM THE DESCRIPTION OF THE AGREEMENT IT IS AN END-USER SOFTWARE LICENSE AGREEMENT. CLAUSE 2.1 DEALS WITH G RANT OF RIGHTS. IT PROVIDES, SOFTWARE LICENSE SYNOPSYIS HEREBY GRANTS LICENSEE A NON- EXCLUSIVE, NON-TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICENSE OF USE THE LICENSED SOFTWARE AND DESIGN TECHNIQUES ONLY IN THE QUANTITY AUTHORIZED BY A LICENSEE IN ACCORDANCE WITH THE DOC UMENTATION IN THE USE AREA. LICENSEE MAY MAKE A REASONABLE NUMBER OF COPIES OF THE LICENSED SOFTWARE FOR BACKUP AND/OR ARCHIVAL PURPOS ES ONLY. MERELY BECAUSE THE WORDS NON-EXCLUSIVE AND NON-TRANSFERABL E IS USED IN THE SAID LICENSE IT DOES NOT TAKE AWAY THE SOFTWARE OUT OF THE DEFINITION OF THE COPYRIGHT. THE WORD LICENSED SOFTWARE HAS BEEN DEFINED. SIMILARLY, THE WORDS DESIGN, DESIGN TECHNIQUE IS ALSO DEFINED. THE WORD DOCUMENTATION IS ALSO DEFINED AND IT IS NOT IN DISP UTE WHAT IS GRANTED IS A LICENSE. EVEN IF IT IS NOT TRANSFER OF EXCLUSI VE RIGHT IN THE COPYRIGHT, THE RIGHT TO USE THE CONFIDENTIAL INFORMATION EMBED DED IN THE SOFTWARE IN TERMS OF THE AFORESAID LICENSE MAKES IT ABUNDANT LY CLEAR THAT THERE IS TRANSFER OF CERTAIN RIGHTS WHICH THE OWNER OF COPYR IGHT POSSESS IN THE SAID COMPUTER SOFTWARE/PROGRAMME IN RESPECT OF THE COPYRIGHT OWNED. IN TERMS OF THE DTAA THE CONSIDERATION PAID FOR THE USE OR RIGHT TO USE THE SAID CONFIDENTIAL INFORMATION IN THE FORM OF CO MPUTER PROGRAMME SOFTWARE ITSELF CONSTITUTES ROYALTY AND ATTRACTS TA X. IT IS NOT NECESSARY THAT THERE SHOULD BE A TRANSFER OF EXCLUSIVE RIGHT IN THE COPYRIGHT AS CONTENDED BY THE ASSESSEE. THE CONSIDERATION PAID I S FOR RIGHTS IN RESPECT OF THE COPYRIGHT AND FOR THE USER OF THE CO NFIDENTIAL INFORMATION EMBEDDED IN THE SOFTWARE/COMPUTER PROGRAMME. THEREF ORE, IT FALLS WITHIN THE MISCHIEF OF EXPLANATION (2) OF CLAUSE (V I) OF SUB-SECTION (1) OF SECTION 9 OF THE ACT AND THERE IS A LIABILITY TO PA Y THE TAX. FOR THE PURPOSE OF SECTION 9 WHICH DEALS WITH INCOM E DEEMED TO ACCRUE OR ARISE IN INDIA, UNDER CLAUSES (V), (VI) AND (VII ) OF SUB-SECTION (1), SUCH INCOME SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RESIDENT, WHETHER OR NOT (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA, (II) THE NON-RESID ENT HAS RENDERED SERVICES IN INDIA. THEREFORE, THE OBJECT IS TO LEVY TAX ON THE INCOME OF A NON-RESIDENT, IF IT HAS ACCRUED OR ARISEN IN INDIA AND ONE SUCH INCOME IS THE INCOME FROM ROYALTY. ALL THE APPEALS ARE ALLOWED. IMPUGNED ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH, IS HEREBY SET ASIDE. THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS) AFFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF I NCOME TAX, CIRCLE 19 (1), BANGALORE, WITH MODIFICATION IS RESTORED. RELIANCE AND LUCENT GROUP 65 31. THE KARNATAKA HON'BLE HIGH COURT IN A BATCH OF APPEALS, IN THE CASE OF SAMSUNG ELECTRONICS AND OTHER CASE( 345 ITR494 KAR) , ON BEING RESTORED BY THE HON'BLE SUPREME COURT, HAS CONSIDERED THE ISSUE WHICH IS AS UNDER: - THE QUESTION WHICH THE HIGH COURT WILL ANSWER IS W HETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT WAS J USTIFIED IN HOLDING THAT THE AMOUNT(S) PAID BY THE APPELLANT(S) TO THE FIRM OF SOFTWARE SUPPLIERS WAS NOT ROYALTY AND THAT THE SAME DID NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA AND THEREFORE THE APPELLANT WAS NOT LIABLE TO DEDUCT ANY TAX AT SOURCE. ON THIS QUESTION THE HON'BLE KARNATAKA HIGH CONSIDE RED AND HELD AS UNDER:- THE ASSESSEE-COMPANY WAS ENGAGED IN THE DEVELOPMENT OF COMPUTER SOFTWARE AND EXPORTED SUCH SOFTWARE TO ITS HEAD OFFICE LOCATED IN SOUTH KOREA. DURING THE ASSESSMENT YEARS 1999-20 00 TO 2001-02, THE ASSESSEE IMPORTED SOFTWARE PRODUCTS FROM THE U. S. A., FRANCE AND SWEDEN. DURING THE FINANCIAL YEARS 1998-99, 1999-20 00 AND 2000-01, RELEVANT FOR THE ASSESSMENTS YEARS 1999-2000, 2000- 2001 AND 2001- 02, THE ASSESSEE MADE PAYMENT OF RS.2,28,960, RS. 1 0,825 AND RS. 1,51,85,430 RESPECTIVELY FOR IMPORTING SOFTWARE FRO M THESE COMPANIES. NO TAX WAS DEDUCTED AT SOURCE IN RESPECT OF SUCH PA YMENTS. THE ASSESSING OFFICER HELD THAT THE PAYMENT MADE BY THE ASSESSEE WOULD CONSTITUTE ROYALTY UNDER EXPLANATION 2 TO SECTION 9 (1)(VI) OF THE ACT AND RELEVANT CLAUSES OF THE DTAA WITH THE U. S. A., FRA NCE AND SWEDEN AND, THEREFORE, THERE WAS OBLIGATION TO DEDUCT TAX AT SO URCE UNDER SECTION 195(1). THIS WAS CONFIRMED BY THE COMMISSIONER (APP EALS) BUT THE TRIBUNAL SET ASIDE THE ORDER. ON APPEAL, THE HIGH C OURT RESTORED THE ORDER OF THE ASSESSING OFFICER. ON FURTHER APPEAL, THE SUPREME COURT REMANDED THE MATTER TO THE HIGH COURT : HELD REVERSING THE TRIBUNAL: (I) U/S 9(1)(VI) OF THE ACT & ARTICLE 12 OF THE DTAA, PAYMENTS OF ANY KIND IN CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WOR K IS DEEMED TO BE ROYALTY . UNDER THE COPYRIGHT ACT, 1957, A SOFTWARE PROGRA MME CONSTITUTES A COPYRIGHT . A RIGHT TO MAKE A COPY OF THE SOFTWARE AND USE IT FOR INTERNAL BUSINESS BY MAKING COPY OF THE SAME AND STORING IT ON THE HARD DISK AMOUNTS TO A USE OF THE COPYRIGHT U/S 14 (1) OF THAT ACT BECAUSE IN THE ABSENCE OF SUCH A LICENSE, THERE WOULD HAVE BEEN AN INFRINGEMENT OF THE COPYRIGHT . ACCORDINGLY, THE ARGUMENT THAT THERE IS NO TRANSFER OF ANY PART OF THE COPYRIGHT AND THE TRANSACTION INVOLVES ONLY A S ALE OF A COPYRIGHTED ARTICLE IS NOT ACCEPTABLE. THE AMOUNT P AID TO THE SUPPLIER FOR SUPPLY OF THE SHRINK-WRAPPED SOFTWAR E IS NOT THE PRICE OF THE CD ALONE NOR SOFTWARE ALONE NOR THE PR ICE OF LICENSE RELIANCE AND LUCENT GROUP 66 GRANTED. IT IS A COMBINATION OF ALL. IN SUBSTANCE U NLESS A LICENSE WAS GRANTED PERMITTING THE END USER TO COPY AND DOW NLOAD THE SOFTWARE, THE CD WOULD NOT BE HELPFUL TO THE END US ER; (II) THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGR EEMENTS (DTAA) PREVAIL OVER THE PROVISIONS OF THE INCOME-TA X ACT, 1961, IF THE PROVISIONS OF THE DTAA ARE MORE BENEFICIAL TO T HE ASSESSEE. THE DEFINITION OF 'ROYALTY' IS RESTRICTIVE IN THE D TAA WHEREAS THE DEFINITION OF 'ROYALTY' UNDER THE ACT IS BROADER IN ITS CONTENT. (III) UNDER THE DTAA WITH THE U. S. A., THE NECESSARY ING REDIENT TO BE SATISFIED TO FIND OUT WHETHER THE PAYMENT WOULD AMO UNT TO 'ROYALTY' IS THAT IT IS RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTIST IC OR SCIENTIFIC WORK. A LITERARY WORK IS ENTITLED TO COPYRIGHT. IN INDIA, SECTION 2(O) OF THE COPYRIGHT ACT, 1957, DEFINES 'LITERARY WORK' AS INCLUDING COMPUTER PROGRAMMES, TABLES AND COMPILATIONS INCLUD ING COMPUTER DATABASE. THEREFORE, 'COMPUTER SOFTWARE' H AS BEEN RECOGNISED AS COPYRIGHT WORK IN INDIA ALSO. THE LEG ISLATURE HAS TREATED LITERARY WORK LIKE BOOKS AND OTHER ARTICLES SEPARATELY FROM COMPUTER SOFTWARE WITHIN THE MEANING OF THE 'COPYRI GHT' UNDER THE COPYRIGHT ACT. THERE IS A DIFFERENCE BETWEEN A PURCHASE OF A BOOK OR A MUSIC CD BECAUSE WHILE THESE CAN BE USED ONCE THEY ARE PURCHASED, SOFTWARE STORED IN A DUMB CD REQUIRES A LICENSE TO ENABLE THE USER TO DOWNLOAD I T UPON HIS HARD DISK, IN THE ABSENCE OF WHICH THERE WOULD BE AN INFRINGEMENT OF THE OWNERS COPYRIGHT . ( TCS VS. STATE OF AP DISTINGUISHED AS BEING IN THE CONTEXT OF SALES-TAX ); ALLOWING THE APPEALS, THAT IN THE ABSENCE OF ANY DEFINITION OF 'COPYRIGHT ' IN THE ACT OR THE DTAA WITH THE RESPECTIVE COUNTRIES, IN VIEW OF ARTI CLE 3 OF THE DTAA, REFERENCE HAD TO BE MADE TO THE RESPECTIVE LAW REGA RDING THE DEFINITION OF 'COPYRIGHT', NAMELY, THE COPYRIGHT ACT, 1957, IN INDIA, WHEREIN IT IS CLEARLY STATED THAT 'LITERARY WORK' INCLUDES COMPUT ER PROGRAMMES, TABLES AND COMPILATIONS INCLUDING COMPUTER DATABASE S. IT WAS NOT DISPUTED THAT PAYMENTS HAD BEEN MADE BY THE ASSESSE E TO NON- RESIDENTS FOR HAVING IMPORTED SHRINK WRAPPED SOFTWA RE/OFF-THE-SHELF SOFTWARE. IT WAS CLEAR FROM THE MATERIAL ON RECORD THAT WHAT WAS TRANSFERRED WAS THE RIGHT TO USE THE SOFTWARE, AN E XCLUSIVE RIGHT, WHICH THE OWNER OF THE COPYRIGHT, I.E., THE FOREIGN SUPPL IER OWNED AND WHAT WAS TRANSFERRED WAS ONLY THE RIGHT TO USE COPY OF T HE SOFTWARE FOR THE INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS O F THE AGREEMENT. THE RIGHT THAT WAS TRANSFERRED WAS THE TRANSFER OF COPY RIGHT INCLUDING THE RIGHT TO MAKE COPY OF SOFTWARE FOR INTERNAL BUSINES S, AND PAYMENT MADE IN THAT REGARD WOULD CONSTITUTE ROYALTY FOR IM PARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMME RCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL. THE PAYMENT FOR THE RIGHT WOULD RELIANCE AND LUCENT GROUP 67 CONSTITUTE 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12(3) OF THE DTAA AND THE PROVISIONS OF 9(1)(VI) OF THE ACT. TAX HAD TO B E DEDUCTED AT SOURCE ON THE PAYMENT. 32. THE HONBLE HIGH COURT OF KARNATAKA CONSIDERED AND ANALYSED THE PROVISIONS OF INCOME TAX, PARTICULARLY SECTION 9, I N DETAIL IN THE CASE OF SYNOPSIS(SUPRA) FROM PARA 19 TO 27. THE DETAILED D ISCUSSION ON THE ISSUE IS AS UNDER: 19. FROM THE AFORESAID JUDGMENTS IT IS CLEAR, A DIS TINCTION HAS BEEN MADE BETWEEN A TRANSFER OF A RIGHT IN A COPYRIGHT AND TRANSFER OF A RIGHT IN A COPYRIGHTED ARTICLE. IN VIEW OF THE LANGUAGE EMPLOYED IN SUB-CLAUSE (V) TO EXPLANATION 2, THE QUESTION IS NOT WHETHER WHAT IS TRANSFERRED IS A RIGHT IN A COPYRIG HT OR A COPYRIGHTED ARTICLE. THE REAL QUESTION IS WHETHER THE CONSIDERATION PAID TO THE O WNER OR A LICENSOR OF A COPYRIGHT, FOR PERMISSION TO USE THE SOFTWARE/COMPUTER PROGRAM ME IS A CONSIDERATION FOR TRANSFER OF ANY RIGHT IN RESPECT OF A COPYRIGHT AND FALLS WITHIN THE MISCHIEF OF THE DEFINITION OF 'ROYALTY'. THIS IS CLEAR FROM THE WOR DINGS IN SECTION 9 OF THE ACT, WHICH READS AS UNDER :- '(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRU E OR ARISE IN INDIA:- (VI) INCOME BY WAY OF ROYALTY PAYABLE BY- .................................. (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE RO YALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED, ON BY SUCH PERSON O UTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUT SIDE INDIA; .................................. [PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CL AUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER SOFTW ARE SUPPLIED BY A NON-RESIDENT MANUFACTURER ALONG WITH A COMPUTER OR COMPUTER-BASE D EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWA RE EXPORT, SOFTWARE DEVELOPMENT AND TRAINING, 1986 OF THE GOVERNMENT OF INDIA] EXPLANATION 2 - FOR THE PURPOSES OF THIS CLAUSE, 'R OYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UND ER THE HEAD 'CAPITAL GAINS') FOR- (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WOR K INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO RELIANCE AND LUCENT GROUP 68 BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR T HE SALE, DISTRIBUTION OF EXHIBITION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB- CLAUSE (I) TO (IV), (IVA) AND (V) [EXPLANATION 3. FOR THE PURPOSES OF THIS CLAUSE, 'C OMPUTER SOFTWARE' MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERF ORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE AND INCLUDES ANY SUCH PR OGRAMME OR ANY CUSTOMIZED ELECTRONIC DATA] .................................. [EXPLANATION - FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR C LAUSE (VII) OF SUB-SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON-RE SIDENT, WHETHER OR NOT,- (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BU SINESS OR BUSINESS CONNECTION IN INDIA: OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDI A.' 20. INCOME BY WAY OF 'ROYALTY' IS LIABLE TO TAX. TH E SECOND PROVISO TO CLAUSE (VI) MAKES IT CLEAR THAT ANY LUMP SUM PAYMENT MADE BY A RESIDENT FOR THE TRANSFER OF ALL OR ANY LIGHTS INCLUDING GRANTING OF A LICENCE IN RESPE CT OF COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT MANUFACTURER ALONG WITH A COMPUTER O F COMPUTER BASED EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPU TER SOFTWARE EXPORT, SOFTWARE DEVELOPMENTS AND TRAINING, 1986 OF THE GOVT., OF IN DIA, WOULD NOT CONSTITUTE 'ROYALTY'. FOR THE PURPOSE OF THE SAID SECTION, THE COMPUTER SOFTWARE SUPPLIED BY A NON-RESIDENT TO A RESIDENT FALLS WITHIN THE DEFINIT ION OF 'ROYALTY'. IF THE CASE FALLS UNDER THE PROVISO IT IS OUT OF THE DEFINITION OF THE 'ROY ALTY'. THEREFORE, IT IS CLEAR THAT THE CONSIDERATION PAID FOR SUPPLY OF A SOFTWARE BY A NO N-RESIDENT TO A RESIDENT IS A SOFTWARE (SIC. ROYALTY) UNLESS IT FALLS WITHIN THE SECTION PROVISO. 21. THEREFORE, ANY COMPUTER SOFTWARE SOLD ON THE SH ELF FALLS UNDER THE; SECOND PROVISO AND THE CONSIDERATION PAID THEREON FALLS WITHIN THE MISCHIEF OF 'ROYALTY' AS DEFINED IN THE SAID PROVISO. IT IS IN THIS BACKGROUND, WE HAVE TO LOOK INTO CLAUSE (V) OF EXPLANATION 2. UNDER EXPLANATION 2, FOR THE PURPOSE OF CLAUSE (V), 'ROYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEAB LE UNDER THE HEAD 'CAPITAL GAINS'). IN OTHER WORDS, ONE OF THE TESTS TO BE APP LIED IS WHETHER THE CONSIDERATION : PAID WOULD FALL WITHIN THE DEFINITION OF CAPITAL GA INS. IF THE CONSIDERATION PAID DO NOT FALL WITHIN THE DEFINITION OF CAPITAL GAINS AND DO NOT FALL WITHIN THE SECOND PROVISO, RELIANCE AND LUCENT GROUP 69 THEN THE SAID CONSIDERATION WOULD BE 'ROYALTY' FOR THE PURPOSE OF THIS CLAUSE, AS DEFINED IN EXPLANATION 2. 22. SIMILARLY, CLAUSE (V) DEALS WITH COPYRIGHT, LIT ERARY, ARTISTIC OR SCIENTIFIC WORK AND THE CONSIDERATION FOR THE TRANSACTION OF ALL OR ANY RIGHTS (INCLUDING GRANTING OF LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK AS 'ROYALTY'. SIMILARLY, WHAT IS EXCLUDED FROM THE DEFINITION OF ROYALTY' ARE CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS. WHEREAS, IT EXPRESSLY STATES THE RENDERING OF ANY SERVICES IN CONNECTION WITH TH E ACTIVITIES REFERRED TO IN SUB- CLAUSES (I) TO (IV) (IVA) AND (V) ALSO CONSTITUTES 'ROYALTY'. FOR THE PURPOSE OF THIS PROVISION, ANY RIGHTS INCLUDES GRANTING OF A LICENC E, IT SHOULD BE IN RESPECT OF ANY COPYRIGHT. IT IS NOT A RIGHT IN COPYRIGHT. THEREFOR E, THE WORDS 'IN RESPECT OF ASSUMES IMPORTANCE FOR THE PROPER UNDERSTANDING OF WHAT THE LEGISLATURE MEANT IN DEFINING 'ROYALTY' AS THEY HAVE DONE IN EXPLANATION 2. THE A RGUMENT IS THAT IT IS ONLY THE CONSIDERATION PAID FOR TRANSFER OF A RIGHT IN THE C OPYRIGHT, WHICH WOULD CONSTITUTE 'ROYALTY' AND ANY CONSIDERATION PAID FOR THE TRANSF ER OF A COPYRIGHTED ARTICLE DO NOT INVOLVE ANY TRANSFER OR RIGHT AND THEREFORE, IT IS OUTSIDE THE SCOPE OF 'ROYALTY' AS APPEARED IN EXPLANATION 2. THE SAID ARGUMENT IS BAS ED ON THE AFORESAID TWO DECISIONS REFERRED TO SUPRA. IN THE ENTIRE DISCUSSIONS IN THE AFORESAID TWO CASES, THE WORDS USED IN CLAUSE 5 NAMELY, 'IN RESPECT OR, IS NOT NOTICED AND NOT DISCUSSED. IT IS WELL SETTLED LAW THAT THE LEGISLATURE IS DEEMED NOT TO WASTE ITS WORDS OR TO SAY ANYTHING IN VAIN. A CONSTRUCTION WHICH ATTRIBUTES REDUNDANCY TO THE LEG ISLATURE IS NOT ACCEPTABLE EXCEPT FOR COMPELLING REASONS. THE COURTS ALWAYS PRESUME T HAT THE LEGISLATURE INSERTED EVERY WORD THEREOF FOR A PURPOSE AND THE LEGISLATIVE INTE NTION IN THAT EVERY WORD OF THE STATUTE SHOULD HAVE EFFECT. THE INTENTION OF THE LE GISLATURE IS PRIMARILY TO BE GATHERED FROM THE WORDS USED. THE WORDS OF A STATUTE ARE FIR ST UNDERSTOOD IN THEIR NATURAL, ORDINARY OR POPULAR SENSE AND PHRASES AND SENTENCES ARE CONSTRUED ACCORDING TO THEIR GRAMMATICAL MEANING, UNLESS THAT LEADS TO SOME ABSU RDITY OR UNLESS IS SOMETHING IN THE CONTEXT, OR IN THE OBJECT OF THE STATUTE TO SUG GEST THE CONTRARY. THE RIGHT WAY IS TO TAKE THE WORDS AS THE LEGISLATURE HAS GIVEN THEM, A ND TO TAKE THE MEANING WHICH THE WORDS GIVEN NATURALLY IMPLY, UNLESS WHERE THE CONST RUCTION OF THOSE WORDS IS. EITHER BY THE PREAMBLE OR BY THE CONTEXT OF THE WORDS IN QUES TION CONTROLLED OR ALTERED. IN THIS CONTEXT IT IS NECESSARY TO KNOW THE MEANING OF THE WORDS 'IN RESPECT OF USED IN THE RELIANCE AND LUCENT GROUP 70 AFORESAID PROVISION. IN FACT THIS PHRASE HAS BEEN T HE SUBJECT MATTER OF INTERPRETATION BY THE APEX COURT AS WELL AS THE HIGH COURT. 23. THE APEX COURT IN THE CASE OF SHAHDARA (DELHI) SAHARANPUR LIGHT RAILWAY CO. LTD. V. UPPER DOAB SUGAR MILLS LTD. AND ANOTEHR, RE PORTED IN AIR 1960 PAGE 695, HELD AS UNDER:- 'WE DO NOT PROPOSE, HOWEVER, TO REST OUR DECISION O N THIS NARROW QUESTION OF HAULAGE FROM THE STATION PLATFORM TO POINT A, AS IN OUR VIEW THE ASSUMPTION MADE ABOVE AS REGARDS THE DEFINITION OF TERMINALS IN S. 3(14) IS NOT JUSTIFIED. THE DEFINITION AS HAS ALREADY BEEN STATED IS IN THESE W ORDS. 'TERMINALS' INCLUDES ''CHARGES IN RESPECT OF STATIONS, SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS, AND OF ANY SERVICE RENDERED THEREAT'. THUS TWO CLASSES OF CHARGES ARE INCLUDED IN THE DEFINITION. THE FIRST I S 'CHARGES IN RESPECT OF STATIONS, SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OT HER SIMILAR MATTERS.' THE SECOND IS 'CHARGES IN RESPECT OF ANY SERVICES RENDE RED THEREAT'. WHETHER OR NOT THEREFORE ANY SERVICES HAVE BEEN RENDERED 'THREAT' THAT IS, AT THE STATIONS SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OTHER SIMIL AR MATTERS THE OTHER CLASS OF TERMINALS IN RESPECT OF THESE STATIONS, SIDINGS, WH ARVES, DEPOTS, WAREHOUSES, CRANES AND SIMILAR OTHER MATTERS REMAIN. A FURTHER QUESTIO N THUS ARISES AS REGARDS THE INTERPRETATION OF THE PHRASE 'IN RESPECT OF'. DOES IT MEAN CHARGES FOR THE MERE PROVISION AND MAINTENANCE OF STATIONS, SIDINGS, DEP OTS, WHARVES, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS ARE THE TERMINALS OR DOES IT CONTEMPLATE CHARGES ONLY FOR USE OF SIDINGS, STATIONS, WHARVES DEPOTS, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS? THE WORDS 'IN RESPECT OF' ARE WIDE ENOUGH TO PERMIT CHARGES BEING MADE AS TERMINALS SO LONG AS ANY OF THESE THI NGS, VIZ., STATIONS, SIDINGS, WHARVES, DEPOTS WAREHOUSES, CRANES AND OTHER SIMILA R MATTERS HAVE BEEN PROVIDED AND ARE BEING MAINTAINED. THE QUESTION IS WHETHER T HE IMPORT OF THIS GENERALITY OF LANGUAGE SHOULD BE CUT DOWN FOR ANY REASON. IT IS W ELL SETTLED THAT A LIMITED INTERPRETATION HAS TO BE MADE ON WORDS USED BY THE LEGISLATURE IN SPITE OF THE GENERALITY OF THE LANGUAGES USED WHERE THE LITERAL INTERPRETATION IN THE GENERAL SENSE WOULD BE SO UNREASONABLE OR ABSURD THAT THE L EGISLATURE SHOULD BE PRESUMED NOT TO HAVE INTENDED THE SAME. IS THERE ANY SUCH RE ASON FOR CUTTING DOWN THE RESULT OF THE GENERALITY OF THE LANGUAGE USED PRESENT HERE ? THE ANSWER IN OUR OPINION MUST BE IN THE NEGATIVE. IT IS TRUE THAT IN MANY CA SES STATIONS, SIDINGS, WHARVES, DEPOTS WAREHOUSES, CRANES AND OTHER SIMILAR THINGS WILL BE USED AND IT IS ARGUABLE THAT IN USING THE WORDS 'IN RESPECT OF' THE LEGISLA TURE HAD SUCH USER IN MIND. IT IS WELL TO NOTICE HOWEVER THAT THE LEGISLATURE MUST HA VE BEEN EQUALLY AWARE THAT WHEREAS IN SOME CASES ACCOMMODATION PROVIDED BY STA TIONS WILL HE USED, IN, SOME CASES SIDINGS WILL BE USED, IN OTHER WHARVES, IN OT HERS WAREHOUSES AND IN OTHER CASES CRANES, AND IN CERTAIN CASES SEVERAL OF THESE MAY BE USED, IN MOST CASES THERE WILL BE NO USE OF ALL OF THESE. FROM THE PRACTICAL POINT OF VIEW IT IS IMPOSSIBLE TO REGULATE TERMINATE CHARGES SEPARATELY IN RESPECT OF USER OF EACH OF THESE SEVERAL THINGS MENTIONED. WHEN THEREFORE THE LEGISLATURE AU THORISED THE CENTRAL GOVERNMENT TO FIX TERMINALS AS DEFINED IN S. 3(14), THE INTENTION MUST HAVE BEEN THAT THE TERMINALS LEVIABLE WOULD NOT DEPEND ON HOW MANY OF THESE THINGS WOULD BE USED. IT IS ALSO WORTH NOTICING THAT THE USER OF A DEPOT, WAREHOUSE AND CRANES WOULD NECESSARILY MEAN SOME SERVICE RENDERED 'THREA T'. IF TERMINALS DID NOT INCLUDE CHARGES IN RESPECT OF THE PROVISIONS OF DEP OTS, WAREHOUSES, CRANES UNLESS RELIANCE AND LUCENT GROUP 71 THESE WERE USED, THERE WOULD BE NO NEED OF INCLUDIN G THESE IN THE FIRST PORTION AS THEY WOULD BE COVERED BY THE SECOND PART OF THE DEF INITION VIZ., 'OF ANY SERVICES RENDERED THREAT'. FOR FROM BEING THERE ANY REASON T O CUT DOWN, THE CONSEQUENCE OF THE GENERALITY OF LANGUAGE USED VIZ., 'IN RESPECT O F, THERE IS THUS GOOD GROUND FOR THINKING THAT THE LEGISLATURE USED THIS LANGUAGE DE LIBERATELY TO CUT ACROSS THE DIFFICULTY OF DISTINGUISHING IN A PARTICULAR CASE A S TO WHICH OF THESE THINGS HAD BEEN USED OR WHETHER ANY OF THEM HAD BEEN USED AT ALL. I NNUMERABLE PEOPLE CORRY GOODS OVER THE RAILWAYS AND MANY OF THEM FOR THE PURPOSE OF THE CARRIAGE MAKE USE OF THE STATIONS, SIDINGS, WHARVES, DEPOTS, WAREHOUSES, CRANES AND OTHER SIMILAR MATTERS, WHILE MANY DO NOT. THOUGH AT FIRST SIGHT I T MIGHT SEEM UNREASONABLE THAT THOSE WHO HAD NOT USED WOULD HAVE TO PAY THE SAME C HARGE AS THOSE WHO HAD MADE USE OF THESE, IT IS OBVIOUS ' THAT THE INTERMINABLE DISPUTES THAT WOULD ARISE BETWEEN THE RAILWAY ADMINISTRATION AND THE RAILWAY USERS, I F THE FACT OF USER OF STATIONS, SIDINGS AND OTHER THINGS MENTIONED HAD TO DETERMINE THE AMOUNT PAYABLE, WOULD BE UNHELPFUL NOT ONLY TO THE RAILWAY ADMINISTRATION BU T ALSO TO THE USING PUBLIC. THE SENSIBLE, WAY WAS THEREFORE TO MAKE A CHARGE LEVIAB LE FOR THE MERE PROVISION OF THESE THINGS IRRESPECTIVE OF WHETHER ANY USE WAS MA DE THEREOF. THAT WAS THE REASON WAY SUCH WIDE WORDS 'IN RESPECT OF WAS USED. WE ARE THEREFORE OF OPINION THAT THE WORDS 'IN RESPECT OF' USED IN SECTION 3(14) MEAN FO R THE PROVISION OF AND NOT 'FOR THE USER OF.' 24. THE HIGH COURT OF BOMBAY IN THE CASE OF ANUSYA VITHAL V. J.H. MEHTA, ADDL. AUTHORITY UNDER PAYMENT OF WAGES ACT, BOMBAY AND AN OTHER, REPORTED IN AIR 1960 (BOMBAY) 201 HELD AS UNDER : '4. ANOTHER REQUIREMENT OF A PAYMENT TO FALL WITHIN THE TERM 'WAGES' IS THAT IT MUST BE 'IN 'RESPECT OF EMPLOYMENT OR WORK DONE IN SUCH EMPLOYMENT.' THE EXPRESSION 'IN RESPECT OF' MEANS 'ATTRIBUTABLE TO' [SEE ASHER V. SEOFORD COURT ESTATES LTD. [1950 A.C. 508, 526] OR, IF IT IS GIVEN A WIDER MEA NING, 'RELATING TO OR WITH REFERENCE TO' [SEE TOLARAM RELUMAL V. STATE OF BOMB AY (1955) 1 SCR 158 AT P. 165: (AIR 1954 466 AT P.499). THE PAYMENT MUST, THE REFORE, BE ATTRIBUTABLE TO EMPLOYMENT, THAT IS, ENGAGEMENT IN WORK, OR TO WORK DONE. DURING THE PERIOD OF LAY-OFF, THE EMPLOYER IS NOT IN A POSITION TO PROVI DE WORK AND THE EMPLOYEE CANNOT INSIST ON WORK BEING PROVIDED OR WAGES BEING PAID T O HIM. THE EMPLOYEE IS ALSO NOT WIDER ANY DUTY TO WORK FOR HIS MASTER OR EVEN TO PR ESENT HIMSELF FOR WORK. HE HAS TO PRESENT HIMSELF FOR WORK IF HE DESIRES TO CLAIM COMPENSATION (SEE S. 25E OF THE INDUSTRIAL DISPUTES ACT). BUT HE HAS AN OPTION IN T HE MATTER. IF HE REMAINS ABSENT, HE WILL NOT BE ENTITLED TO COMPENSATION, BUT HE WIL L NOT LOSE THE RIGHT, WHICH HE POSSESSES UNDER THE STANDING ORDERS, OF REINSTATEME NT WHEN THE NORMAL WORKING IS RESUMED. THE EMPLOYER CANNOT INSIST, ON HIS ATTENDA NCE AND THERE IS ALSO NO OBLIGATION UPON 1DM TO PROVIDE WORK OR TO PAY WAGES EVEN IF THE WORKER PRESENTS HIMSELF FOR WORK. IN ORDER TO ESCAPE LIABILITY FOR COMPENSATION, THE EMPLOYER MAY PROVIDE THE WORKER WITH ALTERNATIVE EMPLOYMENT, BUT THE WORKER IS NOT BOUND TO ACCEPT IT. IF HE DOES NOT ACCEPT IT, HE WILL NOT BE ENTITLED TO CLAIM LAY-OFF COMPENSATION, BUT HE WILL NOT LOSE HIS RIGHT OF REI NSTATEMENT WHEN THE LAY-OFF ENDS. THE COMPENSATION FOR LAY-OFF IS, THEREFORE, PAID IN RESPECT OF A PERIOD WHEN NO WORK IS DONE AND WHEN IN FACT THERE IS NO LIABILITY ON THE EMPLOYER TO PROVIDE WORK AND ON THE EMPLOYEE TO DO WORK. IT IS NOT PAID AS A DDITIONAL REMUNERATION FOR WORK DONE PREVIOUSLY. IT CANNOT, THEREFORE, BE SAID TO B E ATTRIBUTABLE TO THE EMPLOYMENT OF A WORKER OR TO THE WORK DONE BY HIM. IT IS MADE PAYABLE IN ORDER TO MITIGATE OR RELIANCE AND LUCENT GROUP 72 REDUCE THE HARDSHIP CAUSED BY REASON OF UNEMPLOYMEN T OR TEMPORARY LOSS OF EMPLOYMENT. CONSEQUENTLY, IT CANNOT BE SAID TO BE A PAYMENT 'IN RESPECT OF EMPLOYMENT OR WORK DONE IN SUCH EMPLOYMENT.' 25. THE HIGH COURT PATNA IN THE CASE OF COMMISSIONE R OF INCOME TAX VS. CHUNNILAL RAMESHWAR LAL, REPORTED IN AIR 1968 PATNA PAGE 364 HELD AS UNDER : 'IT IS WELL KNOWN THAT THE EXPRESSION 'IN RESPECT O F IS OF WIDER CONNOTATION THAN THE WORD 'IN' OR 'ON'. HENCE, A CLASS OF MUNICIPAL TAX, THOUGH NOT A TAX ON THE PREMISES OR BUILDINGS, MAY NEVERTHELESS BE A TAX IN RESPECT OF THE PREMISES OR BUILDING USED FOR THE BUSINESS. HENCE, THE PAYMENT OF THE IMPUGNED AMOUNT OF RS. 125 AS PROFESSIONAL TAX UNDER SECTION 150A READ WIT H (SECTION 82(1)(FF) OF THE MUNICIPAL ACT IS IN SUBSTANCE A MUNICIPAL TAX IN RE SPECT OF THE BUSINESS PREMISES, AND IS COVERED BY CLAUSE (IX) OF SUB-SECTION (2) OF SECTION 10 OF THE INCOME-TAX ACT. THE ASSESSEE IS ENTITLED TO GET ALLOWANCE FOR THE SAME UNDER SECTION 10(1) OF THE INDIAN INCOME-TAX ACT, 1922. THE APPELLATE TRIB UNAL WAS RIGHT IN GIVING ALLOWANCE TO THE ASSESSEE FOR A SUM OF RS. 125 PAID BY HIM UNDER THE BIHAR AND ORISSA MUNICIPAL ACT, 1922.' 26. THE APEX COURT IN THE CASE OF UNION OF INDIA V. VIJAY CHAND JAIN, REPORTED IN AIR 1977 SC PAGE 1302 HELD AS UNDER:- '4. THE CONTRAVENTION ALLEGED IS OF SECTION 4(1) WH ICH PROHIBITS, INTER ALIA, SALE OF ANY FOREIGN EXCHANGE. FOREIGN EXCHANGE AS DEFINED I N SECTION 2(D) MEANS FOREIGN CURRENCY. UNDER SECTION 23(1B) ANY CURRENCY, SECURI TY, GOLD OR SILVER, OR GOODS OR ANY OTHER MONEY OR PROPERTY 'IN RESPECT OF WHICH' T HE CONTRAVENTION HAS TAKEN PLACE IS LIABLE TO BE CONFISCATED TO THE CENTRAL GO VERNMENT. THE CURRENCY CONFISCATED THIS CASE WAS INDIAN CURRENCY. THE QUES TION IS WHETHER THE INDIAN CURRENCY CONSTITUTING THE SALE PROCEEDS OF FOREIGN EXCHANGE SEIZED FROM THE RESPONDENT WAS CURRENCY IN RESPECT OF WHICH THE CON TRAVENTION HAD TAKEN PLACE. THE WORDS 'IN RESPECT OF' ADMIT OF A WIDE CONNOTATI ON; LORD GREENE M.R. IN CUNARD'S TRUSTEES V. INLAND REVENUE COMMISSIONERS ( 1946) 174 LT 133 CALLS THEM COLOURLESS WORDS. THIS COURT IN S.S. LIGHT RAI LWAY CO. LTD. V. UPPER DOAB SUGAR MILLS LTD. (1960) 2 SCR 926=(AIR 1960 SC 695) CONSTRUING THESE WORDS IN SECTION 3(14) OF THE INDIAN RAILWAYS ACT, 1890 HAS HELD THAT THEY ARE VERY WIDE. IT SEEMS TO US THAT IN THE CONTEXT OF SECTION 23(1B) ' IN RESPECT OF' HAS BEEN USED IN THE SENSE OF BEING 'CONNECTED WITH' AND WE HAVE NO DIFFICULTY IN HOLDING THAT THE CURRENCY IN RESPECT OF WHICH THERE HAS BEEN CONTRAV ENTION COVERS THE SALE PROCEEDS OF FOREIGN CURRENCY, SALE OF WHICH IS PROH IBITED UNDER SECTION 4(1). THE INTENTION OF THE LEGISLATURE IS CLEAR FROM THE EXPL ANATION TO SUB-SECTION (1B) OF SECTION 23 WHICH PROVIDES THAT 'FOR THE PURPOSES OF THE SUB- SECTION PROPERLY IN RESPECT OF WHICH CONTRAVENTION HAS TAKEN PLACE SHAL L INCLUDE DEPOSITS IN A BANK WHERE SUCH PROPERTY IS CONVERTED INTO SUCH DEPOSITS .' IF FOR THIS SUB-SECTION ANY PROPERTY IN RESPECT OF WHICH A CONTRAVENTION HAS TA KEN PLACE INCLUDES DEPOSITS INTO WHICH THE PROPERTY MAY BE CONVERTED AND CAN BE REACHED EVEN WHERE THE DEPOSITS ARE IN A BANK, IT IS NOT REASONABLE TO THI NK THAT THE SALE PROCEEDS IN INDIAN CURRENCY OF ANY FOREIGN EXCHANGE WOULD BE OU TSIDE THE SCOPE OF SECTION 23(1B) AND THEREFORE NOT LIABLE TO BE CONFISCATED. IN OUR OPINION THE HIGH COURT WAS WRONG IN QUASHING THE ORDER OF CONFISCATION WHI CH WE CONSIDER VALID AND LAWFUL' RELIANCE AND LUCENT GROUP 73 27. THE WORDS 'IN RESPECT OF' DENOTES THE INTENTION OF THE PARLIAMENT TO GIVE A BROADER MEANING. THE WORDS 'IN RESPECT OF ADMIT OF A WIDE CONNOTATION, THAN THE WORD 'IN' OR 'ON'. THE EXPRESSION 'IN RESPECT OF' ' MEANS ATTRIBUTABLE TO' IF IT IS GIVEN A WIDER MEANING 'RELATING TO OR WITH REFERENC E TO', IT HAS BEEN USED IN THE SENSE OF BEING 'CONNECTED WITH'. WHETHER IT IS A FI SCAL LEGISLATION OR ANY LEGISLATION FOR THAT MATTER, THE GOLDEN RULE OF INTERPRETATION EQUALLY APPLIES TO ALL OF THEM. I.E., THE WORDS IN A STATUTE SHOULD BE GIVEN ITS LITERAL MEANING. IN RESPECT OF FISCAL LEGISLATION THOSE WORDS SHOULD BE STRICTLY CONSTRUE D. IF THOSE WORDS ARE CAPABLE OF TWO MEANINGS THAT MEANING WHICH IS BENEFICIAL TO AN ASSESSEE SHOULD BE GIVEN. HOWEVER, WHEN THE MEANING OF THE WORDS USED ARE CLE AR, UNAMBIGUOUS, MERELY BECAUSE IT IS A FISCAL LEGISLATION, THE MEANING CAN NOT BE NARROWED DOWN AND IT CANNOT BE INTERPRETED SO AS TO GIVE BENEFIT TO THE ASSESSE E ONLY. THEN IT WOULD BE RE-WRITING THE SECTION, UNDER THE GUISE OF INTERPRETING A FISC AL LEGISLATION, WHICH IS TOTALLY IMPERMISSIBLE IN LAW. WHEN THE LEGISLATURE HAS ADVI SEDLY USED THE WORDS 'IN RESPECT OF', THE INTENTION IS CLEAR AND MANIFEST. THE SAID PHRASE BEING CAPABLE OF A BROADER MEANING, THE SAME IS USED IN THE SECTION TO BRING W ITHIN THE TAX NET ALL THE INCOMES FROM THE TRANSFER OF ALL OR ANY OF THE RIGHTS IN RE SPECT OF A COPYRIGHT. IN A TAXING STATUTE PROVISIONS ENACTED TO PREVENT TAX EVASION A RE TO BE GIVEN A LIBERAL CONSTRUCTION TO EFFECTUATE THE PURPOSE OF SUPPRESSI NG TAX EVASION, ALTHOUGH PROVISIONS IMPOSING A CHARGE ARE CONSTRUED STRICTLY THERE BEING NO APRIORI LIABILITY TO PAY A TAX AND THE PURPOSE OF CHARGING SECTION BEING ONLY TO LEVY A CHARGE ON PERSONS AND ACTIVITIES BROUGHT WITHIN ITS CLEAR TERMS. THER EFORE, THE SPECIFIC WORDS USED IN A TAXING STATUTE, CHARGING TAX CANNOT BE IGNORED. IT IS NOT THE CONSIDERATION FOR TRANSFER OF ALL OR ANY OF THE RIGHTS IN THE COPYRIGHT. WITHO UT TRANSFERRING A RIGHT IN THE COPYRIGHT IT IS POSSIBLE TO RECEIVE CONSIDERATION F OR THE USE OF THE INTELLECTUAL PROPERTY FOR WHICH THE OWNER POSSESS A COPYRIGHT. U LTIMATELY, THE CONSIDERATION PAID IS FOR THE USEFULNESS OF THE MATERIAL OBJECT IN RES PECT OF WHICH THERE EXISTS A COPYRIGHT. THEREFORE, THE INTENTION WAS NOT TO EXCL UDE THE CONSIDERATION PAID FOR THE USE OF SUCH MATERIAL OBJECT WHICH IS POPULARLY CALL ED AS COPYRIGHTED ARTICLE. EVEN IN RESPECT OF A COPYRIGHTED ARTICLE THE SAME IS TRANSF ERRED, NO DOUBT THE RIGHT IN THE COPYRIGHT IS NOT TRANSFERRED, BUT A RIGHT IN RESPEC T OF A COPYRIGHT CONTAINED IN THE COPYRIGHTED ARTICLE IS TRANSFERRED. THEREFORE, THE PARLIAMENT THOUGHT IT FIT TO USE THE PHRASE 'IN RESPECT OF' AS CONTRA DISTINCT FROM THE WORD 'IN' COPYRIGHT. THE MEANING IS CLEAR, INTENTION IS CLEAR, THERE IS NO AMBIGUITY. T HEREFORE, THERE IS NO SCOPE FOR RELIANCE AND LUCENT GROUP 74 INTERPRETATION OF THIS EXPRESSED TERM INASMUCH AS I N THE CONTEXT IN WHICH IT IS USED IN THE PROVISION. ANY OTHER INTERPRETATION WOULD LEAD TO THE AFORESAID PROVISION BECOMING OTIOSE. 33. INTERPRETING THE SECTIONS OF COPYRIGHT ACT, TH E ISSUE WAS FURTHER ANALYSED AS UNDER IN PARAS 29 TO 36. 29. THE COPYRIGHT ACT, ALSO DO NOT DEFINE THE W ORD COPYRIGHT IN THE DEFINITION SECTION 2. HOWEVER, SECTION 14, GIVES THE MEANING O F 'COPYRIGHT'. THIS SECTION WAS SUBSTITUTED FOR THE PREVIOUS ONE BY THE COPYRIGHT ( AMENDMENT) ACT OF 1994. SECTION 14 INSOFAR AS IT IS RELEVANT IS EXTRACTED HEREUNDER : '14. FOR THE PURPOSES OF THIS ACT 'COPYRIGHT' MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORIZE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREO F NAMELY: (A) IN THE CASE OF LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAMME (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM IN CLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONICS MEANS, (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NO T BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICA TE IT TO THE PUBLIC. (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECO RDING IN RESPECT OF 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 A DAPTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSE (I) TO (VI).' 30. THE OBJECT OF A DEFINITION IS TO AVOID THE NECE SSITY OF FREQUENT REPETITIONS IN DESCRIBING ALL THE SUBJECT-MATTER TO WHICH THE WORD OR EXPRESSION SO DEFINED IS INTENDED TO APPLY. THE LEGISLATURE HAS POWER TO DEFINE A WOR D EVEN ARTIFICIALLY. SO THE DEFINITION OF A WORD IN THE DEFINITION SECTION MAY EITHER BE R ESTRICTIVE OF ITS ORDINARY MEANING OR IT MAY BE EXTENSIVE OF THE SAME. WHEN A WORD IS DEFINE D TO 'MEAN' SUCH AND SUCH, THE DEFINITION IS PRIMA FACIE RESTRICTIVE AND EXHAUSTIV E WHEREAS THE WORD DEFINED IS DECLARED TO 'INCLUDE' SUCH AND SUCH, THE DEFINITION IS PRIMA FACIE EXTENSIVE. ALTHOUGH IT IS NORMALLY PRESUMED THAT THE LEGISLATURE WILL BE SPEC IALLY PRECISE AND CAREFUL IN ITS CHOICE OF LANGUAGE IN A DEFINITION SECTION, AT TIME S THE LANGUAGE USED IN SUCH A SECTION ITSELF REQUIRES INTERPRETATION. A DEFINITION IS NOT TO BE READ IN ISOLATION. IT MUST BE READ IN THE CONTEXT OF THE PHRASE WHICH IT DEFINES, REAL ISING THAT THE FUNCTION OF A DEFINITION IS RELIANCE AND LUCENT GROUP 75 TO GIVE PRECISION AND CERTAINTY TO A WORD OR PHRASE WHICH WOULD OTHERWISE BE VAGUE AND UNCERTAIN BUT NOT TO CONTRADICT IT OR SUPPLANT IT A LTOGETHER. AN INTERPRETATION CLAUSE IS NOT MEANT TO PREVENT THE WORD RECEIVING ITS ORDINARY, P OPULAR AND NATURAL SENSE WHENEVER THAT WOULD BE PROPERLY APPLICABLE BUT TO ENABLE THE WORD AS USED IN THE ACT WHEN THERE IS NOTHING IN THE CONTEXT OR THE SUBJECT MATTER TO THE CONTRARY TO BE APPLIED TO SOME THINGS TO WHICH IT WOULD NOT ORDINARILY BE APPLICAB LE. EVEN WHEN THE DEFINITION CLAUSE USES WORDS OF VERY WIDE CONNOTATION A LINE MAY HAVE TO BE DRAWN SO AS TO EXCLUDE CATEGORIES OBVIOUSLY NOT INTENDED TO BE INCLUDED. 31. WHEN A WORD HAS BEEN DEFINED IN THE INTERPRETAT ION CLAUSE, PRIMA FACIE THAT DEFINITION GOVERNS WHENEVER THAT WORD IS USED IN TH E BODY OF THE STATUTE. IF PARLIAMENT IN A STATUTORY ENACTMENT DEFINES ITS TERMS WHETHER BY ENLARGING OR BY RESTRICTING THE ORDINARY MEANING OF A WORD OR EXPRESSION, IT MUST I NTENDED THAT, IN THE ABSENCE OF A CLEAR INDICATION TO THE CONTRARY, THOSE TERMS AS DE FINED SHALL GOVERN WHAT IS PROPOSED, AUTHORISED OR DONE UNDER OR BY REFERENCE TO THAT EN ACTMENT. BUT, WHERE THE CONTEXT MAKES THE DEFINITION GIVEN IN THE INTERPRETATION CL AUSE INAPPLICABLE, A DEFINED WORD WHEN USED IN THE BODY OF THE STATUTE MAY HAVE TO BE GIVEN A MEANING DIFFERENT FROM THAT CONTAINED IN THE INTERPRETATION CLAUSE. ALL DE FINITIONS GIVEN IN AN INTERPRETATION CLAUSE ARE THEREFORE NORMALLY ENACTED SUBJECT TO TH E QUALIFICATION 'UNLESS THERE IS ANYTHING REPUGNANT IN THE SUBJECT OR CONTEXT, OR UN LESS THE CONTEXT OTHERWISE REQUIRES'. EVEN IN THE ABSENCE OF AN EXPRESS QUALIFICATION TO THAT EFFECT SUCH A QUALIFICATIONS IS ALWAYS IMPLIED. HOWEVER, IT IS INCUMBENT ON THOSE W HO CONTEND THAT THE DEFINITION GIVEN IN THE INTERPRETATION CLAUSE DOES NOT APPLY T O A PARTICULAR SECTION TO SHOW THAT THE CONTEXT IN FACT SO REQUIRES. 32. IN THIS BACKGROUND IT IS PERTINENT TO NOTE THE OPENING WORDS OF SECTION 14. IT EXPRESSLY STATE THAT 'FOR THE PURPOSES OF THIS ACT' . THE INTENTION OF THE PARLIAMENT IN EXPRESSING THE MEANING OF THE WORD IN THAT MANNER A ND NOT DEFINING THE SAID TERM IN THE DEFINITION SECTION CANNOT BE LOST SIGHT OF. FURTHER , THE LEGISLATURE HAS CHOSEN TO EMPLOY THE WORD 'MEANS' IN DEFINING THE MEANING OF THE WOR D 'COPYRIGHT' WHICH AGAIN MAKES THE INTENTION VERY CLEAR THAT THE SAID MEANING TO THE W ORD 'COPYRIGHT' IS RESTRICTIVE AND EXHAUSTIVE. THEN THE FURTHER WORDS, 'EXCLUSIVE RIGH T SUBJECT TO THE PROVISIONS OF THIS ACT' FURTHER IMPOSES A RIDER ON THE MEANING OF THE WORD 'COPYRIGHT'. THOUGH THE WORD USED IS 'EXCLUSIVE RIGHT', IN SECTION 30 OF THE ACT, THE PA RLIAMENT HAS PROVIDED WHAT ARE THE RIGHTS WHICH THE OWNERS OF A COPYRIGHT MAY PART WIT H. IT EXPRESSLY STATES THE OWNER OF RELIANCE AND LUCENT GROUP 76 THE COPYRIGHT IN ANY EXISTING WORK MAY GRANT ANY IN TEREST IN THE RIGHT BY LICENCE IN WRITING SIGNED BY HIM OR BY HIS DULY AUTHORISED AGE NT. THEREFORE, WHEN IF COMES TO THE QUESTION OF GRANTING LICENCE IT NEED NOT NECESSARIL Y BE THE EXCLUSIVE RIGHT, A MAY BE ANY INTEREST IN THE RIGHT. THEREFORE, WHEN THE WORD 'CO PYRIGHT' HAS NOT BEEN DEFINED IN THE DEFINITION SECTION OF THE ACT AND THE MEANING OF TH E WORD 'COPYRIGHT' IS TO BE FOUND IN SECTION 14 OF THE ACT. IT IS ONLY FOR THE PURPOSES OF THE ACT. EVEN THOUGH UNDER SECTION 14 COPYRIGHT MEANS THE EXCLUSIVE RIGHT, THAT IS ALS O SUBJECT TO THE PROVISIONS OF THE ACT. THE INTENTION OF THE LEGISLATURE IS UNAMBIGUOUS, CL EAR. THE MEANING OF THE WORD 'COPYRIGHT' CANNOT BE READ IN ISOLATION. IT MOST BE UNDERSTOOD IN THE CONTEXT OF THE AFORESAID RESTRICTIONS, LIMITATIONS IMPOSED BY THE PARLIAMENT BY EXPRESS WORDS. THEREFORE, IF WOULD NOT BE PROPER TO ASSIGN THE SAM E MEANING AS FOUND IN SECTION 14 TO THE WORD 'COPYRIGHT' WHEN IT IS USED IN ANOTHER ENA CTMENT. THE INTERPRETATION CLAUSE IS NOT MEANT TO PREVENT THE WORD RECEIVING ITS ORDINAR Y, POPULAR AND NATURAL SENSE WHENEVER THAT WOULD BE PROPERLY APPLICABLE, BUT TO ENABLE THE WORD AS USED IN THE ACT, WHEN THERE IS NOTHING IN THE CONTEXT OR THE SUBJECT MATTER TO THE CONTRARY TO BE APPLIED TO SOME THINGS TO WHICH IT WOULD NOT ORDINARILY BE APPLICABLE. THEREFORE, WHILE UNDERSTANDING THE MEANING OF THE WORD 'ROYALTY' USE D IN THE INCOME-TAX ACT AS DEFINED IN EXPLANATION (2) TO SECTION 9(1) OF THE INCOME-TA X ACT THE MEANING ASSIGNED TO THE WORD 'COPYRIGHT' CANNOT BE LITERALLY SUPERIMPOSED I N THAT PROVISION. IT HAS TO BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED AS WE LL AS IT HAS TO BE UNDERSTOOD IN THE ORDINARY, POPULAR AND NATURAL SENSE IN WHICH IT IS UNDERSTOOD. MOREOVER THE COPYRIGHT ACT IS CONCERNED WITH PROTECTION OF AN INTELLECTUAL PROPERTY RIGHT WHICH IS VESTED IN THE OWNER OF THE COPYRIGHT AND PREVENTION OF ITS INFRIN GEMENT. THAT IS WHY WHILE DEFINING THE MEANING OF THE WORD 'COPYRIGHT' IT IS DEFINED A S MEANING 'EXCLUSIVE RIGHT' TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING T HE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS OR TO ISSUE COPIES OF THE WORK TO THE PUBLIC POT BEING COPIES ALREADY IN CIRCULATION OR TO SELL OR GIVE ON COMMERCIAL RENTAL OR OTHER THAN FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMM E. THE REPRODUCTION WHICH IS SOUGHT TO BE PROHIBITED BY THE ACT BUT FOR WHICH TH E OWNER OF THE COPYRIGHT COULD BE PUT TO AN ENORMOUS LOSS. THE SAID DEFINITION DOES N OT DEAL WITH THE ORDINARY MEANING OF THE WORD 'COPYRIGHT' WHICH INCLUDES THE RIGHT TO US E THE WORK. IT IS A NEGATIVE RIGHT. IF IS NOT A RIGHT TO DO SOMETHING BUT RATHER A RIGHT TO R ESTRICT OTHERS FROM DOING CERTAIN ACTS. IT IS IN THIS CONTEXT THE WORD 'EXCLUSIVE' HAS TO BE U NDERSTOOD. WHEN IN THE ACT ITSELF AFTER USING THE WORD EXCLUSIVE RIGHT IN SECTION 14, WHEN IT COMES TO THE QUESTION OF LICENCE OF RELIANCE AND LUCENT GROUP 77 A COPYRIGHT, IF NEED NOT NECESSARILY BE AN EXCLUSIV E RIGHT, BUT ANY INTEREST IN THE RIGHT, THE WORD EXCLUSIVE HAS TO BE RESTRICTED FIRSTLY TO THE ACT ITSELF AND SECONDLY TO SITUATIONS WHICH FALL OUTSIDE THE SCOPE OF SECTION 30 OF THE A CT. THEREFORE, THE EXPRESSION 'COPYRIGHT' USED IN THE ACT CANNOT BE THE SAME AS U SED IN THE INCOME-TAX ACT. IN THE INCOME-TAX ACT, WHEN THE LEGISLATURE ADVISEDLY USED THE WORD 'IN RESPECT OF A COPYRIGHT' IT CANNOT BE CONSTRUED AS A RIGHT IN THE COPYRIGHT AND ASSIGN THE MEANING ASSIGNED IN THE COPYRIGHT ACT TO THE SECOND EXPLANATION, LINE LANGU AGE IN EXPLANATION (2) EXPLICITLY MAKES IT CLEAR FOR THE PURPOSE OF CLAUSE (VI) OF SU B-SECTION (1) OF SECTION 9 ROYALTY MEANS CONSIDERATION FOR TRANSFER OF ALL OR ANY RIGH TS INCLUDING THE GRANTING OF A LICENCE IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK. THEREFORE, THE WORD EXCLUSIVE RIGHT USED IN SECTION 14 OF THE ACT DO NO T FIT INTO THE MEANING OF THE WORD 'ROYALTY' IN EXPLANATION 2 BECAUSE ROYALTY MEANS TH E CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS INCLUDING THE GRANTING OF A LICENCE W HICH IS CERTAINLY NOT AN EXCLUSIVE RIGHT OR TRANSFER OF ALL RIGHTS IN THE COPYRIGHT OR LITERARY WORK. PAYMENTS MADE FOR THE ACQUISITION OF PARTIAL RIGHTS IN THE COPYRIGHT WITH OUT THE TRANSFER FULLY ALIENATING THE COPYRIGHT RIGHTS WILL REPRESENT A ROYALTY WHERE THE CONSIDERATION IS FOR GRANTING OF LIGHTS TO USE THE PROGRAME IN A MANNER THAT WOULD, WITHOUT SUCH LICENSE, CONSTITUTE AN INFRINGEMENT OF COPYRIGHT. IN THESE CIRCUMSTANCES, THE PAYMENTS ARE FOR THE RIGHT TO USE THE COPYRIGHT IN THE PROGRAM I.E., TO EXPLOIT THE R IGHTS THAT WOULD OTHERWISE BE THE SOLE PREROGATIVE OF THE COPYRIGHT HOLDER. THEREFORE, TO CONSTITUTE ROYALTY UNDER THE INCOME- TAX ACT IT IS NOT NECESSARY THAT THERE SHOULD BE TR ANSFER OF EXCLUSIVE RIGHT IN COPYRIGHT, IT IS SUFFICIENT IF THERE IS TRANSFER OF ANY INTEREST, IN THE RIGHT, AND ALSO A LICENCE AND CONSIDERATION PAID FOR GRANT OF A LICENCE CONSTITUT ES ROYALTY FOR THE PURPOSE OF THE SAID CLAUSE IN THE INCOME-TAX ACT. IT IS IN THIS BACKGRO UND, THE DISCUSSION WHETHER THE PAYMENT IS FOR A COPYRIGHT OR FOR A COPYRIGHT ARTIC LE WOULD BE TOTALLY IRRELEVANT. HE CRUX OF THE ISSUE IS WHETHER ANY CONSIDERATION IS PAID F OR ANY RIGHT, OR FOR GRANTING OF LICENCE IN RESPECT OF A COPYRIGHT. THE WORD 'IN RESPECT OF GIVES A BROADER MEANING. IT HAS BEEN USED IN THE SENSE OF BEING CONNECTED WITH. WHEN THE LEGISLATURE HAS ADVISEDLY USED THE WORDS 'IN RESPECT OF'. THE INTENTION IS CLEAR AND M ANIFEST. THE SAID PHRASE BEING CAPABLE OF A BROADER MEANING, THE SAME IS USED IN THE SECTI ON TO BRING WITHIN THE TAX NET ALL THE INCOMES FROM THE TRANSFER OF ALL OR ANY OF THE RIGH TS IN RESPECT OF THE COPYRIGHT. 33. IN THE IT ACT, COMPUTER SOFTWARE IS DEFINED IN EXPLN. 3 TO S. 9(1)(VI) TO MEAN ANY COMPUTER PROGRAMME RECORDED ON ANY DISK, TAPE, PERF ORATED MEDIA OR OTHER INFORMATION RELIANCE AND LUCENT GROUP 78 STORAGE DEVICES AND INCLUDES ANY SUCH PROGRAMME OR ANY CUSTOMIZED ELECTRONIC DATA. THOUGH THIS DEFINITION HOLDS GOOD FOR THE PURPOSES OF SECOND PROVISO TO S. 9(1)(VI), THE ORDINARY MEANING AND UNDERSTANDING OF COMPUTER SOFT WARE IS NO DIFFERENT. COMPUTER PROGRAMME AS SUCH IS NOT DEFINED UNDER THE I.T. ACT . HOWEVER, COMPUTER PROGRAMME IS DEFINED IN THE COPYRIGHT ACT AS FOLLOWS: 'COMPUTER PROGRAMME MEANS A SET OF INSTRUCTIONS EXP RESSED IN WORDS, CODES, SCHEMES OR IN ANY OTHER FORM INCLUDING A MACHINE RE ADABLE MEDIUM, CAPABLE OF CAUSING A COMPUTER TO PERFORM A PARTICULAR TASK OR ACHIEVE A PARTICULAR RESULT.' 34. IT IS ALSO WORTH MENTIONING THAT SOME ROUTINES MAY BE WRITTEN IN ASSEMBLY CODE, ESSENTIALLY A SET OF MEMORIES FOR OBJECT CODE WHICH ANOTHER PROGRAM TRANSLATES DIRECTLY INTO THAT CODE. THIS IS NORMALLY DONE WHEN THE PROG RAMMER NEEDS TO DRIVE THE HARDWARE DIRECTLY, OR WHERE SPEED IS REQUIRED, AS IT GIVES V ERY PRECISE CONTROL OVER THE PROGRAM'S OPERATION. ONCE ALL SECTIONS ARE COMPLETE, THEY ARE FITTED TOGETHER TO PRODUCE A COMPLETE VERSION IN SOURCE CODE, I.E., IN HUMAN- READABLE FO RM THAT GIVES THE USER AS LITTLE INFORMATION AS POSSIBLE ABOUT THE DETAILS OF THE PR OGRAM (THUS REDUCING THE DANGER OF COPYING), THE SOURCE CODE IS USED AS INPUT FOR ANOT HER PROGRAM, THE COMPILER. THIS COMPILES THE PROGRAM INTO OBJECT CODE, A MACHINE-RE ADABLE FORM WHICH WILL HAVE LINKED TO IT THE STANDARD PIECES OF CODE FOR THE PR OGRAM TO RUN AS A STAND-ALONE OR EXECUTABLE FILE. THIS VERSION WILL BE RUN TO TEST I T, AND ANY ERRORS WHICH ARE DISCOVERED WILL BE FIXED IN THE SOURCE CODE AND THE WHOLE RECO MPILED. THE FINAL PROCESS IS TO PRODUCE THE DOCUMENTATION WHICH THE USER WILL NEED TO OPERATE THE PROGRAM. THE COMPLETED PRODUCT IS THE PACKAGE OF OBJECT CODE VER SION AND DOCUMENTATION. A COMPLEX PIECE OF SOFTWARE MAY WELL CONSIST OF A NUM BER OF PROGRAMS WHICH ARE CALLED BY A MASTER PROGRAM AS DIFFERENT FUNCTIONS ARE REQU IRED. SOME WRITERS DISTINGUISH BETWEEN PROGRAMS (THE SPECIFIC EXECUTABLE CODE MODU LES) AND SOFTWARE (THE COMPLETE SET OF PROGRAMS PLUS DOCUMENTATION), 'SOFTWARE' IS THUS USED INTERCHANGEABLY FOR BOTH OF THESE UNLESS THE CONTEXT OTHERWISE MAKES CLEAR. 35. THE COPYRIGHT SUBSISTS IN A COMPUTER PROGRAM. I T IS NOT ONLY UNAUTHORISED REPRODUCTION BUT ALSO THE STORAGE OF A PROGRAM IN A COMPUTER CONSTITUTES COPYRIGHT INFRINGEMENT. COPYING A LITERARY WORK (SUCH AS A CO MPUTER PROGRAM) INCLUDES STORING THE WORK IN ANY MEDIUM BY ELECTRONIC MEANS. COPYING INCLUDES THE MAKING OF COPIES WHICH ARE TRANSIENT OR SOME OTHER USE OF THE WORK. SINCE IN VIRTUALLY EVERY CASE THE OPERATION OF A PROGRAM IN A COMPUTER INVOLVES THE C OPYING OF THE PROGRAM WITHIN THE COMPUTER, THIS WILL CONSTITUTE REPRODUCTION. WHENEV ER AN OBJECT PROGRAM IS RUN ON A RELIANCE AND LUCENT GROUP 79 COMPUTER, IT IS THEREBY COPIED; AND WHENEVER A SOUR CE PROGRAM IS COMPILED IN A COMPUTER, IT IS THEREBY COPIED OR ADAPTED. A SOFTWA RE LICENCE CAN, THEREFORE, BE LEGITIMATELY CONSIDERED TO BE A COPYRIGHT LICENCE. A MAJOR DIFFICULTY ARISING OUT OF THE LICENCE CLAUSE FOR USERS IS THAT IT WILL ALMOST INV ARIABLY RESTRICT THE LICENSEE FROM TRANSFERRING THE SOFTWARE TO ANY THIRD PARTY. THIS MAY RESULT IN DIFFICULTIES IF, FOR EXAMPLE, THE LICENSEE WISHES TO TRANSFER HIS COMPUT ER OPERATIONS TO A FACILITIES MANAGEMENT COMPANY THE TRANSFER WILL REQUIRE THE CO NSENT OF THE LICENSOR AND WILL PROVIDE AN OPPORTUNITY FOR THE CHARGING OF AN ADDIT IONAL FEE. LICENCES HAVE UP TO HOW NORMALLY PROHIBITED ANY COPYING OF THE PROGRAM, EXC EPT AS NECESSARY FOR USE. THIS HAD THE CONSEQUENCE THAT THE USER COULD NOT MAKE BACKUP COPIES OF THE PROGRAM FOR SECURITY PURPOSES, ALTHOUGH SOME LICENSES SPECIFICALLY CONFE RRED A LIMITED RIGHT TO MAKE BACKUP COPIES. 36. ULTIMATELY, WHAT THE END-USER, WHO PAYS THE CON SIDERATION REQUIRES IS, THE BENEFIT OF THE USER OF THE INTELLECTUAL PROPERTY, WHETHER FOR HIS PERSONAL USE OR FOR COMMERCIAL USE. MERELY BECAUSE THE END-USER IS NOT PERMITTED TO MAK E COMMERCIAL USE OF A COPYRIGHTED ARTICLE BY MEANS OF RE-PRODUCTION OF COPYRIGHTED AR TICLE, IT WOULD NOT TAKE THE CASE OUT OF THE PROVISION. THE USER MAY BE FOR PERSONAL USE OR FOR COMMERCIAL USE. THE ESSENCE OF THE COPYRIGHT IS THE USEFULNESS OF INTELLECTUAL PROPERTY EMBEDDED IN SUCH COPYRIGHT. ONE OF THE WAYS OF EXPLOITING A COPYRIGHT IS BY RE- PRODUCTION FOR COMMERCIAL USE. BUT THAT IS NOT THE ONLY USE TO WHICH A COPYRIGHT COULD BE MADE USE OF. IT COULD BE USED FOR THEIR PERSONAL USE AND THAT IS THE REASON WHY CONSI DERATION IS STIPULATED EVEN FOR SUCH PERSONAL USE. THOUGH THE RIGHTS THAT ARE TRANSFERRE D IN SUCH A TRANSACTION MAY BE LIMITED AS COMPARED TO TRANSFER OF A COPYRIGHT FOR COMMERCI AL USE. IN PARTICULAR, A SOFTWARE OR A COMPUTER PROGRAMME IS SUCH A SOPHISTICATED GOODS TH AT IT MAY BE SOLD OF THE SHELF, IT MAY BE SOLD LOOKING INTO THE NEEDS OF THE CUSTOMER, IT MAY BE EVEN PREPARED KEEPING THE REQUIREMENT OF END-USER IN MIND. IN ALL THESE C ASES COPYRIGHT AS SUCH IS NOT TRANSFERRED. IT IS NOT NECESSARY FOR THE END-USER A LSO. THE END-USER WANTS PERMISSION TO HAVE THE BENEFIT OF SUCH INTELLECTUAL PROPERTY IN C ARRYING ON HIS BUSINESS WHICH IS A COMMERCIAL VENTURE. IT FACILITATES HIS BUSINESS. IT IS FOR THAT HE PAYS CONSIDERATION. WITHOUT SUCH TRANSFER OR PERMISSION, THE END-USER C ANNOT USE THE SAID INTELLECTUAL PROPERTY. IF HE DOES IT AMOUNTS TO INFRINGEMENT. TH EREFORE, THE RIGHT TO USE THE INTELLECTUAL PROPERTY IN RESPECT OF WHICH THE OWNER OR THE LICENSOR POSSESS A COPYRIGHT IS ALSO A RIGHT IN RESPECT OF A COPYRIGHT, THOUGH NOT IN THE COPYRIGHT ITSELF. THEREFORE, THE RELIANCE AND LUCENT GROUP 80 WORDS USED IN THE PROVISION THAT TRANSFER OF ALL OR ANY OF THE RIGHTS INCLUDES THE RIGHT TO GRANT LICENSE IN RESPECT OF COPYRIGHT INCLUDES SUCH RIGHT TO USE THE INTELLECTUAL PROPERTY IN RESPECT OF WHICH THE OWNER OR THE LICENSOR POSSE SS COPYRIGHT. IT FALLS WITHIN THE MISCHIEF OF THE WORD 'ROYALTY' AS DEFINED UNDER SEC TION 9(1) (VI) OF THE ACT. 34. FURTHER THE ISSUE OF GRANTING LICENSE WAS ANA LYSED IN PARA 41 TO 46 OF THE SAME JUDGEMENT AS UNDER: WHAT IS A LICENSE? 40. A LICENCE IS A GRANT OF AUTHORITY TO DO A PARTI CULAR THING. IT ENABLES A PERSON TO DO LAWFULLY WHAT HE COULD NOT OTHERWISE LAWFULLY DO. A LICENCE DOES NOT, IN LAW, CONFER A RIGHT. IT ONLY PREVENTS THAT FROM BEING UN LAWFUL WHICH, BUT FOR THE LICENCE, WOULD BE UNLAWFUL. IT AMOUNTS TO A CONSENT OR PERMI SSION BY AN OWNER OF COPYRIGHT THAT ANOTHER PERSON SHOULD DO AN ACT WHICH, BUT FOR THAT LICENCE, WOULD INVOLVE AN INFRINGEMENT OF THE COPYRIGHT OF LICENSOR. A LICENC E GIVES NO MORE THAN THE RIGHT TO DO THE THING ACTUALLY LICENSED TO BE DONE. IT TRANSFER S AN INTEREST TO A LIMITED EXTENT, WHEREBY THE LICENSEE ACQUIRES AN EQUITABLE RIGHT ON LY IN THE COPYRIGHTED ARTICLE. 41. LICENCES MAY BE EXCLUSIVE, OR NON-EXCLUSIVE. NO N-EXCLUSIVE LICENCE IS NOT DEFINED IN THE ACT. THE TERM 'EXCLUSIVE LICENCE' IS DEFINED IN SECTION 2, CLAUSE (J). IT CONFERS ON THE LICENSEE AND PERSONS AUTHORISED BY HIM, TO THE EXCLUSION OF ALL, OTHER PERSONS, INCLUDING THE OWNER OF THE COPYRIGHT, ANY RIGHT COM PRISED IN THE COPYRIGHT IN A WORK. A NON-EXCLUSIVE LICENCE IS THE GRANT OF AUTHORITY T O DO A PARTICULAR THING WITH NO RIGHT OF EXCLUSION WHATSOEVER. IT NEVER CONVEYS, BY ITSEL F, AN INTEREST IN PROPERTY. IT MERELY ENABLES A PERSON TO DO THAT WHICH HE COULD NOT OTHE RWISE DO, EXCEPT UNLAWFULLY. 42. THE OWNER OF THE COPYRIGHT IN ANY EXISTING WORK MAY GRANT ANY INTEREST IN THE RIGHT BY LICENCE IN WRITING SIGNED BY HIM OR BY HIS DULY AUTHORISED AGENT. COPYRIGHT IS DIFFERENT FROM THE MATERIAL OBJECT WHICH IS THE SUB JECT OF THE COPYRIGHT. SO, A TRANSFER OF THE MATERIAL OBJECT DOES NOT NECESSARILY INVOLVE A TRANSFER OF THE COPYRIGHT. THE COPYRIGHT IN A BOOK, PICTURE OR OTHER WORK IS DISCO NNECTED AND DISTINCT FROM THE GENERAL PROPERTY IN THE MATERIAL BOOK, PICTURE OR O THER OBJECT. HENCE, THE SALE OR OTHER TRANSFER OF THE MATERIAL OBJECT DOES NOT, OF ITSELF , CONSTITUTE A TRANSFER OF THE COPYRIGHT THEREIN. AN ASSIGNMENT CARRIES WITH IT THE WHOLE IN TEREST IN THE THING ASSIGNED, INCLUDING THE RIGHT OF REASSIGN, WHILE A LICENCE IS PERSONAL AND NOT ASSIGNABLE WITHOUT RELIANCE AND LUCENT GROUP 81 THE GRANTOR'S CONSENT. AN EXCLUSIVE LICENCE IS A LE AVE TO DO A THING, AND A CONTRACT NOT TO GIVE LEAVE TO ANYBODY ELSE TO DO THE SAME THING, IT CONFERS NO INTEREST, OR PROPERTY IN THE THING BUT ONLY MAKES AN ACTION LAWFUL, WHICH , WITHOUT IT, WOULD HAVE BEEN UNLAWFUL. 43. A LICENCE IS A PERMISSION TO DO SOMETHING THAT WOULD OTHERWISE BE UNLAWFUL. THE QUESTION ARISES, THEREFORE, AS TO WHAT LEGAL PERMIS SION IS GRANTED BY A SOFTWARE LICENCE. THE ANSWER IS, BRIEFLY, THAT IN SOME CASES THE LICE NCE WILL BE A PERMISSION TO USE CONFIDENTIAL INFORMATION, AND IN VIRTUALLY IN ALL C ASES IT WILL BE A PERMISSION TO COPY A COPYRIGHT WORK. IF THE SOFTWARE HAS BEEN KEPT SECRE T BY THE PRODUCER, OR ONLY SUPPLIED ON CONDITIONS OF CONFIDENTIALITY AND HAS NOT BEEN P UBLISHED TOO WIDELY, THEN THE SOFTWARE LICENCE WILL BE AKIN TO A LICENCE OF CONFI DENTIAL INFORMATION OR KNOW-HOW. THE OWNER OR LICENSOR OF A COPYRIGHT, HAS A RIGHT T O GRANT PERMISSION TO USE THE SOFTWARE OR A COMPUTER PROGRAMME, IN RESPECT OF WHI CH THEY HAVE A COPYRIGHT, WITHOUT TRANSFERRING THE RIGHT IN COPYRIGHT. IT IS ONE OF THE RIGHT OF A COPYRIGHT. OWNER OR LICENSOR. WITHOUT SUCH RIGHT BEING TRANSFERRED, THE END-USER HAS NO RIGHT TO USE THE SOFTWARE OR COMPUTER PROGRAMME. IF HE USES IT, IT A MOUNTS TO INFRINGEMENT OF COPYRIGHT. FOR TRANSFER OF SUCH RIGHT IF CONSIDERAT ION IS PAID, IT IS NOT A CONSIDERATION FOR TRANSFER OF A COPYRIGHT BUT FOR USE OF INTELLEC TUAL PROPERTY EMBEDDED IN THE COPYRIGHT, AND THEREFORE IT IS FOR TRANSFER OF ONE OF THOSE RIGHTS OF THE OWNER OF THE COPYRIGHT. IT IS NOT A RIGHT IN COPYRIGHT BUT IT IS IN RESPECT OF A COPYRIGHT. WHEN A COPYRIGHTED ARTICLE IS SOLD ALSO, THE END-USER GETS THE RIGHT TO USE THE INTELLECTUAL PROPERTY EMBEDDED IN THE COPYRIGHT AND NOT A RIGHT IN THE COPYRIGHT AS SUCH. THEREFORE THE MODE ADOPTED OR THE TERMINOLOGY GIVEN IS NOT DE CISIVE TO DECIDE THE NATURE OF TRANSFER. ULTIMATELY, IT IS THE SUBSTANCE WHICH HAS TO BE LOOKED INTO. 44. THEREFORE, IT IS NECESSARY TO LOOK INTO THE TER MS OF THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES, AS IT WOULD BE PURELY QUESTION OF FACT TO BE DECIDED ON THE BASIS OF THE INTENTION OF THE PARTIES AS COULD BE GATHERE D FROM THE WRITTEN WORDS USED IN THE AGREEMENT. THE RELEVANT TERMS IN THE AGREEMENT BETW EEN THE PARTIES IS AS UNDER:- 'END USER SOFTWARE LICENSE AGREEMENT BETWEEN SYNOPSYS INTERNATIONAL LIMITED UNIT 1, BLANCHARDSTOWN CORPORATE PARK BLANCHARDSTOWN, DUBLIN 15 IRELAND RELIANCE AND LUCENT GROUP 82 AND ATHENA SEMICONDUCTORS PRIVATE LIMITED NO. 1081, 12TH MAIN INDIRANAGAR BANGALORE - 560 038, INDIA 1.3 'CONFIDENTIAL INFORMATION' MEANS (I) THE LICENSED PRODUCT, IN OBJECT AND SOURCE CODE FORM, AND ANY RELATED TECHNOLOGY, IDEA, ALGORITHM OR INFORMATION CONTAINED THEREIN, I NCLUDING WITHOUT LIMITATION DESIGN TECHNIQUES, AND ANY TRADE SECRETS RELATED TO ANY OF THE FOREGOING. (II) SYNOPSYS'S PROPRIETARY KNOWLEDGE DATABASE PROD UCT SOLVNET; (III) DESIGNS; (IV) EITHER PARTY'S PRODUCT PLANS, COSTS, PRICES AN D NAMES; NON-PUBLISHED FINANCIAL INFORMATION; MARKETING PLANS; BUSINESS OPPORTUNITIE S; PERSONNEL; RESEARCH; DEVELOPMENT OR KNOW-HOW; (V) ANY INFORMATION DESIGNATED BY THE DISCLOSING PA RTY AS CONFIDENTIAL IN WRITING, OR, IF DISCLOSED ORALLY, DESIGNATED AS CONFIDENTIAL AT THE TIME OF DISCLOSURE AND DEDUCED TO WRITING AND DESIGNATED AS CONFIDENTIAL IN WRITING W ITHIN THIRTY (30 DAYS; AND (VI) THE TERMS AND CONDITIONS OF THIS AGREEMENT; PR OVIDED, HOWEVER THE 'CONFIDENTIAL INFORMATION' WILL NOT INCLUDE INFORMATION THAT; (A) IS OR BECOMES GENERALLY KNOWN OR AVAILABLE BY P UBLICATION, COMMERCIAL USE OR OTHERWISE THROUGH NO FAULT TO THE RECEIVING PARTY; (B) IS KNOWN AND HAS BEEN REDUCED TO TANGIBLE FORM BY THE RECEIVING PARTY AT THE TIME OF DISCLOSURE AND IS NOT SUBJECT TO RESTRICTION; (C) IS INDEPENDENTLY DEVELOPED BY THE RECEIVING PAR TY WITHOUT USE OF THE DISCLOSING PARTY'S CONFIDENTIAL INFORMATION; (D) IS LAWFULLY OBTAINED FROM A THIRD PARTY WHO HAS THE RIGHT TO MAKE SUCH DISCLOSURE OR; (E) IS RELEASED FOR PUBLICATION BY THE DISCLOSING P ARTY IN WRITING 1.4 'DESIGN' MEANS THE REPRESENTATION OF AN ELECTRO NIC CIRCUIT OR DEVICE(S), DERIVED OR CREATED BY LICENSE THROUGH THE USE OF THE LICENSED PRODUCT IN THEIR VARIOUS FORMATS INCLUDING, BUT NOT LIMITED TO, EQUATIONS, TRUTH TAB LES, SCHEMATIC DIAGRAMS, TEXTUAL DESCRIPTIONS, HARDWARE DESCRIPTION LANGUAGES AND NE TLISTS. 1.5 'DESIGN TECHNIQUES' MEANS THE SYNOPSYS-SUPPLIED DATA CIRCUIT AND LOGIC ELEMENTS, LIBRARIES, ALGORITHMS, SEARCH STRATEGIES, RULE BASED AND TECHNICAL INFORMATION INCORPORATED IN THE LICENSED PRODUCT AND EMPLOYED I N THE PROCESS OF CREATING DESIGNS. 1.7 'DOCUMENTATION' MEANS ANY USER MANUALS, REFEREN CE MANUALS, RELEASE, APPLICATION AND METHODOLOGY NOTES, WRITTEN UTILITY PROGRAMS AND OTHER MATERIALS IN ANY FORM PROVIDED FOR USE WITH THE LICENSED PRODUCT. 1.8 'END USER(S)' MEANS THE AUTHORIZED PERSON(S) WH O ACCESS AND USE THE CLIENT. 1.13 'INTELLECTUAL PROPERTY RIGHTS' MEANS ALL PATEN TS, PATENT RIGHTS, COPYRIGHTS, (INCLUDING COPYRIGHT IN COMPUTER SOFTWARE), DESIGN RIGHTS, DATABASE RIGHTS, SEMI- CONDUCTOR TOPOGRAPHY RIGHTS, TRADE SECRETS SERVICE MARKS, MASKWORKS AND TRADEMARKS, RELIANCE AND LUCENT GROUP 83 WHETHER OR NOT REGISTERED OR CAPABLE OF REGISTRATIO N, AND ANY APPLICATIONS FOR ANY OF THE FOREGOING, IN ALL COUNTRIES IN THE WORLD. 1.15 'LICENSE KEY' MEANS A DOCUMENT (IN PHYSICAL OR ELECTRONIC FORMAT) PROVIDED BY SYNOPSYS TO LICENSEE WHICH REFLECTS THE APPLICABLE LICENSEE PURCHASE ORDER AND LISTS: (I) THE LICENSED PRODUCT, INCLUDING VERSION NUMBER AND QUANTITY, LICENSED TO LICENSEE; (II) THE KEY SERVER(S); AND (III) THE CODES WHICH L ICENSEE MUST INPUT TO INITIALIZE USE OF THE KEY SERVER(S). 1.16 'LICENSED PRODUCT(S)' MEANS COLLECTIVELY DESIG N WARE AND THE LICENSED SOFTWARE. 1.17 'LICENSED SOFTWARE' MEANS' THE SYNOPSYS COMPUT ER SOFTWARE PROGRAM(S), EXCLUSIVE OF DESIGN WARE, WHICH ARE LICENSED BY LIC ENSE IN OBJECT CODE FORM AND IDENTIFIED IN THE APPLICABLE LICENSE KEY, INCLUDING ANY BUG FIX RELEASE AND MINOR ENHANCEMENT RELEASES PROVIDED BY SYNOPSYS PURSUANT TO THE TERMS OF THE SUPPORT AGREEMENT AND THIS AGREEMENT AND ANY SOFTWARE UPGRA DE WHICH MAY BE LICENSED BY SYNOPSYS TO LICENSEE. 1.18 'MINOR ENHANCEMENT RELEASE' MEANS AN EMBODIMEN T OF THE LICENSED PRODUCT THAT DELIVERS MINOR IMPROVEMENT, INCREMENTAL FEATUR ES OR ENHANCEMENTS OF EXISTING FEATURES, AND/OR FUNCTIONALITY TO THE LICENSED PROD UCT. 1.19 'SOFTWARE UPGRADE' MEANS AN EMBODIMENT OF THE LICENSED PRODUCT THAT DELIVERS SUBSTANTIAL PERFORMANCE IMPROVEMENTS, ARCHITECTURAL CHANGES OR NEW FEATURES AND/OR FUNCTIONALITY TO THE 'LICENSED PRODUCT FOR WHICH SY NOPSYS MAY CHARGE A SEPARATE LICENSE FEE. 1.20 'USE AREA' MEANS THE KEY SERVER(S), CLIENT(S) AND END-USER(S) ALL LOCATED WITHIN THE SAME FIVE (5) MILE RADIUS. GRANT OF RIGH TS 2.1 SOFTWARE LICENSE SYNOPSYS HEREBY GIANTS LICENSE E A NON-EXCLUSIVE, NON- TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICENSE, OF USE THE LICENSED SOFTWARE AND DESIGN TECHNIQUES ONLY: (I) IN THE QUANTITY AUTHORI ZED BY A LICENSE KEY; (II) IN ACCORDANCE WITH THE DOCUMENTATION; AND (III) IN THE USE AREA. LICENSEE MAY MAKE A REASONABLE NUMBER OF COPIES OF THE LICENSED SOFTWAR E FOR BACKUP AND/OR ARCHIVAL PURPOSES ONLY. 2.1.1 TERM OF LICENSE THE TERM OF THE LICENSE GRANTED HEREIN SHALL BE CO NTINUOUS UNTIL NON- RENEWAL OF THE SUPPORT AGREEMENT, (UNLESS THE LICENSE IS SOONER TERMINATED IN ACCORDANCE WITH SECTION 8 OF THIS AGREEMENT), WHERE UPON LICENSEE SHALL BE GRANTED A TWENTY-(20) YEAR KEY TO USE THE LICENSED SOFTWARE A T THE LAST SUPPORTED LEVEL, PROVIDED THAT IF LICENSEE AND SYNOPSYS HAVE AGREED THAT LICENSEE MAY OBTAIN TIME- BASED LICENSES FOR THE LICENSED PRODUCTS, AS INDICA TED IN THE APPLICABLE QUOTE, PURCHASE ORDER AND/OR LICENSE KEY, THE TERM OF THE LICENSE SHALL BE AS SET FORTH IN THE APPLICABLE LICENSEE KEY. 2.2 DESIGN WARE LICENSE IF LICENSEE HAS PURCHASED A LICENSE TO DESIGN WARE , SYNCPSYS HEREBY GRANTS LICENSEE THE FOLLOWING NON-E XCLUSIVE, NON-TRANSFERABLE RIGHTS TO DESIGN WARE, WITH NO RIGHT TO SUB-LICENSE (EXCEP T AS PROVIDED BELOW): (I) LICENSEE MAY USE DESIGN WARE IN THE QUANTITY AUTHORIZED BY THE DESIGN WARE LICENSE KEY, IN ACCORDANCE WITH THE DOCUMENTAT ION, IN THE USE AREA (II) LICENSEE MAY IMPLEMENTATION IP INTO LICENSE E'S DESIGNS TO CREATE INTEGRATED DESIGNS; RELIANCE AND LUCENT GROUP 84 (III) LICENSEE MAY MAKE, HAVE MADE, USE AND DIST RIBUTE PRODUCTS THAT ARE PHYSICAL IMPLEMENTATIONS OF THE INTEGRATED DESIGNS; AND (IV) IF LICENSEE HAS PURCHASED FROM SYNOPSYS THE RIGHT TO USE CERTAIN IMPLEMENTATION IP IN SUPPORT OF LICENSEE'S DEVELOPM ENT OF INTEGRATED DESIGNS. LICENSEE MAY MAKE A REASONABLE NUMBER OF COPIES OF DESIGN WARE FOR BACKUP AND/OR ARCHIVAL PURPOSES ONLY. 2.3 DOCUMENTATION LICENSE SYNOPSYS HEREBY GRANTS LI CENSEE A NON-EXCLUSIVE, NON-TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICE NSE, TO USE THE DOCUMENTATION AND TO MAKE A REASONABLE NUMBER OF CO PIES OF THE DOCUMENTATION SOLELY FOR ITS OWN INTERNAL BUSINESS PURPOSES TO SUPPORT LICENSEE'S USE OF THE LICENSED PRODUCT. 2.4 EVALUATION LICENSE IN THE EVENT LICENSEE OBTAIN S EVALUATION COPIES (WHICH EXCLUDES ANY COPY OF THE LICENSED PRODUCTS ISSUED P URSUANT TO LICENSEE'S PURCHASE ORDER) OF THE LICENSED PRODUCT THE TERMS A ND CONDITIONS OF THIS AGREEMENT SHALL GOVERN, EXCEPT AS FOLLOWS: (I) LICENSEE MAY USE SUCH LICENSED PRODUCT ONLY F OR INTERNAL, NON- PRODUCTION EVALUATION FOR THE PURPOSE OF DECIDING W HETHER TO PURCHASE A LICENSE FOR SUCH LICENSED PRODUCT FROM SYNOPSYS; (II) THE TERN OF THE EVALUATION LICENSE WILL BE A S SPECIFIED IN THE APPLICABLE LICENSE KEY; AND (III) SECTION 9 IS AMENDED SUCH THAT THE LICENSED PRODUCTS IS PROVIDED 'AS IS' 2.7 PROPRIETARY NOTICES. LICENSEE MUST REPRODUCE AN D INCLUDE THE COPYRIGHT NOTICE AND ANY OTHER NOTICES THAT APPEAR ON THE ORI GINAL COPY OF THE LICENSED PRODUCT AND DOCUMENTATION ON ANY COPIES MAY THEREOF BY LICENSEE IN ANY MEDIA. 2.8 LICENSE RESTRICTIONS. LICENSEE ACKNOWLEDGES THA T THE SCOPE OF THE LICENSES GRANTED HEREUNDER DO NOT PERMIT LICENSEE {AND LICEN SEE SHALL NOT ALLOW ANY THIRD PARTY TO: (I) SAVE AS EXPRESSLY PERMITTED BY AND IN ACCORDANC E WITH THE PROVISIONS OF REGULATION 6(2), 6 (3) AND 7 OF THE EC (LEGAL PROTE CTION OF COMPUTER PROGRAMS) REGULATIONS 1993, COPY, ADAPT, DECOMPILE, DISASSEMBLE, REVERSE ENGINEER OR ATTEMPT TO RECONSTRUCT, IDENTIFY OR DIS COVER ANY SOURCE CODE, UNDERLYING IDEAS, UNDERLYING USER INTERFACE TECHNIQ UES OR ALGORITHMS OF THE LICENSED PRODUCT BY ANY MEANS WHATEVER, OR DISCLOSE ANY OF THE FOREGOING; (II) DISTRIBUTE, LEASE, LEND, USE FOR TIMESHARING, SERVICE BUREAU, AND/OR APPLICATION SERVICE PROVIDER PURPOSES THE LICENSED PRODUCT; (III) USE THE LICENSED PRODUCT FOR THE BENEFIT OF THIRD PARTIES, OR ALLOW THIRD PARTIES TO USE THE LICENSED PRODUCT; RELIANCE AND LUCENT GROUP 85 (IV) MODIFY, INCORPORATE INTO OR WITH OTHER SOFTWA RE, OR CREATE A DERIVATIVE WORK OF ANY PART OF THE LICENSED PRODUCT; (V) DISCLOSE THE RESULTS OF ANY BENCHMARKING OF TH E LICENSED PRODUCT (WHETHER OR NOT OBTAINED WITH SYNOPSYS' ASSISTANCE) TO THIRD PARTIES; (VI) USE THE LICENSED PRODUCT TO DEVELOP OR ENHANC E ANY PRODUCT THAT COMPETES WITH A LICENSED PRODUCT; OR (VII) EMPLOY THE LICENSED PRODUCT IN, OR IN THE DEV ELOPMENT OF, LIFE CRITICAL APPLICATIONS OR IN ANY OTHER APPLICATION WHERE FAIL URE OF THE LICENSED PRODUCT OR ANY RESULTS FROM THE USE THEREOF CAN REASONABLY BE EXPECTED TO RESULT IN PERSONAL INJURY. 3. OWNERSHIP 3.1 SYNOPSYS OWNERSHIP. SYNOPSYS AND/OR ITS LICENSO RS OWN AND SHALL RETAIN ALL RIGHTS, TITLE AND INTEREST IN AND TO THE LICENSED PRODUCT, DESIGN TECHNIQUES AND DOCUMENTATION, INCLUDING ALL INTELLECTUAL PROPERTY RIGHTS EMBODIED THEREIN, AND LICENSEE SHALL HAVE NO RIGHTS WITH RESPECT THERETO OTHER THAN THE RIGHTS EXPRESSLY SET FORTH IN THIS AGREEMENT. RISK IN THE MEDIA ONLY, PA SSES UPON SYNOPSYS' DELIVERY OF THE LICENSED PRODUCT TO A COMMON CARRIER, OR FOR INTERN ATIONAL SHIPMENTS, DELIVERY TO THE FOREIGN PORT OF ENTRY. TITLE, IN THE MEDIA ONLY, PA SSES TO THE LICENSEE ON PAYMENT OF THE LICENSE FEES. THIRD PARTY PROPRIETARY INFORMATION M AY HAVE BEEN USED IN THE DEVELOPMENT OF CERTAIN LICENSED PRODUCTS, AND ANY T HIRD PARTY LICENSORS OF SUCH PRODUCTS MAY ENFORCE THEIR RIGHTS UNDER THIS SECTIO N AS THIRD PARTY BENEFICIARIES. SUCH THIRD PARTIES ARE LISTED IN THE APPLICABLE DOCUMENT ATION. 3.2 LICENSEE DESIGNS . LICENSEE SHALL RETAIN ALL RIGHT, TITLE AND INTERE ST IN AND TO DESIGNS, INTEGRATED DESIGNS AND ALL COPIES AND PORTIONS THER EOF, SUBJECT TO SYNOPSYS' UNDERLYING RIGHTS IN ANY DESIGN WARE INCORPORATED IN SUCH DESI GNS AND INTEGRATED DESIGNS. 5. DELIVERY TERMS 5.1 PURCHASE ORDER . IN ORDER TO OBTAIN PRODUCTS AND SERVICES FROM SYN OPSYS, LICENSEE MUST FIRST SUBMIT A PURCHASE ORDER. AS PART OF A PU RCHASE ORDER, LICENSEE MUST IDENTIFY THE LICENSED PRODUCT IT WISHES TO LICENSE, THE IDEN TITY (BY MACHINE ID NUMBER) OF THE KEY SERVER(S) AND THE LOCATION OF SUCH KEY SERVER(S ). ALL PURCHASE ORDERS ARE SUBJECT TO ACCEPTANCE BY SYNOPSYS, IN ITS SOLE DISCRETION. LIC ENSEE'S RECEIPT AND USE OF ALL LICENSED PRODUCT AND DOCUMENTATION SHALL BE GOVERNE D BY: (I) THE TERMS AND CONDITIONS OF THIS AGREEMENTS; AND (II) ANY AGREEMENT SUPPLEMENT(S) WHICH ARE EXECU TED BY BOTH PARTIES. NOTHING CONTAINED IN ANY PURCHASE ORDER, PURCHASE O RDER ACKNOWLEDGMENT, OR INVOICE SHALL IN ANY WAY MODIFY SUCH TERMS OR ADD ANY ADDIT IONAL TERMS OR CONDITIONS; PROVIDED, HOWEVER, THAT SUCH STANDARD VARIABLE TERM S AS PRICE, QUANTITY, DELIVERY DATA, SHIPPING INSTRUCTIONS AND THE LIKE, AS WELL AS TAX EXEMPT STATUS, IF APPLICABLE SHALL BE SPECIFIED ON EACH PURCHASE ORDER OR ACKNOWLEDGEMENT LICENSEE'S PURCHASE ORDER WILL INCLUDE, THE LICENSEE FEE AND PAYMENT TERMS AS SET FORTH IN THE APPLICABLE SYNOPSYS QUOTATION. LICENSEE AGREES TO PAY SYNOPSYS THE LICE NSE FEES, PLUS APPLICABLE TAXES AS SET FORTH BELOW, IN ACCORDANCE WITH THE PAYMENT TER MS SPECIFIED IN THE APPLICABLE SYNOPSYS QUOTATION AND/OR INVOICE. 5.3 DELIVERY . UPON THE ACCEPTANCE OF AN ORDER BY SYNOPSYS AND T HE SATISFACTION OF ALL SYNOPSYS PREREQUISITES PRIOR TO DELIVERY, SYNOPSYS SHALL DELIVER TO LICENSEE, AT RELIANCE AND LUCENT GROUP 86 SYNOPSYS EXPENSE, THE LICENSED PRODUCT, LICENSE KEY AND/OR DOCUMENTATION, AS APPROPRIATE. 6. SUPPORT SERVICES SUPPORT SERVICES SHALL BE PROVIDED BY SYNOPSYS UNDE R THE TERMS AND CONDITIONS SET FORTH HEREIN AND OF THE SUPPORT AGREEMENT. 7. CONFIDENTIALITY EACH PARTY WILL PROTECT THE OTHER'S CONFIDENTIAL IN FORMATION FROM UNAUTHORISED DISSEMINATION AND USE WITH THE SAME DEGREE OF CARE THAT EACH SUCH PARTY USES TO PROTECT ITS OWN LIKE INFORMATION. NEITHER PARTY WIL L USE THE OTHER'S CONFIDENTIAL INFORMATION FOR PURPOSES OTHER THAN THOSE NECESSARY TO DIRECTLY FURTHER THE PURPOSES OF THIS AGREEMENT. NEITHER PARTY WILL DISCLOSE TO THIR D PARTIES THE OTHER'S CONFIDENTIAL INFORMATION WITHOUT THE PRIOR WRITTEN CONSENT OF TH E OTHER PARTY. 8. TERMINATION OF LICENSE 8.1 TERMINATION . EITHER PARTY HAS THE RIGHT TO TERMINATE THIS AGRE EMENT IF THE OTHER PARTY BREACHES OR IS IN DEFAULT OF ANY OBLIGATION H EREUNDER, WHICH DEFAULT IS INCAPABLE OF CURE OR WHICH, BEING CAPABLE OF CURE, HAS NOT BE EN CURED WITH FIFTEEN (15) BUSINESS DAYS AFTER RECEIPT OF WRITTEN NOTICE FROM THE NON-D EFAULTING PARTY OR WITHIN SUCH ADDITIONAL CURE PERIOD AS THE NON- DEFAULTING PARTY MAY AUTHORIZE, EXCEPT THAT THE LICENSED PRODUCT'S FAILURE TO SUBSTANTIALLY CONFORM TO THE SPECIFICATIONS IN THE LICENSED PRODUCE DOCUMENTATION SHALL NOT BE DEEMED A DEFAULT UNDER THIS SECTION 8.1 BUT SHALL BE SUBJECT TO THE EXCLUSIVE REMEDIES PROV IDED IN SECTION 9.1. 8.3 EFFECT OF TERMINATION . UPON TERMINATION, LICENSEE SHALL IMMEDIATELY CEAS E ALL USE OF THE LICENSED PRODUCT (OTHER THAN DESIGN WARE INC ORPORATED INTO DESIGNS PRIOR TO TERMINATION, FOR WHICH LICENSEE'S LICENSE SHALL CON TINUE ACCORDING TO ITS TERMS), DESIGN TECHNIQUES AND DOCUMENTATION AND RETURN OR D ESTROY ALL SUCH COPIES AND ALL PORTIONS OF THE LICENSED PRODUCT (OTHER THAN DESIGN WARE INCORPORATED INTO DESIGNS PRIOR TO TERMINATION) AND SO CERTIFY IN WRITING IN SYNOPSYS TERMINATION WILL NOT RELIEVE LICENSEE OR SYNOPSYS FROM ANY LIABILITY GRI SING FROM ANY BREACH OF THIS AGREEMENT. NEITHER PARTY WILL BE LIABLE TO THE OTHE R FOR DAMAGES OF ANY SORT SOLELY AS A RESULT OF TERMINATING THIS AGREEMENT IN ACCORDANC E WITH ITS TERMS, AND TERMINATION OF THIS AGREEMENT WILL BE WITHOUT PREJUDICE TO ANY OTH ER RIGHT OR REMEDY OF EITHER PARTY. THE PROVISIONS OF SECTIONS 3, 7, 8.2, 8.3, 11, 12 A ND 13 SHALL SURVIVE ANY TERMINATION OR EXPIRATION OF THIS AGREEMENT. 10. PATENT AND COPYRIGHT INFRINGEMENT 10.1 INDEMNITY . SYNOPSYS AGREES, AT ITS OWN EXPENSE, TO DEFEND OR , AT ITS OPTION, TO SETTLE, ANY CLAIM OR ACTION BROUGHT AGAINST LICENSE E TO THE EXTENT IT IS BASED ON A CLAIM THAT THE LICENSED SOFTWARE AS SUED WITHIN THE SCOPE OF THIS AGREEMENT INFRINGES OR VIOLATES ANY UNITED STATES OR EUROPEAN PATENT, COPY RIGHT, TRADEMARK, TRADE SECRET OR OTHER PROPRIETARY LIGHT OF A THIRD PARTY, AND SYNOP SYS WILL INDEMNIFY AND HOLD LICENSEE HARMLESS FROM AND AGAINST ANY DAMAGES, COS TS AND FEES REASONABLY INCURRED (INCLUDING REASONABLE ATTORNEYS' FEES) THAT ARE ATT RIBUTABLE TO SUCH CLAIM OR ACTION AND WHICH ARE ASSESSED AGAINST LICENSEE IN A FINAL JUDG MENT. LICENSEE AGREES THAT SYNOPSYS SHALL BE RELEASE FROM THE FOREGOING OBLIGA TION UNLESS LICENSEE PROVIDES SYNOPSYS WITH: (I) PROMPT WRITTEN NOTIFICATION OF THE CLAIM OR ACTION; RELIANCE AND LUCENT GROUP 87 (II) SOLE CONTROL AND AUTHORITY OVER THE DEFENSE OR SETTLEMENT THEREOF; AND (III) ALL AVAILABLE INFORMATION, ASSISTANCE AND A UTHORITY TO SETTLE AND/OR DEFEND ANY SUCH CLAIM OR ACTION. 13.3 ASSIGNMENT . THIS AGREEMENT MAY NOT BE ASSIGNED BY LICENSEE WI THOUT THE PRIOR WRITTEN CONSENT OF SYNOPSYS. 13.6 INDEPENDENT CONTRACTORS. THE RELATIONSHIP OF S YNOPSYS AND LICENSEE ESTABLISHED BY THIS AGREEMENT IS THAT OF INDEPENDENT CONTRACTOR S, AND NOTHING CONTAINED IN THIS AGREEMENT SHALL BE CONSTRUED (I) TO GIVE EITHER PAR TY THE POWER TO DIRECT OR CONTROL THE DAY-TO-DAY ACTIVITIES OF THE OTHER OR (II) TO CONST ITUTE THE PARTIES AS PARTNERS, JOINT VENTURES, CO-OWNERS OR OTHERWISE AS PARTICIPANTS IN A JOINT A COMMON UNDERTAKING. 13.9. INJUNCTIVE RELIEF. THE PARTIES AGREE THAT A M ATERIAL BREACH OF THIS AGREEMENT ADVERSELY ENTITLED AFFECTING SYNOPSYS' INTELLECTUAL PROPERTY RIGHTS IN THE LICENSED PRODUCT, DESIGN TECHNIQUES OR DOCUMENTATION WOULD C AUSE IRREPARABLE INJURY TO SYNOPSYS FOR WHICH MONETARY DAMAGES WOULD NOT BE AN ADEQUATE REMEDY AND SYNOPSYS SHALL BE TO EQUITABLE RELIEF IN ADDITION T O ANY REMEDIES IT MAY HAVE HEREUNDER OR AT LAW.' 45. AS IS CLEAR FROM THE DESCRIPTION OF THE AGREEME NT IT IS AN END-USER SOFTWARE LICENCE AGREEMENT. CLAUSE 2.1 DEALS WITH GRANT OF RIGHTS. I T PROVIDES, SOFTWARE LICENSE SYNOPSYS HEREBY GRANTS LICENCEE A NON-EXCLUSIVE, NO N-TRANSFERABLE LICENSE, WITHOUT RIGHT OF SUB-LICENCE OF USE THE LICENSED SOFTWARE A ND DESIGN TECHNIQUES ONLY IN THE QUANTITY AUTHORIZED BY A LICENSEE IN ACCORDANCE WIT H THE DOCUMENTATION IN THE USE AREA. LICENSEE MAY MAKE A REASONABLE NUMBER OF COPI ES OF THE LICENSED SOFTWARE FOR BACKUP AND/OR ARCHIVAL PURPOSES ONLY. MERELY BECAUS E THE WORDS NON-EXCLUSIVE AND NON-TRANSFERABLE IS USED IN THE SAID LICENCE IT DOE S NOT TAKE AWAY THE SOFTWARE OUT OF THE DEFINITION OF THE COPYRIGHT. THE WORD LICENCED SOFTWARE HAS BEEN DEFINED. SIMILARLY, THE WORDS DESIGN, DESIGN TECHNIQUE IS AL SO DEFINED. THE WORD DOCUMENTATION IS ALSO DEFINED AND IT IS NOT IN DISP UTE WHAT IS GRANTED IS A LICENSE. EVEN IF IT IS NOT TRANSFER OF EXCLUSIVE RIGHT IN TH E COPYRIGHT, THE RIGHT TO USE THE CONFIDENTIAL INFORMATION EMBEDDED IN THE SOFTWARE I N TERMS OF THE AFORESAID LICENCE MAKES IT ABUNDANTLY CLEAR THAT THERE IS TRANSFER OF CERTAIN RIGHTS WHICH THE OWNER OF COPYRIGHT POSSESS IN THE SAID COMPUTER SOFTWARE/PRO GRAMME IN RESPECT OF THE COPYRIGHT OWNED. IN TERMS OF THE DTAA THE CONSIDERA TION PAID FOR THE USE OR RIGHT TO USE THE SAID CONFIDENTIAL INFORMATION IN THE FORM O F COMPUTER PROGRAMME SOFTWARE ITSELF CONSTITUTES ROYALTY AND ATTRACTS TAX. IT IS NOT NECESSARY THAT THERE SHOULD BE A TRANSFER OF EXCLUSIVE RIGHT IN THE COPYRIGHT AS CON TENDED BY THE ASSESSEE. THE CONSIDERATION PAID IS FOR RIGHTS IN RESPECT OF THE COPYRIGHT AND FOR THE USER OF THE CONFIDENTIAL INFORMATION EMBEDDED IN THE SOFTWARE/C OMPUTER PROGRAMME. THEREFORE, RELIANCE AND LUCENT GROUP 88 IT FALLS WITHIN THE MISCHIEF OF EXPLANATION (2) OF CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9 OF THE ACT AND THERE IS A LIABILITY TO PA Y THE TAX. 46. IF THERE WAS ANY DOUBT REGARDING THE TAXABILITY OF THIS INCOME THE PARLIAMENT BY FINANCE ACT, 2010 HAS SUBSTITUTED THE EXPLANATION T O SECTION 9 WHICH GIVES A CLEAR INTENTION OF THE LEGISLATURE INSOFAR AS THE LIABILI TY OF TAX UNDER THIS PROVISION IS CONCERNED. A PERUSAL OF THE SAID EXPLANATION MAKES IT CLEAR THAT AS THERE WAS A DOUBT EARLIER, THEY WANT TO REMOVE THE DOUBTS BY INTRODUC ING THIS EXPLANATION. BY THE EXPLANATION THEY HAVE DECLARED THAT FOR THE PURPOSE OF SECTION 9 WHICH DEALS WITH INCOME DEEMED TO ACCRUE OR ARISE IN INDIA, UNDER CL AUSES (V), (VI) AND (VII) OF SUB- SECTION (1), SUCH INCOME SHALL BE INCLUDED IN THE T OTAL INCOME OF THE NON- RESIDENT, WHETHER OR NOT (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA, (II) THE NON-RESIDENT HAS REND ERED SERVICES IN INDIA. THEREFORE, THE OBJECT IS TO LEVY TAX ON THE INCOME OF A NON-RESIDE NT, IF IT HAS ACCRUED OR ARISEN IN INDIA AND ONE SUCH INCOME IS THE INCOME FROM ROYALT Y 35. EXPRESSING SIMILAR VIEW, THE HONBLE HIGH COURT OF KARNATAKA HAS HELD SIMILARLY IN THE CASE OF SAMSUNG( SUPRA) AS UNDER: (PARA 20) HAVING REGARD TO THE ABOVE SAID DEFINITION OF 'ROYA LTY', WE HAVE TO CON-SIDER THE CONTENTS OF SOFTWARE LICENCE AGREEMENT ENTERED INTO BY THE NON-RESIDENT WITH SAMSUNG ELECTRONICS AND ALSO THE RESPONDENTS IN THE CASE RE PRESENTED BY SRI GANESH, LEARNED SENIOR COUNSEL AND SRI ARAVIND DATTAR, WHEREIN IT I S A CASE OF PURCHASE, SALE OR DISTRIBUTION OR OTHERWISE OF THE OFF-THE-SHELF SOFT WARE. IT IS DESCRIBED AS A 'SOFTWARE LICENCE AGREEMENT', WHEREIN IT IS AVERRED THAT CUST OMER ACCEPTS AN INDIVIDUAL, NON- TRANSFERABLE AND NON-EXCLUSIVE LICENCE TO USE THE L ICENSED SOFTWARE PROGRAM(S) ON THE TERMS AND CONDITIONS ENUMERATED IN THE AGREEMENT. I T IS FURTHER AVERRED THAT THE CUSTOMER-SAMSUNG ELECTRONICS-SHALL PROTECT CONFIDEN TIAL INFOR-MATION AND SHALL NOT REMOVE ANY COPYRIGHT, CONFIDENTIALITY OR OTHER PRO- PRIETARY RIGHTS PROVIDED BY THE NON- RESIDENT. HOWEVER, WHAT IS GRANTED UNDER THE SAID L ICENCE 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 THE SAID LICENCE IS THE LICENCE TO USE THE SOFTWARE AND THE COPYRIGHT CONTINUE TO BE WITH THE NON- RESIDENT AS PER THE AGREEMENT. EVEN AS PER THE AGRE EMENT ENTERED INTO WITH THE OTHER DISTRIBUTORS AS ALSO THE END-USER LICENCE AGREE-MEN T, IT IS CLEAR THAT THE DISTRIBUTOR WOULD GET EXCLUSIVE NON-TRANSFERABLE LICENCE WITHIN THE TERRITORY FOR WHICH HE IS APPOINTED AND HE HAS GOT RIGHT TO DISTRIBUTE VIA RE SELLERS THE SOFTWARE, UPON PAYMENT OF THE LICENCES SET FORTH IN EXHIBIT A TO THE AGREEMEN T ONLY TO END USERS PURSUANT TO A VALID ACTUATE SHRINKWRAP OR OTHER ACTUATE LICENCE A GREEMENT AND EXCEPT AS EXPRESSLY SET FORTH IN THE SAID AGREEMENT, DISTRIBUTOR MAY NO T RENT, LEASE, LOAN, SELL OR OTHERWISE DISTRIBUTE THE SOFTWARE THE DOCUMENTATION OR ANY DE RIVATIVE WORKS BASED UPON THE SOFTWARE OR DOCUMENTATION IN WHOLE OR IN PART. DIST RIBUTOR SHALL NOT REVERSE ENGINEER, DECOMPILE, OR OTHERWISE ATTEMPT TO DERIVE OR MODIFY THE SOURCE CODE FOR THE SOFTWARE. THE DISTRI-BUTOR SHALL HAVE NO RIGHTS TO THE SOFTWA RE OTHER THAN THE RIGHTS EXPRESSLY SET RELIANCE AND LUCENT GROUP 89 FORTH IN THE AGREEMENT. THE DISTRIBUTOR SHALL NOT M ODIFY OR COPY ANY PART OF THE SOFTWARE OR DOCUMENTATION. THE DISTRIBUTOR MAY NOT USE SUB-D ISTRIBUTORS FOR FURTHER DISTRIBUTION OF THE SOFTWARE AND DOCUMENTATION WITHOUT THE PRIOR CO NSENT OF ACTUATE. WHAT IS CHARGED IS THE LICENCE FEE TO BE PAID BY THE DISTRIBUTOR OF THE SOFTWARE AS ENUMERATED IN EXHIBIT A TO THE AGREEMENT. FURTHER, CLAUSE 6.01 OF THE AGR EEMENT DEALING WITH TITLE STATES THAT THE DISTRIBUTOR ACKNOWLEDGES THAT ACTUATE AND ITS S UPPLIERS RETAIN ALL RIGHT, TITLE AND INTEREST IN AND TO THE ORIGINAL, AND ANY COPIES (BY WHOMEVER PRODUCED), OF THE SOFTWARE OR DOCUMENTATION AND OWNERSHIP OF ALL PATENT COPYRI GHT, TRADE MARK, TRADE SECRET AND OTHER INTELLECTUAL PRO-PERTY RIGHTS PERTAINING THER ETO, SHALL BE AND REMAIN THE SOLE PROPERTY OF ACTUATE. THE DISTRIBUTOR SHALL NOT BE A N OWNER OF ANY COPIES OF, OR ANY INTEREST IN, THE SOFTWARE, BUT RATHER IS LICENCED P URSUANT TO THE AGREEMENT TO USE AND DISTRIBUTE SUCH COPIES. ACTUATE REPRESENTS THAT IT HAS THE RIGHT TO ENTER INTO THE AGREEMENT AND GRANT THE LICENCES PROVIDED THEREIN A ND CONFIDENTIALITY IS PROTECTED. THEREFORE, ON READING THE CONTENTS OF THE RESPECTIV E AGREEMENT ENTERED INTO BY THE RESPONDENTS WITH THE NON-RESI-DENT, IT IS CLEAR THA T UNDER THE AGREEMENT, WHAT 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 RE FERRED TO ABOVE, AND THE NON- RESIDENT SUPPLIER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND ALL OTHER INTELLECTUAL PROPERTY RIGHTS. IT IS WELL SETTLED THAT COPYRIGHT IS A NEGATIVE RIGHT. IT IS AN UMBRELLA OF MANY RIGHTS AND LICENCE IS GRANTED FOR MAKING USE O F THE COPYRIGHT IN RESPECT OF SHRINK WRAPPED SOFTWARE/OFF-THE-SHELF SOFTWARE UNDER THE R ESPECTIVE 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 AND THE SAME WOULD AMOUNT TO TRANS FER OF PART OF THE COPYRIGHT AND TRANSFER OF RIGHT TO USE THE COPYRIGHT FOR INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THEREFORE, THE CONTENT ION OF THE LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRAN SFER OF COPYRIGHT OR ANY PART THEREOF UNDER THE AGREEMENTS ENTERED INTO BY THE RESPONDENT WITH THE NON-RESIDENT SUPPLIER OF SOFTWARE CANNOT BE ACCEPTED. 36. THE PRINCIPLES LAID DOWN BY THE TWO JUDGEMENTS OF THE HON'BLE KARNATAKA HIGH COURT ARE APPLICABLE TO THE PRESENT CASES AS THE FACT OF SUPPLY OF SOFTWARE IS SIMILAR. 37. IN THE CASE OF LUCENT TECHNOLOGIES (270 IT R(AT) 62(BANG), THE ITAT HAS HELD THAT WHAT THE ASSESSEE SUPPLIED WAS A COPY RIGHTED ARTICLE WHICH DOES NOT INVOLVE ANY ROYALTY. THAT ORDER OF THE ITA T WAS NOT UPHELD BY THE HON'BLE KARNATAKA HIGH COURT. SUBSEQUENTLY WHEN THE MATTER WAS RESTORED BY THE HON'BLE SUPREME COURT, THE HON'BLE KARNATAKA HIGH COURT IN ASSESSEES GROUP CASE ITSELF, LUCENT TECHNOLOGIES 348 ITR 196(KAR) HELD THAT SUPPLY OF SOFTWARE IS TO BE CONSIDERED AS ROYALTY. IT WAS HELD: THE ASSESSEE IMPORTED SOFTWARE FROM THE USA FOR THE ASSESSMENT YEARS 1999-2000 TO 2002-03. IT HAD ALSO SEPARATELY IMPORTED HARDWARE FROM TAIWAN. THE INCOME-TAX OFFICER INITIA TED PROCEEDINGS RELIANCE AND LUCENT GROUP 90 UNDER SECTION 201(1) AND 201(1A) OF THE INCOME-TAX ACT, 1961, AGAINST THE ASSESSEE FOR FAILURE TO DEDUCT TAX AT S OURCE IN RESPECT OF PAYMENT MADE FOR THE SOFTWARE IMPORTED FROM THE USA . THE CASE OF THE ASSESSEE WAS THAT IT HAD OBTAINED ORDERS FROM T HE DEPARTMENT OF TELECOMMUNICATIONS FOR MANUFACTURE AND SUPPLY OF TELECOMMUNICATIONS/SWITCHING EQUIPMENT. IN ORDER TO EXECUTE ITS ORDERS IN INDIA IT HAD PLACED SEPARATE ORDERS FOR S OFTWARE AND HARDWARE AND INTEGRATED THEM AND HAD EXECUTED ITS C OMMITMENT TO THE TELECOMMUNICATIONS DEPARTMENT. THE INCOME-TAX O FFICER AND AS CONFIRMED BY THE COMMISSIONER (APPEALS) PROCEEDED T O HOLD THAT THE SOFTWARE AND THE HARDWARE HAD BEEN IMPORTED BY THE ASSESSEE, THROUGH TWO SEPARATE COUNTRIES AND INTEGRATED IN IN DIA BY THE ASSESSEE. THE EXECUTION OF THE CONTRACT BY THE ASSE SSEE WITH THE TELECOMMUNICATIONS DEPARTMENT IN INDIA WAS A SEPARA TE CONTRACT FROM THE IMPORT OF SOFTWARE FROM THE USA. IT WAS HE LD THAT THE PAYMENTS WERE MADE FOR SUPPLY OF SOFTWARE WHICH WAS UTILISED BY THE ASSESSEE AND, CONSEQUENTLY, THE PROVISIONS OF S ECTION 9(1)(VI) OF THE ACT READ WITH THE DOUBLE TAXATION AVOIDANCE AGR EEMENT BETWEEN INDIA AND THE USA WERE APPLICABLE. THE TRIB UNAL HELD THAT THE PAYMENT MADE BY THE ASSESSEE FOR ACQUIRING THE SOFTWARE COULD NOT BE TERMED ROYALTY PAYMENTS AND, THEREFORE, NO D EDUCTION OF TAX WAS NECESSARY AND, CONSEQUENTLY, SECTION 195 WAS NO T APPLICABLE. ON APPEAL TO THE HIGH COURT : HELD, ALLOWING THE APPEALS, THAT THE SUPPLY OF SOFTWARE F ROM THE USA TO THE ASSESSEE WAS AN INDEPENDENT TRANSACTION. THE HARDWA RE UTILISED BY THE ASSESSEE WAS RECEIVED FROM TAIWAN. ONLY AFTER R ECEIPT OF BOTH THE SOFTWARE AND THE HARDWARE, HAD THEY BEEN INTEGR ATED BY THE ASSESSEE IN INDIA AND THEREAFTER SUPPLIED TO THE DE PARTMENT OF TELECOMMUNICATIONS AS AN END PRODUCT IN TERMS OF TH E ASSESSEE'S INDEPENDENT CONTRACT. THEREFORE, THE FINDING RECORD ED BY THE TRIBUNAL WAS ERRONEOUS. CONSEQUENTLY, THE PAYMENTS MADE BY T HE ASSESSEE AMOUNTED TO ROYALTY AND WERE LIABLE TO BE TAXED IN INDIA UNDER SECTION 9(1)(VI) READ WITH THE DOUBLE TAXATION AVOI DANCE AGREEMENT. ORDER OF THE APPELLATE TRIBUNAL IN LUCENT TECHNOLOG IES HINDUSTAN LTD. V. ITO [2004] 270 ITR (AT) 62 (BANG) SET ASIDE . 38. IN THE LIGHT OF THE ABOVE PRINCIPLES LAID D OWN BY THE HON'BLE KARNATAKA HIGH COURT, THAT TOO IN GROUP CASE ITSELF ON SAME TERMS OF AGREEMENT AS THAT OF WITH RELIANCE FOR SUPPLY OF SO FTWARE, WE ARE INCLINED TO FOLLOW THE JUDGEMENTS OF THE HON'BLE KARNATAKA HIGH COURT OVER THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MOT OROLA (SUPRA) WHICH WAS RENDERED IN A DIFFERENT FACT SITUATION. RELIANCE AND LUCENT GROUP 91 39. IN THE CASES BEFORE US, THE LEARNED C OUNSEL FOR LUCENT FAIRLY ADMITTED THAT THE ISSUE IS TO BE DECIDED IN THE LIG HT OF THE JUDGEMENT OF THE HON'BLE DELHI HIGH COURT VIS--VIS THE JUDGEMENT OF THE HON'BLE KARNATAKA HIGH COURT. AS STATED EARLIER THE FACTS IN THE CASE BEFORE THE HON'BLE DELHI HIGH COURT WAS FOR SUPPLY OF SOFTWARE ALONGWITH HAR DWARE AS EMBEDDED SOFTWARE AS A PART OF ONE AGREEMENT AND ITS INSTALL ATION FOR WHICH NO SEPARATE PAYMENT WAS MADE, WHEREAS IN THIS CASE REL IANCE PURCHASED THE SOFTWARE BY VIRTUE OF STAND-ALONE AGREEMENT(S) NAME D AS SOFTWARE LICENSE AGREEMENT(S). 40. IN ALL THE DTAA WITH THE COUNTRIES RELIA NCE PURCHASED SOFTWARE, THE TERMS OF DTAA ARE SIMILAR, THOUGH RESTRICTED IN MEA NING WHEN COMPARED TO DEFINITION OF ROYALTY UNDER THE INCOME TAX ACT 1961 . 1. USA: ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS: A. PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIENTI FIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TE LEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET F ORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE OR DI SPOSITION THEREOF; AND B. PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DES CRIBED IN PARAGRAPH 2(C) OR 3 OF ARTICLE 8. 2. ISRAEL: ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLA N, SECRET FORMULA OR RELIANCE AND LUCENT GROUP 92 PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 3. CHINA: ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE , ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS AND FILMS OR TAPES FOR RADIO OR TELEVISION BROADCAS TING, ANY PATENT, TRADE MARK DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCE SS OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTI FIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE. 4. SWEDEN: ARTICLE 12(3)(A) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLA N, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 5. SINGAPORE: ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE : A. ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIF IC WORK, INCLUDING CINEMATOGRAPH FILM, OR FILMS OR TAPES USED FOR RADI O OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIA L, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENA TION OF ANY SUCH RIGHT, PROPERTY OR INFORMATION; B. ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPM ENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE FROM ACTIVITIES D ESCRIBED IN PARAGRAPH 4(B) OR 4(C) OF ARTICLE 8. 6. JAPAN: ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE , ANY RELIANCE AND LUCENT GROUP 93 COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS AND FILMS OR TAPES FOR RADIO OR TELEVISION BROADCAS TING, ANY PATENT, TRADE- MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROC ESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTI FIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE. 7. AUSTRALIA: ARTICLE 12(3 THE TERM ROYALTIES IN THIS ARTICLE MEANS PAYMENTS OR CREDITS, WHETHER PERIODICAL OR NOT, AND, HOWEVER DESCRIBED OR COMPUT ED, TO THE EXTENT TO WHICH THEY ARE MADE AS CONSIDERATION FOR: A. THE USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT, PATENT, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, TRADE MARK, OR OTHER LIKE PROPERTY OR RIGHT; B. THE USE OF, OR THE RIGHT TO USE , ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT; C. THE SUPPLY OF SCIENTIFIC, TECHNICAL, INDUSTRIAL OR COMMERCIAL KNOWLEDGE OR INFORMATION; D. THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SE RVICES (INCLUDING THOSE OF TECHNICAL OR OTHER PERSONNEL) WHICH ARE AN CILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF ANY SUCH PROPERT Y OR RIGHT AS IS MENTIONED IN SUB-PARAGRAPH (A), ANY SUCH EQUIPMENT AS IS MENTIONED IN SUB-PARAGRAPH (B) OR ANY SUCH KNOWLEDGE OR INFORMAT ION AS IS MENTIONED IN SUB-PARAGRAPH (C); E. THE USE OF, OR THE RIGHT TO USE: I. MOTION PICTURE FILMS; II. FILMS OR VIDEO TAPES FOR USE IN CONNECTION W ITH TELEVISION; OR III. TAPES FOR USE IN CONNECTION WITH RADIO BROADC ASTING; F. TOTAL OR PARTIAL FORBEARANCE IN RESPECT OF THE USE OR SUPPLY OF ANY PROPERTY OR RIGHT REFERRED TO IN SUB-PARAGRAPHS (A) TO (E); OR G. THE RENDERING OF ANY SERVICES (INCLUDING THOSE OF TECHNICAL OR OTHER PERSONNEL) WHICH MAKE AVAILABLE TECHNICAL KNOWLEDGE , EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN; BUT THAT TERM DOES NOT IN CLUDE PAYMENTS OR CREDITS RELATING TO SERVICES MENTIONED IN SUB-PARAG RAPHS (D) AND (G) THAT ARE MADE; RELIANCE AND LUCENT GROUP 94 H. FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY, AND INEXTRICABLY AND ESSENTIALLY LINKED, TO A SALE OF PROPERTY; I. FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY TO THE RENTAL OF SHIPS, AIRCRAFT CONTAINERS OR OTHER EQUIPMENT USED IN CONN ECTION WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRA FFIC; J. RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPHIC FILMS OR FILMS OR TAPES FOR RADIO OR TELEVISION BRO ADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA O R PROCESS OR FOR THE USE OF OR THE RIGHT TO USE INDUSTRIAL, COMMERCIAL O R SCIENTIFIC EQUIPMENT, OTHER THAN AN AIRCRAFT, OR FOR INFORMATION CONCERNI NG INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE; 9. CANADA: CHAPTER III ARTICLE 12(3) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS: A. PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIENTIF IC WORK INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TE LEVISION BROADCASTING, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRE T FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIA L OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR D ISPOSITION THEREOF; AND B. PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL, OR SCIENT IFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 FROM ACTIVITIES DESCRIBED IN PARAGRAPH 3( C) OR 4 OF ARTICLE 8. 10. UNITED KINGDOM OF BRITAIN AND NORTHERN IRELA ND: ARTICLE 13(3) FOR THE PURPOSES OF THIS ARTICLE, THE TERM ROYALTI ES MEANS: A. PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIF IC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILMS, TAP E OR OTHER MEANS OR REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TE LEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECR ET FORMULA OR PROCESS, RELIANCE AND LUCENT GROUP 95 OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIA L OR SCIENTIFIC EXPERIENCE; AND B. PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTI FIC EQUIPMENT, OTHER THAN INCOME DERIVED BY AN ENTERPRISE OF A CONTRACTI NG STATE FROM THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRA FFIC. 11. NETHERLANDS: CHAPTER III ARTICLE 12(4) THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE , ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLA N, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. THE WORDS USED ARE SIMILAR AND THE SAME WAS CONSID ERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF SYNOPSIS( SUPRA ) AS UNDER. 39. IT IS NO DOUBT TRUE THE PROVISIONS OF THE DTAA OVERRIDES THE PROVISIONS OF THE INCOME-TAX ACT. IN THE DTAA THE TERM 'ROYALTY' MEAN S PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK WHEREAS IN THE INCOME-TAX ACT, ROYA LTY MEANS CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS INCLUDING THE GRANTIN G OF A LICENCE. THEREFORE, UNDER THE DTAA TO CONSTITUTE ROYALTY THERE NEED NOT BE ANY TR ANSFER OF OR ANY RIGHTS IN RESPECT OF ANY COPYRIGHT. IT IS SUFFICIENT IF CONSIDERATION IS RECEIVED FOR USE OF OR THE RIGHT TO USE ANY COPYRIGHT. THEREFORE, IF THE DEFINITION OF ROYA LTY IN THE DTAA IS TAKEN INTO CONSIDERATION IT IS NOT NECESSARY THERE SHOULD BE A TRANSFER OF ANY EXCLUSIVE RIGHT. A MERE RIGHT TO USE OR THE USE OF A COPYRIGHT FALLS W ITHIN THE MISCHIEF OF EXPLANATION (2) TO CLAUSE (V) OF SUB-SECTION (1) OF SECTION 9 AND I S LIABLE TO TAX. THEREFORE, WE DO NOT SEE ANY SUBSTANCE IN THE SAID CONTENTION. FURTHER THE HOBLE HIGH COURT IN THE CASE OF SAMSUN G ELECTRONICS ALSO CONSIDERED SIMILARLY AS UNDER: IN VIEW OF THE ABOVESAID OBSERVATIONS AND THE CONTE NTS OF THE DTAA WITH DIFFERENT COUNTRIES, WHEREIN THE DEFINITION OF 'ROYALTY' IS COMMON IN ALL THE AGREEM ENTS, IT IS NECESSARY TO REPRODUCE THE SAID DEFINIT ION OF 'ROYALTY' IN ARTICLE 12 OF THE DTAA, WHICH READS AS U NDER : 'ARTICLE 12 OF DTAA WITH THE USA (SEE [1991] 187 ITR (ST .) 102, 115) : 12. ROYALTIES AND FEES FOR INCLUDED SERVICES- RELIANCE AND LUCENT GROUP 96 (1) ROYALTIES AND FEES FOR INCLUDED SERVICES ARISIN G IN A CONTRACTING STATE AND PAID TO A RESIDENT OF T HE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER ST ATE . . . (3) THE TERM 'ROYALTIES', AS USED IN THIS ARTICLE, MEANS : (A) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC, OR SCIENTIFIC WORK, INCLUDING C INEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER M EANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TE LEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESI GN OR MODEL PLAN, SECRET FORMULA OR PROCESS, OR FOR IN FORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPE-RIENCE, INCLUDING GAINS DERIVED FRO M THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHIC H ARE CONTINGENT ON THE PRODUCTIVITY, USE OR DISPOSITION THEREOF ; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL , COMMERCIAL OR SCIENTIFIC EQUIP-MENT, OTHER THAN PAY MENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH (1) OF ARTICLE 8 (SHIPPING AND AIR TRANSPOR T) FROM ACTIVITIES DESCRIBED IN PARAGRAPH (2)(C) OR (3) OF ARTICLE 8.' IN VIEW OF THE ABOVESAID DEFINITION OF 'ROYALTY', I T IS CLEAR THAT THE NECESSARY INGREDIENT TO BE SATI SFIED TO FIND OUT AS TO WHETHER THE PAYMENT WOULD AMOUNT TO 'ROYALTY' IS AS FOLLOWS- -PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK. IT HAS BEEN UNIVERSALLY ACCEPTED THAT A LITERARY WO RK IS ENTITLED TO COPYRIGHT AND WHEREFORE, A LITERA RY WORK IS ENTITLED TO BE REGISTERED AS COPYRIGHT. IN INDIA, THE PROVISIONS OF SECTION 2(O) OF THE COPYRI GHT ACT, 1957, DEFINES 'LITE-RARY WORK' AS UNDER : ''LITERARY WORK' INCLUDES COMPUTER PROGRAMMES, TAB LES AND COMPI-LATIONS INCLUDING COMPUTER DATABASES THEREFORE, 'COMPUTER SOFTWARE' HAS BEEN RECOGNIZED AS COPYRIGHT WORK IN INDIA ALSO. 41. FURTHER, IN THE CASE OF CITRIX SYSTEMS ASIA PACIFIC PTE LTD 343 ITR 001, THE AAR ON SIMILAR FACTS CONSIDERED AND HELD:- WHEN A SOFTWARE IS CREATED BY A PERSON WHO ACQUIRES A COPYRIGHT FOR IT, HE BECOMES THE OWNER OF THAT COPYRIGHT. HE CAN TRANSFER OR LICENSE THAT RIGHT EITHER BY HIMSELF OR THROUGH AN AGENT. W HEN HE SELLS OR LICENSES THE SOFTWARE FOR USE, HE ALSO SELLS OR LIC ENSES THE RIGHT TO USE THE COPYRIGHT EMBEDDED THEREIN. IF A SOFTWARE IS US ED WITHOUT BEING LAWFULLY ACQUIRED EITHER BY PURCHASE OR BY LICENSE, THAT WOULD AMOUNT TO AN INFRINGEMENT OF THE COPYRIGHT BECAUSE OF THE COPYRIGHT EMBEDDED IN THE SOFTWARE. THE SOFTWARE IS A LITERAR Y WORK AND THE COPYRIGHT OF THE CREATOR OVER THE SOFTWARE IS AN IM PORTANT AND COMMERCIALLY VALUABLE RIGHT. SO, WHENEVER A SOFTWAR E IS ASSIGNED OR LICENSED FOR USE, THERE IS INVOLVED AN ASSIGNMENT O F THE RIGHT TO USE THE EMBEDDED COPYRIGHT IN THE SOFTWARE OR A LICENSE TO USE THE EMBEDDED COPYRIGHT, THE INTELLECTUAL PROPERTY RIGHT IN THE SOFTWARE. IT IS NOT POSSIBLE TO DIVORCE THE SOFTWARE FROM THE IN TELLECTUAL PROPERTY RIGHT OF THE CREATOR OF THE SOFTWARE EMBEDDED THERE IN. EVEN THE RIGHT TO SELL OR GIVE ON RENTAL, WOULD AMOUNT TO A COPYRI GHT AND WOULD BE A RIGHT TO BE DEALT WITH AS A COPYRIGHT. THE DEFINITION OF 'ROYALTY' IN THE INCOME-TAX ACT, 1961 IS, CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF A PATENT, INNO VATION, MODEL, RELIANCE AND LUCENT GROUP 97 DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. CONSIDERATION FOR GRANT OF THE USE OF ANY OF THE AB OVE IS ALSO ROYALTY. IT ALSO TAKES IN THE CONSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK. LICENSE IS N OT CONFINED TO AN EXCLUSIVE LICENSE. WHEN A SOFTWARE, OVER WHICH A CO PYRIGHT IS ACQUIRED AND THUS OWNED, IS LICENSED FOR USE TO ANO THER OR SOLD TO ANOTHER FOR HIS OWN USE, THE LICENSEE OR THE PURCHA SER GETS THE RIGHT TO USE THE SOFTWARE WITHOUT BEING HELD GUILTY OF IN FRINGEMENT OF THE COPYRIGHT. WHEN THE USE OF SOFTWARE, WITHOUT ANYTHI NG MORE, WOULD RENDER THE USER LIABLE FOR INFRINGEMENT OF THE COPY RIGHT EMBEDDED IN THE SOFTWARE, THE SALE OR THE LICENSING OF THE SOFT WARE INVOLVES THE GRANT OF A RIGHT TO USE THE COPYRIGHT IN THE SOFTWA RE AND RIGHT TO USE THE INTELLECTUAL PROPERTY EMBEDDED IN THE SOFTWARE. THEREFORE, THE LICENSING OF A SOFTWARE FOR USE BY THE END-USE CUST OMER, IS NOT THE MERE SALE OF A COPYRIGHTED ARTICLE. THE WORDS WITHIN BRACKETS, 'INCLUDING THE GRANTING OF A LICENSE' INDICATE AN EXPANSIVE DEFINITION. THE WORD 'INCLUDE S' IS AN INCLUSIVE DEFINITION AND EXPANDS THE MEANING. THEREFORE, LICE NSE CANNOT BE RESTRICTED TO TRANSFER OF A RIGHT DEALT WITH EARLIE R BY THE PROVISION AND SHOULD BE UNDERSTOOD AS TAKING IN THE GRANT OF A LI CENSE SIMPLICITER. ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT BETWEEN INDIA AND AUSTRALIA (DTAA) DEFINES 'ROYALTIES' TO M EAN 'PAYMENT MADE AS CONSIDERATION FOR THE USE OF OR THE RIGHT T O USE ANY COPYRIGHT, PATENT, DESIGN OR MODEL, PLAN, SECRET FO RMULA OR PROCESS, TRADE MARK OR OTHER LIKE PROPERTY OR RIGHT'. WHEN T HE DTAA SPEAKS OF ROYALTY, AND DEFINES IT, IT MUST BE UNDERSTOOD AS I T IS COMMONLY UNDERSTOOD. THE ARTICLE SPEAKS OF THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT. USE OF A COPYRIGHT TAKES PLACE WHEN THE COPYRIGHT IS USED. THIS IS DISTINCT FROM THE RIGHT TO USE A COPYRIGHT. THE TWO EXPRESSIONS ARE USED DISJUNCTIVELY AND THE EXPRESSION USED IS ' OR'. THE CONTEXT DOES NOT WARRANT THE READING OF 'OR' AS 'AND'. IF S O, THE CONSIDERATION RECEIVED FOR PERMITTING ANOTHER TO USE A COPYRIGHT IS ALSO ROYALTY. A COPYRIGHTED ARTICLE IS NOTHING BUT AN ARTICLE WHI CH INCORPORATES THE COPYRIGHT OF THE OWNER, THE ASSIGNEE, THE EXCLUSIVE LICENSEE OR THE LICENSEE. SO, WHEN A COPYRIGHTED ARTICLE IS PERMITT ED OR LICENSED TO BE USED FOR A FEE, THE PERMISSION INVOLVES NOT ONLY TH E PHYSICAL OR ELECTRONIC MANIFESTATION OF A PROGRAMME, BUT ALSO T HE USE OF OR THE RIGHT TO USE THE COPYRIGHT EMBEDDED THEREIN. THAT APART, ARTICLE 12(3) OF THE DTAA DEFINES ROYAL TIES AS PAYMENTS, WHETHER PERIODICAL OR NOT AND, HOWEVER, DESCRIBED O R COMPUTED, AS CONSIDERATION FOR 'THE USE OF, OR THE RIGHT TO USE ANY COPYRIGHT, PATENT, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PR OCESS, TRADE MARK OR OTHER LIKE PROPERTY OR RIGHT'. THE DEFINITION IS WIDER THAN THAT CONTAINED IN THE ACT. IT ALSO ROPES IN PAYMENT OF C ONSIDERATION FOR THE USE OF A COPYRIGHT IN ADDITION TO THE CONSIDERATION PAID FOR THE RIGHT RELIANCE AND LUCENT GROUP 98 TO USE A COPYRIGHT, COVERED BY THE DEFINITION IN TH E ACT. CONSIDERATION PAID FOR USE OF A COPYRIGHTED SOFTWARE IS ALSO PAYM ENT FOR USE OF THE COPYRIGHT EMBEDDED IN THE SOFTWARE. THERE CANNOT BE A USE OF SOFTWARE, OVER WHICH EXISTS A COPYRIGHT, WITHOUT A USE OF THE COPYRIGHT THEREIN. THE PAYMENT FOR SUCH USE CAN ONL Y BE ROYALTY. THE SALE OR LICENSING FOR USE OF A COPYRIGHTED SOFT WARE AMOUNTS TO THE GRANT OF A RIGHT TO USE A COPYRIGHT. P. NO. 30 OF 1999, IN RE [1999] 238 ITR 296 (AAR) R ELIED ON A RULING BY THE AUTHORITY IS BASED ON THE FACTS INVOLVED IN THE APPLICATION LEADING TO THAT RULING. THE DOCTRINE OF PRECEDENT C ANNOT BE APPLIED TO A RULING UNDER SECTION 245R(4) OF THE ACT. THE ACT HAS ITSELF MADE IT CLEAR THAT THE RULING IS BINDING ON THE APPLICANT I N THE APPLICATION AND THE REVENUE, IN RESPECT OF THAT APPLICATION AND THE TRANSACTION INVOLVED THEREIN. THE APPLICANT, A COMPANY INCORPORATED IN AUSTRALIA AND PROVIDER OF SOFTWARE SERVICES, ENTERED INTO AGREEMENTS WITH IND IAN DISTRIBUTORS FOR THE DISTRIBUTION AND SALE OF ITS SOFTWARE AND H ARDWARE PRODUCTS IN INDIA. IN THE YEAR 2006, THE APPLICANT ENTERED I NTO A DISTRIBUTION AGREEMENT WITH I, AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF DISTRIBUTION OF COMPUTER SOFTWARE AND HARDWARE, UND ER WHICH I WAS APPOINTED NON-EXCLUSIVE DISTRIBUTOR OF THE PRO-DUCT S OF THE APPLICANT IN INDIA. FOR THE SOFTWARE PRODUCT, CITRIX XENAPP, WHILE SALE AND COLLECTION WAS MADE THROUGH THE DISTRIBUTOR, NO PHY SICAL DELIVERY OF THE PRODUCT WAS MADE TO THE DISTRIBUTOR. ON THE BAS IS OF THE DEMAND OF THE CUSTOMERS, THE DISTRIBUTOR PLACED ORDERS OF PURCHASE WITH THE APPLICANT AND MADE PAYMENTS TO THE APPLICANT. THE A PPLICANT THEN DIRECTLY TRANSMITTED A 'KEY' TO THE END-USER CUSTOM ER WHO, ON RECEIPT OF THE KEY, DOWNLOADED THE SOFTWARE FROM THE SERVER OF THE APPLICANT. IN ADDITION, I ALSO FACILITATED THE EXECUTION OF TH E CITRIX SUBSCRIPTION ADVANTAGE PROGRAMME BETWEEN THE APPLICANT AND ITS E XISTING CUSTOMERS. THE PROGRAMME WAS A PACKAGE OF SUPPORT S ERVICES DURING THE PERIOD OF THE PROGRAMME, INCLUDING PRODU CT VERSION UPDATES, SUBSCRIPTION ADVANTAGE NEWS AND UPDATES AN D SECURE PORTAL ACCESS. THE APPLICANT SOUGHT AN ADVANCE RULI NG ON THE TAXABILITY IN INDIA OF PAYMENTS MADE BY I TO IT FOR THE SOFTWARE PRODUCT, CITRIX XENAPP AND THE SUBSCRIPTION ADVANTA GE PROGRAMME. THE QUESTIONS FRAMED BY THE AUTHORITY WERE WHETHER THE PAYMENTS RECEIVED BY THE APPLICANT FROM THE DISTRIBUTOR FOR SALE OF THE SOFTWARE PRODUCT WERE IN THE NATURE OF 'ROYALTY' WITHIN THE MEANING OF THE TERM IN EXPLANATION 2 TO CLAUSE (VI) OF SECTION 9(1 ) OF THE INCOME-TAX ACT, 1961, OR WITHIN THE MEANING OF THE TERM IN ART ICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND AUSTRALIA, WHETHER THE PAYMENTS RECEIVED BY THE APPLICANT FROM THE DISTRIBUTOR FOR THE RIGHT TO DOWNLOAD/RECEIVE VERSION UPDATES F OR THE SOFTWARE PRODUCTS OF THE- APPLICANT WERE IN THE NATURE OF 'R OYALTY' WITHIN THE MEANING OF THE TERM IN EXPLANATION 2 TO CLAUSE (VI) OF SECTION 9(1) OF RELIANCE AND LUCENT GROUP 99 THE ACT, WHETHER THE PAYMENTS RECEIVED BY THE APPLI CANT FROM THE DISTRIBUTOR FOR THE CITRIX SUBSCRIPTION ADVANTAGE P ROGRAMME WERE IN THE NATURE OF 'FEES FOR TECHNICAL SERVICES' WITHIN THE MEANING OF THE TERM IN EXPLANATION 2 TO CLAUSE (VII) OF SECTION 9( 1) OF THE ACT, WHETHER THE PAYMENT RECEIVED BY THE APPLICANT FROM THE DIST RIBUTOR FOR THE CITRIX SUBSCRIPTION ADVANTAGE PROGRAMME, WAS IN THE NATURE OF 'ROYALTY' WITHIN THE MEANING OF THE TERM IN ARTICLE 12 OF THE DTAA AND IN THE LIGHT OF THE DECLARATION PROVIDED BY THE APPLICANT THAT IT DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA IN TERMS OF ARTICLE 5 OF THE DTAA, WHETHER THE PAYMENT RECEIVED BY THE AP PLICANT WAS CHARGEABLE TO TAX IN INDIA AND WOULD THE RECEIPTS B Y THE APPLICANT FROM THE DISTRIBUTOR SUFFER WITHHOLDING TAX UNDER S ECTION 195 OF THE INCOME-TAX ACT, 1961, AND AT WHAT RATE. THE AUTHORITY ON THE STATED FACTS, RULED : (I) THAT THE PAYMENTS RECEIVED BY THE APPLICANT FRO M THE DISTRIBUTOR FOR SALES OF THE SOFTWARE PRODUCTS WERE IN THE NATURE O F ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE INCOME-TAX ACT, 1961. (II) THAT THE PAYMENTS CONCERNED WOULD BE ROYALTY A S DEFINED IN ARTICLE 12 OF THE DTAA BETWEEN INDIA AND AUSTRALIA. (III) THAT THE PAYMENT RECEIVED BY WAY OF SUBSCRIPT ION FOR THE UPDATES WOULD ALSO BE PAYMENT RECEIVED FOR GRANT OF A RIGHT TO USE THE COPYRIGHT EMBEDDED IN THE SUBSCRIPTION ADVANTAGE PROGRAMME AN D IT WILL BE ROYALTY. (IV) THAT IT WAS NOT NECESSARY TO RULE ON THE QUEST ION WHETHER THE PAYMENT FOR SUBSCRIPTION ADVANTAGE PROGRAMME WOULD BE IN TH E NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF THE INCOME -TAX ACT. (V) THAT THE PAYMENT RECEIVED BY THE APPLICANT FROM THE DISTRIBUTOR FOR THE CITRIX SUBSCRIPTION ADVANTAGE PROGRAMME WAS ROYALTY WITHIN THE MEANING OF CLAUSE (A) OF ARTICLE 12(3) OF THE DTAA BETWEEN INDIA AND AUSTRALIA. IT WAS NOT NECESSARY TO CONSIDER THE QUESTION WHETHER IT WOULD FALL UNDER CLAUSE (G) OF ARTICLE 12(3) OF THE DTAA. (VI) EVEN ACCEPTING THAT THE APPLICANT DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, THE AMOUNT WAS LIABLE TO BE TAXED IN INDIA UNDER ARTICLE 12(2) OF THE DTAA. (VII) THAT THE DISTRIBUTOR I WAS REQUIRED TO WITHHO LD TAXES IN INDIA AT THE TIME OF MAKING PAYMENTS TO THE APPLICANT IN TERMS OF SEC TION 195 OF THE INCOME- TAX ACT AT THE RATE OF 10 PER CENT. OF THE GROSS AM OUNT OF ROYALTY, AS PROVIDED UNDER ARTICLE 12(2) OF THE DTAA. RELIANCE AND LUCENT GROUP 100 42. IN THE CASE OF MICROSOFT CORPORATION VS. A DTT/GRACEMAC CORPORATION 42 SOT 550, ITAT DELHI BENCH HAS HELD THAT PAYMENT MADE FOR GRANT OF LICENSE IN RESPECT OF COPYRIGHT BY END USER IS TAXA BLE AS ROYALTY AS PER SECTION 9(I)(VI). 43. IN THE CASE OF MILLENNIUM SOFTWARE LTD. 338 ITR 391, IT WAS HELD BY AAR THAT THE CONSIDERATION RECEIVED BY THE APPLICAN T, A SIMILAR COMPANY, FROM ICEL FOR GIVING IT THE RIGHT TO USE ITS COPYRI GHT SOFTWARE AND USE IT FOR LATTERS OWN PURPOSES WHENEVER AND WHATEVER NEEDED BY IT IS IN INDIA AS ROYALTY UNDER CLAUSE V OF EXPLANATION 2 OF SECTION 9(I(VI) AS WELL AS UNDER SECTION 12.2 OF INDIA SRI LANKA DTAA AND CONSEQUE NTLY, PROVISION OF WITHHOLDING TAX UNDER SECTION 195 IS APPLICABLE. 44. IN THE CASE OF LABS INDIA P. LTD. 287 ITR 450 (AAR) HAS HELD THAT ARTICLE 12 DEFINES ROYALTY TO MEAN PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF OR RIGHT TO USE ANY IN DUSTRIAL, COMMERCIAL SCIENTIFIC EQUIPMENT, THE SOFTWARE APPLICATION OF N ON-RESIDENT IS RULED TO BE SCIENTIFIC EQUIPMENT, LICENSED TO BE USED FOR COMME RCIAL PURPOSE. THEREFORE PAYMENT IS IN THE NATURE OF ROYALTY AND WERE SUBJEC T TO TDS. 45. IN THE CASE OF CIT VS. WIPRO LTD. 203 TAXM AN 621 (KAR) IT WAS HELD THAT G; HAD MAINTAINED A DATABASE AND IT HAD GRANT ED ONLINE ACCESS OF THE SAME TO THE ASSESSEE, THEREFORE, THE PAYMENT MADE B Y THE ASSESSEE FOR LICENSE TO USE THE DATABASE MAINTAINED BY G WAS TO BE TREATED AS ROYALTY. 46 . IT IS CLEAR THAT UNDER VARIOUS AGREEMENTS, WHAT IS TRANSFERRED IS ONLY A LICENCE TO USE THE COPYRIGHT BELONGING TO THE NON-R ESIDENT, SUBJECT TO THE TERMS AND CONDITIONS OF THE AGREEMENT, AS REFERRED TO ABOVE, AND THE NON- RESIDENT SUPPLIER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND ALL OTHER INTELLECTUAL PROPERTY RIGHTS. IT IS WELL SETTLED TH AT 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 SOFTW ARE/OFF-THE-SHELF SOFTWARE UNDER THE RESPECTIVE AGREEMENT, WHICH AUTHORIZES TH E END USER, I.E., THE RELIANCE AND LUCENT GROUP 101 CUSTOMER TO MAKE USE OF THE COPYRIGHT SOFTWARE CONT AINED IN THE SAID SOFTWARE, WHICH IS PURCHASED OFF THE SHELF OR IMPOR TED AS SHRINK WRAPPED SOFTWARE. THE SAME WOULD AMOUNT TO TRANSFER OF PART OF THE COPYRIGHT AND TRANSFER OF RIGHT TO USE THE COPYRIGHT FOR INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THEREFORE, THE CON TENTION THAT THERE IS NO TRANSFER OF COPYRIGHT OR ANY PART THEREOF UNDER THE AGREEMENTS ENTERED INTO BY THE RELIANCE WITH THE NON-RESIDENT SUPPLIER OF S OFTWARE CANNOT BE ACCEPTED. UNDER THESE CIRCUMSTANCES, PAYMENT MADE B Y THE RELIANCE TO LTGL/ OTHER SUPPLIERS CAN BE SAID TO BE PAYMENT FOR THE USE OF OR RIGHT TO USE OF COPYRIGHT AND DOES AMOUNT TO ROYALTY WITHIN THE MEANING OF ARTILCE- 12(3) OF THE DTAA. IT IS ACCORDINGLY HELD THAT THE AO WAS JUSTIFIED IN DIRECTING TO DEDUCT THE TAX AT SOURCE U/S.195. 47. AS CAN BE SEEN FROM THE PAPER BOOKS FILED IN THIS REGARD, MANY OF THE SOFTWARE LICENSE AGREEMENTS ARE COMMON AND MORE OR LESS SIMILARLY WORDED, AND INVOLVES PURCHASE OF SOFTWARE BY WAY OF GRANTIN G LICENSE. THE AGREEMENT IN THE CASE OF M/S LUCENT WAS ALREADY EXTRACTED BY THE AUTHORITIES AND WE ARE OF THE OPINION THAT WE NEED NOT DISCUSS THE SAM E. IN FACT THE RELIANCE ALSO ADMITTED THAT THERE WERE ONLY SUPPLY OF SOFTWA RE, WITHOUT PURCHASE OF EQUIPMENTS EITHER FROM THE SAME PARTY OR FROM ANY O THER PARTY. THERE ARE CERTAIN AGREEMENTS WHICH ARE ONLY LICENSE AGREEMEN TS AND ARE NOT SELLER OR VENDOR AGREEMENTS AS IN OTHER CASES. THE EXCLUSIVE LICENSE AGREEMENTS ARE IN THE FOLLOWING CASES. 1. CLARITY INTERNATIONAL LTD, AUSTRALIA ( PB 654-682) VIDE AGREEMENT DT 29/03/05 ASSIGNED TO RELIANCE COMMUNICATIONS BY REL IANCE INDUSTRIES. ( ITA NOS. 5089/M/08). 2. COMVERSE LTD, ISRAEL VIDE AGREEMENT DT26/08/02 ( PB 831-866). AMOUNT PAID WAS TERMED AS LICENSE FEE AND LICENSE T O COPY WAS ALSO GRANTED. ( ITA NO. 5470/M/08, 4280/M/08, 4250/ M/ 0 8, 4253/M/08, 4254/M/08, 4308/M/08,4673/M/08). RELIANCE AND LUCENT GROUP 102 3. LEGATO SYSTEMS NETHERLAND BV, NETHERLANDS4253/M/08 VIDE AGREEMENT DT.24/02/03 ( PB 742-762) (ITANOS 5471/M/ 08, 4281/M/08, 4902/M/08). 4. 3 COM ASIA PACIFIC RIM PTE LTD, VIDE AGREEMENT DT. 07/01/03 ( PB 1545-1617) WHERE IN IT WAS STATED THAT WHAT IS SOLD AND RELIANCE PURCHASED IS SOFTWARE LICENSE. THE AGREEMENT IS FOR PURCHASE OF LICENSE ONLY. ( ITA NO 4875/M/07). 5. ENEA EMBEDDED TECHNOLOGY AB, SWEDEN( PB 290-315) VI DE AGREEMENT DT 01/12/05 FOR SOFTWARE LICENSE AND AMOUNT PAID IS CLASSIFIED AS LICENSE FEE. (ITA NO 5083/M/08). 6. SELECTIA INC, USA VIDE AGREEMENT ( PB 732-741) DT 02/06/05 FOR SOFTWARE LICENSE AND AMOUNT PAID IS CLASSIFIED AS L ICENSE FEE AND MAINTENANCE FEE IS ALSO SPECIFIED. (ITA NO 5092/M/0 8). 7. OPEN WAVE SYSTEMS INC, USA (PB 790-830) VIDE AGREE MENT DT 18/06/05 FOR SOFTWARE LICENSE AND AMOUNT PAID IS CL ASSIFIED AS LICENSE FEE. IN ADDITION TO LICENCING OF SOFTWARE LOGO AND TRADE MARKS OF WAVE WERE ALSO SPECIFIED (ITA NO 5475/M/08). 8. ULTICOM INC, USA (PB 1113-1154) VIDE AGREEMENT DT 0 7/09/03 FOR SOFTWARE LICENSES AND ASSOCIATED SERVICES (ITA NOS 4283/M/08, 4244/M/08, 4247/M/08, 4306/M/08, 4877/M/07, 4905/M /07, 4910/M/07). 9. MOTOROLA INC, USA (PB 1113-1154) VIDE VARIOUS PURCH ASE ORDERS WITH ANNEXURE SPECIFYING SOFTWARE LICENSE. (ITA NOS 4878 /M/07, 4904/M/07, 4247/M/08, 4306/M/08, 4877/M/07, 4908/M/ 07, 4675/M/07). 10. MANTRA COMMUNICATIONS INC, USA (PB 784-793) VIDE P URCHASE ORDERS DT. 30/11/01 SPECIFYING SOFTWARE LICENSE FOR SOURCE CODE LICENSE ALSO. (ITA NOS 729/M/09). 11. GREEN HILLS SOFTWARE INC, USA (PB 1660-1667) VIDE AGREEMENT DT. 14/12/05 SPECIFYING SOFTWARE LICENSE AND MANAGEMENT AGREEMENT. (ITA NOS 5072/M/08). RELIANCE AND LUCENT GROUP 103 12. VENTURI WIRELESS INC, USA (PB 241-289) VIDE AGREEM ENT DT. 23/11/05 SPECIFYING LICENSE AND ANNUAL MAINTENANCE AGREEME NT. (ITA NOS 5082/M/08, 5075/M/08). 48. THE AGREEMENT WITH M/S NEURA COMMUNICATION S INC USA ( PB 214- 240) VIDE AGREEMENT DT. 19/10/2005 IS TERMED AS PUR CHASE AND RESELLING AGREEMENT, TERMS OF WHICH ARE DIFFERENT ( ITA NOS. 5081/M/08). SIMILARLY AGREEMENT WITH NEW SKIES SATELLITES NV, NETHERLANDS IS FOR HIRING TRANSPONDER WHICH WILL BE DEALT WITH LATER SEPARATE LY ( ITA NOS 5374/M/08, 6093/M/08). 49. THEREFORE, WE HOLD THAT LD. CIT(A) ERRE D IN TREATING THAT THERE IS NO NECESSITY TO DEDUCT TAX HOLDING. WE ARE CONSCIOUS OF THE FACT THAT THE APPEALS ARE IN THE CONTEXT OF DEDUCTION UNDER SECTI ON 195. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF TRANSMISSION C ORPORATION OF AP LTD. VS CIT 239 ITR 587 (SC), THE TAX HAS TO BE DEDUCTE D AT SOURCE ON SUM CHARGEABLE UNDER THE ACT IN THE CASE OF NON-RESIDEN TS UNDER SECTION 195(1). SECTION 195 REPOSE A STATUTORY OBLIGATION ON ANY PE RSON RESPONSIBLE FOR PAYING TO NON-RESIDENT ANY INTEREST (NOT BEING INTE REST OF SECURITIES) OR ANY OTHER SUM (NOT BEING DIVIDEND) CHARGEABLE UNDER THE PROVISIONS OF THE ACT TO DEDUCT INCOME TAX AT THE RATE IN FORCE UNLESS HE IS LIABLE TO PAY INCOME TAX THEREON AS AN AGENT. THE ASSESSEE DID DEDUCT THE TA X AS PER THE DIRECTIONS OF THE AO UNDER SECTION 195(2). SINCE WE HAVE COME TO THE CONCLUSION THAT THE AMOUNT PAID BY RELIANCE IS TO BE TREATED AS ROYALTY CHARGEABLE UNDER THE ACT OF THE INCOME TAX, THE ORDER OF THE AO TO THAT EXTENT ARE UPHELD. WE HAVE ALSO KEPT IN MIND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AGAGRWAL CHAMBER OF COMMERCE LTD. VS. GANAP AT RAI HIRA LAL 33 ITR 245 (SC) WHEREIN IT WAS HELD THAT PERSONS WHO A RE BOUND UNDER SECTION 195 TO MAKE DEDUCTION OF INCOME TAX AT THE TIME OF MAKING PAYMENTS OF ANY INCOME, PROFITS OF GAINS ARE NOT CONCERNED WITH THE ULTIMATE RESULTS OF THE ASSESSMENT OF THE NON-RESIDENT PERSONS FROM WHOSE I NCOME THEY DEDUCTED AND PAID INCOME TAX IN INDIA. IN CASE OF ANY OF THE RECIPIENTS ARE AGGRIEVED, THEY CAN FILE A RETURN AND CLAIM THE AMOUNT AS NOT TAXABLE AS WAS THE CASE RELIANCE AND LUCENT GROUP 104 IN THE APPEAL OF MOTOROLA, NOKIA AND ERICKSON (SUPR A) WHEREIN THOSE ASSESSEES CONTESTED THAT THE AMOUNTS THEY RECEIVED ARE NOT TAXABLE. AS SEEN FROM THE APPEAL OF M/S LUCENT ALSO, THEY HAVE CHOSEN NOT TO FILE RETURNS AND TAKE CREDIT FOR THE TAX DEDUCTED AT SOU RCE INITIALLY. ONLY IN THE PROCEEDINGS UNDER SECTION 147, THE ISSUE ABOUT TAXA BILITY HAS BEEN RAISED IN THE APPEALS. OTHERWISE LIKE MANY OF THE OTHER RECIP IENTS, THEY WOULD NOT HAVE CONTESTED THE TAXABILITY OF INCOME. AS WE HAVE HELD THAT THESE AMOUNTS ARE TAXABLE AS ROYALTY, TO THAT EXTENT WE UPHOLD TH AT THE DIRECTION OF THE AO TO DEDUCT TAX UNDER SECTION 195. 50. CONSEQUENTLY, IN ALL THE REVENUE APPEALS AGAINST RELIANCE, (EXCEPT ITA NO.5374 AND ITA NO.6093 WHICH ARE SEPARATELY D EALT LATER) ORDERS OF THE CIT(A) ARE SET ASIDE AND ORDERS OF THE AO ARE R ESTORED. ITA NOS.7001 TO 7004/ M/10. LUCENT TECHNOLOGIES G RL LLC 51. THESE APPEALS PERTAIN TO LUCENT TECHNOLOG IES, GRL LLC. AS BRIEFLY STATED ABOVE, THE ISSUE IN THESE APPEALS IS WITH RE FERENCE TO THE TAXABILITY OF THE AMOUNTS RECEIVED FROM SUPPLY OF SOFTWARE TO REL IANCE. THE AO HELD THE SAME AS ROYALTY IN NATURE AND IN THE ALTERNATE, ALS O CONSIDERED THAT THERE IS A PE IN INDIA AND SO THE BUSINESS PROFITS ARE ATTRI BUTABLE TO THE PE. ALONG WITH THE ABOVE TWO ISSUES THERE ARE ISSUES ON NON-G RANTING OF TDS CREDITED, LEVY OF INTEREST ALSO. 52. THE ISSUE OF ROYALTY WAS CONSIDERED ABOV E IN DETAIL AND CONSEQUENT TO THE FINDINGS THEREIN, IT IS CONSIDERED THAT AMOU NTS PAID BY RELIANCE FOR SUPPLY OF SOFTWARE UNDER A LICENCE AGREEMENT IS TO BE CONSIDERED AS ROYALTY UNDER THE PROVISIONS OF THE ACT AND ALSO UNDER DTAA AND LIABLE TO TAX IN INDIA. ACCORDINGLY, THE GROUNDS RAISED BY LUCENT FR OM GROUND NO.2 TO 5 ARE REJECTED. 53. THE NEXT ISSUE TO BE CONSIDERED IS ATTRI BUTION OF BUSINESS PROFIT TO THE PE. VIDE PARA 4.18 OF THE ORDER OF THE AO FOR T HE IMPUGNED YEAR,, THE AO GAVE A FINDING THAT PAYMENT MADE FOR SOFTWARE WOULD BE TERMED AS ROYALTY PAYMENTS AND NECESSARY TAX RATES HAVE BEEN MENTIONE D IN THE TABLE. RELIANCE AND LUCENT GROUP 105 FURTHER, CONSIDERING THE AGREEMENTS ENTERED BY RELI ANCE WITH LUCENT GROUP THE AO WAS OF THE OPINION THAT THERE EXISTED AN AGE NCY PE. VIDE PARA 5.8 OF THE ORDER THE AO ALSO CONSIDERED THAT IN CASE IT IS HELD THAT ASSESSEES INCOME IS NOT TAXABLE AS ROYALTY, THE ASSESSEES BU SINESS PROFITS HAVE TO BE WORKED OUT IN VIEW OF IT HAVING A PE IN INDIA. WE H AVE ALREADY HELD THAT PAYMENTS MADE BY RELIANCE HAVE TO BE CONSIDERED AS ROYALTY AND ACCORDINGLY THE SAME ARE TO BE TAXABLE AS ROYALTY O NLY. THEREFORE, THERE IS NO NEED TO CONSIDER THE SAME AS BUSINESS PROFITS. HOWE VER, THE ISSUE OF PE HAS TO BE DECIDED, AS EXISTENCE OF PE MAKES BUSINESS PR OFIT TAXABLE IN INDIA. THEREFORE, IT IS NECESSARY TO GIVE A FINDING ON THE EXISTENCE OF PE TO THE ASSESSEE LUCENT. 54. THE AO INVOKING PROVISIONS OF ARTICLE-5 OF DTAA , WAS OF THE OPINION THAT AN AGENCY PE IS COMING INTO PICTURE AS SUBSTAN TIVE FUNCTIONS OF NEGOTIATIONS, ENTERING INTO CONTRACT, STOCKING OF G OODS OR MERCHANDISING IS BEING DONE BY INDIA ENTERPRISE I.E., LTHPL. HE REFE RRED TO VARIOUS TERMS OF AGREEMENT ENTERED BETWEEN THE PARTIES PARTICULARLY THE ASSIGNMENT AND ASSUMPTION AGREEMENT, INCLUDING THE SCOPE OF SERVI CES FOR MAINTENANCE OF SOFTWARE ENTERED BY LTHPL. THE AO WAS OF THE OPINIO N THAT IN THIS CASE, NOT ONLY ORIGINAL AGREEMENT HAS BEEN ENTERED INTO BY TH E INDIAN COMPANY BUT SERVICES RELATING TO MAKING SOFTWARE OPERATION OR W ARRANTIES OR MAINTENANCE WERE ALSO BEING DONE BY LTHPL ONLY. IN ADDITION TO THAT TERMS OF THE AGREEMENTS , THE AO ALSO RELIED ON DOCUMENTS FOUND IN THE COURSE OF SURVEY IN THE PREMISES OF ALCATEL LUCENT INTERNATIONAL LTD . (GOT MERGED ENTITY OF LTHPL) MORE PARTICULARLY WITH RESPECT TO LETTER OF AGREEMENT DATED 06.09.2008 BETWEEN GROUP CONCERNS WITH RELIANCE COM MUNICATIONS REGARDING RESTRUCTURE OF PAYMENT MILE STONE. THE AO ULTIMATELY CONCLUDED THAT THERE EXISTED AN AGENCY PE AND ACCORDINGLY, SI NCE ASSESSEE HAS A PE IN INDIA, THE BUSINESS PROFITS ARE TAXABLE AND WORKED OUT PROFITS AT 32% OF THE TOTAL RECEIPTS. 55. IT WAS THE SUBMISSION OF THE ASSESSEE THAT LTHPL WA S ACTING INDEPENDENTLY AND ASSESSEE HAS NO AGENCY AGREEMENT OR NO BUSINESS RELIANCE AND LUCENT GROUP 106 CONNECTION IN INDIA EXCEPT SUPPLY OF SOFTWARE. IT W AS ALSO FURTHER SUBMITTED THAT NO SERVICE PERSONNEL CAME TO INDIA SO AS TO CO ME UNDER SERVICE PE. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON ARTICLE -5 OF THE DTAA AND DECISION OF CO-ORDINATE BENCH IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC. VS. ADIT (104 ITD 34)(DEL.) TO SUBMIT THAT MERE USE OF SOFTWARE FOR THE PURPOS E OF BUSINESS IN INDIA NEED NOT LEAD TO AN AGENCY PE AS ASSESSEE WAS NOT RENDERING ANY SERVICE IN INDIA NOR LTHPL IS AUTHORI ZED TO DEAL WITH OUTSIDERS ON BEHALF OF ASSESSEE LUCENT. FURTHER, IT WAS SUBMITTED THAT THE CO-ORDINATE BENCH IN THE CASE OF LUCENT TECHNOLOGIES INTERNATIONAL INC. VS. DCIT, NON-RESIDENT CIRCLE (28 SOT 98) CONSIDERED THE FACTS IN THE CASE TO HOLD THAT THERE IS A SERVICE PE IN THAT CASE. IT WA S SUBMITTED THAT MERE EXISTENCE OF A PE TO A GROUP COMPANY DOES NOT LEAD TO A FINDING THAT THE ASSESSEE ALSO AS A PE IN INDIA. IT WAS FURTHER SUBM ITTED THAT AOS RELIANCE ON A DOCUMENT I.E., SUBSEQUENT RESTRUCTURED AGREEME NT FOR PAYMENT BY THE GROUP COMPANIES DOES NOT INDICATE THAT ANY ONE OF T HEM IS AUTHORIZED TO ENTER INTO CONTRACT ON BEHALF OF THE ASSESSEE LUCEN T AND FURTHER, AGREEMENT WAS DATED 06.09.2008 DOES NOT PERTAIN TO ANY OF THE IMPUGNED ASSESSMENT YEARS. NOTHING WAS BROUGHT ON RECORD BY THE REVENUE THAT THERE IS A PE EXCEPT RELYING ON THE SO CALLED AGREEMENT WHICH WAS ENTERED ON A PRINCIPLE TO PRINCIPLE BASIS. 56. THE LD. COUNSEL HOWEVER RELIED ON THE ORDERS THAT THE AO AS SUPPORTED BY DRP. IT WAS FURTHER SUBMITTED THAT ASSESSEE CHOS E NOT TO FILE RETURN AFTER TDS WAS MADE AND THEREFORE, SINCE PROCEEDINGS ARE I NITIATED UNDER SECTION 148 ASSESSEE CAN NOT SEEK ANY BENEFIT IN THE PROCEE DINGS INITIATED FOR THE BENEFIT OF THE REVENUE . HE RELIED ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF K. SUDHAKAR S. SHANBHAG VS ITO (241 ITR 865) FOR THE PROPOSITION OF DOCTRINE OF ELECTION. 57. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN TH E CASE OF LUCENT TECHNOLOGIES INTERNATIONAL INC. (28 SOT 98) THE CO-ORDINATE BENCH AT DELHI CONSIDERED THE FACTS AND HELD AS UNDER :- THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE-COM PANY AND THE INDIAN COMPANY, ESCOTEL, AS ALSO THE AGREEMENT ENTE RED INTO BETWEEN RELIANCE AND LUCENT GROUP 107 ESCOTEL AND THE INDIAN SUBSIDIARY, LTIL SHOWED THAT THE AGREEMENTS WERE FOR TWO DIFFERENT PURPOSES. THE AGREEMENT BETWEEN E SCOTEL AND THE ASSESSEE WAS FOR THE SUPPLY OF THE HARDWARE AND SOF TWARE; THE AGREEMENT BETWEEN ESCOTEL AND LTIL WAS FOR COMMISSIONING, INS TALLATION AND OPERATIONS. HOWEVER, BOTH THE AGREEMENTS PROVIDED F OR THE TURNKEY FUNCTIONING OF THE PROJECT OF THE GSM NETWORK. THER EFORE, BY ENTERING INTO THE CONTRACT WITH BOTH, THE ASSESSEE AND LTIL, ESCO TEL HAD MADE BOTH THE ASSESSEE AND LTIL RESPONSIBLE FOR THE TURNKEY COMPL ETION OF THE GSM PROJECT, INDIVIDUALLY AND SEVERELY. THUS, IF EITHER ONE WOULD BREAK ITS TERMS AND CONDITIONS OF THE AGREEMENT WITH ESCOTES, THE O THER WOULD BE RESPONSIBLE FOR ITS COMPLETION. THUS, CONSORTIUM OR PARTNERSHIP HAD BEEN CREATED BETWEEN THE ASSESSEE AND ITS INDIAN SUBSIDI ARY, LTIL. WITH THAT SITUATION, THE NEXT QUESTION FOR CONSIDERATION AROS E AS TO WHETHER EITHER THE ASSESSEE OR ITS SUBSIDIARY, LTIL COULD COMPLETE THE CONTRACT WITH ESCOTEL ON A TURNKEY BASIS WITHOUT THE ASSISTANCE OF THE OT HER. OBVIOUSLY, THE ASSESSEE WAS TO SUPPLY THE HARDWARE AND THE SOFTWAR E AND LTIL WAS TO DO THE INSTALLATION, TESTING, COMMISSIONING AND BRI NGING UP TO OPERATIONAL STAGE THE TURNKEY PROJECT. IF THE ASSESSEE DID NOT PROVIDE THE HARDWARE AND THE SOFTWARE, IT WOULD BE THE DUTY OF LTIL TO P ROVIDE THE REQUISITE HARDWARE AND THE SOFTWARE FOR THE COMPLETION OF THE TURNKEY PROJECT. SIMILARLY, IF LTIL DID NOT COMPLY WITH ITS DUTIES O F COMMISSIONING, INSTALLATION, TESTING AND BRINGING UP TO OPERATIONA L STAGE THE TURNKEY PROJECT, SUCH RESPONSIBILITY WOULD REST ON THE SHOU LDERS OF THE ASSESS. THERE WAS NO DISPUTE IN THAT THE ASSESSEE HAD COMPL ETED PART OF ITS CONTRACT, I.E., THE SUPPLY OF THE HARDWARE AND THE SOFTWARE. THE INSTALLATION, COMMISSIONING, TESTING AND BRINGING U P TO OPERATIONAL STATE OF THE HARDWARE AND THE SOFTWARE SUPPLIED BY THE ASSES SEE HAD BEEN UNDERTAKEN BY THE INDIAN SUBSIDIARY, LTIL. FOR SAID PURPOSE, LTIL HAD ALSO TAKEN THE ASSISTANCE OF THE EMPLOYEES OF THE A FFILIATES OF THE ASSESSEE. THUS, THE PARENT COMPANY, BEING THE ASSES SEE HAD MADE PERSONNEL AVAILABLE TO THE LTIL, THE SUBSIDIARY IN FORM OF THE EMPLOYEES OF THE AFFILIATES OF THE ASSESSEE AT CERTAIN REMUNERAT ION. FURTHER, A PERUSAL OF THE AGREEMENT BETWEEN ESCOTEL AND THE ASSESSEE CLEA RLY SHOWED THAT THE WARRANTY PROVIDED BY THE ASSESSEE-COMPANY WAS IN RE LATION TO THE DEFECTS IN THE HARDWARE. THAT WARRANTY CLAUSE IN IDENTICAL FORM WAS ALSO FOUND IN THE AGREEMENT ENTERED INTO BETWEEN ESCOTEL AND LTIL . NORMALLY, THE WARRANTY FOR A PARTICULAR PRODUCT TO BE SUPPLIED BY ONE PERSON IS THE RESPONSIBILITY OF THAT PERSON ALONE, BUT IN THE INS TANT CASE, THAT BURDEN WAS ALSO SHIFTED TO THE SUBSIDIARY, BEING LTIL. THO UGH LTIL HAD CERTIFIED THAT IT DID NOT KEEP ANY SPARES ON BEHALF OF THE AS SESSEE FOR THE EQUIPMENTS SUPPLIED BY THE ASSESSEE UNDER THE CONTR ACT WITH ESCOTEL, YET THE FACT THAT LTIL HAD ALSO ASSUMED THE RESPONSIBI LITIES OF THE WARRANTY IN REGARD TO THE HARDWARE SUPPLIED BY THE ASSESS, AS A LSO THE RESPONSIBILITY TO REPLACE THE SAME WITHIN THE PERIOD SPECIFIED IN THE SUPPORT CONTRACT BETWEEN ESCOTEL AND LTIL CLEARLY SHOWED THAT THE SU BSIDIARY, LTIL WAS ALSO ACTING ON BEHALF OF THE ASSESSEE. A PERUSAL OF ARTICLE 5(2)(1) OF THE DTAA BETWEEN INDIA AND THE USA CLEARLY SHOWS THAT I T IS NOT ONLY THE EMPLOYEES THROUGH WHOM IF SERVICES ARE PROVIDED, TH E PE IS TO SAID TO COME INTO EXISTENCE, IT ALSO INCLUDES OTHER PERSONN EL. OBVIOUSLY, THE TERM RELIANCE AND LUCENT GROUP 108 OTHER PERSONNEL HAS TO BE READ WITH REFERENCE TO THE EARLIER WORDS, AS PROVIDED IN THE SAID ARTICLE 5(2)(1). THE OTHER PER SONNEL SPECIFIED WOULD BE THE PERSONS OVER WHOM THE ENTERPRISE WOULD BE HAVIN G A CONTROL. IN THE INSTANT CASE, UNDISPUTEDLY, EMPLOYEES OF THE AFFILI ATES OF THE ASSESSEE HAD BEEN EMPLOYED THROUGH LTIL FOR PROVIDING THE SERVIC ES OF INSTALLATION, COMMISSIONING, TESTING AND BRINGING UP TO OPERATION AL STAGE OF THE HARDWARE AND THE SOFTWARE SOLD BY THE ASSESSEE TO E SCOTEL THROUGH ITS CONTRACT IN REGARD TO GSM PROJECT WHICH WAS TO BE C OMPLETED ON A TURNKEY BASIS. THOSE EMPLOYEES OF THE AFFILIATES OVER WHOM THE ASSESSEE HAD A CONTROL WOULD FALL WITHIN THE TERM OTHER PERSONNEL AND, CONSEQUENTLY, IT WOULD HAVE TO BE HELD THAT A PE DID EXIST AS PER TH E INCLUSIVE TERM AS PROVIDED IN ARTICLE 5(2)(1) OF THE DTAA. A COPY OF THE RETURNS OF THE AFORESAID EMPLOYEES ALSO CLEARLY SHOWED THAT THEY H AD BEEN STAYING IN INDIA FOR MORE THAN 90 DAYS WITHIN THE 12 MONTH PER IOD FROM APRIL, 1996 TO MARCH, 1997. CONSEQUENTLY, THE REQUIREMENTS OF A RTICLE 5(2)(1) OF THE DTAA WERE FULFILLED. IN SUCH CIRCUMSTANCES, IT WAS TO BE HELD THAT LTIL, IN FACT, WAS A SERVICE PE OF THE ASSESSEE-COMPANY. AS A RESULT, THE FINDINGS OF THE COMMISSIONER (APPEALS) ON THE AFORESAID ISSU ES WERE TO BE SET ASIDE. 58. HOWEVER, THE FACTS IN THE PRESENT CASE ARE DIFF ERENT FOR THE ABOVE CASE. HERE LTHPL ENTERED INTO AN AGREEMENT FOR SUPPLY OF HARDWARE, SOFTWARE AND ALSO INSTALLATION AND THAT COMPANY IS AN INDIAN COM PANY. AFTER ENTERING INTO AN AGREEMENT SUPPLY OF SOFTWARE WAS ASSIGNED TO THE ASSESSEE LUCENT BY WAY OF THE TRIPARTITE AGREEMENT BETWEEN RELIANCE AN D LTHPL AND ASSESSEE LUCENT. EVENTHOUGH, INSTALLATION WAS ON INDIAN COMP ANY THERE IS NO EVIDENCE OF EITHER DEPUTING PERSONNEL OF ASSESSEE L UCENT TO INDIA NOR THERE IS ANY EVIDENCE IN THE RECORD FOR INVOKING SERVICE PE AS IN OTHER CASE. MOREOVER FOR INVOKING AGENCY PE , FACTS DO NOT SUPP ORT AOS CONTENTIONS. THE AGREEMENT ENTERED IS AN INDEPENDENT AGREEMENT, ENTERED ON PRINCIPLE TO PRINCIPLE BASIS AND NOWHERE THE INDIAN COMPANY HAS AUTHORIZED OR HAS UNDERTAKEN ANY RESPONSIBILITY OF THE ASSESSEE LUCEN T. ON THE FACTS OF THE CASE WE ARE OF THE OPINION THAT THERE DO NOT EXIST ANY PE, MORE SO OF AGENCY PE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DEPUTED ITS PERSONNEL TO INDIA SO AS TO INVOKE SERVICE PE AS PE R INDO-US DTAA. IN VIEW OF THE ABOVE, WE HOLD THAT THERE IS NO PE TO THE AS SESSEE COMPANY IN INDIA AND AS THERE IS NEITHER ANY OFFICE IN INDIA NOR IT HAS ANY BUSINESS CONNECTION IN INDIA NOR CARRIED OUT ANY BUSINESS AC TIVITIES IN INDIA. ASSESSEES COMPANY IS A STANDALONE LEGAL INDEPENDEN T ENTITY. THEREFORE, RELIANCE AND LUCENT GROUP 109 ASSESSEES GROUND NOS. 6 TO 12 ARE UPHELD, AS THERE IS NO PE IN INDIA, SO ATTRIBUTION OF PROFITS DOES NOT ARISE. 59. NON GRANTING OF TDS CREDIT:- AO DID NOT GIVE C REDIT TO THE TDS CLAIMED BY ASSESSEE. AT THE OUTSET IT WAS SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN 45 SOT 311 LUCENT TECHNOLOGIES GRL LLC VS. DR. DIRE CTOR IT (INTL. TAXATION) CIRCLE-4(1(, MUMBAI WHEREIN IT WAS HELD :- THE ASSESSEE-COMPANY WITH FISCAL DOMICILE IN U.S.A . WAS ENGAGED IN BUSINESS OF SUPPLY OF COPYRIGHTED SOFTWARE IN CONNE CTION WITH TELECOMMUNICATION PROJECT. THE ASSESSEE RECEIVED CE RTAIN AMOUNT FROM R LTD., TOWARDS SUPPLY OF SOFTWARE OUT OF WHICH TAX W AS DEDUCTED AT SOURCE BY R LTD. IT ALSO ISSUED TDS CERTIFICATES TO THE ASSESSEE. ON THE BASIS OF SAID TDS CERTIFICATES THE ASSESSEE CLAIMED, CREDIT FOR TAX DEDUCTED AT SOURCE. IN THE MEANTIME, R LTD. CLAIMED THAT NO T AXES WERE DEDUCTIBLE FROM PAYMENT MADE FOR SUPPLY OF COPYRIGHTED SOFTWAR E AND, ACCORDINGLY, APPLICATION TO ASSESSING OFFICER REQUESTING PERMISS ION TO MAKE REMITTANCE TO ASSESSEE WITHOUT ANY DEDUCTION OF TAX AT SOURCE BUT SAME WAS REJECTED BY THE ASSESSING OFFICER. SUBSEQUENTLY, R LTD. WA S REFUNDED THE AMOUNT WHICH IT HAD DEDUCTED AT SOURCE FROM THE PAYMENT MA DE TO THE ASSESSEE. THEREFORE, ASSESSEES CLAIM OF CREDIT FOR TDS WAS D ECLINED BY THE ASSESSING OFFICER ON GROUND THAT R COMPANY HAD BE EN REFUNDED THE AMOUNT OF TDS, HENCE, CERTIFICATE ISSUED BY R LTD . NO LONGER REMAINED VALID. ON APPEAL, THE COMMISSIONER (APPEALS) UPHELD SAID ORDER. 0N SECOND APPEAL: HELD THE SHORT QUESTION THAT WAS REQUIRED TO BE ANSWERED IN THE INSTANT CASE WAS AS TO WHETHER LAWFUL IMPLICATIONS OF A VALID TA X DEDUCTION CERTIFICATE CAN BE DECLINED ON THE GROUND THAT THE PERSON WHO H AS ISSUED TAX DEDUCTION CERTIFICATES HAS BEEN REFUNDED THE TAXES WHICH HE HAD DEPOSITED WITH THE GOVERNMENT. [PARA 6] THERE WAS NO DISPUTE THAT THE TAXES HAD BEEN DEDUCT ED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 195, THE TAX DEDUCTO R HAD FULFILLED HIS OBLIGATIONS UNDER SECTION 200AND THAT TAX DEDUCTION CERTIFICATES HAD BEEN ISSUED UNDER SECTION 203 - AT LEAST TO THE EXTENT O F TAX DEDUCTIONS. ALL THESE REQUIREMENTS HAD BEEN DULY COMPLIED WITH, AND , IN ALL FAIRNESS TO THE ASSESSING OFFICER, THE COMPLIANCE IN RESPECT OF THE SE PROVISIONS HAD NOT EVEN BEEN QUESTIONED. THE ONLY REASON THAT HAD PROM PTED THE ASSESSING OFFICER TO DECLINE THE CREDIT IN RESPECT OF THE TDS CERTIFICATES WAS THAT R LTD. HAD BEEN REFUNDED TAXES WHICH WERE DEDUCTED BY R LTD. AND WHICH WERE DEPOSITED WITH THE GOVERNMENT OF INDIA. [PARA 7] RELIANCE AND LUCENT GROUP 110 IT WAS ALSO AN UNDISPUTED POSITION THAT SUCH A REFU ND TO TAX DEDUCTOR, AS HAD BEEN GRANTED IN THE INSTANT CASE, WAS NOT PRESC RIBED UNDER THE SCHEME OF THE ACT BUT APPEARED TO BE AN ADMINISTRAT IVE EXERCISE. DEPARTMENT COULD NOT POINT OUT ANY PROVISIONS OF LA W UNDER WHICH SUCH A REFUND COULD BE MADE PARTICULARLY AS TDS CERTIFICAT ES WERE ALREADY ISSUED BY THE TAX DEDUCTOR, AND NO FAULT WAS FOUND IN THE CERTIFICATES SO ISSUED. [PARA 8] THE RIGHTS WERE GRANTED TO THE PERSON, FROM WHOSE I NCOME TAXES WERE SO DEDUCTED AND WHO IS ISSUED THE TAX DEDUCTION CERTIF ICATE IN THE PRESCRIBED MANNER, BY THE STATUTE AND THOSE RIGHTS COULD NOT B E ABRIDGED BY AN ADMINISTRATIVE ACTION ON THE PART OF THE REVENUE AU THORITIES AND PARTICULARLY WHEN THE PERSON, WHOSE RIGHTS WERE BEI NG SOUGHT TO BE ABRIDGED, WAS NOT EVEN A PARTY TO THE ADMINISTRATIV E EXERCISE OR WAS KNOWN OF REFUND BEING GRANTED TO R LTD. REFUND G RANTED TO R LTD. BY REVENUE AUTHORITIES COULD NOT HAVE ADVERSE IMPACT O N THE RIGHTS OF THE ASSESSEE. THAT WAS A MATTER BETWEEN THE TAX AUTHORI TIES AND R LTD., ONE WAS SURE THAT THE REVENUE AUTHORITIES, WHILE GRANTI NG THE REFUND, MUST HAVE SAFEGUARDED THEIR INTERESTS EFFECTIVELY, AND P ERHAPS BY NOW R LTD. MIGHT HAVE EVEN RETURNED THE MONIES, BUT ASSESSEE C OULD NOT BE EXPECTED TO GET INTO THESE ASPECTS OF THE MATTER. IN THE INS TANT APPEAL, ONE WAS CONFINED TO THE ISSUE THAT THE ASSESSEE, FROM WHOSE PAYMENTS TAXES HAD BEEN DEDUCTED AT SOURCE AND WHO WAS ALSO IN RECEIPT OF THE APPROPRIATE CERTIFICATES IN ACCORDANCE WITH THE SCHEME OF THE A CT, MUST GET CREDIT ADMISSIBLE UNDER SECTION 199 AND THAT SUCH A CREDIT WAS NOT DECLINED ON THE BASIS OF AN ACTION WHICH WAS NEIRHER CONTEMPLAT ED BY THE PROVISIONS OF THE ACT, NOR EVEN IN THE CONTROL OF THE ASSESSEE. [ PARA 9] IN VIEW OF THE ABOVE DISCUSSIONS, THE ASSESSING OFF ICER WAS DIRECTED TO GRANT DUE CREDIT TO THE ASSESSEE, ON THE BASIS OF O RIGINAL TAX DEDUCTION AT SOURCE CERTIFICATES PRODUCED BY THE ASSESSEE, IN AC CORDANCE WITH THE LAW AND AS LONG AS TAXES SO DEDUCTED HAD BEEN PAID OVER TO THE GOVERNMENT AND CERTIFICATES IN RESPECT OF THE SAME HAD BEEN IS SUED BY THE TAX DEDUCTOR UNINFLUENCED BY ANY REFUNDS SUBSEQUENTLY G RANTED TO THE TAX DEDUCTOR. THE REFUND MADE TO THE TAX DEDUCTOR, EVEN IF WRONGFUL, HAD NO ADVERSE IMPACT ON THE RIGHTS OF THE ASSESSEE. THERE FORE, THE ASSESSING OFFICER WAS DIRECTED TO GRANT CREDIT FOR TAX DEDUCT ED AT SOURCE, IN ACCORDANCE WITH THE LAW. [PARA 10] RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISI ON,WE DIRECT AO TO GIVE CREDIT TO THE TAX DEDUCTED AT SOURCE. ACCORDIN GLY GROUND NO.13 IS ALLOWED. 60. GROUND NOS. 14, 15 16 PERTAIN TO LEVY OF INTEREST U/S. 234A, 234B AND 234D. IT WAS SUBMITTED THAT THERE WAS TDS ON PA YMENT MADE TO ASSESSEE LUCENT TECHNOLOGIES GRL LLC BY RELIANCE AN D THEREFORE, THERE IS RELIANCE AND LUCENT GROUP 111 NO LIABILITY U/S. 234B. ISSUE IS ALSO COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF DIT (INTL. TAXATION) VS. NGC NETWORKS ASIA LLC (313 ITR 187) . IN THAT CASE IT WAS HELD THAT WHEN A DUTY WAS CAST ON THE PAYER TO DEDUCT THE TAX AT SOU RCE, ON FAILURE OF THE PAYER TO DO SO, NO INTEREST COULD BE IMPOSED ON ASS ESSEE. HOWEVER, IN THIS CASE TDS WAS ALREADY MADE WHILE PAYING TO THE ASSES SEE LUCENT, EVENTHOUGH ASSESSING OFFICER DENIED CREDIT FOR CERT AIN ADMINISTRATIVE REASONS. SINCE THE AMOUNT WAS COVERED BY TDS QUESTI ON OF LEVY U/S. 234B DOES NOT ARISE. ISSUE OF 234A AND 234D ARE CONSEQUE NTIAL IN NATURE. THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. ACCORD INGLY, GROUND NO.14 AND 16 ARE REJECTED AND GROUND NO.15 IS ALLOWED. 61. GROUND NO.17 IS WITH RESPECT TO PENALTY. THE A SSESSEE IS CONTESTING THE INITIATION OF PENALTY PROCEEDINGS U/S. 271(1)(C ). THERE IS NO RIGHT OF APPEAL ON INITIATION OF PROCEEDINGS AND SINCE PROCE EDINGS ARE NOT YET FINALIZED, IT IS LITTLE PRE-MATURE TO CONTEST. THIS GROUND DOES NOT REQUIRE ANY ADJUDICATION. 62. IN THE RESULT, FOUR APPEALS OF LUCENT ARE PA RTLY ALLOWED. ITA NO.5374/M/07 AND ITA NO.6093/ M/ 08. 63. THE ISSUE IN THESE TWO APPEALS OF THE R EVENUE IS WITH REFERENCE TO THE PAYMENTS MADE TO M/S. NEW SKIES SATELLITE N.V., HAGUE, NETHERLAND FOR PURCHASE OF SATELLITE BAND WIDTH CAPACITY, AS PER A GREEMENT DATED 12.12.2002, SUBSEQUENTLY AMENDED ON 18.12.2002. REL IANCE APPROACHED ASSESSING OFFICER FOR MAKING PAYMENT WITHOUT DEDUCT ION OF TAX. ASSESSING OFFICER EXAMINED THE ISSUE AND HELD THAT THE PAYMEN T BEING MADE WAS ROYALTY AND TAX WAS REQUIRED TO BE DEDUCTED AT SOUR CE. AFTER DEDUCTING THE TAX, RELIANCE APPROACHED LD. CIT(A) IN APPEAL TO SU BMIT THAT THE AMOUNT PAID CAN NOT BE CONSIDERED AS ROYALTY AND SINCE THE SAID COMPANY DID NOT HAVE A PE IN INDIA THERE IS NO TAX. IT RELIED ON TH E DECISION OF DCIT VS. PAN AMSAT INTERNATIONAL SYSTEMS INC. (103 TTJ 861) TO SUBMIT THAT PAYMENTS FOR RELIANCE AND LUCENT GROUP 112 PURCHASE OF BAND WIDTH IS NOT ROYALTY INCOME BUT ON LY BUSINESS INCOME. THE LD. CIT(A) WHILE NOTING DOWN THAT AO RELIED ON THE DECISION OF ITAT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DCIT (85 ITD 478) HOWEVER, RELIED ON THE ABOVE REFERRED DECISION IN THE CASE OF DCIT VS. PAN AMSAT INTERNATIONAL SYSTEMS INC. (SUPRA) AND ALSO T HE DECISION OF BANGALORE BENCH IN THE CASE OF SOFTWARE TECHNOLOGY PARKS OF I NDIA VS. INCOME TAX OFFICER (3 SOT 529) AND ALSO INTERPRETING THE PAYME NTS IN THE CASE OF SUBSCRIBER FEE FOR CELLULAR MOBILE TELEPHONE FACILI TY OF SKYCELL COMMUNICATION LTD. VS. DCIT (251 ITR 053) HELD THAT PURCHASE OF BANDWIDTH CAN NOT BE CONSIDERED AS ROYALTY AND IS TO BE CONSIDERED AS BU SINESS PROFIT. SINCE M/S. NEW SKIES SATELLITE DOES NOT HAVE A PE IN INDIA, IT S BUSINESS PROFITS ARE NOT TAXABLE IN INDIA. REVENUE IS AGGRIEVED AND HAS RAIS ED THE FOLLOWING GROUNDS. ITA NO.5374/MUM/07 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIIT(A) ERRED IN DECIDING THAT AO WAS NOT JUSTI FIED IN THE CASE IN DIRECTING TO DEDUCT TAX AT SOURCE U/S. 195 OF THE I T ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIIT(A) ERRED IN HOLDING THAT NO INCOME ACC RUES TO M/S. NEW SKIES SATELLITES N.V. ROOSEVELTPLANTSOEN 4, 2517 KR , THE HAGUE, THE NETHERLANDS IN INDIA AGAINST THE PAYMENT OF US$17,0 0,000/- PER ANNUM FOR THE SUPPLY OF SATELLITE BANDWIDTH FOR USE IN THE RELIANCE TELECOM NETWORK. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIIT(A) FAILED TO APPRECIATE THAT THE PAYME NT FOR OBTAINING COMPUTER SOFTWARE IS IN THE NATURE OF ROYALTY WHICH IS LIABLE FOR TAXATION IN INDIA. ITA NO.6093/MUM/08 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIIT(A) ERRED IN HOLDING THAT THE PAYMENT M ADE TO M/S. NEW RELIANCE AND LUCENT GROUP 113 SKIES SATELLITE N.V. FOR PURCHASE OF CERTAIN TELECO MMUNICATION SATELLITE BAND WIDTH CAPACITY (SOFTWARE) AMOUNTS TO BUSINESS RECEIPTS AND IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT IN INDIA , THE BUSINESS PROFIT ARISING IN THE TRANSACTION IS NOT TAXABLE IN INDIA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIIT(A) FAILED TO APPRECIATE THAT THE PAYME NT FOR THE PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY WHICH IS LIABLE FOR TAXATION IN INDIA. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. 64. THESE TWO CASES WERE ALSO ARGUED ALONG WITH OTHER GROUP CASES. ON THIS SET OF FACTS, THE ISSUE IS NOT PURCHASE OF SOF TWARE BUT PURCHASE OF BANDWIDTH FOR PROVIDING TRANSPONDER CAPACITY TO TEL ECOMMUNICATION COMPANIES. THE CASE WAS DECIDED BY SPECIAL BENCH OF ITAT, IN NEW SKIES SATELLITE N.V. VS. ADIT (INTL. TAXATION) IN 319 ITR (AT) 269 (DEL.)(SB), WHEREIN IT WAS HELD THAT SERVICE RENDERED AMOUNTS TO ROYALTY. THE FACTS AND DECISION OF THE SPECIAL BENCH OF THE ITAT IS AS UNDER :- THE ASSESSEES WERE NON-RESIDENT SATELLITE COMPANIES AND EARNED INCOME FROM TELECASTING COMPANIES IN INDIA FOR PROVIDING THEM TRANSPONDER CAPACITY. THE ASSESSEE WERE ENGAGED IN OPERATING T ELECOMMUNICATION SATELLITES WHICH WERE CALLED GEOSTATIONARY SATELLIT ES AND WERE PLACED AT THE DISTANCE OF AROUND 36,000 KMS. FROM THE EQUATOR . A SATELLITE COULD TYPICALLY CONSIST OF 20 TO 30 TRNASPONDERS, EACH OP ERATING ON A PARTICULAR FREQUENCY WITHIN A FREQUENCY RANGE ALLOCATED TO THA T SATELLITE. THROUGH SUCH TRANSPONDERS INSTALLED AT SATELLITE, THE ASSES SEES PROVIDED TRANSPONDER CAPACITY OF DATA TRANSMISSION TO THEIR CUSTOMERS, WHICH WERE TELECASTING COMPANIES /TELECOM OPERATORS. IN TURN, THE TELECASTING COMPANIES/ TELECOM OPERATORS PROVIDED BROADCASTING/ TELECOMMUNICATION SERVICES TO THEIR CUSTOMERS. THE TELECASTING COMPA NIES/TELECOM OPERATORS WHILE RELAYING THE PROGRAMMES WHETHER LIVE OR RECOR DED TO THEIR CUSTOMERS AND USED THEIR EARTH STATIONS TO UPLINK T HE DATA TO SATELLITE RELIANCE AND LUCENT GROUP 114 WHICH WAS RECEIVED BY THEIR EARTH STATIONS IN THE D OWNLINKING PROCESS FROM WHERE THESE TELECASTING COMPANIES/TELECOM OPER ATORS PROVIDED THE TELECASTING FACILITIES TO THEIR CUSTOMERS. THESE T ELECASTING COMPANIES /TELECOM OPERATORS ENTERED INTO AGREEMENTS WITH THE SE ASSESSEES FOR OBTAINING TRANSPONDERS CAPACITY TO ENABLE THEMSELV ES TO UPLINK AND DOWNLINK THE PROGRAMMES TO BE TELECASTED. FOR OBTA INING SUCH TRANSPONDER CAPACITY AND AGREED AMOUNT WAS TO BE PA ID PERIODICALLY AS STATED IN THE RESPECTIVE AGREEMENTS. THESE RECEIPT S WERE TAXED BY THE DEPARTMENT AS ROYALTY EITHER UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961 OR UNDER THE PROVISIONS OF THE RESPECTIVE DOUBLE TAXATION AVOIDANCE AGREEMENT. ON APPEAL TO THE TRIBUNAL. HELD, BY THE SPECIAL BENCH OF THE TRIBUNAL, THAT PR OCESS WAS INVOLVED IN THE TRANSPONDER THROUGH WHICH THE TELECASTING COMPA NIES WERE ABLE TO UPLINK THE DESIRED IMAGES/DATA AND DOWNLINK IT IN T HE DESIRED AREA WHICH, INTER ALIA, COVERED INDIAN TERRITORY. FOR H OLDING THAT CONSIDERATION WAS RECEIVED IN RESPECT OF ROYALTY, I T WAS NOT NECESSARY THAT THE INSTRUMENTS THROUGH WHICH THE PROCESS WA S CARRIED ON SHOULD BE IN THE CONTROL OR POSSESSION OF THE PERSON WHO I S RECEIVING THE PAYMENT. THE CONTEXT AND FACTUAL SITUATION HAD TO BE KEPT IN MIND WHILE FINDING OUT WHETHER A PROCESS WAS ACTUALLY US ED BY THE PAYER. IN THE CASE OF SATELLITES, PHYSICAL CONTROL AND POS SESSION OF THE PROCESS COULD NEITHER BE WITH THE SATELLITE COMPANIES NOR W ITH THE TELECASTING COMPANIES. THE CONTROL OF THE PROCESS, BY EITHER OF THEM COULD BE THROUGH SOPHISTICATED INSTRUMENTS EITHER INSTALLED AT THE GROUND STATIONS OWNED BY THE SATELLITE COMPANIES OR THROUG H THE INSTRUMENTS INSTALLED AT THE EARTH STATIONS OWNED AND OPERATED BY THE TELECASTING COMPANIES. THE USE OF PROCESS, ACCORDING TO AGREEM ENT, WAS PROVIDED BY THE SATELLITE COMPANIES TO THE TELECASTING COMPA NIES WHEREBY THE TELECASTING COMPANIES WERE ENABLE TO TELECAST THEIR PROGRAMMES BY UPLINKING AND DOWNLINKING THE SAME WITH THE HELP O F THAT PROCESS. THE RELIANCE AND LUCENT GROUP 115 TIME OF TELECAST AND THE NATURE OF PROGRAMME, ALL D EPENDED UPON THE TELECASTING COMPANIES AND, THUS, THEY WERE USING TH AT PROCESS. THE TERM SECRET APPEARING IN THE PHRASE SECRET FORM ULA OR PROCESS IN EXPLANATION 2 TO SECTION 9(1) (VI) AND IN THE RELEV ANT ARTICLE OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT DOES NOT QUALIFY THE W ORK PROCESS. THEREFORE, TO FALL WITHIN THE MEANING OF ROYALTY AS ENVISAGED IN THESE PROVISIONS, IT IS NOT NECESSARY THAT THE SERVICES R ENDERED MUST BE THROUGH SECRET PROCESS ONLY. THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE USE OF THE PROCESS IN TRANSPONDE R, EVEN IF IT WAS NOT PROTECTED, WOULD BE COVERED WITHIN THE DEFINITION O F ROYALTY AS THE PROVISIONS DO NOT SPECIFY THE PROCESS TO BE PROTECT ED. EVEN SERVICES RENDERED THROUGH SIMPLE PROCESS WILL BE COVERED W ITHIN THE MEANING OF ROYALTY. THE PAYMENTS RECEIVED BY THE ASSESSEE FRO M THEIR CUSTOMERS WERE ON ACCOUNT OF USE OF PROCESS INVOLVED IN THE T RANSPONDER AND THEY AMOUNTED TO ROYALTY WITHIN THE MEANING OF CLAUSE (I II) AND (VI) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE INCOME TAX ACT, 1961. THEY ALSO AMOUNTED TO ROYALTY WITHIN THE MEANING OF THE RESPE CTIVE ARTICLES OF THE DOUBLE TAXATION AVOIDANCE AGREEMENTS. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE SP ECIAL BENCH, WE HOLD THAT THE PAYMENT MADE BY RELIANCE TO NEW SKIES SATELLITE N.V. IS IN THE NATURE OF ROYALTY AND TAXABLE IN INDIA. THEREFORE ASSESSING O FFICERS ORDER IS TO BE UPHELD. CONSEQUENTIALLY ORDERS OF CIT(A) ARE SET AS IDE AND THAT OF AO RESTORED. 65. IN THE RESULT, REVENUE APPEALS IN ITA NUMBER S- 837/M/07, 5076/M/08, 5077/M/08, 5078/M/08, 5079/M/08 5080/M/08, 5081/M/08, 5082/M/08, 5083/M/08, 5084/M/08 5085/M/08, 5086/M/08, 5087/M/08, 5088/M/08, 5089/M/08, 5090/M/08, 5091/M/08, 5092/M/08, 5467/M/08, 5469/M/08, 5470/M/08, 5474/M/08, 5475/M/08, 5476/M/08, 5477/M/08, 6093/M/08, 3431/M/08, 3432/M/08, 3433/M/08, 3434/M/08, 3435/M/08, 3436/M/08, 3437/M/08, 3438/M/08, 3439/M/08, 3440/M/08, 3441/M/08, 3442/M/08, 3443/M/08, 3444/M/08, 4278/M/08, 4279/M/08, 4280/M/08, 4281/M/08, 4282/M/08, RELIANCE AND LUCENT GROUP 116 4283/M/08, 4284/M/08, 4285/M/08, 4286/M/08, 4287/M/08, 4244/M/08, 4245/M/08, 4246/M/08, 4247/M/08 , 4248/M/08, 4249/M/08, 4250/M/08, 4251/M/08, 4252/M/08 , 4253/M/08, 4254/M/08, 4255/M/08, 4256/M/08, 4257/M/08 , 4258/M/08, 4259/M/08, 4260/M/08, 4261/M/08, 4291/M/08 , 4305/M/08, 4306/M/08, 4307/M/08, 4308/M/08, 4309/M/08, 4310/M/08, 4873/M/07, 4874/M/07, 4875/M/07, 4876/M/07, 4877/M/07, 4878/M/07, 4899/M/07, 4900/M/07, 4901/M/07, 4902/M/07, 4903/M/07, 4904/M/07, 4905/M/07, 4906/M/07, 4907/M/07, 4908/M/07, 4909/M/07, 4910/M/07, 4916/M/07, 4917/M/07, 4918/M/07, 4919/M/07, 4920/M/07, 4921/M/ 07, 4922/M/07, 4923/M/07 , 4924/M/07, 4925/M/07, 4926/M/ 07, 4927/M/07, 4928/M/07, 5373/M/07, 5374/M/08, 4672/M/ 07, 4673/M/07, 4674/M/07, 4675/M/07, 4676/M/07, 4677/M/0 7, 5071/M/08, 5072/M/08, 5073/M/08, 5074/M/08, 5075/M/08 . 5468/M/08, 5471/M/08, 5472/M/08, 5473/M/08, 729/ M/09, 4501/M/09, 730/M/09, 5093/M/08, 5094/M/08, 5095/ M/08, 5096/M/08. ARE ALLOWED. ITA NOS. 7001/M/10, 7002/M/10, 7003 /M/10, 7004/M/10 FOR ASST. YEARS 2003-04, 2004-05, 2005-06 & 2007-08 OF LUCENT ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPTEMBER, 2013. SD/- SD/- (VIVEK VERMA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 6 TH SEPTEMBER, 2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 39, MUMBAI 4. THE CIT CENTRAL-II, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.
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