Cosmic Circuits Private Limited, Bangalore V. ITO, Bangalore

ITA 736/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60807 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-07-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 28-07-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Assessee Lawyers: KEERTHI NARAYAN
• Keywords: Business income; Double taxation relief; Permanent establishment; Competent authority
• Section: 201(1); 90

Judgement Text

PAGE 1 OF 19 ITA NOS.734 TO 736/BANG /2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NOS. 734 TO 736/BANG/2011 (ASST. YEARS 2007-08 TO 2009-10) M/S COSMIC CIRCUITS PRIVATE LIMITED, NO.303, 1 ST FLOOR, A-BLOCK, 60 FEET ROAD, AECS LAYOUT, KUNDALAHALLI, BANGALORE-37. PA NO.AACCC 5680 R VS THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-1(1), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 10.07.2012 DATE OF PRONOUNCEMENT : 13.07.2012 APPELLANT BY : KEERTHI NARAYAN, C.A. REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, CIT-II OR DER PER BENCH : THESE APPEALS PREFERRED BY THE APPELLANT COMPANY A RE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A)-IV, BA NGALORE DATED 31/3/2010 IN RESPECT OF ASSESSMENT YEARS 2007-08 TO 2009-10. THE ORDER OF THE CIT(A) ARISE OUT OF THE ORDERS OF THE INCOME TAX OFFICER (INTERNATIONAL TAXATION) PASSED UNDER SECTION 201(1 ) AND 201(1A) OF THE ACT. 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEA LS AND THEY PERTAIN TO THE SAME ASSESSEE, THEY WERE HEARD TOGETH ER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. PAGE 2 OF 19 ITA NOS.734 TO 736/BANG /2011 2 3. IDENTICAL GROUNDS ARE RAISED IN THESE APPEALS, EXCEPT FOR VARIANCE IN FIGURES AND HENCE, THE GROUNDS RELATING TO ASSESSMENT YEAR 2007-08 ARE REPRODUCED BELOW:- 1) THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ORDER ISSUED BY THE INCOME-TAX OFFICE R, INTERNATIONAL TAXATION, WARD-1(1), BANGALORE (THE A SSESSING OFFICER) UNDER SECTIONS 201(1) AND 201(1A) OF THE A CT. THE APPELLANT CRAVES THAT THE ORDERS OF THE LEARNED CIT (A) AND THE LEARNED ASSESSING OFFICER, BEING UNSUSTAINABLE AND BAD IN LAW, BE SET ASIDE. 2) THE LEARNED CIT(A) HAS ERRED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ORDER O F THE LEARNED ASSESSING OFFICER BY HOLDING THAT THE APPELL ANT WAS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE UNDER S ECTION 195 OF THE ACT, ON THE PAYMENTS MADE BY THE APPELLANT TO CADENCE DESIGN SYSTEMS (IRELAND) LIMITED (CADENCE) TOWARDS THE PURCHASE OF CADENCE SOFTWARE (SOFTWARE ). 3) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN CO NFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER BY CONCLU DING THAT THE CONSIDERATION PAID FOR THE USE OF COPYRIGHT ED SOFTWARE IS IN THE NATURE OF ROYALTY, BOTH UNDER TH E ACT AND THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND IRELAND. 4) IN VIEW OF THE SUBSEQUENT RULING OF THE SUPREME COU RT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD V CIT (327 ITR 456), THE LEARNED CIT(A) HAS ERRED IN LAW AND F ACTS IN PLACING RELIANCE ON THE DECISION OF OF THE KARNATAK A HIGH COURT IN THE CASE OF CIT AND ITO V SAMSUNG ELECTRON ICS CO LTD AND OTHERS (320 ITR 209) (2009) AND HOLDING THA T IT IS NOT REQUIRED TO GO INTO THE QUESTION WHETHER THE IM PUGNED PAYMENT TO THE NON-RESIDENT HAS BEEN MADE FOR PURCHA SE OF SHRINK-WRAP SOFTWARE OR FOR PURCHASE OF GOODS O R WHETHER THE IMPUGNED PAYMENT REPRESENTS BUSINESS INCOME OF CADENCE NOT TAXABLE IN INDIA. 5) WITHOUT PREJUDICE TO THE ABOVE, BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFUL LY PAGE 3 OF 19 ITA NOS.734 TO 736/BANG /2011 3 SUBMITS THAT THE LEARNED CIT(A) HAS ERRED IN LAW AN D IN FACTS, ON THE FOLLOWING COUNTS: 5.1 ERRONEOUSLY HOLDING THAT THE GRANT OF USER RIGHTS AND PROVISION OF A COPY OF THE SOFTWARE ON MEDIA/CD CANNOT BE REGARDED AS SALE (WITHOUT APPRECIATING THE FACT THAT THE PAYMENTS MADE BY THE APPELLANT ARE FOR THE MERE SUPPLY OF A COPYRIGHTED ARTICLE AND NOT FOR TRANSFER OF OR ANY RIGHT TO USE OR COMMERCIALLY EXPLOIT THE UNDERLYING COPYRIGHT/INTELLECTUAL PROPERTY IN THE SOFTWARE. 5.2 ERRONEOUSLY HOLDING THAT THE RATIO OF THE DECISIONS OF THE SUPREME COURT IN THE CASES OF TATA CONSULTANCY SERVICES V STATE OF ANDHRA PRADESH (271 ITR 401) AND ASSOCIATED CEMENT COMPANY (4 SCC 593) CANNOT BE APPLIED TO THE INSTANT CASE. 5.3 DISREGARDING THE BINDING DECISIONS OF THE HONBLE JURISDICTIONAL INCOME TAX APPELLATE TRIBUNAL, BANGALORE, IN THE CASES OF SAMSUNG ELECTRONICS CO LTD V ITO (93 TTJ 658), PSI DATA SYSTEMS LIMITED V ITO (UNREPORTED) AND SONATA SOFTWARE LIMITED V ITO (6 SOT 700), WHICH ARE BASED ON SIMILAR FACTS, INSOFAR AS THEY RELATE TO THE TREATMENT OF SOFTWARE PAYMENTS AND THE CORRESPONDING TAX LIABILITY OF NON-RESIDENT ASSESSEES. 5.4 IGNORING THE PROVISIONS OF THE INDIAN COPYRIGHT ACT, 1957; THE COMMENTARY ON ARTICLE 12 OF THE OECD MODEL TAX CONVENTION VARIOUS COMMENTARIES ON DOUBLE TAX CONVENTIONS BY RENOWNED INTERNATIONAL AUTHORS; THE REPORT OF THE TECHNICAL ADVISORY GROUP (TAG) ON TAXATION OF E-COMMERCE; AND NUMEROUS INTERNATIONAL TAX RULINGS, ALL OF WHIC H FURTHER SUPPORT THE CONTENTIONS OF THE APPELLANT. 6) THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS, IN C ONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER, DEEMING THE PAGE 4 OF 19 ITA NOS.734 TO 736/BANG /2011 4 APPELLANT AS AN ASSESSEE-IN-DEFAULT FOR NON-DEDUCTI ON OF TAXES AT SOURCE UNDER SECTION 195 OF THE ACT. DISREGARDING THE DETAILED SUBMISSIONS MADE BY THE APPELLANT IN SUPPORT OF ITS CONTENTIONS, THE LEARNE D CIT(A) HAS ERRONEOUSLY HELD THAT THE APPELLANT HAS NOT FURN ISHED ANY SATISFACTORY EXPLANATIONS AND HAS BEEN NEGLIGENT AND RECKLESS IN THE DISCHARGE OF ITS STATUTORY OBLIGATIO NS. 7) THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, I N CONFIRMING A SUM OF RS.7,93,881/- AS PAYABLE BY THE APPELLANT UNDER SECTION 201(1) OF THE ACT FOR ASSES SMENT YEAR 2007-08. 8) THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING AN AMOUNT OFRS.2,35,889/- AS INTEREST UN DER SECTION 201(1A) OF THE ACT FOR ASSESSMENT YEAR 2007- 08. 4. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE APPELLANT IS A PRIVATE LIMITED COMPANY INCORPO RATED UNDER THE COMPANIES ACT, 1956. FOR THE CONCERNED ASSESSM ENT YEAR, THE APPELLANT COMPANY HAD MADE PAYMENTS TO A NON RESIDENT, NAMELY, M /S CADENCE DESIGN SYSTEMS LIMITED, IRELAND FOR THE PURPOSE OF DOWNLOAD ING CADENCE SOFTWARE UNDER SOFTWARE LICENSE AND MAINTENANCE AG REEMENT DATED 28/6/2006. THE PAYMENTS MADE FOR THE ASSESSMENT YEAR S 2007-08 TO 2009-10 TO M/S CADENCE DESIGN SYSTEMS LIMITED, IRELA ND WERE RS.79,38,812/-, RS. 1,11,20,745/- AND RS.2,14,44,23 4/- RESPECTIVELY. THESE PAYMENTS MADE WERE WITHOUT DEDUCTION OF TAX AT SOURC E UNDER SECTION 195 OF THE ACT. THEREFORE, THE ASSESSING OFFICER ISSUE D NOTICES TO THE APPELLANT UNDER SECTION 201(1) AND 201(1A) OF THE A CT. 5. DURING THE COURSE OF PROCEEDINGS, IT WAS SUBMIT TED BY THE APPELLANT THAT THE SOFTWARE PRODUCTS PURCHASED WERE IN THE NATURE OF SHRINK-WRAP/OFF-THE-SHELF SOFTWARE CAPABLE OF BEING PROCURED ON TANGIBLE PAGE 5 OF 19 ITA NOS.734 TO 736/BANG /2011 5 MEDIA OR ELECTRONICALLY DOWNLOADED BY THE CUSTOMER/EN D-USER DIRECTLY. IN OTHER WORDS, IT WAS SUBMITTED, THE ABOVE SOFTWARE P RODUCTS ARE STANDARDIZED PRODUCTS AND HAD NOT BEEN SPECIFICALLY CUSTOMIZED FOR THE APPELLANTS USE. EXPLAINING THE NATURE OF THE PAYME NT, IT WAS EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE REMITTANCE TO M/S CADENCE DESIGN SYSTEMS LIMITED, IRELAND DURING THE ASSESSMENT YEARS ARE NOT LIABLE TO BE TAXED IN INDIA AND HENCE, NO DEDUCTION OF TAX WAS M ADE UNDER SECTION 195 OF THE ACT. 6. REJECTING THE ASSESSEES CONTENTION, THE ASSESS ING OFFICER PASSED ORDERS UNDER SECTION 201(1) AND 201(1A) (ORD ERS DATED 30 TH MARCH, 2009). THE DETAILS OF THE AMOUNTS PAID TO CADENCE IN RESPECT OF EACH OF THE ASSESSMENT YEARS AND THE TAX THAT THE APPELLANT IS M ADE LIABLE UNDER SECTION 201(1) AND INTEREST UNDER SECTION 201(1A) OF THE AC T ARE AS FOLLOWS:- LEARNED ASSESSING OFFI CERS ORDERS DATED 30 TH MARCH, 2009 CIT (A)S ORDER DATED 31 ST MARCH, 2010 ITA NO. AY PAYEE AMOUNT (IN INR) TAX UNDER SECTION 201(1) INTEREST UNDER SECTION 201(1A) 734/B/2011 2007-08 CADENCE 7,938,812 793,881 235,889 735/B/2011 2008-09 CADENCE 11,120,745 1,112,075 218,227 736/B/2011 2009-10 CADENCE 21,444,234 2,144,423 129,295 7. AGGRIEVED BY THE ORDERS PASSED BY THE ASSESSING O FFICER, THE APPELLANT PREFERRED APPEALS BEFORE THE FIRST APPELL ATE AUTHORITY UNDER SECTION 246A OF THE ACT. 8. THE CIT(A) DISMISSED THE APPEALS FILED BY THE AP PELLANT VIDE HIS CONSOLIDATED ;ORDER DATED 31 ST MARCH, 2010. PAGE 6 OF 19 ITA NOS.734 TO 736/BANG /2011 6 9. THE APPELLANT BEING AGGRIEVED IS IN APPEAL BEFO RE US. 10. AT THE VERY OUTSET, THE LEARNED DR SUBMITTED TH AT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONIC CO. LTD. REPORTED IN 245 CTR 481 (KAR.), IN FAVOUR OF THE DEPARTMENT. 11. THE LEARNED AR WAS UNABLE TO CONTROVERT THE SU BMISSION MADE BY THE LEARNED DR. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF M/S SAMSUNG ELECTRONICS COMPANY LTD. IN ITA NO.2808/2005 DATED 1 5/10/2011 REPORTED IN 245 CTR 481 (KAR.) HAD HELD THAT THE PAYMENT MADE TO NRI FOR THE PURCHASE OF SOFTWARE IS LIABLE FOR TAX DEDUCTION UN DER SECTION 195 OF THE ACT. THE RELEVANT FINDING OF THE HONBLE JURISDICT IONAL HIGH COURT FROM PARA 20 TO 25 READS AS FOLLOWS:- 20. HAVING REGARD TO THE ABOVE SAID DEFINITION OF ROYALTY, WE HAVE TO CONSIDER THE CONTENTS OF SOFTWARE LICENCE AGREEMENT ENTERED INTO BY NON-RESIDENT WITH SAMSUNG ELECTRONICS AND ALSO RESPONDENTS IN THE CASE REPRES ENTED BY SHRI GANESH, LEARNED SENIOR COUNSEL AND SRI ARAVI ND DATTAR, WHEREIN IT IS 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 CUSTOMER ACCEPTS AN INDIVIDUAL, NON- TRANSFERABLE AND NON EXCLUSIVE LICENCE TO USE THE L ICENSED SOFTWARE PROGRAM(S) (PROGRAM(S) ON THE TERMS AND CONDITIONS ENUMERATED IN THE AGREEMENT. IT IS FURT HER AVERRED THAT THE CUSTOMER SAMSUNG ELECTRONICS SHA LL PAGE 7 OF 19 ITA NOS.734 TO 736/BANG /2011 7 PROTECT CONFIDENTIAL INFORMATION AND SHALL NOT REMO VE ANY COPYRIGHT, CONFIDENTIALITY OR OTHER PROPRIETARY RIGHTS PROVIDED BY THE NON-RESIDENT. HOWEVER, WHAT IS GRANTED UNDER THE SAID LICENCE IS ONLY A LICENCE TO USE THE SOFTWARE FOR INTERNAL BUSINESS WITHOUT HAVING ANY RIGHT FOR MAKING ANY ALTERATION OR REVERSE ENGINEERI NG OR CREATING SUB-LICENCES. WHAT IS TRANSFERRED UNDE R THE SAID LICENCE IS THE LICENCE TO USE THE SOFTWARE AND COPYRIGHT CONTINUE TO BE WITH THE NON-RESIDENT AS PE R THE AGREEMENT. EVEN AS PER THE AGREEMENT ENTERED INTO WITH THE OTHER DISTRIBUTORS AS ALSO THE END USER LICENCE AGREEMENT, IT IS CLEAR THAT THE DISTRIBUTOR WOULD G ET EXCLUSIVE NON TRANSFERABLE LICENCE WITHIN THE TERRI TORY FOR WHICH HE IS APPOINTED AND HE HAS GOT RIGHT TO DISTRIBUTE VIA RESELLERS THE SOFTWARE, UPON PAYMENT OF THE LICENSES SET FORTH IN EXHIBIT A TO THE AGREEMEN T ONLY TO END USERS PURSUANT TO A VALID ACTUATE SHRINKWRAP OR OTHER ACTUATE LICENSE AGREEMENT AND EXCEPT AS EXPRE SSLY SET FORTH IN THE SAID AGREEMENT, DISTRIBUTOR MAY NOT RENT, LEASE, LOAN, SELL OR OTHERWISE DISTRIBUTE THE SOFTWARE THE DOCUMENTATION OR ANY DERIVATIVE WORKS BASED UPON THE SOFTWARE OR DOCUMENTATION IN WHOLE O R IN PART. DISTRIBUTOR SHALL NOT REVERSE ENGINEER, DECO MPILE OR OTHERWISE ATTEMPT TO DERIVE OR MODIFY THE SOURCE CODE FOR THE SOFTWARE. DISTRIBUTOR SHALL HAVE NO R IGHTS TO THE SOFTWARE OTHER THAN THE RIGHTS EXPRESSLY SET FORTH IN THE AGREEMENT. DISTRIBUTOR SHALL NOT MODI FY OR COPY ANY PART OF THE SOFTWARE OR DOCUMENTATION. DISTRIBUTOR MAY NOT USE SUB DISTRIBUTORS FOR FURTHER DISTRIBUTION OF THE SOFTWARE AND DOCUMENTATION WITH OUT THE PRIOR CONSENT OF ACTUATE. WHAT IS CHARGED IS T HE LICENCE FEE TO BE PAID BY THE DISTRIBUTOR OF THE SOF TWARE AS ENUMERATED IN EXHIBIT A TO THE AGREEMENT. FURTH ER, CLAUSE 6.01 OF THE AGREEMENT DEALING WITH TITLE STA TES THAT THE DISTRIBUTOR ACKNOWLEDGES THAT ACTUATE AND ITS SUPPLIERS RETAIN ALL RIGHT, TITLE AND INTEREST IN A ND TO THE ORIGINAL, AND ANY COPIES (BY WHOMEVER PRODUCED), OF T HE SOFTWARE OR DOCUMENTATION AND OWNERSHIP OF ALL PATE NT, PAGE 8 OF 19 ITA NOS.734 TO 736/BANG /2011 8 COPYRIGHT, TRADEMARK, TRADE SECRET AND OTHER INTELLE CTUAL PROPERTY RIGHTS PERTAINING THERETO, SHALL BE AND REM AIN THE SOLE PROPERTY OF ACTUATE. DISTRIBUTOR SHALL NOT BE AN OWNER OF ANY COPIES OF, OR ANY INTEREST IN, THE SOFTW ARE, BUT RATHER, IS LICENCED PURSUANT TO THE AGREEMENT T O USE AND DISTRIBUTE SUCH COPIES. ACTUATE REPRESENTS THA T IT HAS THE RIGHT TO ENTER INTO THE AGREEMENT AND GRANT THE LICENCES PROVIDED THEREIN AND CONFIDENTIALITY IS PROTECTED. THEREFORE, ON READING THE CONTENTS OF T HE RESPECTIVE AGREEMENT ENTERED INTO BY THE RESPONDENT& WITH THE RON-RESIDENT, IT IS CLEAR THAT 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 REFERR ED TO ABOVE AND THE NON-RESIDENT SUPPLIER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND ALL OTHER INTELLECTUA L 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 OF THE COPYRIGHT I N RESPECT OF SHRINK WRAPPED SOFTWARE I OFF-THE- SHELF SOFTWARE UNDER THE RESPECTIVE AGREEMENT, WHICH AUTHORIZES THE END USER I.E., THE CUSTOMER TO MAKE USE OF THE COPYRIGHT SOFTWARE CONTAINED IN THE SAID SOFTWAR E, WHICH IS PURCHASED OFF THE SHELF OR IMPORTED AS SHR INK WRAPPED SOFTWARE AND THE SAME WOULD AMOUNT TO TRANS FER OF PART OF THE COPYRIGHT AND TRANSFER OF RIGHT TO U SE 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 RESPONDENT& THAT THERE IS NO TRANSFER OF COPYRIGHT O R ANY PART THEREOF UNDER THE AGREEMENTS ENTERED INTO B Y THE RESPONDENT WITH THE NONRESIDENT SUPPLIER OF SOF TWARE CANNOT BE ACCEPTED. 21. IT IS FURTHER CONTENDED BY THE LEARNED SENIOR C OUNSEL APPEARING FOR THE RESPONDENT & THAT IN VIEW OF THE FAD THAT WHAT IS SUPPLIED BY THE NON-RESIDENT TO THE RESPONDENT IN INDIA IS ONLY A SHRINK WRAPPED SOFTWAR E / PAGE 9 OF 19 ITA NOS.734 TO 736/BANG /2011 9 OFF THE-SHELF SOFTWARE, WHICH IS NOT CUSTOMISED TO SUIT THE NEEDS OF THE RESPONDENT, THE SAID SOFTWARE IS T O BE TREATED AS GOODS AND THERE IS SALE OF THE SOFTWARE AND COPY OF THE SOFTWARE. THEREFORE, THE QUESTION OF PAYI NG ANY ROYALTY WOULD NOT ARISE. IN SUPPORT OF THE SAID CONTENTION, THE LEARNED SENIOR COUNSEL APPEARING FO R THE RESPONDENTS HAS STRONGLY RELIED UPON THE DECISION O F THE HONBLE SUPREME COURT IN TATA CONSULTA.NCY SERVICES VS. STATE OF ANDHRA PRADESH (2004 ITR (VOL. 271) 401) (HEREINAFTER REFERRED TO AS THE TCSS CASE), WHEREIN THE HONBLE SUPREME COURT WAS CONSIDERING THE QUESTION AS TO WHETHER THE CANNED SOFTWARE SOLD BY THE APPELLANTS CAN BE TERMED TO BE GOODS AND AS SUCH ASSESSABLE TO SALES TAX UNDER T HE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. HAVING REGARD TO THE BROAD DEFINITION OF GOOD& UNDER SECT ION 2(H) OF THE SAID ACT AND ALSO THE PROVISIONS OF ART ICLE 366(12) OF THE CONSTITUTION OF INDIA, THE HON NE SUPREME COURT WAS PLEASED TO ANSWER THE SAID QUESTION FOR DETERMINATION BY HOLDING THAT ONCE THE INFORMA TION OR KNOWLEDGE IS &M1SFONED INTO PHYSICAL EXISTENCE AND RECORDED IN PHYSICAL FORM, IT IS CORPOREAL PROPERTY. THE PHYSICAL RECORDING OF THE SOFTWARE IS NOT AN INCORPO REAL RIGHT TO HE COMPREHENDED AND ACCORDINGLY, HELD THAT THE SOFTWARE MARKETED BY THE APPELLANTS THEREIN INDISPUT ABLY WAS CANNED SOFTWARE AND THUS, SALE OF THE SAME WOUL D ATTRACT THE PROVISIONS OF THE ANDHRA PRADESH GENERA L SALES TAX ACT, 1957. 22. THE QUESTION AS TO WHETHER THE PAYMENT MADE FO R IMPORT OF SOFTWARE OR SUPPLY OF SOFTWARE BY THE NONRESIDENT COMPANIES WAS ROYALTY OR NOT WAS NOT AT ALL AN ISSUE IN ITS CASE AND THE QUESTION WAS WHETHER CANNED SOFTWARE S OLD BY THE APPELLANTS THEREIN AMOUNTED TO SALE OF GOODS UNDER THE ANDHRA PRADESH GENERAL SALES TAX ACT. FURTHER, THE ISSUE OF TRANSFER OF RIGHT TO USE THE GOODS AS PER THE EXPANDED DEFINITION OF SALE DID NOT COME UP FOR CONSIDERATION IN THAT CASE. ON THE OTHER HAND, THE PAGE 10 OF 19 ITA NOS.734 TO 736/BAN G/2011 10 ISSUE IN THE PRESENT CASE IS AS TO WHETHER THE PAYME NT WOULD AMOUNT TO ROYALTY WITHIN THE MEANING OF INCOME TAX ACT AND DTTA. IN THE SAID TCSS CASE, IT HAS BE EN HELD THAT COPYRIGHT IN COMPUTER PROGRAM MAY REMAIN WI TH THE ORIGINATOR OF THE PROGRAM, BUT, THE MOMENT COPI ES ARE MADE AND MARKETED, IT BECOMES GOODS, WHICH ARE SUSCEPTIBLE TO TAX, THE CONTENTION OF THE ASSESSEE THAT THE CONSIDERATION RECEIVED BY THE NON RESIDENT SUPPL IER TOWARDS THE SOFTWARE PRODUCTS WOULD AMOUNT TO ROYAL TY WITHIN THE MEANING OF DTAA WITH RESPECTIVE COUNTRY W AS NOT AT ALL CONSIDERED IN THE SAID CASE. THEREFORE, THE SAID DECISION IN TCSS CASE IS NOT HELPFUL TO THE RESPON DENTS IN THE PRESENT CASES. IT IS WELL SETTLED THAT THE I NTENT OF THE LEGISLATURE IN IMPOSING. SALES TAX AND INCOME T AX ARE ENTIRELY DIFFERENT AS INCOME TAX IS A DIRECT TAX AND SALES TAX IS AN INDIRECT TAX AND WHEREFORE, MERE FI NDING THAT THE COMPUTER SOFTWARE WOULD BE INCLUDED WITHIN THE TERM SALES TAX WOULD NOT PRECLUDE THIS COURT FROM HOLDING THAT THE SAID PAYMENTS MADE BY THE RESPONDENT S TO THE NON-RESIDENT COMPANY IN THE PRESENT CASES WOU LD AMOUNT TO ROYALTY UNLESS THE RESPONDENTS ARE ABLE TO PROVE THAT THE SAID PAYMENT IS FOR THE SALE OF COMPU TER SOFTWARE, WHEREIN THE INCOME WOULD BE FROM THE BUSI NESS AND IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT OF THE NON-RESIDENT SUPPLIER, THERE IS NO OBLIGATION O N THE PART OF THE PAYEE TO MAKE DEDUCTION UNDER SECTION 19 5(1) OF THE ACT. 23. IT IS WELL SETTLED THAT IN THE ABSENCE OF ANY D EFINITION OF COPYRIGHT IN THE INCOME TAX ACT OR DTAA WITH THE RESPECTIVE COUNTRIES, IN VIEW OF CLAUSE 3 OF THE DT AA, REFERENCE IS TO BE MADE TO THE RESPECTIVE LAW REGAR DING DEFINITION OF COPY RIGHT, NAMELY, COPYRIGHT ACT, 1957, IN INDIA, WHEREIN IT IS CLEARLY STATED THAT LITERARY WO RK INCLUDES COMPUTER PROGRAMMES, TABLES AND COMPILATIO NS INCLUDING COMPUTER [DATABASES[ SECTION 16 OF THE COPYRIGHT ACT, 1957 STATES THAT NO PERSON SHALL BE ENTITLED TO COPYRIGHT OR ANY SIMILAR RIGHT IN ANY WORK , PAGE 11 OF 19 ITA NOS.734 TO 736/BAN G/2011 11 WHETHER PUBLISHED OR UNPUBLISHED, OTHERWISE THAN UN DER AND IN ACCORDANCE WITH THE PROVISIONS OF THE SAID A CT OR OF ANY OTHER LAW FOR THE TIME BEING IN FORCE, BUT NO THING IN THIS SECTION SHALL BE CONSTRUED AS ABROGATING AN Y RIGHT OR JURISDICTION TO RESTRAIN A BREACH OF TRUST OR CONFIDENCE. SECTION 14 OF THE SAID ACT DEALING WITH MEANING OF COPYRIGHT READS AS FOLLOWS: 14. MEANING OF COPYRIGHT - FOR THE PURPOSES OF THIS ACT, COPYRIGHT MEANS THE EXCLUSIVE RIGHT S UBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORISE T HE 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 INCL UDING 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 COMMUNICAT E IT TO THE PUBLIC: (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORD ING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK; (VI) TO MAKE ANY ADAPTATION OF THE WORK; (VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATIO N OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE W ORK IN SUB-CLAUSES (1) TO (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME, (I) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A); PAGE 12 OF 19 ITA NOS.734 TO 736/BAN G/2011 12 (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMME: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. (C) IN THE CASE OF AN ARTISTIC WORK, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING DEPICTION IN THREE DIMENSIONS OF A TWO-DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE-DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC; (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NO T BEING COPIES ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WOR K ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSES (I) TO (IV); (D) IN THE CASE OF A CINEMATOGRAPH FILM, (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGR APH OF ANY IMAGE FORMING PART THEREOF; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEE N SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE FILM TO THE PUBLIC; PAGE 13 OF 19 ITA NOS.734 TO 736/BAN G/2011 13 (E) IN THE CASE OF A SOUND RECORDING,- (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; (II) TO SELL OR GIVE ON HIRE, ON OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH C OPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS : (III) TO COMMUNICATE THE SOUND RECORDING TO THE PU BLIC. EXPLANATION. - FOR THE PURPOSES OF THIS SECTION. A COPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALREADY IN CIRCULATION. IT MAY ALSO BE NOTED THAT UNDER SECTION 51 OF THE AC T DEALING WITH WHEN COPYRIGHT INFRINGED STATES THAT COPYRIGH T IN A WORK SHALL BE DEEMED TO BE INFRINGED - WHEN ANY PERSON, W ITHOUT A LICENCE GRANTED BY THE OWNER OF THE COPYRIGHT OR THE REGISTRAR OF COPYRIGHTS UNDER THE ACT OR IN CONTRAVENTION OF THE CONDITIONS OF A LICENCE SO GRANTED OR OF ANY CONDITI ON IMPOSED BY A COMPETENT AUTHORITY UNDER THE ACT DOES ANYTHING, THE EXCLUSIVE RIGHT TO DO WHICH IS BY THE ACT CONFERRED UPON THE OWNER OF THE COPYRIGHT. SECTION 52 OF THE ACT DEALIN G WITH CERTAIN ACTS NOT TO BE INFRINGEMENT OF COPYRIGHT STA TES THAT THE FOLLOWING ACTS SHALL NOT CONSTITUTE AN INFRINGE MENT OF COPYRIGHT, NAMELY XXX (AA) THE MAKING OF COPIES OR ADAPTATION OF A COMPU TER PROGRAMME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FROM SUCH COPY (I) IN ORDER TO UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED: OR (II) TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTECTI ON AGAINST LOSS, DESTRUCTION OR DAMAGE IN ORDER ONLY TO UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED. PAGE 14 OF 19 ITA NOS.734 TO 736/BAN G/2011 14 24. IT IS CLEAR FROM THE ABOVE SAID PROVISIONS OF THE COPYRIGHT ACT THAT THE RIGHT TO COPYRIGHT WORK WOULD ALSO CONSTITUTE EXCLUSIVE RIGHT OF THE COPYRIGHT HOLDER A ND ANY VIOLATION OF THE SAID RIGHT WOULD AMOUNT TO INFRING EMENT UNDER SECTION 51 OF THE ACT. HOWEVER, IF SUCH COPYING OF C OMPUTER PROGRAM IS DONE BY A LAWFUL POSSESSOR OF A COPY OF SU CH COMPUTER PROGRAMME, THE SAME WOULD NOT CONSTITUTE INFRINGEMENT OF COPYRIGHT AND WHEREFORE, BUT FOR THE LICENCE GRANTED IN THESE CASES TO THE RESPONDENT TO MAKE CO PY OF THE SOFTWARE CONTAINED IN SHRINK-WRAPPED/OFF-THE-SHELF SOFTWARE INTO THE HARD DISK OF THE DESIGNATED COMPUTER AND T O TAKE A COPY FOR BACKUP PURPOSES, THE END USER HAS NO OTHER RIGHT AND THE SAID TAKING BACKUP WOULD HAVE CONSTITUTED AN IN FRINGEMENT, BUT, FOR THE LICENCE. THEREFORE, LICENCE IS GRANTED FOR TAKING COPY OF THE SOFTWARE AND TO STORE IT IN THE HARD DIS K AND TO TAKE A BACK UP COPY AND RIGHT TO MAKE A COPY ITSELF I S A PART OF THE COPYRIGHT. THEREFORE, WHEN LICENCE TO MAKE USE O F THE SOFTWARE BY MAKING COPY OF THE SAME AND TO STORE IT I N THE HARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE BACK UP COPY OF THE SOFTWARE. IT IS CLEAR THAT WHAT IS TRANSFERRED IS RIGHT TO USE THE SOFTWARE, AN EXCLUSIVE RIGHT, WHICH THE OWN ER OF THE COPYRIGHT I.E., THE RESPONDENT SUPPLIER OWNS AND WHA T IS TRANSFERRED IS ONLY RIGHT TO USE COPY OF THE SOFTWARE FOR THE INTERNAL BUSINESS AS PER THE TERMS AND CONDITIONS O F THE AGREEMENT. THE DECISION OF THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX DELHI-V VS. M/S DYNAMIC VER1TCAL SOFTWARE INDIA PVT. LTD IN ITA NO.1692/2010 DATED 22.02.2011 RELIED UPON BY SRI ARA VIND DATTAR, LEARNED SENIOR COUNSEL APPEARING FOR THE RE SPONDENTS IN SOME OF THE CASES IN SUPPORT OF HIS CONTENTION THAT BY NO STRETCH OF IMAGINATION. PAYMENT MADE BY THE RESPONDEN TS TO THE NON-RESIDENT SUPPLIERS CAN BE TREATED AS ROYALTY IS NOT HELPFUL TO THE RESPONDENTS IN THE PRESENT CASES AS IN THE SAID CASE, DELHI HIGH COURT WAS CONSIDERING THE PROVISIO NS OF SCT1ONS 40(A)(1) OF THE ACT AND THE ORDER OF THE HI GH COURT READS AS FOLLOWS: PAGE 15 OF 19 ITA NOS.734 TO 736/BAN G/2011 15 WHAT IS FOUND, AS A MATTER OF FACT, IS THAT THE ASSESSEE HAS BEEN PURCHASING THE SOFTWARE FROM MICROSOFT AND SOLD IT FURTHER IN INDIAN MARKET. BY N O STRETCH OF IMAGINATION, IT WOULD BE TERMED AS ROYALT Y. THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COU NSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRAN SFER OF ANY PART OF COPYRIGHT OR COPYRIGHT UNDER THE IMPUGNED AGR EEMENTS OR LICENSES CANNOT BE ACCEPTED. ACCORDINGLY, WE HOL D THAT RIGHT TO MAKE A COPY OF THE SOFTWARE AND USE IT FOR INTERN AL BUSINESS BY MAKING COPY OF THE SAME AND STORING THE SAME IN TH E HARD DISK OF THE DESIGNATED COMPUTER AND TAKING BACK UP COPY WOULD ITSELF AMOUNT TO COPYRIGHT WORK UNDER SECTION 14 (1) OF THE ACT AND LICENCE IS GRANTED TO USE THE SOFTWARE BY MAKING COPIES, WHICH WORK, BUT FOR THE LICENCE GRANTED WOULD HAVE CONSTITUTED INFRINGEMENT OF COPYRIGHT AND LICENCEE IS IN POSSESS ION OF THE LEGAL COPY OF THE SOFTWARE UNDER THE LICENCE. THEREF ORE, THE CONTENTION OF THE LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRANSFER OF ANY PART OF COPYRIGHT OR COPYRIGHT AND TRANSACTION ONLY INVOLVES SALE OF C OPY OF THE COPYRIGHT SOFTWARE CANNOT BE ACCEPTED. IT IS ALSO TO BE NOTED THAT WHAT IS SUPPLIED IS THE COPY OF THE SOFTWARE OF WHICH THE RESPONDENT SUPPLIER CONTINUES TO BE THE OWNER OF THE COPYRIGHT AND WHAT IS GRANTED UNDER THE LICENCE IS O NLY RIGHT TO COPY THE SOFTWARE AS PER THE TERMS OF THE AGREEMENT, WHICH, BUT FOR THE LICENCE WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT AND IN VIEW OF THE LICENCE GRANTED, THE SAME WOULD NOT AMOUNT TO INFRINGEMENT UNDER SECTION 52 OF THE COPYRIGHT AC T AS REFERRED TO ABOVE. THEREFORE, THE AMOUNT PAID TO TH E NON- RESIDENT SUPPLIER TOWARDS SUPPLY OF SHRINK WRAPPED S OFTWARE OR OFF-THE-SHELF SOFTWARE IS NOT THE PRICE OF THE C.D. ALONE NOR SOFTWARE ALONE NOR THE PRICE OF LICENCE GRANTED. TH IS IS A COMBINATION OF ALL AND IN SUBSTANCE, UNLESS LICENCE IS GRANTED PERMITTING THE END USER TO COPY AND DOWNLOAD THE SOF TWARE, THE DUMB CD. CONTAINING THE SOFTWARE WOULD NOT IN ANY W AY BE HELPFUL TO THE END USER AS SOFTWARE WOULD BECOME OP ERATIVE ONLY IF IT IS DOWNLOADED TO THE HARDWARE OF THE DESI GNATED COMPUTER AS PER THE TERMS AND CONDITIONS OF THE AGR EEMENT AND PAGE 16 OF 19 ITA NOS.734 TO 736/BAN G/2011 16 THAT MAKES THE DIFFERENCE BETWEEN THE COMPUTER SOFT WARE AND COPYRIGHT IN RESPECT OF BOOKS OR PRERECORDED MUSIC, SOFTWARE AS BOOK AND PRERECORDED MUSIC C.D. CAN BE USED ONCE THEY ARE PURCHASED, BUT SO FAR AS SOFTWARE STORED IN DUMB C. D. IS CONCERNED. THE TRANSFER OF DUMB CD. BY ITSELF WOULD NOT CONFER ANY RIGHT UPON THE END USER AND THE PURPOSE OF THE C D. IS ONLY TO ENABLE THE END USER TO TAKE A COPY OF THE SOFTWAR E AND TO STORE IT IN THE HARD DISK OF THE DESIGNATED COMPUTE R IF LICENCE IS GRANTED IN THAT BEHALF AND IN THE ABSENCE OF LIC ENCE, THE SAME WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT, WHIC H IS EXCLUSIVELY OWNED BY NON-RESIDENT SUPPLIERS, WHO WOUL D CONTINUE TO BE THE PROPRIETOR OF COPYRIGHT. THEREFORE, THERE IS NO SIMILARITY BETWEEN THE TRANSACTION OF PURCHASE OF TH E BOOK OR PRERECORDED MUSIC CD. OR THE CD. CONTAINING SOFTWAR E AND IN VIEW OF THE SAME. THE LEGISLATURE IN ITS WISDOM, HA S TREATED THE LITERARY WORK LIKE BOOKS AND OTHER ARTICLES SEPA RATELY FROM COMPUTER SOFTWARE WITHIN THE MEANING OF THE COPYRIGH T AS REFERRED TO ABOVE UNDER SECTION 14 OF THE COPYRIGHT ACT. 25. IT IS ALSO CLEAR FROM THE ABOVE SAID ANALYSIS OF THE DTAA INCOME TAX ACT, COPYRIGHT ACT THAT THE PAYMENT WOULD CONSTITUTE ROYALTY WITHIN THE MEANING OF ARTICLE 12 (3) OF THE DTAA AND EVEN AS PER THE PROVISIONS OF 9(1)(VI) OF THE ACT AS THE DEFINITION OF ROYALTY UNDER CLAUSE 9(1)(VI) OF THE ACT IS BROADER THAN THE DEFINITION OF ROYALTY UNDER THE DT AA AS THE RIGHT THAT IS TRANSFERRED IN THE PRESENT CASE IS TH E TRANSFER OF COPYRIGHT INCLUDING THE RIGHT TO MAKE COPY OF SOFTWAR E FOR INTERNAL BUSINESS, AND PAYMENT MADE IN THAT REGARD W OULD CONSTITUTE ROYALTY FOR IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE, EXPERIENCE OR SKILL AS PER CLAUSE (IV) OF EXPLANATI ON 2 TO SECTION 9(1)(VI) OF THE ACT. IN ANY VIEW OF THE MATTER, IN VIEW OF THE PROVISIONS OF SECTION 90 OF THE ACT, AGREEMENTS WIT H FOREIGN COUNTRIES DTAA WOULD OVERRIDE THE PROVISIONS OF THE ACT. ONCE IT IS HELD THAT PAYMENT MADE BY THE RESPONDENTS TO TH E NON- RESIDENT COMPANIES WOULD AMOUNT TO ROYALTY WITHIN T HE MEANING OF ARTICLE 12 OF THE DTAA WITH THE RESPECTIVE COUNT RY. IT IS CLEAR THAT THE PAYMENT MADE BY THE RESPONDENTS TO THE NON- PAGE 17 OF 19 ITA NOS.734 TO 736/BAN G/2011 17 RESIDENT SUPPLIER WOULD AMOUNT TO ROYALTY. IN VIEW O F THE SAID FINDING, IT IS CLEAR THAT THERE IS OBLIGATION ON TH E PART OF THE RESPONDENTS TO DEDUCT TAX AT SOURCE UNDER SECTION 1 95 OF THE ACT AND CONSEQUENCES WOULD FOLLOW AS HELD BY THE HON BLE SUPREME COURT WHILE REMANDING THESE APPEALS TO THIS COURT. ACCORDINGLY, WE ANSWER THE SUBSTANTIAL QUESTION OF L AW IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY HOLDING T HAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT WAS N OT JUSTIFIED IN HOLDING THAT THE AMOUNT(S) PAID BY THE RESPONDENT(S) TO THE FOREIGN SOFTWARE SUPPLIERS WAS NOT ROYALTY AND THAT THE SAME DID NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA AND WHEREFORE, THE RESPONDENT(S) W ERE NOT LIABLE TO DEDUCT ANY TAX AT SOURCE AND PASS THE FOLL OWING ORDER:- ALL THE APPEALS ARE ALLOWED. THE ORDER PASSED BY TH E INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A IMPUGNE D IN THESE APPEALS IS SET ASIDE AND THE ORDER PASSED BY THE COM MISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ORDER PASSED BY THE ASSESSING OFFICER (TDS) IS RESTORED. 12.1 FURTHER, THE HONBLE AUTHORITY FOR ADVANCE RUL ING IN THE CASE OF CITRIX SYSTEMS ASIA PACIFIC PTY. LIMITED (343 ITR 1) HAS HELD THAT SALE OR LICENSING FOR USE OF COPYRIGHTED SOFTWARE IS GRANT O F RIGHT TO USE COPYRIGHT AND PAYMENT THEREOF IS ROYALTY AND IS LIABLE FOR DED UCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE AUTHORITY ON THE STATED FACTS, RULED : (I) THAT THE PAYMENTS RECEIVED BY THE APPLICANT FROM THE DISTRIBUTOR FOR SALES OF THE SOFTWARE PRODUCTS WERE IN THE NATURE OF ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE I T ACT, 1961. (II) THAT THE PAYMENTS CONCERNED WOULD BE ROYALTY AS DEFINED IN ARTICLE 12 OF THE DTAA BETWEEN INDIA AND AUSTRALIA. (III) THAT THE PAYMENT RECEIVED BY WAY OF SUBSCRIPTION FOR THE UPDATES WOULD ALSO BE PAYMENT RECEIVED FOR GRANT PAGE 18 OF 19 ITA NOS.734 TO 736/BAN G/2011 18 OF A RIGHT TO USE THE COPYRIGHT EMBEDDED IN THE SUBSCRIPTION ADVANTAGE PROGRAMME AND IT WILL BE ROYALTY. (IV) THAT IT WAS NOT NECESSARY TO RULE ON THE QUESTION WHETHER THE PAYMENT FOR SUBSCRIPTION ADVANTAGE PROGRAMME WOULD BE IN THE 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 AND ADVANTA GE 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 WITHHOLD TAX ES IN INDIA AT THE TIME OF MAKING PAYMENTS TO THE APPLICANT IN TERMS OF SECTION 195 OF THE INCOME-TAX ACT AT THE RATE OF 10 PER CENT OF THE GROSS AMOUNT OF ROYALTY, AS PROVIDED UNDER ARTICLE 12(2) OF THE DTAA. 12.2 SINCE THE FACTS IN THE INSTANT CASE ARE IDENT ICAL TO THE FACTS CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT, RESPECTFULLY FOLLOWING THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL H IGH COURT, WE HOLD THAT THE CIT(A) IS JUSTIFIED IN HIS CONCLUSION THAT THE PAYMENT MADE FOR THE PURCHASE OF SOFTWARE FOR THE PURPOSE OF DOWNLOADING OF LICENSED SOFTWARE FROM THE NON RESIDENT IS LIABLE FOR DEDUCTION OF TA X UNDER SECTION 195 OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) S ORDER IS CORRECT AND IN ACCORDANCE WITH LAW AND NO INTERFERENCE IS CALLED F OR. IT IS ORDERED ACCORDINGLY. PAGE 19 OF 19 ITA NOS.734 TO 736/BAN G/2011 19 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DAY OF JULY, 2012 SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.