M/s. Quest Software International Limited, Ireland V. Deputy Commissioner Of Income Tax (International Taxation), Circle-2(2), Bangalore

ITA 739/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7998 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 18-08-2021
• Assessment Year: 2017-2018
• Appeal Filed On: 21-12-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA BENGALURU
• Assessee Lawyers: MAHIMA GOUD
• Keywords: Double taxation relief; Permanent establishment; Initiation of penalty proceedings; TDS; Set aside
• Section: 143(3); 5(2); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI , JUDICIAL MEMBER IT(IT)A NO.739/BANG/2020 ASSESSMENT YEAR: 2017 - 18 QUEST SOFTWARE INTERNATIONAL LTD., CITY GATE PARK, MAHON, CORK, IRELAND. C/O. KING & PATRRIDGE, ADVOCATES, 48, LAVELLE ROAD, BANGALORE 560 001. PAN: AAACQ 2102L VS. THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE 2(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : MS. MAHIMA GOUD, ADVO CATE RESPONDENT BY : MS. NEERA MALHOTRA, CIT(DR)(ITAT), B ENGALURU. DATE OF HEARING : 18 . 0 8 .202 1 DATE OF PRONOUNCEMENT : 23 .0 8 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER DATED 29.10.2020 PASSED BY THE ASSESSING OFFICER U/S. 143(3) R.W.S. 144C(13) OF THE INCOME- TAX ACT, 1961 [THE ACT] ON THE FOLLOWING GROUNDS :- THE APPELLANT SUBMITS THAT: 1. THAT THE ORDER OF THE RESPONDENT / ASSESSING OFF ICER (AO' FOR SHORT) PURSUANT TO THE DIRECTIONS OF THE DISPUTE RE SOLUTION PANEL (THE DRP' FOR SHORT), IS ERRONEOUS, CONTRARY TO THE FACTS IT(IT)A NO.739/BANG/2020 PAGE 2 OF 11 AND CIRCUMSTANCES OF THE CASE AND IS THEREFORE LIAB LE TO BE SET ASIDE. 2. TREATMENT OF INCOME FROM SALE OF OFF-THE-SHELF SOFT WARE AS `ROYALTY' . A. THE AO AND THE DRP ERRED IN LAW AND ON FACTS IN TREATING THE ENTIRE CONSIDERATION RECEIVED FROM INDIAN CUSTOMERS TOWARDS SALE OF SHRINK WRAPPED AND OFF-THE SHELF SOFTWARE A S 'ROYALTY' UNDER SECTION 9(1)(VI) OF THE INCOME-TAX ACT, 1961 ('THE ACT') AND ALSO UNDER ARTICLE 12 OF THE INDIA-IRELAN D DOUBLE TAXATION AVOIDANCE AGREEMENT ('INDIA-IRELAND DTAA') . B. THE AO AND DRP ERRED IN HOLDING THAT GRANTING OF LICENSE TO USE THE SOFTWARE AMOUNTS TO TRANSFER OF RIGHTS IN T HE COPYRIGHT AND CONSEQUENTLY THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT ARE ATTRACTED. C. THE AO AND DRP ERRED IN HOLDING THAT THE INCOME FROM THE SALE OF SHRINK WRAPPED AND OFF THE SHELF SOFTWARE P RODUCTS ACCRUED OR AROSE IN INDIA AS PER SECTION 5(2) OF TH E ACT, MERELY BECAUSE THE PAYERS ARE SITUATED IN INDIA. D. THE AO AND DRP ERRED IN HOLDING THAT THERE IS A TRANSFER OF THE UNDERLYING COPYRIGHT IN THE SOFTWARE, BETWEEN T HE APPELLANT AND ITS CUSTOMERS, IN SPITE OF THE FACT T HAT THE APPELLANT HAS SOLD SHRINK WRAPPED COMPUTER SOFTWARE , BEING A COPYRIGHTED ARTICLE AND NOT THE COPY RIGHT ITSELF . E. THE AO AND DRP HAVE ERRED IN HOLDING THAT THE SU BJECT TRANSACTION CANNOT BE REGARDED AS SALE AS THERE NO TRANSFER OF ALL THE RIGHTS, TITLE AND INTEREST IN THE COPYRIGHT , WITHOUT APPRECIATING THE FACT THAT NO RIGHTS WERE ACQUIRED BY THE APPELLANT IN THE FIRST PLACE IN RELATION TO THE SOF TWARE WHICH WAS SOLD ONWARDS TO END CUSTOMERS. F. THE AO AND DRP FAILED TO APPRECIATE THE DIFFEREN CE BETWEEN `TRANSFER OF A COPYRIGHT' AND 'SALE OF A COPYRIGHTE D ARTICLE'. G. THE AO AND DRP ERRED IN HOLDING THAT THE SUBJECT PAYMENTS WOULD BE COVERED WITHIN THE PROVISIONS OF SECTION 1 4(B)(II) OF THE COPYRIGHT ACT, 1957, IN CASE OF THE APPELLAN T, WHICH IS IT(IT)A NO.739/BANG/2020 PAGE 3 OF 11 A FOREIGN COMPANY AND THEREFORE NOT GOVERNED BY THE PROVISION OF THE COPYRIGHT ACT, 1957. H. WITHOUT PREJUDICE, THE AO AND DRP ERRED IN HOLDI NG THAT THE SALE OF SHRINK WRAPPED AND OFF-THE-SHELF SOFTWARE P ROVIDES `EXCLUSIVE USE' OR 'EXCLUSIVE RIGHT TO USE' TO ITS CUSTOMERS IN THE SOFTWARE. I. THE AO AND THE DRP FAILED TO APPRECIATE THE APPE LLANT'S CONTENTION THAT THE SUBJECT RECEIPTS REPRESENTS PRI CE FOR SALE OF SHRINK WRAPPED AND OFF-THE-SHELF SOFTWARE AND ARE N OT IN THE NATURE OF ROYALTY INCOME AND IN DOING SO, HAVE NOT APPRECIATED THE FACT THAT IT WOULD RESULT IN BUSINE SS INCOME IN THE HANDS OF THE APPELLANT AND NOT TAXABLE IN INDIA IN THE ABSENCE OF A PERMANENT ESTABLISHMENT OR A BUSINESS CONNECTION OF THE APPELLANT IN INDIA. J. THAT THE AO AND THE DRP ERRED IN LAW IN RELYING ON THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. SAMSUNG ELECTRONICS COMPANY LTD. (REPORTE D IN 345 ITR 494) AND DISREGARDING THE FACT THAT THE APP ELLANT IN THE PRESENT CASE IS ENGAGED IN THE BUSINESS OF REPR ODUCTION AND DISTRIBUTION OF SOFTWARE, WHEREAS THE ASSESSEE IN THE ABOVE CASE WAS ENGAGED IN THE BUSINESS OF DEVELOPME NT OF COMPUTER SOFTWARE. K. THAT IN ANY EVENT, THE DECISION IN THE CASE OF SAMSUNG (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE APPEL LANT, WHICH THE AO AND THE DRP FAILED TO APPRECIATE. L. THAT THE OTHER DECISIONS RELIED UPON BY THE AO TO HOLD AGAINST THE APPELLANT ARE DISTINGUISHABLE ON FACTS. M. THE DRP ERRED IN MERELY RELYING ON THE ORDERS PA SSED BY THE DRP IN THE APPELLANT'S OWN CASE FOR PREVIOUS ASSESS MENT YEARS, AND THE ORDER OF THIS HON'BLE TRIBUNAL FOR T HE ASSESSMENT YEAR 2012-13, WITHOUT APPRECIATING THE F ACTS OF THE PRESENT CASE INDEPENDENTLY. N. THAT IN ANY EVENT, THE APPELLANT HAS PREFERRED A N APPEAL AGAINST THE ORDER PASSED BY THIS HON'BLE TRIBUNAL F OR THE ASSESSMENT YEAR 2012-13 AND THE SAME IS ADMITTED. IT(IT)A NO.739/BANG/2020 PAGE 4 OF 11 O. THAT WITHOUT PREJUDICE, THE AO AND DRP OUGHT TO HAVE APPRECIATED THAT THAT NOTWITHSTANDING THE RETROSPEC TIVE AMENDMENT MADE TO SECTION 9(1)(VI) OF THE ACT VIDE THE FINANCE ACT, 2012, THE DEFINITION OF 'ROYALTY' UNDE R THE INDIA- IRELAND DTAA HAS NOT UNDERGONE ANY CHANGE AND THAT, THEREFORE, THE BENEFICIAL PROVISIONS OF THE DTAA WO ULD CONTINUE TO APPLY IN THE APPELLANT'S CASE. 3. INITIATION OF PENALTY PROCEEDINGS THAT THE AO ERRED IN INITIATING PENALTY PROCEEDIN GS UNDER SECTION 270A OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY D ELETION, SUBSTITUTION OR OTHERWISE, THE ABOVE GROUNDS OF APP EAL, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. 4. RELIEF A. THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLO WED AND THE IMPUGNED FINAL ASSESSMENT ORDER BE SET ASIDE, IN TH E INTERESTS OF JUSTICE AND EQUITY. 2. THE ASSESSEE COMPANY QUEST SOFTWARE INTERNATIONA L LIMITED (QSIL) [FORMERLY KNOWN AS DELL SOFTWARE INTERNATIONAL LTD. ] IS A FOREIGN COMPANY INCORPORATED UNDER THE LAWS OF IRELAND AND A TAX RE SIDENT OF IRELAND. THE ULTIMATE HOLDING COMPANY OF QSIL IS DELL SOFTWARE I NC (DELL USA). DELL US (QUEST US) GENERATED REVENUES BY LICENSING SOFTWARE PRODUCTS, PRINCIPALLY ON A PERPETUAL BASIS AND BY PROVIDING SUPPORT, MAIN TENANCE AND IMPLEMENTATION SERVICES FOR THE PRODUCTS AND QSIL H AD ENTERED INTO THE DISTRIBUTION AGREEMENT WITH QSCL. 2.1 THE CONTENTION OF THE LD. AR IS THAT THE ISSU E OF TREATMENT OF INCOME FROM SALE OF OFF-THE-SHELF SOFTWARE AS ROYALTY I S ALREADY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF DELL SOFTWAR INTERNATIONAL LTD. V. ITO & ANR. IN IT A NO.1002/2017 DATED 30.03.2021 WHEREIN IT WAS HELD AS UNDER:- IT(IT)A NO.739/BANG/2020 PAGE 5 OF 11 3. WHEN THE MATTER WAS TAKEN UP TODAY, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE I NVOLVED IN THIS APPEAL HAS BEEN PUT TO REST IN VIEW OF THE DECISION RENDERED BY THE SUPREME COURT IN CIVIL APPEAL NOS.8733-8734/2018 BETWEEN ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED VS. THE COMMISSIONER OF INCOME TAX & ANOTHER , VIDE ORDER DATED 02.03.2021 AND THE ISSUE INVOLVED IN THIS APPEAL HAS BEEN ANSW ERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 4. LEARNED COUNSEL FOR THE REVENUE WAS UNABLE TO DISPUTE THE AFORESAID SUBMISSION. 5. FOR THE REASONS ASSIGNED IN THE AFORESAID JUDGME NT RENDERED BY THE SUPREME COURT IN CIVIL APPEAL NOS.8 733- 8734/2018 VIDE ORDER DATED 02.03.2021, THE SUBSTANT IAL QUESTIONS OF LAW INVOLVED IN THIS APPEAL ARE ANSWERED IN FAVO UR OF THE ASSESSEE AND AGAINST THE REVENUE. 6. IN THE RESULT, THE ORDER DATED 07.07.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL IS HEREBY QUASHED . IN THE RESULT, THE APPEAL IS ALLOWED. 3. THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2 016-17 IN IT(IT)A NO.2531/BANG/2019 BY ORDER DATED 27.07.2021 FOLLOWI NG THE HONBLE SUPREME COURT JUDGMENT IN ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P.LTD. (SUPRA) HELD AS FOLLOWS:- 4. AGGRIEVED BY THE FINAL ASSESSMENT, THE ASSESSE E HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. AT THE V ERY OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COVERED IN FAVOUR OF THE ASSES SEE BY THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P.LTD. V. CIT REPORTE D IN [2021] 432 ITR 471 (SC) . THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS NOT ABLE TO CONTROVERT THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN VIEW OF THE JUDGMENT O F THE HONBLE APEX COURT, WHICH IS IDENTICAL TO THE FACTS OF THIS CASE, WE HOLD THAT THE PAYMENT OF RS.42,96,49,035 RECEIVED BY THE ASSESSEE- IT(IT)A NO.739/BANG/2020 PAGE 6 OF 11 COMPANY WOULD NOT CONSTITUTE ROYALTY AND CANNOT BE BROUGHT TO TAX. IT IS ORDERED ACCORDINGLY. 4. THUS, THE LD. AR SUBMITTED THAT THE ABOVE PRECED ENTS ARE BINDING WHICH SHALL BE FOLLOWED. 5. THE LD. DR SUBMITTED THAT IN THIS CASE THE ASSES SMENT YEAR IS 2017- 18 AND THE ISSUE MAY BE REMITTED TO THE AO TO EXAMI NE THE RELEVANT AGREEMENTS SO AS TO DECIDE THE ISSUE IN THE LIGHT O F THE SUPREME COURT JUDGMENT IN ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P.LTD. (S UPRA) . 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE ASSESSEE RELIED ON THE ORDER OF THE TRIBUNAL I N ITS OWN CASE FOR THE AY 2016-17 ( SUPRA) . THE LD. AR ALSO RELIED ON THE JUDGMENT OF HONBL E SUPREME COURT IN THE CASE OF THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED V. CIT, 432 ITR 471 (SC) . THE HON'BLE SUPREME COURT IN THIS CASE HAS EXAMINED THE QUESTI ON WHETHER THE PAYMENTS MADE TO NON-RESIDENT SOFTWARE SUPPLIERS IS ROYALTY AND HENCE TDS U/S. 195 OF THE ACT WAS REQUIRED TO BE DEDUCTED ON THOSE PAYMENTS OR NOT. THE HON'BLE SUPREME COURT EXAMINED THIS QUESTI ON CONSIDERING FOUR TYPES OF SITUATIONS, WHICH HAS BEEN NARRATED AS UND ER:- 4. THE APPEALS BEFORE US MAY BE GROUPED INTO FOUR CATEGORIES: (I) THE FIRST CATEGORY DEALS WITH CASES IN WHICH COMPUT ER SOFTWARE IS PURCHASED DIRECTLY BY AN END-USER, RESI DENT IN INDIA, FROM A FOREIGN, NON-RESIDENT SUPPLIER OR MANUFACTURER. (II) THE SECOND CATEGORY OF CASES DEALS WITH RESIDENT IN DIAN COMPANIES THAT ACT AS DISTRIBUTORS OR RESELLERS, BY PURCHASING COMPUTER SOFTWARE FROM FOREIGN, NON-RESI DENT SUPPLIERS OR MANUFACTURERS AND THEN RESELLING THE S AME TO RESIDENT INDIAN END-USERS. IT(IT)A NO.739/BANG/2020 PAGE 7 OF 11 (III) THE THIRD CATEGORY CONCERNS CASES WHEREIN THE DISTR IBUTOR HAPPENS TO BE A FOREIGN, NON-RESIDENT VENDOR, WHO, AFTER PURCHASING SOFTWARE FROM A FOREIGN, NON-RESIDENT SE LLER, RESELLS THE SAME TO RESIDENT INDIAN DISTRIBUTORS OR ENDUSERS. (IV) THE FOURTH CATEGORY INCLUDES CASES WHEREIN COMPUTER SOFTWARE IS AFFIXED ONTO HARDWARE AND IS SOLD AS AN INTEGRATED UNIT/EQUIPMENT BY FOREIGN, NONRESIDENT SUPPLIERS TO RESIDENT INDIAN DISTRIBUTORS OR END-US ERS. 7. THE HON'BLE SUPREME COURT ANALYSED SAMPLE AGREEM ENTS IN RESPECT OF ALL THE FOUR CATEGORIES AND GAVE THE FOLLOWING F INDING:- 45. A READING OF THE AFORESAID DISTRIBUTION AGREEM ENT WOULD SHOW THAT WHAT IS GRANTED TO THE DISTRIBUTOR IS ONL Y A NON- EXCLUSIVE, NON-TRANSFERABLE LICENCE TO RESELL COMPU TER SOFTWARE, IT BEING EXPRESSLY STIPULATED THAT NO COPYRIGHT IN THE COMPUTER PROGRAMME IS TRANSFERRED EITHER TO THE DISTRIBUTOR OR TO THE ULTIMATE END-USER. THIS IS FURTHER AMPLIFIED BY STA TING THAT APART FROM A RIGHT TO USE THE COMPUTER PROGRAMME BY THE E ND-USER HIMSELF, THERE IS NO FURTHER RIGHT TO SUBLICENSE OR TRANSFER, NOR IS THERE ANY RIGHT TO REVERSE-ENGINEER, MODIFY, REPROD UCE IN ANY MANNER OTHERWISE THAN PERMITTED BY THE LICENCE TO T HE END-USER. WHAT IS PAID BY WAY OF CONSIDERATION, THEREFORE, BY THE DISTRIBUTOR IN INDIA TO THE FOREIGN, NON-RESIDENT M ANUFACTURER OR SUPPLIER, IS THE PRICE OF THE COMPUTER PROGRAMME AS GOODS, EITHER IN A MEDIUM WHICH STORES THE SOFTWARE OR IN A MEDIU M BY WHICH SOFTWARE IS EMBEDDED IN HARDWARE, WHICH MAY BE THEN FURTHER RESOLD BY THE DISTRIBUTOR TO THE END-USER IN INDIA, THE DISTRIBUTOR MAKING A PROFIT ON SUCH RESALE. IMPORTANTLY, THE DISTRIBUTOR DOES NOT GET THE RIGHT TO USE THE PRODUCT AT ALL . 46. WHEN IT COMES TO AN END-USER WHO IS DIRECTLY SO LD THE COMPUTER PROGRAMME, SUCH END-USER CAN ONLY USE IT BY INSTALLING IT IN THE COMPUTER HARDWARE OWNED BY THE END-USER AND CANNOT IN ANY MANNER REPRODUCE THE SAME FOR SAL E OR TRANSFER, CONTRARY TO THE TERMS IMPOSED BY THE EULA . 47. IN ALL THESE CASES, THE 'LICENCE' THAT IS GRA NTED VIDE THE EULA, IS NOT A LICENCE IN TERMS OF SECTION 30 OF TH E COPYRIGHT ACT, WHICH TRANSFERS AN INTEREST IN ALL OR ANY OF T HE RIGHTS IT(IT)A NO.739/BANG/2020 PAGE 8 OF 11 CONTAINED IN SECTIONS 14(A) AND 14(B) OF THE COPYRI GHT ACT, BUT IS A 'LICENCE' WHICH IMPOSES RESTRICTIONS OR CONDITION S FOR THE USE OF COMPUTER SOFTWARE. THUS, IT CANNOT BE SAID THAT ANY OF THE EULAS THAT WE ARE CONCERNED WITH ARE REFERABLE TO SECTION 30 OF THE COPYRIGHT ACT, INASMUCH AS SECTION 30 OF THE COPYRI GHT ACT SPEAKS OF GRANTING AN INTEREST IN ANY OF THE RIGHTS MENTIONED IN SECTIONS 14(A) AND 14(B) OF THE COPYRIGHT ACT. THE EULAS IN ALL THE APPEALS BEFORE US DO NOT GRANT ANY SUCH RIGHT O R INTEREST, LEAST OF ALL, A RIGHT OR INTEREST TO REPRODUCE THE COMPUT ER SOFTWARE. IN POINT OF FACT, SUCH REPRODUCTION IS EXPRESSLY INTER DICTED, AND IT IS ALSO EXPRESSLY STATED THAT NO VESTIGE OF COPYRIGHT IS AT ALL TRANSFERRED, EITHER TO THE DISTRIBUTOR OR TO THE EN D-USER. A SIMPLE ILLUSTRATION TO EXPLAIN THE AFORESAID POSITION WILL SUFFICE. IF AN ENGLISH PUBLISHER SELLS 2000 COPIES OF A PARTICULAR BOOK TO AN INDIAN DISTRIBUTOR, WHO THEN RESELLS THE SAME AT A PROFIT, NO COPYRIGHT IN THE AFORESAID BOOK IS TRANSFERRED TO T HE INDIAN DISTRIBUTOR, EITHER BY WAY OF LICENCE OR OTHERWISE, INASMUCH AS THE INDIAN DISTRIBUTOR ONLY MAKES A PROFIT ON THE SALE OF EACH BOOK. IMPORTANTLY, THERE IS NO RIGHT IN THE INDIAN DISTRI BUTOR TO REPRODUCE THE AFORESAID BOOK AND THEN SELL COPIES O F THE SAME. ON THE OTHER HAND, IF AN ENGLISH PUBLISHER WERE TO SEL L THE SAME BOOK TO AN INDIAN PUBLISHER, THIS TIME WITH THE RIGHT TO REPRODUCE AND MAKE COPIES OF THE AFORESAID BOOK WITH THE PERMISSI ON OF THE AUTHOR, IT CAN BE SAID THAT COPYRIGHT IN THE BOOK H AS BEEN TRANSFERRED BY WAY OF LICENCE OR OTHERWISE, AND WHA T THE INDIAN PUBLISHER WILL PAY FOR, IS THE RIGHT TO REPRODUCE T HE BOOK, WHICH CAN THEN BE CHARACTERISED AS ROYALTY FOR THE EXCLUS IVE RIGHT TO REPRODUCE THE BOOK IN THE TERRITORY MENTIONED BY TH E LICENCE. 8. AFTER ANALYSING THE PROVISIONS OF INCOME TAX ACT , PROVISIONS OF DTAA, THE RELEVANT AGREEMENTS ENTERED BY THE ASSESS EES WITH NON- RESIDENT SOFTWARE SUPPLIERS, PROVISIONS OF COPY RIG HT ACTS, THE CIRCULARS ISSUED BY CBDT, VARIOUS CASE LAWS RELIED UPON BY TH E PARTIES, THE HON'BLE SUPREME COURT CONCLUDED AS UNDER:- CONCLUSION 168. GIVEN THE DEFINITION OF ROYALTIES CONTAINED IN ARTICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 OF THIS JUDGMEN T, IT IS CLEAR THAT THERE IS NO OBLIGATION ON THE PERSONS ME NTIONED IN IT(IT)A NO.739/BANG/2020 PAGE 9 OF 11 SECTION 195 OF THE INCOME-TAX ACT TO DEDUCT TAX AT SOURCE, AS THE DISTRIBUTION AGREEMENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/E ND-USERS, WHICH WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPY RIGHT. THE PROVISIONS CONTAINED IN THE INCOME-TAX ACT (SECTION 9(1)(VI), ALONG WITH EXPLANATIONS 2 AND 4 THEREOF), WHICH DEA L WITH ROYALTY, NOT BEING MORE BENEFICIAL TO THE ASSESSEES , HAVE NO APPLICATION IN THE FACTS OF THESE CASES . 169. OUR ANSWER TO THE QUESTION POSED BEFORE US, IS THAT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/DISTRIBUT ORS TO NON- RESIDENT COMPUTER SOFTWARE MANUFACTURERS/SUPPLIERS, AS CONSIDERATION FOR THE RESALE/USE OF THE COMPUTER SO FTWARE THROUGH EULAS/DISTRIBUTION AGREEMENTS, IS NOT THE PAYMENT O F ROYALTY FOR THE USE OF COPYRIGHT IN THE COMPUTER SOFTWARE, AND THAT THE SAME DOES NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA, AS A RESULT OF WHICH THE PERSONS REFERRED TO IN SECTION 195 OF THE INCOME-TAX ACT WERE NOT LIABLE TO DEDUCT ANY TDS UNDER SECTION 195 OF THE INCOME-TAX ACT. THE ANSWER TO THIS QUESTION WILL AP PLY TO ALL FOUR CATEGORIES OF CASES ENUMERATED BY US IN PARAGRAPH 4 OF THIS JUDGMENT. 9. IT IS PERTINENT TO NOTE THAT THE HONBLE SUPREME COURT HAS REVERSED THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COU RT IN THE CASE OF SAMSUNG ELECTRONICS CO LTD (SUPRA) . 10. A PERUSAL OF THE DECISION RENDERED BY HONBLE S UPREME COURT WOULD BRING OUT FOLLOWING PRINCIPLES: - (A) RELEVANT DTAA PROVISIONS ARE REQUIRED TO BE CONSIDE RED FOR DETERMINING THE QUESTION WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO NON-RESIDENT COMPANIES FOR PURCHASE OF SOFTWARE ARE IN THE NATURE OF ROYALTY OR NOT. (B) WHERE EVER INDIA HAS ENTERED DOUBLE TAXATION AVOIDA NCE AGREEMENT WITH THE COUNTRY OF NON-RESIDENT SUPPLIER , THERE IS NO NECESSITY TO REFER TO THE PROVISIONS OF SEC. 9(1 )(VI) OF THE ACT FOR THE PAYMENTS MADE TO THE NON-RESIDENT PERSO NS, UNLESS THE DOMESTIC PROVISIONS ARE BENEFICIAL TO TH OSE PERSONS. IT(IT)A NO.739/BANG/2020 PAGE 10 OF 11 (C) THE AGREEMENTS ENTERED BY THE ASSESSEE WITH THE NON -RESIDENT SOFTWARE SUPPLIERS ARE REQUIRED TO BE EXAMINED TO F IND OUT WHETHER THE 'LICENCE' THAT IS GRANTED VIDE THE EULA , IS NOT A LICENCE IN TERMS OF SECTION 30 OF THE COPYRIGHT ACT , WHICH TRANSFERS AN INTEREST IN ALL OR ANY OF THE RIGHTS C ONTAINED IN SECTIONS 14(A) AND 14(B) OF THE COPYRIGHT ACT, BUT IS A 'LICENCE' WHICH IMPOSES RESTRICTIONS OR CONDITIONS FOR THE USE OF COMPUTER SOFTWARE. 11. HOWEVER, WE OBSERVE THAT IN THE INSTANT CASE NE ITHER THE LOWER AUTHORITIES NOR THE TRIBUNAL IN THE AY 2016-17 HAVE EXAMINED HE RELEVANT AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH THE CO NCERNED PARTIES GENERATE THESE RECEIPTS WHICH RELATE TO SALE OF SHR INK WRAPPED AND OFF-THE- SHELF SOFTWARE. EVEN BEFORE US, NO SUCH DOCUMENT H AS BEEN PRODUCED BY THE ASSESSEE. IN VIEW OF THIS, IT IS APPROPRIATE T O REMIT THE ISSUE IN DISPUTE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING T HE COMPARABILITY OF THESE TRANSACTIONS IN THE LIGHT OF THE JUDGMENT OF THE HO NBLE SUPREME COURT IN ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE L IMITED (SUPRA) . ACCORDINGLY, THE ISSUE IN DISPUTE IS REMITTED TO TH E ASSESSING OFFICER FOR FRESH DECISION WITH THE ABOVE DIRECTIONS. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST, 2021. SD/- SD/- ( BE ENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 23 RD AUGUST, 2021. / DESAI S MURTHY / IT(IT)A NO.739/BANG/2020 PAGE 11 OF 11 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.