ADDL CIT 2(3), MUMBAI V. M/S. TATA CONSULTANCY SERVICES LTD., MUMBAI

ITA 7513/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7930 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 21-09-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 02-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: DINESH VYAS SR
• Keywords: Business income; Depreciation; Double taxation relief; Retrospective amendment; Capital expenditure

Judgement Text

1 IT7513/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A.NO.7513/MUM/2010 ( ASSESSMENT YEARS : 2005-06) DY.CIT-LTU, CENTRE-1, WORLD TRADE CENTRE, 28 TH FLOOR, CUFFE PARADE, MUMBAI-5 V/S M/S TATA CONSULTANCY SERVICES LTD 9 TH FLOOR, NIRMAL BLDG, NARIMAN POINT MUMBAI-21 PAN : AAACR4849R APPELLANT RESPONDENT APPELLANT BY SHRI N.K. CHAND, CIT-DR RESPONDENT BY SHRI DINESH VYAS, SR.COUNSEL DATE OF HEARING 15.03.2017 DATE OF ORDER 23.03.2017 O R D E R PER ASHWANI TANEJA, AM:- THE PRESENT APPEAL HAS BEEN FIXED AS A RESULT OF OR DER DATED 29.07.2006 IN M.A.NO. 93 OF 2016 PASSED BY THE TRIBUNAL IN THI S CASE WHEREIN THE TRIBUNAL HAD RECALLED ITS EARLIER ORDER WITH RESPECT TO GROU ND NO 3 RAISED BY THE REVENUE IN ITS APPEAL BY OBSERVING AS UNDER:- 5-WE WOULD LIKE TO REPRODUCE THE GROUND 3 RAISED BY THE AO AND SAME READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT('A) ERRED IN ALLOWING SOFTWARE EXPENSES U/S. 40(A)(I) ON ACCOUNT OF NON DEDUCTION OF TDS AMOUNTING RS. 25,11,88,831/-'. 2 IT7513/MUM/2010 WHILE DECIDING THE APPEAL, THE TRIBUNAL AT PARAGRAP H NO. 13 HAS DECIDED THE ISSUE AS UNDER:- 13. CONSIDERING THE RIVAL CONTENTIONS, WE . FIND THAT THE ARGUMENT OF THE ASSESSEE IS CORRECT. THE LOCALLY AC QUIRED SOFTWARE EXPENSES HAVE BEEN TREATED AS CAPITAL EXPE NDITURE, PLACING RELIANCE ON VARIOUS JUDICIAL DECISIONS, WHI CH HOLD THAT THE EXPENSES ON SOFTWARE ARE IN THE NATURE OF CAPIT AL EXPENDITURE AND DEPRECIATION IS TO BE ALLOWED ON TH E SAME. AS SUCH, EXPENSES ON IMPORTED SOFTWARE ARE ALSO IN NAT URE OF CAPITAL EXPENDITURE AND DEPRECIATION NEEDS TO BE ALLOWED TH EREON. THE A O, THEREFORE IS DIRECTED TO ALLOW THE DEPRECIATION ON THE IMPORTED SOFTWARE PURCHASED BY THE ASSESSEE THIS AL TERNATIVE PLEA RAISED BY THE ASSESSEE, HENCE IS ACCEPTED. FROM THE ABOVE DISCUSSION IT IS CLEAR THAT THE GROU ND NO.3 RAISED BY THE AO I.E. DISALLOWANCE U/S. 40(A)(I)REM AINED UNADJUDICATED THAT THE ALTERNATIVE PLEA TAKEN BY T HE ASSESSEE WAS ACCEPTED. THEREFORE, WE ARE OF THE OP INION THAT MATTER SHOULD BE PLACED BEFORE REGULAR BENCH TO DEC IDE THE ISSUE(GOA-3) AFRESH. 2. FROM THE PERUSAL OF THE ABOVE, IT IS CLEAR THAT ARG UMENTS ON GROUND NO 3 OF THE APPEAL FILED BY THE REVENUE ARE TO BE HEARD AND THE ADJUDICATED AFRESH BY US. 3. DURING THE COURSE OF HEARING, LD.CIT(DR) ASSAILED THE ORDER OF LD. CIT(A) AND SUPPORTED THE ORDER OF THE AO ON THIS ISSUE. I T WAS SUBMITTED BY HIM THAT IT WAS RIGHTLY HELD BY THE AO THAT THE PAYMENTS MAD E FOR SOFTWARE PURCHASED BY THE ASSESSEE AMOUNTED TO ROYALTY AS ENVISAGED IN EXPLANATION 3 TO SECTION 9(1)(VI) OF THE ACT. THEREFORE ASSESSEE OUGHT TO H AVE DEDUCTED TAX AT SOURCE SINCE ASSESSEE FAILED IN DEDUCTING TAX AT SOURCE, T HE AO RIGHTLY INVOKED THE PROVISION OF SECTION 40(A)(I) OF THE ACT FOR MAKING DISALLOWANCE OF THE IMPUGNED PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT O F IMPORT OF SOFTWARE. IT WAS SUBMITTED BY HIM THAT THE SOFTWARE PURCHASED BY THE ASSESSEE IS ADMITTEDLY A SHRINK WRAPPED SOFTWARE WHICH HAS BE EN PURCHASED OFF THE SHELF FOR THE PURPOSE OF INTERNAL USE AND ALSO FOR TRADIN G PURPOSES. IT WAS SUBMITTED THAT AMENDMENT HAS BEEN MADE IN SECTION 9(1)(VI) OF THE ACT BY FINANCE ACT, 2012 AND AFTER THE AMENDMENT THE AMOUNT PAID FOR TH E SOFTWARE WILL CLEARLY 3 IT7513/MUM/2010 BE TREATED AS ROYALTY AS DEFINED UNDER THE ACT A ND THEREFORE LIABLE TO TAX. IT WAS FURTHER SUBMITTED BY HIM THAT IN ANY CASE EVEN PRIOR TO SAID AMENDMENT THE AMOUNT WAS LIABLE TO BE TAXED AS ROYALTY AS WAS HELD IN MANY JUDGMENTS. RELIANCE WAS PLACED BY HIM ON THE JUDGMENT OF KARNA TAKA HIGH COURT IN THE CASE OF CIT VS SAMSUNG ELECTRONICS COMPANY LIMITED 345 ITR 494 AND REQUESTED FOR REVERSING THE ORDER OF LD. CIT(A). 4. PER CONTRA IN THE LD. SENIOR COUNSEL OF THE ASSES SEE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). IT WAS FIRST LY ARGUED BY HIM THAT THE PAYMENT FOR PURCHASES OF SOFTWARE WAS ACTUALLY MEAN T FOR ACQUIRING THE COPY RIGHTED ARTICLE AND NOT FOR TRANSFER OF ANY RIGHT IN A COPYRIGHT . ACCORDINGLY IT CANNOT BE CONSTRUED AS ROYALTY UNDER CLAUSE (V) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AND THEREFORE NOT TAXABLE IN T HE HANDS OF THE PAYEE IN INDIA. THEREFORE PROVISION OF SECTION 195 WOULD NOT BE APP LICABLE AND CONSEQUENTLY NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) OF THE ACT. FOR THIS PROPOSITION, HE PLACED RELIANCE OF THE FOLLOWING JU DGMENTS:- I. SHINHAN BANK(2016) 76 TAXMANN.COM 42 (MUMBAI ITA T) (DT. JULY 04,2016 AT PG 4; PARA 8 II. VINZAS SOLUTIONS INDIA(P.) LTD. [2017] 77 TAXMA NN.COM 279 ( MADRAS)- AT PG 3; PARA 7 III. M TECH INDIA (P.) LIMITED [2016] 381 ITR 31 (D ELHI) (DT. JANUARY 19,2016) AT PG 37-38; PARA 12-14 IV. ERICSSON AB [2012] 343 ITR 470 (DELHI) AT PG 501; PARA 59 V. SONATA INFORMATION TECHONOLOGY LTD. V. ACIT [200 6] 103 ITD 324 (BANGALORE ITAT) AT PG 9; PARA 6 VI. SONIC BIOCHEM EXTRACTIONS PVT LTD[2013] 23 ITR (T) 447 (MUMBAI ITAT) AT PAGE 10; PARA 35 VII. MOTOROLA INC. [2005] 95 ITD 269 (DELHI ITAT) ( SB) AT PG 66; PARA 141 UPTO PARA 172. 5. IT WAS FURTHER ARGUED BY THE LD. SENIOR COUNSEL THAT EVEN UNDER THE DTAAS OF INDIA WITH RESPECTIVE COUNTRIES OF THE SUPPLIERS FROM WHOM SOFTWARE WAS 4 IT7513/MUM/2010 PURCHASED, THE PAYMENT OF PURCHASE OF SOFTWARE CANN OT BE REGARDED AS ROYALTY SINCE DEFINITION OF ROYALTY UNDER DTAA IS NARROWER THAN THE DEFINITION GIVEN IN THE ACT. IN SUPPORT OF THIS PRO POSITION, HE RELIED UPON THE FOLLOWING JUDGMENTS:- I. QAD EUROPE B.V. [2017] 77 TAXMANN.COM 267 (MUMBA I ITAT) (DT. DECEMBER 21,2016) II. FIRST ADVANTAGE (P.) LTD [2017] 77 TAXMANN.COM 195 (MUMBAI ITAT) (DT.JANUARY 11,2017) III. RELIANCE INDUSTRIES LIMITED [2016] 159 ITD 208 (MUMBAI ITAT) (DT. MAY 18, 2016) IV. M/S BAAN GLOBAL BV. [2016] 49 ITR(T) 73 (MUMBAI ITAT) (DT. JUNE 13,2016) V. CAPGEMINI BUSINESS SERVICES (INDIA) LIMITED [201 6] 158 ITD 1 (MUMBAI ITAT) (DT. FEBRUARY 29, 2016) VI. QUAOLCOMM INDIA (P.) LTD [2017] 77 TAXMANN.COM 56 (HYD ITAT) (DT. OCTOBER28,2016) VII. INFRASOFT LIMITED [2014] 264 CTR 329 (DELHI) VIII. ERICSSON AB [2012] 343 ITR 470 (DELHI) IX. NOKIA NETWORKS (358 ITR 259) (DELHI). 6. IT WAS ALSO ARGUED BY HIM THAT OUT OF THE TOTAL AMOUNT DISALLOWED BY THE AO OF RS. 25,11,88,831/- A SUM OF RS. 5,59,54,982/- WAS PAID ON ACCOUNT OF PURCHASE OF SOFTWARE FOR THE PURPOSE OF RESALE/ TRA DING. IN THIS TRANSACTION ASSESSEE DID NOT OBTAIN ANY LICENCE FROM THE SUPPLI ER AND EARNED ONLY MARGIN FOR TRADING OR RESELLING OF SUCH SOFTWARE. THEREFO RE, THE PAYMENT FOR THE SOFTWARE WAS CLEARLY ON ACCOUNT OF PURCHASE OF GOOD S AND CANNOT BE TREATED AS ROYALTY BY ANY STRETCH OF IMAGINATION AND T HEREFORE NO DISALLOWANCE U/S 40(A) (I) CAN BE MADE IN RESPECT OF THE SAME. RELI ANCE IN THIS REGARD WAS PLACED FOLLOWING JUDGMENTS: I. VINZAS SOLUTIONS INDIA(P.) LTD. [2017] 77 TA XMANN.COM 279(MADRAS) 5 IT7513/MUM/2010 II. M TECH INDIA (P.) LIMITED [2016] 381 ITR 31 (DE LHI) (DT. JANUARY 19,2016) III. DYNAMIC VERTICAL SOFTWARE INDIA P. LTD. [2011 ] 332 ITR 222 (DELHI). 7. LD. SENIOR COUNSEL THEN DISTINGUISHED THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RELIED UPON BY THE LD. CIT DR IN THE CAS E OF SAMSUNG ELECTRONIC COMPANY LTD. (SUPRA) AND SUBMITTED THAT THIS JUDG MENT HAS BEEN CONSIDERED AND DISTINGUISHED IN VARIOUS JUDGMENTS BY HONBLE DELHI HIGH COURT AND BY VARIOUS BENCHES OF THE MUMBAI TRIBUNAL IN MANY CASE S. FOR THIS PROPOSITION, HE RELIED UPON THE FOLLOWING JUDGMENTS:- I. SHINHAN BANK[2016] 76 TAXMANN.COM 42 (MUMBAI ITA T) (DT. JULY 04, 2016) II. M/S BAAN GLOBAL BV [2016] 71 TAXMANN.COM 213 (M UMBAI ITAT) (DT. JUNE 13, 2016) III. M TECH INDIA (P.) LIMITED [2016] 381 ITR 31 ( DELHI) (DT. JANUARY 19,2016) IV. INFRASOFT LIMITED [2014] 264 CTR 329 (DELHI) V. SONIC BLOCHEM EXTRACTIONS PVT LTD [2013] 35 TAXM ANN.COM 463 (MUMBAI ITAT). 8. IT WAS FURTHER SUBMITTED BY HIM THAT IN ANY C ASE EVEN IF AMENDMENT MADE BY FINANCE ACT, 2012 IS TAKEN INTO ACCOUNT, NO DISA LLOWANCE CAN BE MADE U/S 40(A)(I) IN VIEW OF THE WELL SETTLED PRINCIPLE OF IMPOSSIBILITY OF PERFORMANCE SINCE THE ASSESSEE CANNOT BE EXPECTED TO DEDUCT TA X AT SOURCE RETROSPECTIVELY IN RESPECT OF THE TRANSACTIONS CARRIED OUT IN EARLY YEARS. FOR THIS PROPOSITION, HE RELIED UPON THE FOLLOWING JUDGMENTS:- I. SHINHAN BANK [2016] 76 TAXMANN.COM 42 (MUMBAI IT AT) (DT. JULY 04,2016) II. CHANNEL GUIDE INDIA LTD. VS. ASSISTANT COMMISSI ONER OF INCOME TAX [2012] 20 ITR (T) 438 (MUMBAI ITAT) III. KRISHNASWAMY S. PD VS. UNION OF INDIA [2006] 2 81 ITR 305 (SC) 6 IT7513/MUM/2010 IV. INFOTECH ENTERPRISES LTD. VS. ADDITIONAL COMMIS SIONER OF INCOME TAX [2014] 30 ITR(T) 542 (HYDERABAD ITAT) V. STERLING ABRASIVES LTD. VS. INCOME TAX OFFICER [ 2010] 3 TAXMAN.COM 757 (AHMEDABAD ITAT) 9. LASTLY, IT WAS SUBMITTED BY THE LD. SR. COUNSEL TH AT IN CASE TWO VIEWS ARE POSSIBLE, THEN THE VIEW IN FAVOUR OF THE ASSESSEE S HOULD BE FOLLOWED IN VIEW OF FOLLOWING JUDGEMENTS:- RELIANCE INDUSTRIES LTD [2016] 69 TAXMANN.COM 311 ( MUMBAI ITAT)( DT. MAY 18, 2016) CAPGEMINI BUSINESS SERVICES (INDIA) LTD [2016] 68 T AXMANN.COM 36 (MUMBAI ITAT) (DT. FEBRUARY 29,2016) CIT VS. VEGETABLE PRODUCTS (88 ITR 192)(SC) MYSORE MINERALS VS. CIT (239 ITR 775 (SC) UOI VS. ONKAR S. KANWAR (258 ITR 761)(SC) PRADIP J MEHTA VS CIT (300 ITR 231)(SC) MAHINDRA & MAHINDRA VS DCIT (58 TTJ 567 (MUMBAI ITA T) 10. THE LD. SENIOR COUNSEL REQUESTED FOR UPHOLDING THE ORDER OF LD. CIT(A) IN VIEW OF THE AFORESAID ARGUMENTS AND FACTS AND CIRCU MSTANCES OF THE CASE. 11. WE HAVE GONE THROUGH THE ARGUMENTS MADE BY BOTH THE SIDES, ORDERS PASSED BY THE LOWER AUTHORITIES AND ALSO THE JUDGEM ENTS RELIED UPON BEFORE US. 12. THE BRIEF FACTS ARE THAT DURING THE IMPUGNED ASSESS MENT YEAR, THE ASSESSEE PURCHASED SOFTWARE FROM LOCAL MARKET AS WE LL AS FROM ABROAD. THE AMOUNTS PAID AGGREGATING TO RS.25.11 CRORES TOWARDS SOFTWARE PURCHASED BY WAY OF IMPORTS WERE DISALLOWED BY THE AO U/S 40(A)( I) ON THE GROUND THAT THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT UPON THE PAYMENTS MADE TO THE FOREIGN SUPPLIERS. ON THE BASIS OF FAC TS RECORDED BY THE LOWER 7 IT7513/MUM/2010 AUTHORITIES IT IS NOTED THAT EXPENDITURE CLAIMED AS DEDUCTION ON ACCOUNT OF PURCHASE OF SOFTWARE BY THE ASSESSEE WHICH WAS DISA LLOWED BY THE AO COMPRISES OF FOLLOWING TWO CATEGORIES:- PARTICULARS AMOUNT SOFTWARE FOR INTERNAL USE RS. 19,52,33,849 SOFTWARE FOR TRADING PURPOSES RS. 5,59,54,982 TOTAL ... RS. 25,11,88,831 THE ADMITTED CASE OF BOTH THE PARTIES BEFORE US IS THAT IT IS A CASE OF PURCHASE OF SHRINK WRAPPED SOFTWARE. ON ANALYSIS OF ORDER S PASSED BY THE LOWER AUTHORITIES, IT S NOTED BY US THAT AS FAR AS SOFTWA RE PURCHASED FOR THE PURPOSE OF TRADING IS CONCERNED, THE ASSESSEE CLAIMED DEDUC TION IN THE P & L ACCOUNT ON ACCOUNT OF PURCHASES MADE FOR SOFTWARE AND DEBITED THE SAME IN P & L ACCOUNT AND CORRESPONDING SALES OF THE SOFTWARE WERE CREDIT ED IN THE P & L ACCOUNT. EFFECTIVELY, THE ASSESSEE INCLUDED IN ITS INCOME, T HE AMOUNT OF MARGIN EARNED ON TRADING OF SOFTWARE. THE AO HAS NOT ALLOWED THE COST OF PRODUCT SOLD BY THE ASSESSEE TO THE EXTENT OF RS.5,59,54,982 ON THE GRO UND THAT ASSESSEE DID NOT DEDUCT TAX ON THE SAID AMOUNT. THE CONTENTION OF T HE AO WAS THAT THE SAID AMOUNT REPRESENTED PAYMENT ON ACCOUNT OF ROYALTY AS ENVISAGED IN SECTION 9(1)(VI) OF THE ACT. WE RAISED A QUERY TO THE LD. CIT-DR AS TO HOW THE AMOUNT PAID FOR PURCHASING THE SOFTWARE COULD BE TERMED AS ROYALTY, BY ANY STRETCH OF IMAGINATION, EVEN WITHIN THE MEANING OF SECTION 9(1 )(VI) OF THE ACT. IN RESPONSE, THE LD. CIT-DR WAS NOT ABLE TO GIVE ANY C OGENT REASONING. THEREFORE, AFTER TAKING INTO ACCOUNT ALL FACTS AND CIRCUMSTANC ES OF THIS CASE, WE FAIL TO FIND ANY JUSTIFICATION IN THE ACTION OF ASSESSING OFFICE R WITH RESPECT TO DISALLOWANCE MADE BY HIM ON ACCOUNT OF SOFTWARE PURCHASED FOR TR ADING PURPOSES. 8 IT7513/MUM/2010 13. FURTHER, WE HAVE ANALYSED THE TERMS OF SOME OF THE AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH ITS SUPPLIERS FOR PURCHAS E OF SOFTWARE. IN ONE OF THE AGREEMENTS DATED 28-06-2004, BETWEEN VERITAS SOFTWA RE ASIA PACIFIC TRADING PTE LTD, SINGAPORE AND THE ASSESSEE, FOLLOWING CLAU SES ARE WORTH NOTING:- 1. LICENSE GRANT 2.1 VERITAS GRANTS CUSTOMER, SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, A PERPETUAL, NON-EXCL USIVE, NON- TRANSFERABLE LICENSE TO USE THE LICENSED SOFTWARE I N ACCORDANCE WITH THE DOCUMENTATION, ON THE DESIGNATED COMPUTERS IN T HE TERRITORY, SOLELY IN SUPPORT OF CUSTOMERS INTERNAL BUSINESS OPERATIONS. 2.2 CUSTOMER MAY MAKE A SINGLE COPY OF THE LICENSED SOFTWARE AND DOCUMENTATION FOR ARCHIVAL PURPOSES. ALL COPIES MADE PURSUANT TO THIS SECTION SHALL BE COMPLETE COPIES, AND SHALL INCLUDE ALL COPYRIGHT, TRADEMARK, AND OTHER NOTICES IN THE ORIGINAL. CUSTOMER MAY NOT OTHERWISE COPY THE LICENSED SOFTWA RE OR DOCUMENTATION WITHOUT VERITASS PRIOR WRITTEN CONSE NT. 2.3 CUSTOMER'S RIGHTS TO USE THE LICENSED SOFTWARE AND DOCUMENTATION SHALL BE LIMITED TO THOSE EXPRESSLY G RANTED IN THIS SECTION 2. ALL RIGHTS NOT EXPRESSLY GRANTED TO CUSTOMER ARE RETAINED BY VERITAS. 3. LICENSE RESTRICTIONS CUSTOMER SHALL NOT WITHOUT VERITAS'S PRIOR WRITTEN CONSENT, CAUSE OR PERMIT THE: (A) USE, COPYING, MODIFICATION , RENTAL, LEASE, SUBLEASE, SUBLICENSE, OR TRANSFER OF THE LIC ENSED SOFTWARE OR DOCUMENTATION, EXCEPT AS EXPRESSLY PROV IDED IN THIS AGREEMENT; (B) CREATION OF ANY DERIVATIVE WORKS BAS ED ON THE LICENSED SOFTWARE OR DOCUMENTATION, (C) REVERSE ENG INEERING, DISASSEMBLY, OR DECOMPILING OF THE LICENSED SOFTWAR E; (D) USE OF THE LICENSED SOFTWARE OR DOCUMENTATION IN CONNEC TION WITH A SERVICE BUREAU OR LIKE ACTIVITY WHEREBY CUSTOMER, WITHOUT PURCHASING A LICENSE FROM VERITAS, OPERATES OR USES THE LICENSED SOFTWARE OR DOCUMENTATION FOR THE BENEFIT OF A THIR D PARTY WHO HAS 9 IT7513/MUM/2010 NOT PURCHASED A COPY OF THE LICENSED SOFTWARE; OR ( E) USE OF THE LICENSED SOFTWARE OR DOCUMENTATION BY ANY PARTY OTH ER THAN CUSTOMER. IN ADDITION, CUSTOMER MAY ONLY USE THE LI CENSED SOFTWARE ON A HOST BASED DEVICE THAT IS THE DESIGNA TED COMPUTER TO WHICH SUCH LICENSED SOFTWARE IS LICENSED. IN ADDITI ON, CUSTOMER SHALL USE THE LICENSED SOFTWARE ONLY ON THE DESIGNA TED COMPUTERS FOR WHICH IT HAS PURCHASED AN APPROPRIATE NUMBER AN D LEVEL OF LICENSES AND SHALL NOT USE ANY LICENSED SOFTWARE TO CREATE OR MANAGE MORE DEVICES (REAL OR VIRTUAL) THAN THE NUMB ER OF DEVICES FOR WHICH VERITAS HAS RECEIVED CORRESPONDIN G LICENSE FEES. 4. OWNERSHIP VERITAS RETAINS ALL RIGHT, TITLE AND INTEREST IN TH E LICENSED SOFTWARE AND DOCUMENTATION AND IN ALL COPIES, IMPROVEMENTS, ENHANCEMENTS, MODIFICATIONS AND DERIVATIVE WORKS OF THE LICENSED SOFTWARE OR DOCUMENTATION INCLUDING, WITHO UT LIMITATION, ALL PATENT, COPYRIGHT, TRADE SECRET AND TRADEMARK RIGHTS. 14. PERUSAL OF THIS AGREEMENT SUGGESTS THAT NEITHER THERE WAS ANY TRANSFER OF COPYRIGHT NOR THE VENDOR HAS GIVEN ANY PERMISSION F OR COMMERCIAL EXPLOITATION OF THE COPYRIGHT OF THE SOFTWARE. NO SOURCE CODES ETC HAVE BEEN SUPPLIED BY THE VENDOR TO THE ASSESSEE. THERE IS NO PERMISSION GIVEN TO THE ASSESSEE TO MAKE ANY MODIFICATION OR RE-ENGINEERING OF THE SOFT WARE, WHICH WAS SUPPLIED FOR THE LIMITED PURPOSE OF INTERNAL USE OF THE ASSE SSEE. OWNERSHIP WITH REGARD TO TITLE AND INTEREST IN THE LICENSED SOFTWARE IS R ETAINED BY THE SUPPLIER. IT IS NOTED THAT LD. CIT(A) HAS ALSO GONE THROUGH VARIOUS AGREEMENTS AND THEREAFTER RECORDED FOLLOWING OBSERVATIONS AT PAGE 9 OF HIS OR DER:- 3.6.1.4. BASED ON THE GENERAL TERMS OF SOFTWARE PUR CHASE AGREEMENT, APPELLANT SUBMITTED THAT PAYMENTS MADE BY THE COMPANY FOR ACQUIRING SOFTWARE FOR ITS OWN USE IS N OT 'ROYALTY' AS DEFINED UNDER THE ACT AS WELL AS THE RELEVANT AP PLICABLE TREATY FOR THE FOLLOWING REASONS: COMPUTER SOFTWARE CAN ONLY BE COVERED UNDER CLAUSE (V) OF EXPLANATION 2 TO SECTION 9(1)(VI) UND ER 10 IT7513/MUM/2010 'COPYRIGHT' SINCE COMPUTER SOFTWARE IS A LITERARY WORK' UNDER THE COPYRIGHT ACT, 1957 OF INDIA. NO COPYRIGHT RIGHT IS GIVEN WITHIN THE MEANING OF SECTION 14 OF THE COPYRIGHT ACT SINCE THE APPELLANT DOES NOT HAVE ANY RIGHT TO REPRODUCE, ISSUE COPIES OF THE PROGRAM TO THE PUBLIC TO SELL THE PROGRAM OR GIVE IT ON COMMERCIAL RENT, ETC. ALL THE TITLE AND RIGHTS IN THE SOFTWARE REMAIN WITH THE SELLER. THE APPELLANT HAS A PERPETUAL LICENSE WHICH IS AKIN TO A PURCHASE OF A PRODUCT/GOODS. THE AMOUNT PAYABLE BY THE APPELLANT TO THE SELLER IS FOR TRANSFER OF A COPYRIGHTED ARTICLE AND NOT TRANSFER OF A COPYRIGHT PER SE. IN ANY CASE, PAYMENT FOR PURCHASE OF SOFTWARE FOR THE PURPOSE OF TRADING CANNOT BE REGARDED AS PAYMENT OF ROYALTY. 15 . FINALLY, AFTER ANALYZING THE FACTS OF THIS CAS E AND LEGAL POSSESSION APPLICABLE AT THAT TIME, IT WAS HELD BY LD. CIT(A) THAT THE AMOUNT PAID BY THE ASSESSEE FOR PURCHASE OF AFORESAID SOFTWARE WOULD N OT FALL WITHIN THE DEFINITION OF ROYALTY AS ENVISAGED UNDER THE LAW AND WAS THU S NOT TAXABLE IN THE HANDS OF THE PAYEE IN INDIA IN ABSENCE OF THERE BEING ANY PE OF THE VENDORS IN INDIA. RELEVANT PORTION OF HIS FINDINGS IS REPRODUCED BELO W:- 3.8.16. I HAVE CONSIDERED THE CONTENTIONS OF THE A PPELLANT, FACTS OF THE CASE AS WELL AS THE CONTENTIONS OF THE LD. ADDL. CIT IN THIS REGARD. I AGREE WITH THE CONTENTIONS PUT FORTH BY THE APPELLANT THAT THE PAYMENT TOWARDS PURCHASE OF SOFTWARE PRODUCT IS PAYMENT FOR COPYRIGHTED ARTICLE AND HENCE, IT ONLY REPRESENTED THE PURCHASE PRICE OF AN ARTICLE AND COULD NOT BE CONSIDERED AS ROYALT Y EITHER UNDER THE ACT OR UNDER THE ACT OR UNDER THE DTAA. IT IS PURE LY IN THE NATURE OF BUSINESS INCOME AND IN THE ABSENCE OF PERMANENT EST ABLISHMENT (PE) IN INDIA OF THE NON-RESIDENT (NRS) PAYEES, THE AMOU NT TO REMITTED TO NRS ARE NOT CHARGEABLE TO TAX. 11 IT7513/MUM/2010 RELYING ON THE RECENT DECISIONS IN THE CASE OF VA N OORD ACZ INDIA (P) LTD AND PRASAD PRODUCTION LTD(SUPRA) AND THE CONTENTIONS OF THE APPELLANT, I AGREE WITH THE VIEW THAT WITHHOLDI NG TAX OBLIGATION ON PAYER APPLIES ON PAYMENTS TO NON-RESIDENTS ONL Y IF THERE IS INCOME CHARGEABLE TO TAX IN INDIA. ACCORDINGLY, TH ERE WAS NO OBLIGATION OF THE APPELLANT TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT, FROM MAKING REMITTANCES TO NON-RESIDENT S. IN VIEW OF ABOVE, I AGREE WITH THE APPELLANTS CO NTENTION THAT NO TAX WAS DEDUCTIBLE ON THE SAME AND ACCORDINGLY, NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) OF THE ACT. 16. NOTHING WRONG COULD BE POINTED OUT BY THE LD. CIT(D R) IN THE WELL REASONED FINDINGS RECORDED BY THE LD. CIT(A). FUR THER, WE HAVE ALSO EXAMINED THE LATEST LEGAL POSITION IN THIS REGARD ON THE BAS IS OF JUDGMENTS RELIED UPON THE LD. SENIOR COUNSEL BEFORE US. IT IS NOTED THAT IN T HE CASE OF SHINHAN BANK VS DDIT (SUPRA) SIMILAR SITUATIONS AROSE BEFORE THE MUMBAI BENCH OF THE TRIBUNAL WHEREIN THE AO HAD DISALLOWED THE DEDUCTIONS CLAIME D BY THE ASSESSEE ON ACCOUNT OF PAYMENT MADE FOR PURCHASE OF SOFTWARE U/ S 40(A)(I) FOR NON DEDUCTION OF TAX AT SOURCE U/S 195 BY THE SAID ASSE SSEE. HONBLE BENCH EXAMINED LATEST LEGAL POSITION IN THIS REGARD AND H ELD THAT IMPUGNED PAYMENTS WERE NOT LIABLE TO THE TAXED AS ROYALTY IN THE HA NDS OF PAYEES (I.E. SUPPLIERS) AND THEREFORE, NO TAX WAS REQUIRED TO BE DEDUCTED A T SOURCE AND THUS NO DISALLOWANCE COULD HAVE BEEN MADE U/S 40(A)(I), BY OBSERVING AS FOLLOWS:- 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER. THE PAYMENT TOWARDS SOFTWARE CHARGES TO 'M/S. COMAS INC' FOR PR OCUREMENT OF SOFTWARE HAS BEEN TREATED AS 'ROYALTY' BY THE AO . REVENUE'S STAND BEFORE US IS THAT, NOW IN THE WAKE OF EXPLANA TION 4 TO SECTION 9(1 )(VI) THE PAYMENT ON ACCOUNT OF COMPUTE R SOFTWARE INCLUDING GRANTING OF LICENSE WHICH HAS BEEN BROUGH T IN THE STATUTE BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 BRINGS SUCH TYPE OF PAYMENT WITHIN THE SCO PE AND 12 IT7513/MUM/2010 AMBIT OF ENLARGED DEFINITION OF 'ROYALTY'. ADMITTED LY, AT THE TIME OF PAYMENT TO 'M/S. COMAS INC' FOR THE SOFTWAR E CHARGES IN MAY 2008 BY THE ASSESSEE THERE WAS NO SUCH PROVISIO N UNDER THE ACT THAT TRANSFER OF ANY RIGHT FOR USE OR RIGHT TO USE THE COMPUTER SOFTWARE INCLUDED GRANTING OF LICENSE IRRE SPECTIVE OF MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED WAS NOT THERE IN THE STATUTE. THE CASE OF THE ASSESSEE HAS BEEN THAT IT HAS ONLY PURCHASED SOFTWARE FOR ITS BANKING BUSINESS AND LIC ENSE WAS GIVEN ONLY FOR USING THE SOFTWARE. THERE IS NO TRAN SFER OF ANY COPYRIGHT ALBEIT IT WAS THE TRANSFER OF THE COPYRIG HTED ARTICLE. WITHOUT GOING INTO THE MERITS WHETHER THE SAID PAYM ENT WILL FALL WITHIN THE NATURE OF 'ROYALTY' UNDER THE NEWLY AMEN DED PROVISION BROUGHT WITH RETROSPECTIVE EFFECT OR NOT, WE ARE OF THE OPINION THAT, AT THE TIME OF MAKING OF THE PAYMENT THERE WAS NO SUCH PROVISION UNDER THE LAW TO TAX SUCH PAYMENT OF COMPUTER SOFTWARE AS 'ROYALTY'. IN FACT, AS POINTED OUT BY T HE ID. CIT (A), THE DECISION OF SPECIAL BENCH IN THE CASE OF 'MOTOR OLA INC' (SUPRA) WAS THERE WHEREIN IT WAS HELD THAT IF THE LICENSEES JS NOT ALLOWED TO EXPLOIT THE COMPUTER SOFTWARE COMMERCIAL ]) , WHICH THEY HAD ACQUIRED REQUIRED UNDER THE LICENSE AGREEM ENT AND ONLY THE COPYRIGHTED SOFTWARE WHICH BY ITSELF WAS AN ART ICLE AND NOT ANY COPYRIGHT THEREIN, THEN, THE PAYMENT MADE FOR C OP Y RIGHTED ARTICLE WHICH REPRESENTED THE PURCHASE PRICE CANNOT BE CONSIDERED AS 'ROYALTY' UNDER THE PROVISIONS OF SEC TION 9(1 )(VI) OF THE ACT. ONCE THAT IS SO, THEN IT IS VERY DIFFIC ULT TO HOLD THAT THE ASSESSEE SHOULD HAVE DEDUCTED TDS ON SUCH PAYME NT WHEN THERE WAS NO CLEAR-CUT LAW THAT SUCH A PAYMENT WOUL D BE TAXABLE IN INDIA. HERE, THE MAXIM OF 'LEX NON COGIT AD IMPOSSPLIA, THAT IS, THE LAW OF THE POSSIBLY COMPELLING A PERSO N TO DO SOMETHING WHICH IS IMPOSSIBLE, THAT IS, WHEN THERE IS NO PROVISION FOR TAXING AN AMOUNT IN INDIA THEN HOW IT CAN BE EXPECTED THAT TAX SHOULD BE DEDUCTED ON SUCH A PAY MENT. THIS VIEW HAS BEEN UPHELD BY THE ITAT MUMBAI BENCH IN TH E CASE OF CHANNEL GUIDE INDIA LID (SUPRA) AND CATENA OF OTHER DECISIONS AS CITED BY ID. COUNSEL, WHEREIN IT HAS BEEN HELD THAT , ASSESSEE CANNOT HELD TO BE LIABLE FOR DEDUCTING TDS IN VIEW OF THE RETROSPECTIVE AMENDMENT WHICH HAS COME AT A MUCH LA TER DATE. THUS, WE HOLD THAT THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TDS AT THE TIME OF MAKING THE PAYMENT AND THE LAW WHICH HA S COME INTO STATUTE AFTER FOUR YEARS FROM THE DATE OF PAYMENT C ANNOT BE HELD 13 IT7513/MUM/2010 TO BE APPLIED RETROSPECTIVELY AT BEST FOR DEDUCTION OF TDS. THUS WE HOLD THAT DISALLOWANCE U/S. 40(A)(I) FOR NO N-DEDUCTION OF TDS CANNOT BE UPHELD. SO FAR AS THE RELIANCE PLA CED BY THE ID. DR IN THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF 'SAMSUNG ELECTRONICS CO. LTD.' (SUPRA), WE FIND THA T THE HONBLE DELHI HIGH COURT IN SEVERAL CASES LIKE, DITV. NOKIA NETWORKS AND DIT VS.INFRASOFT LTD. HAS CONSIDERED THE SAID ISSUE AND HAS NOT FOLLOWED THE RATIO LAID DOWN BY THE KARNATAKA HIGH COURT IN 'SAMSUNG ELECTRONICS CO. LTD. ' (SUPRA). SINCE, THE DELHI HIGH COURT IS THE LATEST DECISION, WHEREIN THE DECISION OF HON 'BLE KARNATAKA HIGH COURT HAS BEEN CONSIDERED, THEREFORE , WE ARE INCLINED TO FOLLOW THE SAME. THE FINDINGS OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF INFRASOFTWARE LTD. (SUPRA) ARE REPRODUCED BELOW: '97. WHAT IS TRANSFERRED IS NEITHER THE COPYRIGHT I N THE SOFTWARE NOR THE USE OF THE COPYRIGHT IN THE SOFTWA RE, BUT WHAT IS TRANSFERRED IS THE RIGHT TO USE THE COPYRIG HTED MATERIAL OR ARTICLE WHICH IS CLEARLY DISTINCT FROM THE RIGHTS IN A COPYRIGHT. THE RIGHT THAT IS TRANSFERRED IS NOT A RIGHT TO USE THE COPYRIGHT BUT IS ONLY LIMITED TO THE RIGHT TO U SE THE COPYRIGHTED MATERIAL AND THE SAME DOES NOT GIVE RIS E TO ANY ROYALTY INCOME AND WOULD BE BUSINESS INCOME. 98. WE ARE NOT IN AGREEMENT WITH THE DECISION OF TH E KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRO NICS CO. LID. (SUPRA) THAT RIGHT TO MAKE A COPY OF THE SOFTW ARE AND STORING THE SAME IN THE HARD DISK OF THE DESIGNATED COMPUTER AND TAKING BACKUP COPY WOULD AMOUNT TO COPYRI G HT WORK UNDER SECTION 14(1) OF THE COPYRIGHT ACT AND THE PAYMENT MADE FOR THE GRANT OF THE LICENCE FOR THE SAID PURP OSE WOULD CONSTITUTE ROYALTY. THE LICENSE GRANTED TO TH E LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAMME AND STORING IT IN THE COMPUTER FOR HIS OW N USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNA L BUSINESS PURPOSE. THE SAID PROCESS WAS NECESSARY TO MAKE THE PROGRAMME FUNCTIONA1 AND TO HAVE ACCESS TO IT AND I S QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPLATED BY THE SAID PROVISION BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. THE RIGHT TO MAKE A BACKUP COP Y 14 IT7513/MUM/2010 PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DEST RUCTION OR DAMAGE HAS BEEN HELD BY THE DELHI HIGH COURT IN NOK IA NETWORKS OY (SUPRA) AS NOT AMOUNTING TO ACQUIRING A COPYRIGHT IN THE SOFTWARE.' THUS, RESPECTFULLY FOLLOWING THE PROPOSITION LAID D OWN BY THE HON'BLE DELHI HIGH COURT, WE HOLD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON SUCH PAYMENT. THEREFORE, NO DISALLOWANCE U/S. 40(A)(I) IS CALLED FOR IN THE PRE SENT CASE. 17. IT MAY BE NOTED FROM THE ABOVE THAT HONBLE BENCH H AS ALSO CONSIDERED AND DISTINGUISHED THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD (SUPRA). IT IS NOT ED AT THE COST OF REPETITION THAT THE CASE BEFORE US IS ADMITTEDLY THAT OF PURCH ASE OF SHRINK WRAPPED SOFTWARE. IDENTICAL SITUATION CAME UP BEFORE HONBLE MADRAS HIGH COURT IN A RECENT JUDGMENT IN THE CASE OF CIT VS VINZAS SOLUTIONS INDIA (P) LTD (SUPRA) WHEREIN THE DEPARTMENT INVOKED PROVISIONS OF SECTIO N 40(A)(I) BY TREATING THE AMOUNT OF PURCHASE OF SOFTWARE AS ROYALTY UNDER E XPLANATIONS 4 AND 5 OF SECTION 9(1)(VI) OF THE ACT AND THE ASSESSEE IN THE SAID CASE WAS A DEALER ENGAGED IN BUYING AND SELLING OF SOFTWARE PRODUCTS IN THE OPEN MARKET. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE HON BLE HIGH COURT THAT THE TRANSACTION IN QUESTION WAS ONE OF PURCHASE AND SAL E OF PRODUCT AND NOTHING MORE. AFTER ANALYSING THE ENTIRE SITUATION, HONBLE HIGH COURT ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD AS UNDER:- 4. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 9(1)(VI) DEALING WITH AND DEFINING ROYALTY CANNOT BE MADE APPLICAB LE TO A SITUATION OF OUTRIGHT PURCHASE AND SALE OF A PRODUCT. THE CO RPUS JURIS SECUNDUM UNDERSTANDS ROYALTY THUS: THE WORD ROYALTY MEANS A SHARE OF THE PRODUCT OR PROFIT RESERVED BY THE OWNER FOR PERMITTING ANOTHER TO USE THE PROP ERTY, THE SHARE OF THE PRODUCTION OR PROFIT PAID TO THE OWNER; A SHARE OF THE PRODUCT OR PROCEEDS THEREFROM RESERVED TO THE OWNER FOR PERMIT TING THE ANOTHER TO USE THE PROPERTY; THE SHARE OF THE PRODUCE RESER VED TO THE OWNER 15 IT7513/MUM/2010 FOR PERMITTING ANOTHER TO EXPLOIT AND USE THE PROPE RTY; A SHARE OF THE PROFIT, RESERVED BY THE OWNER FOR PERMITTING ANOTHE R TO USE THE PROPERTY; THE AMOUNT RESERVED OR THE RENTAL TO BE P AID THE ORIGINAL OWNER OF THE WHOLE ESTATE. 5. THE MADRAS HIGH COURT IN CIT VS NEYVELI LIGNITE CORPORATION LTD., REPORTED IN 243 ITR 458 STATES THUS EXPLAININ G THE CONCEPT OF ROYALTY:- 'THE TERM ROYALTY' NORMALLY CONNOTES THE PAYMENT M ADE BY A PERSON WHO HAS EXCLUSIVE RIGHT OVER A THING FOR ALL OWING ANOTHER TO MAKE USE OF THAT THING WHICH MAY BE EITHER PHYSI CAL OR INTELLECTUAL PROPERTY OR THING. THE EXCLUSIVITY OF THE RIGHT IN RELATION TO THE THING FOR WHICH ROYALTY IS PAID SHOULD BE WI TH THE GRANTOR OF THAT RIGHT. MERE PASSING OF INFORMATION CONCERNI NG THE DESIGN OF A MACHINE WHICH IS A TAILOR-MADE TO MEET THE REQUIREMENT OF A BUYERS DOES NOT BY ITSELF AMOUNT T O TRANSFER OF ANY RIGHT OF EXCLUSIVE USER, SO AS TO RENDER THE PA YMENT MADE THEREFORE BEING REGARDED AS 'ROYALTY' 6. COURTS HAVE CONSISTENTLY NOTED THE DIFFERENCE BE TWEEN A TRANSACTION OF SALE OF A 'COPYRIGHTED ARTICLE' AND ONE OF 'COPYRIGHT' ITSELF. SEE TATA CONSULTANCY SERVICES V. STATE OF A NDHRA PRADESH [2004] 271 LTR 401 [SC] ; SUNDWIGER EMFG [2004] 266 ITR 11 0 ; DASSAULT SYSTEMS K.K., IN RE, [2010] 229 CTR 125 [A AR] ; ISRO SATELLITE CENTRE [ISAC], IN RE [2008] 307 ITR 59 [A ARJ AND ASIA SATELLITE TELECOMMUNICATIONS CO. V. DIT [20111 332 ITR 340 [DELHI]. 7. THE PROVISIONS OF SECTION 9(1)(VI) AS A WHOLE, W OULD STAND ATTRACTED IN THE CASE OF THE LATTER AND NOT THE FOR MER. EXPLANATIONS 4 AND 7 RELIED BY THE AUTHORITIES WOULD THUS HAVE T O BE READ AND UNDERSTOOD ONLY IN THAT CONTEXT AND CANNOT BE EXPAN DED TO BRING WITHIN ITS FOLD TRANSACTION BEYOND THE REALM OF THE PROVISION. THE TRIBUNAL HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THE DELHI HIGH COURT IN THE CASE OF THE PRINCIPAL COMMI SSIONER OF INCOME TAX VS M TECH INDIA PVT LID, WHICH SUPPORTS OUR VIE W AS ABOVE. IT IS BROUGHT TO OUR NOTICE THAT THE DECISION OF THE DELH I HIGH COURT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN SLP IS P ENDING. BE THAT AS IT MAY, IN VIEW OF THE FACTS AND CIRCUMSTAN CES AS OBSERVED ABOVE, WE HAVE NO HESITATION IN DISMISSING THE DEPA RTMENTAL APPEAL ANSWERING THE QUESTIONS OF LAW IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. I - 16 IT7513/MUM/2010 18 . IT IS ALSO NOTED BY US THAT IDENTICAL VIEW HAD BEEN TAKEN BY HONBLE DELHI HIGH COURT IN HIS JUDGMENT PASSED IN THE CASE OF PCIT VS M.TECH INDIA P.LTD (SUPRA) WHEREIN AFTER CONSIDERING THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LT D.(SUPRA), IT WAS HELD THAT IN CASE WHERE AN ASSESSEE ACQUIRES THE RIGHT TO USE A SOFTWARE, THE PAYMENT SO MADE WOULD AMOUNT TO ROYALTY; HOWEVER, IN CASES WHERE THE PAYMENTS ARE MADE FOR PURCHASE OF SOFTWARE AS PRODUCT, THE CONSI DERATION PAID CANNOT BE CONSIDERED TO BE FOR USE OR RIGHT TO USE THE SOFTWA RE. IT WAS ALSO HELD THAT WHERE THE SOFTWARE IS HELD AS A PRODUCT IT WOULD AM OUNT TO SALE OF GOODS AND THUS CONSIDERATION PAID FOR PURCHASE OF GOODS CANNO T BE CONSTRUED AS ROYALTY. IT WAS OBSERVED THAT THERE WAS CLEARLY A DISTINCTIO N BETWEEN THE CASES WHERE CONSIDERATION WAS PAID TO ACQUIRE THE RIGHT TO USE A PATENT OR A COPYRIGHT AND CASES WHERE PAYMENT WAS MADE TO ACQUIRE PATENTED OR A COPYRIGHTED PRODUCT/MATERIAL. IN THE LATTER CASE, THE CONSIDER ATION PAID WOULD HAVE TO BE TREATED AS PAYMENT FOR PURCHASE OF PRODUCT RATHER T HAN CONSIDERATION FOR USE OF PATENT OR COPYRIGHT. OUR ATTENTION WAS ALSO DRA WN ON THE DECISIONS TAKEN BY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF QAD EUROPE B.V. VS. DDIT (SUPRA) WHICH HAS BEEN AUTHORED BY ONE OF US (I.E. ACCOUNTA NT MEMBER) WHEREIN DETAILED DISCUSSION HAS BEEN MADE ON THE ISSUE BEFO RE US AND AFTER ANALYSING THE LAW, IT WAS HELD THAT THE PAYMENT MADE FOR PURC HASE OF SOFTWARE FOR INTERNAL USE WOULD NOT AMOUNT TO PAYMENT FOR ROYAL TY AS ENVISAGED UNDER THE LAW. IT IS NOTED THAT FOLLOWING OBSERVATION OF THE BENCH MAY BE USEFUL HERE:- NOW, IF WE ANALYSE AND COMPARE VARIOUS PROVISIONS OF THE COPYRIGHT ACT WITH THE RELEVANT CLAUSES OF THE MASTER AGREEME NT, IT IS NOTED THAT THE SAID AGREEMENT DOES NOT PERMIT HLL TO CARR Y OUT ANY ALTERATION OR CONVERSION OF ANY NATURE, SO AS TO FA LL WITHIN THE DEFINITION OF ADAPTATION AS DEFINED IN COPYRIGHT ACT, 1957. THE RIGHT GIVEN TO THE CUSTOMER FOR REPRODUCTION WAS ONLY FOR THE LIMITED PURPOSE SO AS TO MAKE IT USABLE FOR ALL THE OFFICES OF HLL IN INDIA AND 17 IT7513/MUM/2010 NO RIGHT WAS GIVEN TO HLL FOR COMMERCIAL EXPLOITATI ON OF THE SAME. IT IS ALSO NOTED THAT THE TERMS OF THE AGREEMENT DO NO T ALLOW OR AUTHORISE HLL TO DO ANY OF THE ACTS COVERED BY THE DEFINITION OF COPYRIGHT. UNDER THESE CIRCUMSTANCES, THE PAYMENT MADE BY HLL CANNOT BE CONSTRUED AS PAYMENT MADE TOWARDS USE O F COPYRIGHT PARTICULARLY WHEN THE PROVISIONS OF INDIAN INCOME-T AX ACT AND DTAA ARE READ TOGETHER WITH THE PROVISIONS OF THE COPYRI GHT ACT, 1957. 17. FURTHER, IT IS ALSO NOTED BY US THAT DTAAS OF F EW COUNTRIES MAKE A SPECIFIC MENTION THAT PAYMENT MADE FOR SOFTWARE WOU LD BE INCLUDED WITHIN THE DEFINITION OF ROYALTY. REFERENCE CAN B E MADE TO THE DTAA WITH MALAYASIA, ROMANIA, KAZAKHISTAN AND MOROCCO. H OWEVER INDIA NETHERLANDS DTAA DOES NOT INCLUDE SOFTWARE WHILE DE FINING ROYALTY. UNDER THESE CIRCUMSTANCES, WE FIND THAT IT WOULD BE DIFFICULT TO CHARACTERISE THE PAYMENT RECEIVED BY THE ASSESSEE O N ACCOUNT OF SALE OF SOFTWARE AS PAYMENT RECEIVED ON ACCOUNT OF ROYA LTY. 19. IT IS FURTHER NOTED BY US THAT IDENTICAL VIEW HAS BEEN TAKEN IN VARIOUS OTHER JUDGMENTS AS HAVE BEEN RELIED UPON BY THE LD. SENIO R COUNSEL WHICH ARE NOT BEING REPEATED HERE, FOR THE SAKE OF BREVITY. 20. IT IS ALSO NOTED THAT RECENTLY MUMBAI BENCH OF ITAT HAS TAKEN IDENTICAL VIEW IN THE CASE OF DDIT VS SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV (IN ITA NO 5051/MUM/2009 ORDER DT 15 TH MARCH, 2017), WHEREIN ENTIRE LAW AVAILABLE AS ON DATE HAS BEEN DISCUSSED IN DETAIL A ND IT WAS HELD THAT AMOUNT PAID FOR PURCHASE OF SOFTWARE PRODUCT WOULD NOT FAL L WITHIN THE DEFINITION OF ROYALTY. THE BENCH RELIED IN EXTENSO UPON THE JUD GMENTS OF HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS INFRASOFT LTD, SUPRA AN D DIT VS NEW SKIES SATELLITE LTD 95 CCH 0032. 21. THUS, TAKING INTO ACCOUNT TOTALITY OF FACTS AND CI RCUMSTANCES OF THE CASE AND LEGAL POSITION AS DISCUSSED ABOVE, WE FIND THAT IT WAS RIGHTLY HELD BY LD. CIT(A) THAT TDS WAS NOT REQUIRED TO BE DEDUCTED IN THIS C ASE. THEREFORE, DISALLOWANCE MADE BY AO BY INVOKING PROVISIONS OF S ECTION 40(A)(I) HAS BEEN RIGHTLY DELETED BY LD. CIT(A). NO INTERFERENCE IS C ALLED FOR IN HIS ORDER AND 18 IT7513/MUM/2010 THEREFORE, THE SAME IS UPHELD. 22. AS A RESULT, AFORESAID GROUND NO 3 RAISED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF HEARING. . SD/- SD/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 23 .03.2017 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , KBENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES