DDIT (IT) 3(1), MUMBAI V. GUJRAT PIPAVAV PORT LATD, MUMBAI

ITA 7823/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8635 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 20-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment; Competent authority
• Section: 90; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH L,MUM BAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.7823/MUM/2010 FOR (ASSESSMENT YEAR : 2007-08 ) DDIT(IT)- 3(1), ROOM NO. 136, 1 ST FLOOR, SCINDIA HOUSE, N. M. ROAD, BALLARD ESTATE, MUMBAI-400038. VS. GUJRAT PIPAVAV PORT LTD. 301, TRADE CENTRE, B.K.C., BANDRA (E), MUMBAI- 400051. PAN: AAACG6975B (APPELLANT) (RESPONDENT) REVENUE BY : SHRI JABIR CHAUHAN WITH SAMBIT MISHRA (DR) ASSESSEE BY : SHRI KIRAN J. NIS AR (AR) DATE OF HEARIN G : 29.11.2016 DATE OF PRONOUNCEMENT : 10.02.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THE PRESENT APPEAL IS FILED BY REVENUE U/S 253 OF T HE INCOME-TAX ACT, AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) [FOR SHORT THE CIT(A)] 10, MUMBAI DATED 10.08.2010 FOR ASSESSMENT YEAR (AY) 20 07-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY, ENGAGED IN THE BUSINESS OF DEVELOPING, CONSTRUCTING, OPERATING AND MAINTAIN ING THE PORT ON A BUILD OWN OPERATE TRANSFER (BOOT) BASIS, FILED AN APPLICATION BEFORE THE ASSESSING OFFICER (AO) U/S 195(2) ON 07.01.2010. IN THE APPLICATION ASSESSEE CONTENDED THAT THEY ENTERED INTO AGREEMENT DATED 30.09.2009 WITH ZEBRA ENTERPRISE SOLUTIONS, LLC (ZES) FOR PROCUREMENT OF CERTAIN STANDARDIZED PROPR IETARY SOFTWARE IN THE FORM OF A FULLY INTEGRATED SOLUTION FOR PORT OPERATIONS. TH E ASSESSEE FURTHER CONTENDED THAT ZES IS TAX RESIDENT OF THE UNITED STATES OF AMERICA (USA) AND IT DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. ACCORDING TO ASSESSEE THE LICENSE FEES PAYABLE TO ZES DOES NOT FALL WITHIN THE AMBIT OF RO YALTY AS PER THE PROVISIONS OF 2 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AS WEL L AS ARTICLE 12 OF DTAA BETWEEN INDIA AND USA. THE ASSESSEE FURTHER CONTEND ED THAT TAX IS NOT REQUIRED TO BE WITHHELD ON THE PAYMENTS MADE TO ZES UNDER THE P ROVISIONS OF ACT AS WELL AS UNDER THE DTAA. ON THE APPLICATION, THE AO PASSED O RDER HOLDING THAT THE LICENSE FEES PAYABLE TO ZES CAN BE CONSIDERED AS ROYALTY AS PER THE EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AS WELL AS ARTICLE 12 O F DTAA. THEREFORE, THE INCOME EARNED BY ZES IS TAXABLE IN INDIA. THE AO WHILE PAS SING ORDER RELIED UPON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF SAM SUNG ELECTRONICS COMPANY LIMITED DATED 24.09.2009. THE AO FURTHER OBSERVED T HAT SECTION 90(2) OF THE ACT PROVIDES THAT THE ASSESSEE SHALL BE TAXED UNDER THE PROVISIONS OF THE ACT OR UNDER THE PROVISIONS OF TAX TREATY WHICHEVER IS MORE BENE FICIAL TO THEM. AS PER DTAA THE TAX RATE IS15% WHEREAS THE INCOME-TAX PROVIDE 1 0%, THEREFORE, ASSESSEE WAS DIRECTED TO DEDUCT TAX @ 10% (+ APPLICABLE SURCHARG E) VIDE ORDER DATED 23.03.2010. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED AP PEAL BEFORE THE LD. CIT(A) U/S 248 OF THE ACT. THE APPEAL OF THE ASSESSEE WAS ALLO WED BY LD. CIT(A) HOLDING THAT AO WAS NOT JUSTIFIED IN DIRECTING THE ASSESSEE TO DEDUCT TDS @ 10% ON THE PAYMENT TO ZES TREATING IT IN THE NATURE OF ROYALTY . THE LD. CIT(A) FURTHER HOLD THAT THE PAYMENT UNDER CONSIDERATION IS IN THE NATU RE OF BUSINESS INCOME OF ZES. SINCE, THE ZES HAS NO PERMANENT ESTABLISHMENT (PE) IN INDIA, THE CONSIDERATION PAID IS NOT TAXABLE IN INDIA. THUS, AGGRIEVED BY TH E ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. LD DEPARTMENTAL REPRESENTATIV E (DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) FOR ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, LD. AR OF ASSES SEE SUBMITTED THAT THE GROUNDS OF APPEAL RAISED IN THE PRESENT APPEAL BY REVENUE A RE COVERED BY VARIOUS DECISIONS OF TRIBUNAL AGAINST THE REVENUE. ON THE O THER HAND, THE LD. DR FOR THE REVENUE DISPUTED THE CONTENTION OF LD. AR AND WOULD ARGUE THAT THE FACTS OF THE PRESENT CASE ARE DIFFERENT AND THE GROUNDS OF APPEA L RAISED BY REVENUE ARE NOT COVERED. 3 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. 5. IN REJOINDER ARGUMENTS THE LD AR FOR THE ASSESSEE A RGUED THAT ASSESSEE ENTERED INTO AGREEMENT WITH ZES ON 13 SEPTEMBER 2009 FOR PR OCUREMENT OF CERTAIN STANDARDIZED PROPRIETARY SOFTWARE (ZES SOFTWARE) IN THE FORM OF A FULLY INTEGRATED SOLUTION FOR PORT OPERATION. ZES IS A COMPANY WHICH IS A TAX RESIDENT OF UNITED STATES OF AMERICA (USA) AND IT DOES NOT HAVE ANY PE RMANENT ESTABLISHMENT (PE) IN INDIA. AS PER THE AGREEMENT THE ASSESSEE , ZES P ROVIDED THE ASSESSEE TO USE ITS SOFTWARE ON PERPETUAL, NON-EXCLUSIVE, KNOWN AS ASSI GNABLE, TERMINABLE AND KNOWN SUB LICENSABLE BASIS. ZES SOFTWARE IS A S HRINK WRAPPED OR OFF THE SHELF COPYRIGHTED PACKAGED SOFTWARE READILY AVAILA BLE AND WHICH HAS NOT BEEN CUSTOMIZED TO MEET SPECIFIC REQUIREMENT OF THE ASSE SSEE. THE ASSESSEE WILL HAVE NO RIGHT TO USE, COPY, AND DISPLAY OR PRINT THE SOF TWARE OR DOCUMENTATION IN WHOLE OR IN PART. SIMILARLY THE ASSESSEE IS PROHIBITED FR OM USING THE SOFTWARE ON A SERVICE BUREAU BASIS OR OTHERWISE PROVIDING DATA CA TCHING AND /OR MANAGEMENT FUNCTIONALITY TO THIRD PARTY EXCEPT OR OTHERWISE PE RMITTED IN THE AGREEMENT. THE SAID SOFTWARE HAS BEEN SOLD BY ZES TO MANY OTHER PO RTS OPERATOR IN AND OUTSIDE INDIA. THUS, THE CONSIDERATION RECEIVED ON SUPPLY O F SOFTWARE WITHOUT TRANSFER OF ANY COPYRIGHT IN IN BUSINESS INCOME OF ZES AND NOT ROYALTY. THE ASSESSEE IS LIABLE TO PAY ON CROSS BASIS AS ASSESSEE IS HAS TO BE A BI T TAX AND THUS THE APPLICATION UNDER SECTION 195(2) WAS FILED BY THE ASSESSEE. THE LD AR OF THE ASSESSEE FURTHER SUBMITTED THAT THE GROUNDS OF APPEAL RAISED BY REVE NUE PAGES SQUARELY COVERED AGAINST THE REVENUE BY THE DECISIONS OF COORDINATE BENCH IN M/S CAPGEMINI BUSINESS SERVICES INDIA LTD VERSUS ACIT IN ITA NO.7 779 /M 2011 DATED 29 FEBRUARY 2016 AND IN THE DDIT VS M/S RELIANCE INDUS TRIES LTD IN ITA NO(S) 1980, 1981, 1982, 1984 1986, 2523, 2529/M/2008 DATE D 18.05.2016. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. THE AO WHILE DECIDING T HE APPLICATION OF ASSESSEE UNDER SECTION 195(2) OBSERVED THAT LICENSE FEES PAY ABLE TO ZES CAN BE CONSIDERED AS ROYALTY AS PER THE PROVISIONS OF EXPLANATION 2 TO SECTION 9(1)(VI) AS WELL AS UNDER ARTICLE 12 OF DTAA BETWEEN INDIA AND USA AND INCOME EARNED BY ZES IS TAXABLE IN INDIA. THE AO RELIED UPON THE DECISION O F KARNATAKA HIGH COURT IN 4 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. CASE OF SAMSUNG ELECTRONICS CO LTD DATED 24 TH SEPTEMBER 2009. THE AO DIRECTED THE ASSESSEE TO DEDUCT THE TAX AT THE RATE OF 10% P LUS APPLICABLE SURCHARGES AS PER THE PROVISIONS OF INCOME TAX ACT. ON APPEAL BEFORE LD CIT(A), THE LEARNED CIT(A) HELD THAT PAYMENT UNDER CONSIDERATION IS IN THE NATURE OF BUSINESS INCOME OF ZES. AS THE ZES HAS NO PE IN INDIA, THUS, THE CO NSIDERATION PAID TO IT IS NOT TAXABLE INDIA AND GRANTED FULL RELIEF TO THE ASSESS EE. 7. AS PER OUR CONSIDERED OPINION THE ONLY ISSUE FOR OU R CONSIDERATION IS IF THE ASSESSEE IS LIABLE FOR THE PAYMENT TO ZES FOR THE U SE OF COPY RIGHT OR FOR COPYRIGHTED ARTICLE. OR IN OTHER WORDS THE PAYMENTS MADE TO ZES ARE ITS BUSINESS INCOME OR ROYALTY. THE LD.AR FOR THE ASSESSEE THROU GHOUT HIS SUBMISSION URGED THAT, ZES PROVIDED THE ASSESSEE A LICENSE TO USE IT S SOFTWARE ON PERPETUAL, NON- EXCLUSIVE, KNOWN AS ASSIGNABLE, TERMINABLE AND KNOW N SUB LICENSABLE BASIS. ZES SOFTWARE IS A SHRINK WRAPPED OR OFF THE SHELF C OPYRIGHTED PACKAGED SOFTWARE READILY AVAILABLE AND WHICH HAS NOT BEEN CUSTOMIZED TO MEET SPECIFIC REQUIREMENT OF THE ASSESSEE. THE ASSESSEE WILL HAVE NO RIGHT TO USE, COPY, AND DISPLAY OR PRINT THE SOFTWARE OR DOCUMENTATION IN WHOLE OR IN PART. SIMILARLY THE ASSESSEE IS PROHIBITED FROM USING THE SOFTWARE ON A SERVICE BUR EAU BASIS OR OTHERWISE PROVIDING DATA CATCHING AND /OR MANAGEMENT FUNCTION ALITY TO THIRD PARTY EXCEPT OR OTHERWISE PERMITTED IN THE AGREEMENT. THE AO HAS NO T BROUGHT ANY QUANTITY MATERIAL ON RECORD TO PROVE IT OTHERWISE. WE HAVE N OTICED THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN M/S CAPGEMINI BUSINESS SE RVICES INDIA LTD. VS. ACIT (SUPRA) CONSIDERED THE SIMILAR ISSUE AND MADE THE F OLLOWING OBSERVATION. 35 . --------- THOUGH, ON THE FACE OF IT MAY SEEM TO BE QUITE PLAUSIBLE OR REASONABLE, HOWEVER, WHEN WE EXAMINE THE NATURE OF THE TRANSACT IONS IN CASE OF SHRINK WRAPPED SOFTWARE, WE ARE OF THE VIEW THAT THE ABOVE CONTENTION IS NOT SO TRUE. IN OUR VIEW, IN CASE OF SHRINK WRAPPED SOFTWARE, WHAT IS SOLD IS THE CD ROM OR DISKETTE WRAPPED IN A TRANSPARENT COVER AND IN A PA PER PUT INSIDE THE COVER, THE CONDITIONS OF USE ALONG WITH RESTRICTIONS AND LIMIT ATIONS OF USE OF THE SAID ARTICLE/PRODUCT ARE MENTIONED. IN OUR VIEW, THE SAL E OF SUCH A CD ROM/DISKETTE IS NOT A LICENSE BUT IT IS A SALE OF A PRODUCT WHICH O F COURSE IS A COPYRIGHTED PRODUCT AND THE OWNER OF THE COPYRIGHT PUTS THE CONDITIONS AND RESTRICTIONS ON THE USE OF THE PRODUCT SO THAT HIS COPYRIGHTS IN THE COPYRIGHTED A RTICLE OR THE WORK, WHICH HAS BEEN WRITTEN ON SUCH CD ROM/DISKETTE, MAY NOT BE IN FRINGED. SUCH CONDITIONS, IN OUR VIEW, ARE NOT THE LICENSE TO USE THE PRODUCT. T HE PURCHASER GETS THE RIGHT TO USE 5 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. THE PRODUCT/DISKETTE ALONG WITH THE PROPERTY IN THE GOOD IN THE SHAPE OF WORK EMBEDDED OR WRITTEN IN IT WHEN THE SALE IS COMPLETE I.E. WHEN SUCH DISKETTE/COD ROM IS DELIVERED BY THE SELLER TO THE PURCHASER IN LIEU OF THE CONSIDERATION PAID TO HIM. THUS WHAT IS RESTRICTED BY THE SO CALLED AGREE MENT OR COMMONLY USED SOFTWARE LICENSE IS THAT THE USER WILL NOT INFRINGE THE COPY RIGHTS IN THE PRODUCT OF THE COPYRIGHT OWNER OF THE WORK. THE PURCHASER IS ALWAY S ENTITLED TO FAIR USE OF THE WORK WHICH HE HAS PURCHASED. THUS AT THE MOST, WHAT CAN BE SAID TO BE GRANTED UNDER SUCH A LICENSE IS THE RIGHT TO USE THE COPYRI GHTED WORK AND THE RIGHT TO USE THE COPYRIGHT ITSELF IN THE WORK. WHAT IS PROHIBITE D THROUGH THESE CONDITIONS IS ITS MISUSE WHICH MAY INFRINGE THE RIGHTS OF THE OWNER O F THE SOFTWARE E.G. THE PURCHASER OF THE PRODUCT MAY ATTEMPT AS IT IS EASY IN CASE OF SOFTWARE TO MAKE COPIES ETC. THESE LICENSE AGREEMENTS IN CASE OF SHR INK WRAPPED SOFTWARE ARE THUS THE CONDITIONS OF THE SALE OF THE PRODUCT AND CANNO T BE TERMED AS A GRANT OF LICENSE TO USE THE PRODUCT. 36. FURTHER, A QUESTION, WHICH NEE DS TO BE EXAMINED WHETHER THE STATUTORY RIGHTS OF THE PURCHASER/USER OF THE SOFTWARE CAN BE CURTAILED OR DONE AWAY BY THE TERMS OF THE ABOVE EXPLAINED SHRINK WRAPPED OR CLICK WRAPPED MASS LICENSES/ AGREEMENTS. FIRSTLY THERE ARE SEVERE DOUBTS ABOUT THE ENFORCEAB ILITY OF SUCH AGREEMENTS. IN THE SO CALLED INTERNET LICENSE AGREEMENT, THE END USER IS SUPPOSED TO CLICK THE ICON I AGREE WHICH MEANS THAT THE END USER HAS AGREED TO THE TERMS OF THE LICENSE AGREEMENT. HOWEVER, IT MAY BE NOTED THAT SUCH AGREE MENTS DO NOT ASK THE NAME OR ADDRESS OR OTHER DETAILS OF THE USER. IT IS NOT MEN TIONED IN SUCH TYPE OF AGREEMENTS THAT WHO IS USING THE PRODUCT. IT IS THE COMPUTER U PON WHICH SUCH SOFTWARE IS LOADED THAT CAN BE SAID TO HAVE AGREED TO ABIDE BY THE TERMS OF THE SOFTWARE LICENSE AS THE USER REMAINS UNIDENTIFIABLE. IN SUCH TYPE OF SOFTWARE LICENSES, THERE ARE CERTAIN INBUILT MECHANISM MADE BY THE BUYER PREVENT ING THE MISUSE OR INFRINGEMENT OF THE COPYRIGHT IN THE PRODUCT; THE MOMENT THE END USER ATTEMPTS TO VIOLATE SUCH CONDITIONS, SUCH SOFTWARE BECOMES INOPERATIVE ON TH E COMPUTER OR SOMETIMES ALSO DAMAGE THE OTHER DATA/APPLICATIONS ON THE COMPUTER. HOWEVER, FOR THE ENFORCEABILITY OF SUCH LICENSE AGREEMENT IT IS NOT KNOWN WHO IS ACTUAL USER OR WHICH PERSON ACTUALLY HAS VIOLATED THE TERMS OF THE AGREEMENT. SUPPOSE, IN CASE OF A COMPANY A PRODUCT IS PURCHASED BY THE STAFF OF TH E COMPANY, FOR ITS USE IN REGULAR COURSE OF WORK OR BUSINESS OF THE COMPANY AND AN EM PLOYEE OF THE COMPANY WHILE INSTALLING THE SOFTWARE ON THE COMPUTER IN THE OFFI CE OF THE COMPANY CLICKS THE BUTTON OR THE ICON I AGREE AND THEREAFTER SUCH AN EMPLOYEE OR ANY OTHER EMPLOYEE OF THE COMPANY VIOLATES ANY CONDITION OF THE LICENS E AGREEMENT, CAN SUCH LICENSE AGREEMENT BE ENFORCED AGAINST THE COMPANY OR THE DI RECTORS OF THE COMPANY CAN BE HELD LIABLE FOR ANY SUCH INFRINGEMENT, ESPECIALL Y WHEN THEY ARE NOT SIGNATORIES TO SUCH AN AGREEMENT AND NOR THEY HAVE AUTHORIZED A NY EMPLOYEE OF THE COMPANY TO SIGN ANY AGREEMENT ON BEHALF OF THE COMPANY AND EVEN NO NAME OF THE COMPANY IS EVEN WRITTEN IN SUCH TYPE OF AGREEMENT AND EVEN IT IS ALSO NOT KNOWN AS TO WHO ACTUALLY CLICKED THE BUTTON I AGREE. UNDER THESE CIRCUMSTANCES, THE ENFORCEABILITY OF SUCH A LICENSE IS HIGHLY DOUBTFUL. SO FAR AS THE LEGAL ENFORCEABILITY OF SUCH A LICENCE AGREEMENTS IS CONCERNED, IN SPITE OF THE FA CT THAT IT MAY FULFILL ALL THE REQUIREMENTS OF A VALID CONTRACT, SUCH AN AGREEMENT MAY NOT BE ENFORCEABLE, IF, ITS STIPULATIONS CONFLICT WITH THE LAW GOVERNED IN THE COUNTRY WHERE SUCH LICENSES ARE INTENDED TO BE ENFORCED, OR IF IT IS AN UNCONSCIONA BLE OR UNREASONABLE BARGAIN. IN COMPUTER SOFTWARE, GENERALLY IT IS THE TENDENCY OF SOFTWARE PRODUCERS TO DO AWAY 6 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. WITH THE RIGHTS AND PRIVILEGES OF THE USER, EVEN WH ICH ARE SPECIFICALLY CONFERRED UPON THE USER BY THE RELEVANT LAWS SUCH AS COPYRIGH T ACT, CONTRACT ACT AND OTHER RELEVANT LAWS. THE FAIR USE OF THE PURCHASED ARTICL E IS THE OTHER PLEA WHICH CONTRADICTS THE LICENSE THEORY. AS PER THE PROVISIO NS OF SECTION 52 OF THE COPYRIGHT ACT 1957, WHICH HAS PROVISIONS SIMILAR TO THE PROVI SIONS OF SECTION 117 OF THE US COPYRIGHT ACT, THE OWNER OF A COPYRIGHT OF COMPUTER SOFTWARE IS LEGALLY ENTITLED TO FAIR USE THAT COPY OF SOFTWARE EVEN WITHOUT A LICEN SE FROM THE SOFTWARE PUBLISHER AND ANY CONDITION PUT IN A LICENSE RESTRICTING THE FAIR OR REASONABLE USE OF THE PRODUCT PURCHASED BY THE BUYER IN THAT RESPECT WILL HAVE TO BE IGNORED. IF THE LICENSE SEVERELY LIMITS THE RIGHTS OF THE CONSUMERS , SUCH AS IMPLIED CONDITIONS AND WARRANTIES IN A CONTRACT, IT CANNOT BE ENFORCED. IF IN THE LICENSE AGREEMENT, THERE ARE CERTAIN CONDITIONS WHICH ARE IN VIOLATION OF TH E PROVISIONS OF THE CONTRACT ACT, THEN SUCH CONDITIONS CANNOT BE ENFORCED AND EVEN UN DER SOME CIRCUMSTANCES, THE WHOLE CONTRACT CAN BE HELD TO BE VOID. THESE TERMS OF THE MASS SOFTWARE LICENSE ARE IN THE SHAPE OF STANDARD TERMS WHICH THE LICENSEE OR THE USER OF THE PRODUCT OFTEN IGNORES WHILE ACCEPTING THE LICENSE BEFORE DOWNLOAD ING THE SOFTWARE. THE COURTS IN INDIA IN SUCH A SITUATION HAVE OPINED THAT SUCH STA NDARD CONDITIONS PUT IN A CONTRACT WHICH ARE OFTEN IN THE FORM OF STANDARD FO RMAT AND BEING SO MUCH DETAILED AND NUMEROUS AND ARE GENERALLY NOT READ BY THE OTHE R PARTY/BUYER OF THE PRODUCT, SHOULD BE FAIR AND ANY UNFAIR CONDITION RESTRICTING THE USERS RIGHTS RELATING TO THE GOODS OR THE SERVICES AVAILED OF, WHICH CAN BE HELD TO BE UNREASONABLE AND AGAINST THE PUBLIC POLICY, CANNOT BE ENFORCED. THUS THESE L ICENSES CREATE A CLEAR CONFLICT BETWEEN COPYRIGHT LAW AND CONTRACT LAW, WHICH HAVE DIFFERENT PURPOSES AND OBJECTIVES. THE TECHNOLOGICAL RESTRICTIONS SUCH AS ENCRYPTION TECHNOLOGY AND TRANSACTIONAL DESIGN HAVING RESTRICTIONS ON THE DEV ELOPMENT, USE, SERVICES, MAY BE CALLED IN QUESTION UNDER THE COMPETITION ACT, 2002 ALSO. FURTHER THE CONDITION IN THE AGREEMENT THAT THE OWNERSHIP OF EACH COPY OF SO FTWARE WOULD REMAIN WITH THE SOFTWARE PUBLISHER AND THAT THE USER WILL HAVE ONLY RIGHT TO USE THE SOFTWARE IS TO BE LOOKED IN TERMS OF THE INDIAN CONTRACT ACT TO ARRIV E AT A CONCLUSION WHETHER SUCH A CONDITION IS REASONABLE AND IS NOT AGAINST THE PUBL IC POLICY OR WHETHER IT IS RESTRICTING THE FAIR USE OF RIGHT OF THE USER/PURCH ASER OF THE PRODUCT. IT IS ALSO A DETERMINATIVE FACTOR AS TO WHETHER THE PROPERTY IN THE GOODS AFTER BUYING OFF THE SHELF PRODUCT IN CASE OF SHRINK WRAPPED SOFTWARE HA S PASSED ON TO THE PURCHASER OR NOT AS PER THE PROVISIONS OF SALE OF GOODS ACT 1930 . 37. AS DISCUSSED ABOVE, IN CASE O F SHRINK WRAPPED SOFTWARE, THE WORK IS EMBEDDED IN THE DISKETTE/CD ROM WHICH IS WHEN SOLD TO THE BU YER IN RETAIL TRANSACTION AS IN CASE OF SALE OF GOODS AND CONSEQUENTLY ON THE COM PLETION OF THE SALE, THE PROPERTY IN SUCH GOODS PASSES TO THE BUYER. THE USER/PURCHAS ER OF THE CD ROM OR THE DISKETTE IS THE OWNER OF THE COPY AND IN SUCH A CAS E, A LICENSE IS NOT TECHNICALLY REQUIRED IN ORDER FOR THE PURCHASER TO USE THE COPY RIGHTED PRODUCT/SOFTWARE FOR HIS OWN/ BUSINESS USE. SO WHAT THE BUYER BUYS IS THE CO PYRIGHTED PRODUCT AND HE IS ENTITLED TO FAIR USE OF THE PRODUCT AS IS PROVIDED UNDER SECTION 52 OF THE COPYRIGHT ACT. HE IS ALSO ENTITLED TO PERFORM ALL OR ANY OF T HE ACTIVITIES WHICH IS ESSENTIALLY REQUIRED FOR THE FAIR USE AND FOR THE PURPOSE FOR W HICH THE PRODUCT IS PURCHASED BY THE BUYER. 38. IT MAY ALSO BE POINTED OUT HERE THAT EVEN, IF, SUCH A LICENSE AGREEMENT IS NOT SIGNED BY THE END USER STILL THE OWNER OF THE PRODU CT WILL HAVE THE COPYRIGHTS IN SUCH A PRODUCT, AS ARE DEFINED AND EXPLAINED UNDER THE INDIAN COPYRIGHT ACT; EVEN 7 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. THE REGISTRATION OF THE PRODUCT OR THE WORK UNDER T HE COPYRIGHT ACT IS NOT COMPULSORY. THE OWNER OF THE WORK IS DEEMED TO BE P ROTECTED IN RELATION TO THE COPYRIGHTS IN THE WORK BUT THE FAIR USE OF THE PROD UCT/WORK CANNOT BE DENIED AND ANY CLAUSE IN SUCH AGREEMENT SHOULD BE DEEMED TO BE VOID AS AGAINST THE PRINCIPLE OF FAIR USE OF THE PRODUCT. 39. FURTHER, TO DETERMINE WHETHER A COPYRIGHT IN A WORK IS INFRINGED OR NOT OR WOULD BE DEEMED TO BE INFRINGED OR NOT, THE MOST IM PORTANT TEST IS TO FIND OUT WHETHER THE USE IS LIKELY TO HARM THE POTENTIAL MAR KET OR THE VALUE OF THE COPYRIGHT WORK. WHEN IT IS NOT THE ALLEGATION OF THE OWNER/PU RCHASER OF THE WORK THAT THE PURCHASER/USER WAS REPRODUCING THE WORK AND DISTRIB UTING IT SO AS TO AFFECT HIS POTENTIAL MARKET IN EXERCISING THE REPRODUCTION RIG HT, THEN IT CANNOT BE SAID THAT THE USER HAS INFRINGED THE RIGHTS OF THE PURCHASER, WHO IN FACT HAS PAID THE CONSIDERATION TO USE THE COPYRIGHTED WORK. THE USE OF INFORMATION IN THE WORK BY THE PURCHASER FOR WHICH HE PURCHASES SUCH A PRODUCT /DISKETTE/CD ROM IS THUS COMES WITHIN THE SCOPE OF FAIR USE. COPYRIGHT DOES NOT PROTECT THE FAIR OR EXCLUSIVE USE OF THE INFORMATION RATHER, THE PURPOSE OF COPYR IGHT PROTECTION IS TO REGULATE THE DISSEMINATION OF INFORMATION VIZ. PRODUCTION OF THE COPIES OF THE COPYRIGHTED WORK/INFORMATION AND DISTRIBUTION THEREOF. THE USE OF INFORMATION VIZ. A NEW TECHNOLOGY OR INVENTION CAN, HOWEVER, BE PROTECTED UNDER THE PATENTS ACT, 1970. HOWEVER, IT IS PERTINENT TO MENTION HERE THAT EVEN UNDER THE PATENTS ACT 1970, THE COMPUTER SOFTWARE CANNOT BE PATENTED. THE COMPUTER SOFTWARE, SUBJECT TO CERTAIN EXCEPTION, HAVE BEEN SPECIFICALLY EXCLUDED FROM PAT ENTABLE ITEMS UNDER THE PATENTS ACT, 1970. 40. AT THIS STAGE, WE THINK IT APPR OPRIATE TO DISCUSS HERE THE RELEVANT PROVISIONS OF THE COPYRIGHT ACT, 1957 ALSO. THE COPYRIGHT HAS BEE N DEFINED UNDER SECTION 14 OF THE COPYRIGHT ACT, 1957 AS UNDER: 14. MEANING OF COPYRIGHT FOR THE PURPOSES OF THIS ACT, COPYRIGHT MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS A CT, TO DO OR AUTHORIZE THE DOING OF AY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR AN Y SUBSTANTIAL PART THEREOF, NAMELY: ( A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL W ORK, NOT BEING A COMPUTER PROGRAMME, - (I) TO REPRODUCE THE WORK IN ANY M ATERIAL FROM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLI C, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FIL M OR SOUND RECORDING 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 TR ANSLATION OR AN ADAPTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLS. (I) T O (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME ( I) TO DO ANY OF THE ACTS SPECIFIED IN CL. (A); (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 8 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE P ROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. 41. SECTION 51 OF THE COPYRIGHT IS ALSO RELEVANT WHICH DEALS AS TO WHEN THE COPYRIGHT IS INFRINGED WHICH FOR THE SAKE OF CONVENIENCE IS REPR ODUCED AS UNDER: CHAPTER XI INFRINGEMENT OF COPYRIGHT 51 . WHEN COPYRIGHT INFRINGED. -COPYRIGHT IN A WORK SH ALL BE DEEMED TO BE INFRINGED- (A) WHEN ANY PERSON, WITHOUT A L ICENCE GRANTED BY THE OWNER OF THE COPYRIGHT OR THE REGISTRAR OF COPYRIGHTS UNDER THIS ACT OR IN CO NTRAVENTION OF THE CONDITIONS OF A LICENCE SO GRANTED OR OF ANY CONDITION IMPOSED BY A COMPETENT AUTHORITY UNDER THIS ACT- (I) DOES ANYTHING, THE EXCLUSIVE R IGHT TO DO WHICH IS BY THIS ACT CONFERRED UPON THE OWNER OF THE COPYRIGHT, OR (II) PERMITS FOR PROFIT ANY PLACE TO BE USED FOR THE COMMUNICATION OF THE WORK TO THE PUBLIC WHERE SUCH COMMUNICATION CONSTITUTES AN INFRINGEMENT OF THE COPYRIGHT IN THE WORK, UNLESS HE WAS NOT AWARE AND HAD NO REASONABLE GROUND FOR BELIEVING THAT SUCH COMMUNICATION TO THE PUBLIC WOULD BE AN INFRINGEMENT OF COPYRIGHT; OR (B) WHEN ANY PERSON- (I) MAKES FOR SALE OR HIRE, OR SEL LS OR LETS FOR HIRE, OR BY WAY OF TRADE DISPLAYS OR OFFERS FOR SALE OR HIRE, OR (II) DISTRIBUTES EITHER FOR THE PUR POSE OF TRADE OR TO SUCH AN EXTENT AS TO AFFECT PREJUDICIALLY THE OWNER OF THE COPYRIGHT, OR (III) BY WAY OF TRADE EXHIBITS IN PU BLIC, OR (IV) IMPORTS INTO INDIA, ANY INFRIN GING COPIES OF THE WORK PROVIDED THAT NOTHING IN SUB-CLAUSE (IV) SHALL APPLY TO THE IMPORT OF ON E COPY OF ANY WORK FOR THE PRIVATE AND DOMESTIC USE OF THE IMPORTER. EXPLANATION.- FOR THE PURPOSES OF THIS SECTION, THE REPRODUCTION OF A LITERARY, DRAMATIC, MUSICAL OR ARTISTIC WORK IN THE FORM OF A CINEMATOGRAPH FILM SHALL BE DEEMED TO BE AN 'INFRINGING COPY' 42. CERTAIN PROVISIONS OF SECTION 52 OF THE COPYRIGHT ACT WHICH ARE RELEVANT ARE ALSO REPRODUCED AS UNDER: 52. CERTAIN ACTS NOT TO BE INFRINGEMENT OF COPYRIG HT.- (1) THE FOLLOWING ACTS SHALL NOT CO NSTITUTE AN INFRINGEMENT OF COPYRIGHT, NAMELY: (A) A FAIR DEALING WITH A LITERAR Y, DRAMATIC, MUSICAL OR ARTISTIC WORK 104 [NOT BEING A COMPUTER PROGRAMME] FOR THE PURPOSES OF PRI VATE USE, INCLUDING RESEARCH; CRITICISM OR REVIEW, WHETHER OF THAT WORK OR OF ANY OTHER WORK; (AA) THE MAKING OF COPIES OR ADAPTATION OF A COMPUTER PR OGRAMME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FRO M SUCH COPYIN ORDER TO UTILIZE THE COMPUTER PROGRAMME FOR THE PURPOSES FOR WHICH IT WAS SUPPLIED; OR TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE IN ORDER ONLY TO UTILIZE THE COMPUTER PRO GRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED; 9 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. (AB) THE DOING OF ANY ACT NECESSAR Y TO OBTAIN INFORMATION ESSENTIAL FOR OPERATING INTER-OPERABILITY OF AN INDEPENDENTLY CREATED COMPU TER PROGRAMME WITH OTHER PROGRAMMES BY A LAWFUL POSSESSOR OF A COMPUTER PROG RAMME PROVIDED THAT SUCH INFORMATION IS NOT OTHERWISE READILY AVAILABLE ; (AC) THE OBSERVATION, STUDY OR TES T OF FUNCTIONING OF THE COMPUTER PROGRAMME IN ORDER TO DETERMINE THE IDEAS AND PRINCIPLES WHICH U NDERLINE ANY ELEMENTS OF THE PROGRAMME WHILE PERFORMING SUCH ACTS NECESSARY FOR THE FUNCTIONS FOR WHICH THE COMPUTER PROGRAMME WAS SUPPLIED; (AD) THE MAKING OF COPIES OR ADAPTA TION OF THE COMPUTER PROGRAMME FROM A PERSONALLY LEGALLY OBTAINED COPY FOR NON-COMMERCIAL PERSONAL USE; 43. THE PROVISO TO SECTION 57 OF THE ACT IS ALSO RELEVANT. THE SAID SECTION 57 OF THE ACT OF 1957 IS ALSO REPRODUCED AS UNDER: 57 . [AUTHORS SPECIAL RIGHTS. (1 ) INDEPENDENTLY OF THE AUTHORS COPYRIGHT AND EVEN AFTER THE ASSIGNMENT EITHER WHOLLY OR PARTIALLY OF THE SAID COPYRIGHT, THE AUTHOR OF A WORK SHALL HAVE THE RIGHT- (A) TO CLAIM AUTHORSHIP OF THE WORK ; AND (B) TO RESTRAIN OR CLAIM DAMAGES I N RESPECT OF ANY DISTORTION, MUTILATION, MODIFICATION OR OTHER ACT IN RELATION TO THE SAID W ORK WHICH IS DONE BEFORE THE EXPIRATION OF THE TERM OF COPYRIGHT IF SUCH DISTORT ION, MUTILATION, MODIFICATION OR OTHER ACT WOULD BE PREJUDICIAL TO HIS HONOUR OR REP UTATION: PROVIDED THAT THE AUTHOR SHALL NOT HAVE ANY RIGHT TO RESTRAIN OR CLAI M DAMAGES IN RESPECT OF ANY ADAPTATION OF A COMPUTER PROGRAMME TO WHICH CLAUSE (AA) OF SUB-SECTION (1) OF SECTION 52 APPLIES. 44. A PERUSAL OF THE ABOVE PROVISIO NS OF THE COPYRIGHT ACT REVEALS THAT THE COMPUTER SOFTWARE IS INCLUDED IN THE DEFINITION OF LITERARY WORK AND IS COVERED UNDER THE PURVIEW AND SCOPE OF COPYRIGHT. THE EXCLUSIVE RIGHT S TO DO OR AUTHORIZE THE DOING OF CERTAIN ACTS AS MENTIONED IN CLAUSE (A) AND CLAU SE (B) OF SECTION 14 VESTS IN THE OWNER OF THE WORK AND AS PER SECTION 51 OF THE ACT, COPYRIGHT IN A WORK SHALL BE DEEMED TO BE INFRINGED WHEN ANY PERSON WITHOUT LICE NSE GRANTED BY THE OWNER OF THE COPYRIGHT OR IN CONTRAVENTION OF THE CONDITIONS OF A LICENSE SO GRANTED DOES ANYTHING, THE COPYRIGHT OF THE OWNER IS STATED TO B E INFRINGED. HOWEVER A PERUSAL OF THE ABOVE PRO VISIONS OF THE COPYRIGHT ACT ALSO REVEALS THAT EVEN IN SOME CASES UNAUTHORIZED USES OF A COPYRIGHT WORK IS NOT NECESSARILY INFRINGING. AN UNLICENSED USE OF THE COPYRIGHT IS N OT AN INFRINGEMENT UNLESS IT CONFLICTS WITH ONE OF THE SPECIFIC EXCLUSIVE RIGHTS COVERED BY THE COPYRIGHT STATUE. FURTHER THERE ARE CERTAIN EXCEPTIONS ALSO. AS PER T HE PROVISO TO SUB CLAUSE (IV) TO THE CLAUSE (B) TO SECTION 51, IMPORT INTO INDIA OF ONE INFRINGING COPY OF ANY WORK FOR THE PRIVATE AND DOMESTIC USE OF THE IMPORTER WI LL NOT BE CONSIDERED AS INFRINGEMENT. FURTHER, THE SECTION 52 OF THE ACT PR OVIDES FOR CERTAIN OTHER EXCEPTIONS AND THE DOING OF SUCH ACTS AS MENTIONED UNDER SECTION 52 IS NOT CONSIDERED AS INFRINGEMENT OF THE COPYRIGHT AS PER THE STATUTE. IN CASE OF SOFTWARE, IT HAS BEEN P ROVIDED THAT MAKING OF COPIES OR ADAPTATION OF A COMPUTER PROGRAMME BY THE LAWFUL POSSESSOR OF A COP Y OF SUCH COMPUTER PROGRAMME FROM SUCH COPY IN ORDER TO UTILIZE THE CO MPUTER PROGRAMME FOR THE PURPOSE OF WHICH IT WAS SUPPLIED OR TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE AND IN ORDER TO UTILIZE THE COMPUTER 10 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. PROGRAMME AND FURTHER THE DOING OF ANY ACT NECESSAR Y TO OBTAIN INFORMATION ESSENTIAL FOR OPERATING INTER OPERATABILITY OF AN I NDEPENDENTLY CREATED COMPUTER PROGRAMME WITH OTHER PROGRAMMES IN CASE SUCH INFORM ATION IS NOT OTHERWISE READILY AVAILABLE, THE OBSERVATION, STUDY OR TEST O F FUNCTIONING OF COMPUTER PROGRAMME WITH DETERMINATION, THE IDEAS AND PRINCIP LES NECESSARY FOR THE FUNCTIONS FOR WHICH THE COMPUTER PROGRAMME WAS SUPP LIED AND THE MAKING OF COPIES OR ADAPTATION OF COMPUTER PROGRAMME FROM A P ERSONALLY AND LEGALLY OBTAINED COPY FROM NON-COMMERCIAL PERSONAL USE, HAV E BEEN EXCLUDED FROM THE DEFINITION OF INFRINGEMENT OF COPYRIGHT. EVEN IMPO RT OF ONE INFRINGED COPY OF THE WORK FOR PRIVATE AND DOMESTIC WORK OF THE IMPORTER HAS BEEN EXCLUDED FROM THE SCOPE OF INFRINGEMENT OF COPYRIGHT UNDER THE ACT. 45. IT IS ALSO PERTINENT TO MENTION HERE THAT THE INCOME TAX ACT DOES NOT SPECIFICALLY INCLUDE THE COMPUTER SOFTWARE IN THE TERM LITERA RY WORK AND UNDER SUCH CIRCUMSTANCES, IF WE APPLY THE SAME ANALOGY TO THE TREATY, THEN PERHAPS THE COMPUTER SOFTWARE WILL BE OUT OF THE SCOPE OF THE TREATY. HOWEVER, IF WE APPLY THE COPYRIGHT ACT, THEN THE COMPUTER SOFTWARE WILL HA VE TO BE INCLUDED IN THE TERM LITERARY WORK BUT TO CONSTITUTE ROYALTY UNDER T HE TREATY, THE CONSIDERATION SHOULD HAVE BEEN PAID FOR THE USE OF OR THE RIGHT TO USE T HE COPYRIGHT IN THE LITERARY WORK AND NOT THE LITERARY WORK ITSELF. 46. FURTHER, WHEN WE READ THE DEFIN ITION OF COPYRIGHT AND LITERARY WORK AS PROVIDED IN THE COPYRIGHT ACT, 1957, IT IS ALSO IMPORTANT TO NOTE DOWN THAT WHAT CONSTITUTES INFRINGEMENT OF COPYRIGHT AND WHAT ARE THE EXCEPTIO NS TO IT. IF THE SOFTWARE PURCHASED BY THE ASSESSEE AND THE USE OF IT BY THE ASSESSEE IS COVERED WITHIN THE EXCEPTIONS AS PROVIDED UNDER SECTION 52 OF THE COPY RIGHT ACT, THEN IN THAT EVENT IT CANNOT BE SAID THAT THE TRANSFER OF RIGHT TO USE OR FOR USE OF THE COPYRIGHT HAS PASSED. THE PROVISO TO SECTION 57 OF THE COPYRIGHT ACT HAS FURTHER CLARIFIED THAT THE AUTHOR OF THE WORK SHALL NOT HAVE RIGHT TO RESTRAIN OR CLAIM DAMAGES IN RESPECT OF ANY ADAPTATION OF A COMPUTER PROGRAMME TO WHICH CLA USE (AA) OF SUB SECTION (1) OF SECTION 52 APPLIES. 47. FURTHER IN CASE OF IMPORTED SOF TWARE I.E. IF THE ORIGINAL WORK HAS BEEN PUBLISHED OUTSIDE INDIA, AS PER THE PROVISIONS OF THE COPYRIG HT ACT, APART FROM THE WORK BEING ORIGINAL AND NOT COPIED FROM ELSEWHERE, THE WORK SH OULD BE FIRST PUBLISHED IN INDIA OR IF THE WORK IS PUBLISHED OUTSIDE INDIA, THE AUTH OR ON THE DATE OF PUBLICATION, IF THE AUTHOR IS DEAD, AT THE TIME OF HIS DEATH, SHOUL D BE CITIZEN OF INDIA. IN CASE OF UNPUBLISHED WORK, THE AUTHOR ON THE DATE OF MAKING OF A WORK SHOULD BE A CITIZEN OF INDIA OR DOMICILE IN INDIA. SECTION 40 OF THE COPYR IGHT ACT 1957, PROVIDES FOR INTERNATIONAL COPYRIGHTS. AS PER THE SECTION 40 OF THE ACT, THE GOVERNMENT OF INDIA MAY BY AN ORDER PUBLISHED IN THE OFFICIAL GAZETTE D IRECT THAT ALL OR ANY PROVISIONS OF THIS ACT SHALL APPLY TO THE WORK PUBLISHED OR UNPUB LISHED IN ANY TERRITORY OUTSIDE INDIA. SUCH A RIGHT IS EXTENDED IN RELATION TO COUN TRIES WHICH HAVE ENTERED INTO A TREATY OR WHICH ARE A PARTY TO A CONVENTION RELATIN G TO RIGHTS OF THE COPYRIGHT OWNERS AND HAVE UNDERTAKEN TO MAKE SUCH PROVISIONS IN THEIR LAWS IN RELATION TO THE INDIAN AUTHORS FOR PROTECTION OF THEIR RIGHTS I N THEIR COUNTRY. SECTION 40, 40A AND SECTION 41OF THE COPYRIGHT ACT, 1957 ARE RELEVA NT IN THIS RESPECT. SECTION 42 OF THE COPYRIGHT ACT, HOWEVER, PUT CERTAIN RESTRICTION S ON THE RIGHTS IN WORKS OF FOREIGN AUTHORS FIRST PUBLISHED IN INDIA WHEREIN IT HAS BEEN PROVIDED THAT IF A FOREIGN COUNTRY DOES NOT GIVE ADEQUATE PROTECTION T O THE WORKS OF THE INDIAN 11 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. AUTHORS, THE CENTRAL GOVERNMENT MAY DIRECT THAT SUC H OF THE PROVISIONS OF THE ACT AS CONFER COPYRIGHT ON WORKS FIRST PUBLISHED IN IND IA OF THE FOREIGN AUTHORS SHALL NOT APPLY. SO IF A FOREIGN COUNTRY RECOGNIZES THE C OPYRIGHTS OF THE INDIAN AUTHORS IN THEIR COPYRIGHTED WORK, THE INDIA ALSO ALLOWS THE C OPYRIGHT TO THE FOREIGN AUTHORS ON RECIPROCAL BASIS. SO A FOREIGN AUTHOR CAN CLAIM THE COPYRIGHT IN A PRODUCT, IF INDIA HAS A TREATY WITH THAT COUNTRY OR IF INDIA AN D THAT OTHER COUNTRY ARE SIGNATORIES OF THE CERTAIN INTERNATIONAL TREATIES O R CONVENTIONS E.G. BERNE CONVENTION TO WHICH INDIA IS A SIGNATORY. UNDER SUC H CIRCUMSTANCES, IN RESPECT OF WORKS DONE IN FOREIGN COUNTRIES OR BY FOREIGN AUTHO RS, THE COPYRIGHT DOES NOT AUTOMATICALLY FLOW OR EXTENDED TO THEM. THE RIGHTS OF THE FOREIGN AUTHOR ARE TO BE EXAMINED IN THE LIGHT OF THE COPYRIGHT ACT AND THE RELEVANT TREATY OR THE CONVENTION, IF ANY, SIGNED BY INDIA WITH THAT COUNT RY TO WHICH THE FOREIGN AUTHOR BELONGS. THE COPYRIGHT IN A FOREIGN PRODUCT THUS DO ES NOT FLOW AUTOMATICALLY OR IMPLIEDLY, SO FAR AS THE INDIAN COPYRIGHT LAWS ARE CONCERNED. 48. HENCE, WHILE INTERPRETING THE DE FINITION OF ROYALTY AS PROVIDED IN THE DTAA, IT I S TO BE SEEN AS TO WHAT HAS BEEN PURCHASED BY THE ASS ESSEE I.E. WHETHER THE COPYRIGHT ITSELF HAS BEEN PURCHASED OR WHAT THE A SSESSEE HAS PURCHASED IS ONLY A COPYRIGHTED WORK. IT IS ALSO REQUIRED TO BE ANALY ZED AS TO WHETHER THE USE OF SUCH RIGHT WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT IF A LICENSE OR PERMISSION IN THIS RESPECT IS NOT GIVEN BY THE OWNER; AND WHEN ASSESSE E HAS PURCHASED A COPYRIGHTED PRODUCT I.E. OFF THE SHELF SOFTWARE, WHETHER THE US E OF THE SAME FOR THE BUSINESS PURPOSE OF THE ASSESSEE IS COVERED WITHIN THE EXCEP TIONS AS PROVIDED UNDER SECTION 52 OF THE COPYRIGHT ACT. FURTHER, IN CASE OF IMPORT ED WORK/PRODUCT, WHETHER THE PROTECTION OF COPYRIGHT IS AVAILABLE TO THE FOREIGN AUTHOR IN TERMS OF SECTION 40,40A, 41 AND 42 OF THE COPYRIGHT ACT 1957. 49. THE PROVISIONS OF THE COPYRIGHT ACT, AS DISCUSSED ABOVE ARE CLEAR AND UNAMBIGUOUS IN THIS RESPECT. IF THE ASSESSEE HAS PU RCHASED A COPY OF A COMPUTER SOFTWARE PROGRAMME AND HE USES THE SAID COPY FOR HI S BUSINESS PURPOSE AND IF THE SAID USE FALLS WITHIN THE SCOPE AND PURVIEW OF THE EXCEPTIONS OF SECTION 52, SUCH AS THE USE OF IT FOR THE PURPOSE FOR WHICH IT IS SUPPL IED AND TO MAKE BACKUP COPIES FOR TEMPORARY PURPOSE AS A PROTECTION AGAINST LOSS OR D AMAGE AND DOING OF ANY ACT NECESSARY TO OBTAIN INFORMATION ESSENTIAL FOR OPERA TING THE SOFTWARE FOR THE PURPOSE FOR WHICH IT IS PURCHASED ETC. AS PROVIDED UNDER SECTION 52, THEN IN THAT EVENT IT CANNOT BE SAID TO BE AN INFRINGEMENT OF CO PYRIGHTS OF THE AUTHOR OR OWNER OF THE WORK. AS HELD BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. & OTHERS (SUPRA) WHILE RE LYING UPON ARTICLE 3 SUB SECTION (2) OF THE DTAA WITH US AS THE IDENTICALLY WORDED ARTICLE BEING THERE IN ALMOST ALL THE TAX TREATIES WITH OTHER COUNTRIES, T HAT ANY TERM NOT DEFINED IN THE CONVENTION SHALL, UNLESS THE CONTEXT OTHERWISE REQU IRES, HAVE THE MEANING WHICH IT IS UNDER THE LAWS OF THAT STATE CONCERNING THE TA X TO WHICH THE CONVENTION APPLIES. IN VIEW OF ABOVE, WHEN WE SEE THE DEFINITION AS PER THE STATUTORY PROVISIONS/DOMESTIC LAW OF THE COUNTRY I.E. COPYRIG HT ACT,1957 OF INDIA WHICH IS THE TAXING STATE IN THIS CASE, IT IS APPARENT THAT THE FAIR USE OF THE WORK FOR THE PURPOSE OF WHICH IT IS BEING PURCHASED AND DOING OF SUCH OT HER ACTS INCLUDING MAKING OF COPY FOR PROTECTION FROM DAMAGE OR LOSS CAN NOT, IN ANY CASE, SAID TO BE ANY INFRINGEMENT OF COPYRIGHT WHETHER OR NOT ANY LICENS E IN THIS RESPECT HAS BEEN GRANTED BY THE AUTHOR/OWNER OF THE WORK. THE RIGHT TO USE OR FOR USE OF THE PRODUCT ACCRUES TO THE PURCHASER BY THE OPERATION OF THE ST ATUTE AND AS HELD BY THE HONBLE 12 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD. (S UPRA), THE SAME WOULD AMOUNT TO THE SALE OF A GOODS AND THE ACTS DONE SUCH AS DOWNL OADING OF THE SAME TO THE COMPUTER OR MAKING BACKUP COPIES ETC. WOULD BE THE NECESSARY ACTS FOR ENABLING THE USE OF THE PRODUCT AND WOULD NOT AMOUNT TO THE TRANSFER OF COPYRIGHT OR RIGHT THEREIN, BUT ONLY THE TRANSFER OF THE COPYRIGHTED P RODUCT AND THUS WILL NOT BE COVERED UNDER THE DEFINITION OF ROYALTY UNDER DTAA. THE CONSIDERATION, THUS, PAID WILL BE THE BUSINESS INCOME OF THE NON-RESIDENT AND TAXABLE IN ACCORDANCE WITH THE PROVISIONS OF DTAA. WE MAY CLARIFY HERE THAT EVEN I N CASES WHERE THE OWNER OF THE COPYRIGHTED WORK MAY RESTRICT THE USE OF OR RIGHT T O USE THE WORK BY WAY OF CERTAIN TERMS OF THE LICENSE/SOFTWARE AGREEMENT, THE VALIDI TY OR THE ENFORCEABILITY OF THE SAME MAY BE SUBJECT MATTER IN OTHER LAWS SUCH AS IN DIAN CONTRACT ACT 1872 , SALE OF GOODS ACT 1930 OR THE CONSUMER PROTECTION ACT 19 86 ETC., BUT, THE SAME IN ANY WAY CANNOT BE SAID TO GRANT OF OR INFRINGEMENT OF C OPYRIGHT IN THE LIGHT OF SPECIFIC STATUTORY PROVISIONS OF COPYRIGHT ACT 1957. 50. NOW COMING TO THE FACTS OF THE CASE IN HAND, THE DRP HAS GIVEN A SPECIFIC FINDING OF FACT THAT WHAT THE ASSESSEE IN THE PRESE NT CASE HAS PURCHASED IS THE SHRINK WRAPPED /OFF THE SHELF SOFTWARE. IT HAS ALSO BEEN DISCUSSED IN DETAIL IN PARAS ABOVE THAT THE DEFINITION OF ROYALTY GIVEN IN THE TREATY IS MORE BENEFICIAL TO THE ASSESSEE AS COMPARED TO THE PROVISIONS OF SECTION 9 OF THE INCOME TAX ACT AND THE ASSESSEE HAS OPTED FOR THE DEFINITION THAT IS PROVI DED UNDER THE DTAA, THUS AS PER SECTION 90 OF THE INCOME TAX ACT, DEFINITION OF RO YALTY AS PROVIDED IN THE DTAA WILL PREVAIL AS OVER THE GENERAL DEFINITION OF ROY ALTY PROVIDED UNDER THE INCOME TAX ACT. HENCE, WITHOUT EXPRESSING OUR OPINION OR A NY VIEW IN RELATION TO THE DEFINITION OF ROYALTY VIS--VIS COMPUTER SOFTWAR E AS PROVIDED UNDER THE INCOME TAX ACT, WE HAVE GIVEN OUR FINDINGS ONLY IN RESPECT OF THE SCOPE OF ROYALTY UNDER THE DTAA. 51. IN VIEW OF OUR DETAILED DISCUSS ION MADE ABOVE, THE ASSESSEE CANNOT BE SAID TO HAVE PAID THE CONSIDERATION FOR USE OF OR THE RIGHT TO USE COPYRIGHT BUT HAS SIMPLY PURCHASED THE COPYRIGHTED WORK EMBEDDED IN THE CD- ROM WHICH CAN BE SAID TO BE SALE OF GOOD BY THE OWNER. THE CONSIDERATION P AID BY THE ASSESSEE THUS AS PER THE CLAUSES OF DTAA CANNOT BE SAID TO BE ROYALTY AN D THE SAME WILL BE OUTSIDE THE SCOPE OF THE DEFINITION OF ROYALTY AS PROVIDED IN DTAA AND WOULD BE TAXABLE AS BUSINESS INCOME OF THE RECIPIENT. THE ASSESSEE IS E NTITLED TO THE FAIR USE OF THE WORK/PRODUCT INCLUDING MAKING COPIES FOR TEMPORARY PURPOSE FOR PROTECTION AGAINST DAMAGE OR LOSS EVEN WITHOUT A LICENSE PROVI DED BY THE OWNER IN THIS RESPECT AND THE SAME WOULD NOT CONSTITUTE INFRINGEMENT OF A NY COPYRIGHT OF THE OWNER OF THE WORK EVEN AS PER THE PROVISIONS OF SECTION 52 O F THE COPYRIGHT ACT, 1957. 8. THE ABOVE REFERRED DECISION WAS FURTHER FOLLOWE D BY THE COORDINATE BENCH IN RELIANCE INDUSTRIES LTD (SUPRA). THUS, CONSIDERING THE ABOVE LEGAL DISCUSSION WE FIND THAT THE GROUNDS OF APPEAL RAISED BY THE REVEN UE IN THE PRESENT APPEAL IS COVERED AGAINST REVENUE BY THE DECISION OF COORDINA TE BENCH AS DISCUSSED ABOVE. HENCE, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF A PPEAL RAISED BY REVENUE. 9. IN THE RESULT APPEAL FILED BY REVENUE IS DISMI SSED. 13 ITA N O. 7823/M/10- GUJRAT PIPAVAV PORT LTD. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 10 TH DAY OF FEBRUARY, 2017. SD/- SD/- (D. KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 10/02/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/