M/s. QAD EUROPE B.V., MUMBAI V. DDIT (I.T) - 2(1), MUMBAI

ITA 83/MUM/2007

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1481 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 03-11-2016
• Assessment Year: 1998-1999
• Appeal Filed On: 04-01-2007
• Court: TRIBUNAL
• Department Lawyers: HARSHAD VENGURLEKAR
• Assessee Lawyers: PJ PARDIWALA JITENDRA JAIN
• Keywords: Reopening of assessment; Business income; Double taxation relief; Retrospective amendment; Permanent establishment; Wholly owned subsidiary
• Section: 143(3); 147; 148; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. NOS.83 & 84/MUM/2007 (ASSESSMENT YEARS: 1998-99 & 1999-2000) QAD EUROPE B.V. C/O BSR & CO. KPMG HOUSE 448, KAMALA MILLS COMPOUND LOWER PAREL (E), MUMBAI-13 VS THE DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION)-2(1) MUMBAI PAN : AAACQ0534E (APPELLANT) (RESPONDENT) APPELLANT BY S/SHRI PJ PARDIWALA / JITENDRA JAIN RESPONDENT BY SHRI HARSHAD VENGURLEKAR, SR DR DATE OF HEARING : 03-11-2016 DATE OF ORDER : 21 -12-201 6 O R D E R PER ASHWANI TANEJA, AM: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-V, MUMBAI [IN SHORT, CIT(A)] DATED 19-09-2006 PASSED AGAINST THE ASSESSMENT ORDER DATE D 237-1-2003 U/S 143(3) OF THE ACT FOR AY. 1998-99 ON THE FOLLOWING GROUNDS: GROUND 1- ASSESSMENT UNDER SECTION 147 IS BAD IN LA W 1.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) - V, MUMBAI ['THE CIT(A)'] ERRED IN UPHOLDING THE AO'S A CTION OF ISSUING NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 ('THE ACT') AND SUBSEQUENTLY PASSING AN ORDER UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT 2 I.T.A. NOS.83 & 84/MUM/2007 THE APPELLANT SUBMITS THAT THE RE-ASSESSMENT IS BAD IN LAW AND ACTION OF THE CIT(A) OF UPHOLDING THE ACTION OF THE AO BE REVERSED. GROUND 2 - RE-CHARACTERIZATION OF INCOME RECEIVED F ROM LICENSING OF SOFTWARE AS 'ROYALTY' AND CONSEQUENT D ISALLOWANCE - RS. 14,400,044 2.1 THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISAL LOWANCE MADE BY THE ASSESSING OFFICER (AO) IN RESPECT OF INCOME RECEIVED FROM LICENSING OF SOFTWARE BY RE-CHARACTERIZING THE SAME AS 'ROYALTY' UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTA A') BETWEEN INDIA AND NETHERLANDS. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E INCOME WAS IN THE NATURE OF BUSINESS INCOME AND IN THE ABSENCE OF A PERMANENT ESTABLISHMENT (PE) IN INDIA WOULD NOT BE TAXABLE IN INDIA. 2.3 THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF RS. 14,400,044 MADE BY THE AO AND CONFIRMED BY THE LEAR NED CIT(A) IS UNWARRANTED AND BE DELETED. GROUND 3 - TREATMENT OF THE APPELLANT AS NOT BEING THE BENEFICIAL OWNER OF THE INCOME FROM LICENSING OF SO FTWARE (WITHOUT PREJUDICE TO GROUND 1 ABOVE) 3.1 THE LEARNED CIT(A) ERRED IN UPHOLDING THE FINDI NG OF THE AO IN TAXING THE INCOME RECEIVED FROM LICENSING OF SOFTWARE @ 20% ON THE GROUNDS THAT THE APPELLANT IS NOT THE BE NEFICIAL OWNER OF THE INCOME. 3.2 WITHOUT PREJUDICE TO GROUND I ABOVE, THE APPELL ANT SUBMITS THAT THE AO BE DIRECTED TO TREAT THE APPELL ANT AS THE BENEFICIAL OWNER AND THEREFORE, CHARGE TAX @ 10% AS APPLICABLE TO BENEFICIAL OWNERS OF ROYALTY UNDER THE DT AA BET WEEN INDIA AND NETHERLANDS. 3.3 WITHOUT PREJUDICE TO GROUND 2.2 ABOVE, THE APPE LLANT SUBMITS THAT, IF QAD INC. (THE PARENT COMPANY) IS T REATED AS THE BENEFICIAL OWNER OF SUCH INCOME, THE APPLICABLE RAT E OF TAX SHOULD BE 15% AS PER ARTICLE 12 RELATING TO 'ROYALT IES AND FEES FOR INCLUDED SERVICES' UNDER THE DTAA BETWEEN INDIA AND THE UNITED STATES OF AMERICA GROUND 4 - TAXATION OF INCOME FROM MAINTENANCE OF S OFTWARE @ 20% ON THE GROUND OF THE APPELLANT NOT BEING HELD T O BE THE BENEFICIAL OWNER THEREOF 3 I.T.A. NOS.83 & 84/MUM/2007 4.1 THE LEARNED CIT(A) ERRED IN UPHOLDING THE FINDI NG OF THE AO THAT THE APPELLANT IS NOT THE BENEFICIAL OWNER OF T HE MAINTENANCE SERVICE INCOME AND THEREFORE, THE BENEF ICIAL RATE OF 10% UNDER THE DTAA BETWEEN INDIA AND NETHERLANDS WO ULD NOT APPLY TO IT. 4.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E MAINTENANCE AND SUPPORT SERVICES IN RELATION TO SUCH SOFTWARE W AS PROVIDED BY THE APPELLANT AND AS SUCH WAS THE RIGHTFUL OWNER OF SUCH INCOME. 4.3 THE APPELLANT THEREFORE SUBMITS THAT THE HIGHER TAX RATE OF 20% APPLIED BY THE LEARNED AO AND CONFIRMED BY THE LEARNED CIT(A) ON THIS COUNT IS UNWARRANTED AND BE DELETED. 2. GROUND 1 WAS NOT PRESSED DURING THE COURSE OF HEARING, THER EFORE, DISMISSED. 3. GROUND 2: IN THIS GROUND, THE ASSESSEE IS AGGRIEVED BY THE A CTION OF THE LOWER AUTHORITIES IN RE-CHARACTERISATION OF INC OME RECEIVED FROM LICENSING OF SOFTWARE AS ROYALTY UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA, IN SHORT) BETWEEN INDIA AND NETHER LANDS AFTER DISREGARDING THE CLAIM OF THE ASSESSEE THAT THE AFO RESAID INCOME WAS IN THE NATURE OF BUSINESS INCOME AND IN ABSENCE OF PER MANENT ESTABLISHMENT (PE) OF THE ASSESSEE IN INDIA, IT WOU LD NOT BE TAXABLE IN INDIA. 4. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A NON RES IDENT AND FILED ITS RETURN DECLARING TOTAL TAXABLE INCOME (COMPRISING O F MAINTENANCE SERVICE CHARGES) OF RS 3,30,45,600/-. THE ASSESSEES CASE WAS REOPENED BY THE AO U/S 147 ON THE GROUND THAT AMOUNT RECEIVED BY TH E ASSESSEE IN THE FORM OF MAINTENANCE OF SOFTWARE SHOULD BE TAXED AS FEE FOR TECHNICAL SERVICES. IN THE ASSESSMENT ORDER, THE AO TREATED THE INCOME RECEIVED BY THE ASSESSEE FROM SALE OF LICENCE OF SOFTWARE AS ROYALTY INCOME AMOUNTING TO RS.1,44,00,044/-. THE CLAIM OF THE AS SESSEE WAS THAT THE 4 I.T.A. NOS.83 & 84/MUM/2007 AFORESAID INCOME WAS NOT LIABLE TO BE TAXED AS ROYA LTY INCOME BUT IT WAS IN THE NATURE OF BUSINESS INCOME AND THE SAME WAS NOT TAXABLE IN ABSENCE OF PE OF THE ASSESSEE IN INDIA. BUT, LD CIT(A) DID NO T ACCEPT THE SUBMISSION OF THE ASSESSEE AND UPHELD THE ORDER OF THE AO. 5. DURING THE COURSE OF HEARING BEFORE US, THE LD. CO UNSEL OF THE ASSESSEE MADE DETAILED ARGUMENTS TO DEMONSTRATE THAT THE TRA NSACTION OF SALE OF SOFTWARE BY THE ASSESSEE COMPANY TO INDIAN CUSTOMER S DID NOT GIVE RISE TO ANY KIND OF TRANSFER OF RIGHT IN THE COPYRIGHT. OU R ATTENTION WAS DRAWN UPON VARIOUS AGREEMENTS ENTERED INTO BETWEEN THE AS SESSEE AND THE INDIAN CUSTOMERS AND FOREIGN HOLDING COMPANY OF THE ASSESSEE. OUR ATTENTION WAS ALSO DRAWN ON VARIOUS CLAUSES OF THE MASTER AGREEMENT ENTERED INTO BY M/S QUAD INC. WITH UNILEVER N.V FOR SALE OF LICENSED PRODUCTS, I.E. ERP SOFTWARE BY THE SAID COMPANY OR THROUGH ITS SUBSIDIARIES TO UNILEVER GROUP. IT WAS DEMONSTRATED THAT VARIOU S CLAUSES OF THE AGREEMENT SUGGEST THAT THERE WAS NO TRANSFER OF COP YRIGHT. OUR ATTENTION WAS FURTHER DRAWN UPON THE PROVISIONS OF DTAA BETWE EN INDIA AND NETHERLANDS TO SHOW THAT THE PAYMENT MADE FOR SOFTW ARE WAS NOT INCLUDED WITHIN THE DEFINITION OF ROYALTY. RELIA NCE WAS PLACED ON THIS ISSUE ON THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF MAHYCO MOSANTO BIOTECH (INDIA) (P) LTD VS UOI (2016 74 TAXMANN.COM 92(BOM) AND DIT VS RELIANCE INDUSTRIES LTD 69 TAXMA NN.COM 311 (ITAT, MUM). 6. PER CONTRA, THE LD. DR RELIED UPON THE ORDERS OF T HE LOWER AUTHORITIES. IT WAS SUBMITTED THAT THE ASSESSEE HA D RIGHT TO MAKE ADAPTATION AND ALSO TO MAKE COPIES. IT WAS FURTHER SUBMITTED THAT IN THIS CASE SOURCE-CODE WAS ALSO GIVEN TO THE ASSESSEE WHI CH WAS A UNIQUE 5 I.T.A. NOS.83 & 84/MUM/2007 FEATURE. IT WAS FURTHER SUBMITTED THAT BENEFICIAL OWNERSHIP OF THE SOFTWARE WAS NOT WITH THE ASSESSEE, AND THEREFORE T REATY BENEFITS SHOULD NOT BE GIVEN SINCE TREATY PROVISIONS WILL NOT BE AP PLICABLE UNDER SUCH CIRCUMSTANCES. 7. IN THE REJOINDER, THE LD. COUNSEL SUBMITTED THAT T HE LOWER AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE FACTS OF THIS CASE. THE CLAUSES OF THE AGREEMENT CLEARLY REVEAL THAT THE OW NERSHIP RIGHTS WERE NOT TRANSFERRED. THE RIGHTS WERE GIVEN ONLY FOR THE LI MITED PURPOSE OF USE BY THE CUSTOMER OR ITS GROUP COMPANIES. NO RIGHTS WER E GIVEN FOR COMMERCIAL EXPLOITATION OF THE SOFTWARE. WITH REGA RD TO THE BENEFICIAL OWNERSHIP, IT WAS SUBMITTED THAT THE LOWER AUTHORIT IES HAVE NOT APPRECIATED THE FACTS PROPERLY. THE ASSESSEE WAS C LEARLY AND UNDOUBTEDLY THE BENEFICIAL OWNER OF THE INCOME RECEIVED FROM SA LE OF SOFTWARE. OUR ATTENTION WAS DRAWN UPON VARIOUS REPLIES SUBMITTED BEFORE LOWER AUTHORITIES WHEREIN IT WAS DEMONSTRATED THAT THE AS SESSEE WAS THE BENEFICIAL OWNER OF THE SOFTWARE BUSINESS DONE WITH THE CUSTOMERS IN INDIA. THEREFORE, THE ENTIRE RISK AND RESPONSIBILI TIES AND RETURNS OF THE BUSINESS WERE ENJOYED BY THE ASSESSEE. OUR ATTENTI ON WAS ALSO DRAWN UPON THE FINANCIAL STATEMENTS SHOWING THAT HUGE VAL UE ADDITION WAS MADE BY THE ASSESSEE. FURTHER, OUR ATTENTION WAS ALSO D RAWN UPON THE TAX RESIDENCY CERTIFICATE ISSUED BY NETHERLAND TAX AUTH ORITIES TO SHOW THAT THE ASSESSEE COMPANY WAS TAX RESIDENT OF NETHERLAND. U NDER THESE CIRCUMSTANCES, THE ASSESSEE SHOULD BE DEEMED TO BE THE BENEFICIAL OWNER OF SOFTWARE BUSINESS. 8. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES O F THE CASE. THE BRIEF BACKGROUND IS THAT ASSESSEE, VIZ. QAD EUROPE B.V. IS A COMPANY 6 I.T.A. NOS.83 & 84/MUM/2007 INCORPORATED IN NETHERLANDS. IT IS ALSO A TAX RESI DENT OF NETHERLANDS. IT IS A 100% SUBSIDIARY OF QAD INC., USA (IN SHORT, QAD I NC.) WHICH IS THE ULTIMATE PARENT COMPANY OF QAD GROUP. QAD INC. WAS ENGAGED DURING THESE YEARS IN THE DEVELOPMENT AND SALE OF ENTERPRI SE RESOURCE PLANNING (ERP) SOFTWARE PRODUCTS. AS PER THE GLOBAL ARRANGE MENT, THE SAID COMPANY ACTED AS A DISTRIBUTOR OF AFORESAID SOFTWAR E PRODUCTS ONLY IN USA AND LATIN AMERICAN COUNTRIES, WHEREAS THE OTHER QAD GROUP COMPANIES WORLDWIDE, INCLUDING THE ASSESSEE COMPANY, UNDERTOO K MARKETING RESPONSIBILITIES FOR COUNTRIES OTHER THAN USA AND L ATIN AMERICAN COUNTRIES. 9. DURING THE YEARS BEFORE US, THE ASSESSEE COMPANY P URCHASED SOFTWARE FROM QAD INC. AND RESOLD THE SAME TO MULTI NATIONAL COMPANIES OUTSIDE USA AND LATIN AMERICAN COUNTRIES. THESE FA CTS WERE DEMONSTRATED WITH THE HELP OF FINANCIAL STATEMENTS OF THE ASSESSEE COMPANY. FURTHER FACTS ARE THAT QAD INC. HAD ENTER ED INTO A MULTINATIONAL SOFTWARE PRODUCT LICENCE AGREEMENT DATED 01-06-1977 (CALLED AS MASTER AGREEMENT) WITH M/S UNILEVER N.V., A MULTINATIONAL COMPANY INCORPORATED IN NETHERLANDS FOR SALE OF LICENSED PR ODUCT, I.E. ERP SOFTWARE EITHER DIRECTLY OR THROUGH ITS SUBSIDIARIES TO M/S UNILEVER N.V. (UNV, IN SHORT) AND ITS SUBSIDIARIES FOR A CONSIDERATION TO BE RECEIVED EITHER FROM UNV OR THROUGH ANY OF ITS SUBSIDIARIES, AS THE CASE MAY BE. IN PURSUANCE TO THE SAID MASTER AGREEMENT, THE ASSESSEE COMPANY ENTERED INTO ANOTHER AGREEMENT WITH M/S HINDUSTAN LEVER LTD (HLL , IN SHORT), WHICH IS AN INDIAN SUBSIDIARY OF UNV FOR THE SALE OF LICENSE D PRODUCT, I.E. ERP SOFTWARE BY THE ASSESSEE COMPANY TO HLL. NOW, IN P URSUANCE TO THE AGREEMENT ENTERED INTO WITH HLL, ERP SOFTWARE WAS S OLD BY THE ASSESSEE COMPANY TO HLL. INCOME ARSING FROM THE SAID TRANSA CTION WAS TREATED AS 7 I.T.A. NOS.83 & 84/MUM/2007 BUSINESS INCOME BY THE ASSESSEE COMPANY, AND IN ABS ENCE OF ANY PE IN INDIA, THE SAME WAS NOT OFFERED TO TAX IN INDIA. B UT, ACCORDING TO THE AO, THE PAYMENT RECEIVED BY THE ASSESSEE COMPANY ON ACC OUNT OF SALE OF ERP SOFTWARE PRODUCT TO HLL AMOUNTED TO PAYMENT OF ROY ALTY BY HLL TO ASSESSEE AND, THEREFORE, IT WAS HELD AS TAXABLE IN INDIA IN THE HANDS OF THE ASSESSEE COMPANY U/S 9 (1)(VI) OF THE ACT. 10. THIS ISSUE HAS COME UP REPEATEDLY BEFORE US IN MAN Y CASES. THEREFORE, BEFORE TAKING A DECISION ON THE FACTS OF THIS CASE, WE DEEM IT APPROPRIATE TO TAKE GUIDANCE FROM THE JUDGEMENT OF HON'BLE BOMBAY HIGH COURT WHEREIN IDENTICAL ISSUE WAS INVOLVED, IN THE CASE OF MAHYCO MOSANTO BIOTECH (INDIA) (P) LTD (SUPRA) WHEREIN WHILE ANALYSING THIS ISSUE HON'BLE HIGH COURT OBSERVED AS UNDER: AT THIS STAGE, WE FIND THAT A PARALLEL TO PRACTICA L, EVERY-DAY EXAMPLES WOULD BE USEFUL. TAKE, FOR INSTANCE, THE E XAMPLE OF WHEN ONE BUYS A BOOK FROM AMAZON FOR THEIR KINDLE DEVICE . IN THIS CASE, AMAZON CAN TRANSFER THE INTELLECTUAL PROPERTY OF TH E BOOK TO MULTIPLE OTHER USERS SIMULTANEOUSLY, BUT EACH SINGL E TRANSACTION WOULD STILL BE A SALE. THIS WOULD ALSO BE TRUE OF T HE EXAMPLE OF A MUSIC CD. THE CD IS THE 'MEDIUM' BY WHICH THE INTEL LECTUAL PROPERTY, VIZ. THE SONGS, PASSES TO THE BUYER. THE MANUFACTUR ER CAN SELL IT TO AN END-USER OR TO AN INTERMEDIATE RETAILER. THE SAM E SONG CAN BE PUT ON COUNTLESS CDS. THIS TOO IS A SALE. WHEN ONE BUYS A CAR, ONE BUYS THE TECHNOLOGY THAT IS CONTAINED IN THE BODY O F THE CAR; THE BODY IS JUST THE MEDIUM. ON ITUNES, WHEN ONE BUYS A SONG, THE SONG IS TRANSFERRED INTO A FORMAT WHICH IS ACCESSIBLE TO THE BUYER, A PROPRIETORY FORMAT THAT NEEDS A SPECIAL DEVICE OR S OFTWARE. YET IT IS A SALE. LIMITLESS ITUNES USERS CAN BUY THE SONG SIMUL TANEOUSLY. THIS IS A SALE TO EACH OF THEM. IN THE CASE OF CD CONTAININ G SOFTWARE, SAY FOR EXAMPLE MICROSOFT WORD, THE MEDIUM WOULD AGAIN BE THE CD HOLDING THE INTELLECTUAL PROPERTY, WHICH WOULD BE T HE SOFTWARE TECHNOLOGY. THIS WOULD ALSO BE A SALE, DESPITE THE FACT THAT THIS SAME SOFTWARE TECHNOLOGY COULD BE PUT ON UNLIMITED NUMBER OF CDS AND SOLD TO MULTIPLE USERS SIMULTANEOUSLY. EFFECTIV E CONTROL OF THAT 8 I.T.A. NOS.83 & 84/MUM/2007 PARTICULAR SOFTWARE ON THAT ONE CD IS PASSED TO THE BUYER. THE BUYER COULD USE IT, ALIENATE IT, DESTROY IT, AND DO ANYTH ING AT ALL THAT HE LIKES WITH IT. IF HE MADE ILLICIT COPIES OF IT, THI S WOULD CONSTITUTE INFRINGEMENT; AND THAT IN ITSELF WOULD NOT MAKE THE TRANSFER OF THE SOFTWARE ON A CD A SERVICE. EVEN IF THE BUYER TRANS FERRED THIS NON- TRANSFERABLE SOFTWARE, IT WOULD AMOUNT TO A BREACH OF CONTRACT PROVIDED IN THE CD PACKAGE, JUST AS IT WOULD UNDER MONSANTO INDIA'S SUB-LICENSING AGREEMENT. HOWEVER, THIS DOES NOT DO ANYTHING TO DISQUALIFY THE TRANSACTION ITSELF FROM BEING A SALE . THESE ARE ALL SALES. PARA 46. IN FACT, WE BELIEVE THAT THIS SUB-LICENSIN G OF THE BOLLGARD TECHNOLOGY MAY POSSIBLY EVEN BE AN OUTRIGHT SALE. F OR A TRANSACTION TO QUALIFY FOR A SALE, THERE MUST BE A TRANSFER OF THE PROPERTY IN THE GOODS. IN LEGAL USAGE, THE WORD ''PROPERTY'' IS A G ENERIC TERM, OF BROAD AND EXTENSIVE APPLICATION; PERHAPS, THE MOST COMPREHENSIVE OF ALL TERMS WHICH CAN BE USED. PROPERTY EMBRACES E VERYTHING WHICH IS OR WHICH MAY BE SUBJECT TO OWNERSHIP OF ANY KIND AT ALL, AND IS LEGALLY UNDERSTOOD TO INCLUDE EVERY CLASS OF ACQUIS ITIONS THAT A MAN CAN OWN OR IN WHICH HE CAN HAVE AN INTEREST. THE RI GHTS THAT TRANSFER OF PROPERTY COVER ARE THE RIGHT OF ACQUISITION, POS SESSION, USE, ENJOYMENT AND DISPOSITION. PARA 47. WE PAUSE HERE MOMENTARILY TO CONSIDER THE NATURE OF THESE INTANGIBLE GOODS. WE BELIEVE THIS IS NECESSARY, BEC AUSE THIS IS PERHAPS A CASE WHERE THE LAW IS YET EVOLVING TO KEE P ABREAST OF TECHNOLOGY. IF WHAT MR. VENKATRAMAN SUGGESTS IS COR RECT, THEN EVERY SALE OF SOFTWARE AS WE CURRENTLY KNOW IT IS NEVER A SALE BUT ONLY A SERVICE. IN HIS FORMULATION, THE 'MEDIUM' (CD, PEN DRIVE, ETC) IS IRRELEVANT. SURELY THIS CANNOT BE CORRECT. SOFTWARE MAY BE DOWNLOADED TOO, WITHOUT ANY 'PHYSICAL MEDIUM' INTER VENING - THE MEDIUM IS AS INTANGIBLE AS THE GOODS. IT IS IMPOSSI BLE, WE THINK,AND DOES NOT STAND TO REASON TO SUGGEST THAT UNLESS, SA Y, MICROSOFT OR ADOBE WHOLLY CEDE ALL CONTROL OVER THEIR SOFTWARE P RODUCTS THERE IS NO SALE, AND WHEN THEY ALLOW A USER TO DOWNLOAD AND USE THEIR SOFTWARE THEY ARE ONLY PROVIDING A SERVICE. INDEED, THIS IS DEMONSTRABLY INCORRECT. MICROSOFT AND ADOBE BOTH HA VE ALTERNATIVE DISTRIBUTIONS MODELS. ONE MAY 'PURCHASE' A LICENSE TO MICROSOFT OFFICE OR ADOBE PHOTOSHOP. THIS MAY BE A ONE-OFF, S TANDALONE PRODUCT, DELIVERED EITHER BY DOWNLOAD OR ON PHYSICA L MEDIA. THAT IS FOR THE USER TO KEEP AND DO WITH IT WHAT HE WISHES (EXCEPT, OF 9 I.T.A. NOS.83 & 84/MUM/2007 COURSE, ATTEMPTING TO DECOMPILE IT). HE DOES NOT HA VE TO USE IT ALL; HE CAN DESTROY THE MEDIA AND ALL PERSONAL COPIES OF IT. THE SAME SOFTWARE IS ALSO AVAILABLE NOWADAYS FOR A SUBSCRIPT ION - FOR AN ANNUAL OR MONTHLY FEE, THE SOFTWARE CAN BE DOWNLOAD ED AND USED; IF THE SUBSCRIPTION ENDS, AT THE VERY LEAST UPDATES EN D AND VERY POSSIBLY THE SOFTWARE WILL NOT FUNCTION OPTIMALLY. THE LATTER MAY BE A SERVICE, VERY LIKE CAR RENTAL OR BOOK BORROWING F ROM A LIBRARY. THE FORMER IS CLEARLY A SALE. THE DIFFICULTY WITH MR. V ENKATRAMAN'S ARGUMENT IS THAT IT TRIES TO DRAW A COMPLETELY UNNE CESSARY DISTINCTION BETWEEN THE TECHNOLOGY AND THE MEDIUM I N WHICH IT IS DELIVERED. NEITHER IS THE SUBJECT OF THE LEVY. THE SUBJECT OF THE LEVY IS NOT THE TECHNOLOGY NOR THE MEDIUM. IT IS THE LICENS E; AND THE TERMS OF THAT LICENSE ARE DETERMINATIVE. WHERE A LICENSE IS PURCHASED, IT IS STILL A SALE, ALTHOUGH WHAT THE USER HAS 'PURCHASED ' IS THE RIGHT TO USE THE SOFTWARE. EVERY LICENSE HAS A UNIQUE KEY AND EV ERY SALE IS THEREFORE UNIQUELY IDENTIFIED. THE PURCHASE IS THER EFORE A TRANSFER OF THE RIGHT TO USE THAT PARTICULAR, IDENTIFIED SOFTWA RE. THE PROPRIETORY RIGHTS TO THE SOFTWARE DO NOT HAVE TO BE 'SOLD' OR 'TRANSFERRED '. MICROSOFT AND ADOBE RETAIN ALL THOSE RIGHTS, AND AL L INTELLECTUAL PROPERTY CONTINUES TO VEST IN THEM. THIS IS, THEREF ORE, A TRANSFER OF THE RIGHT TO USE THAT SOFTWARE, AND TO THAT EXTENT, THE INTANGIBLE (THE SOFTWARE) IS SOLD; BUT THE TERMS OF THAT LICENSE AL LOW THE SOFTWARE VENDOR TO RETAIN COMPLETE SEIZIN AND DOMINION OVER ALL INTELLECTUAL PROPERTY RIGHTS. THE TRANSFER IS NOT OF THOSE INTEL LECTUAL PROPERTY RIGHTS, BUT OF THE RIGHT TO USE AN IDENTIFIED AND I DENTIFIABLE VERSION OF THAT SOFTWARE. IN THE SUBSCRIPTION DISTRIBUTION MOD EL, WHERE THE SOFTWARE USAGE IS DEPENDENT ON PAYMENT OF A PERIODI C FEE, THERE IS NO SUCH TRANSFER, AND THERE IS A MERE RIGHT TO USE, WITHOUT ANY TRANSFER OF THAT RIGHT TO USE EVEN THAT PARTICULAR DOWNLOAD. SO LONG AS THE FEE IS PAID, THE SOFTWARE MAY BE USED; WHEN THE FEE PAYMENT STOPS, SO DOES THE RIGHT TO USE. THIS EXACTLY PARAL LELS CAR OR BOOK RENTALS. THE DETERMINANT IN SUCH A CASE MUST, THERE FORE, BE WHETHER THE LICENSE IS SUCH THAT THE LICENSED INTANGIBLE IS WITH THE LICENSEE IN PERPETUITY OR WHETHER THE LICENSOR HAS THE RIGHT TO TERMINATE AND REPOSSESS AND DENY FURTHER ACCESS TO THAT INTANGIBL E. IN A SOFTWARE SALE, THERE IS NO QUESTION OF TERMINATION OR REPOSS ESSION. IT IS FOR THE LICENSEE TO USE FOREVER. THIS IS CLEARLY A SALE OR A DEEMED SALE AND IT IS IN RESPECT OF NOT THE MEDIUM OR THE INTELLECTUAL PROPERTY (THE MARKS, COPYRIGHT, PATENTS, ETC), BUT IS THE TRANSFE R OF THE RIGHT TO USE THAT SOFTWARE SUBJECT TO THOSE MARKS, PATENTS, COPYRIGHT, ETC. 10 I.T.A. NOS.83 & 84/MUM/2007 MONSANTO INDIA'S CASE IS NO DIFFERENT. ITS SUB-LICENSEE DO NOT ACQUIRE ANY PROPRIETORY INTELLECTUAL PROPERTY RIGHT S OVER THE BOLLARD TECHNOLOGY; MONSANTO INDIA'S AND ITS PARENTS' PATEN TS, COPYRIGHT, MARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS ARE PR ESERVED INTACT, UNAFFECTED BY THE SUB-LICENSING. BUT THE IDENTIFIED TECHNOLOGY, THE ONE INFUSED IN THE FIFTY SEEDS GIVEN TO THE SUB-LIC ENSEE, IS FOR THE SUB- LICENSEE TO USE AS HE WISHES. VIEWED FROM THIS PERS PECTIVE, MR. VENKATRAMAN'S CLIENTS' UNDERLYING FEARS ARE, WE BEL IEVE, UNFOUNDED. (EMPHASIS SUPPLIED) 11. IDENTICAL ISSUE ALSO CAME UP BEFORE THE CO-ORDINAT E BENCH OF ITAT IN THE CASE OF DDIT VS RELIANCE INDUSTRIES LTD (SUPRA) WHEREIN THE BENCH ANALYSED THE PROVISIONS OF COPYRIGHT AND DISCUSSED IN DETAIL ITS APPLICABILITY TO DETERMINE WHETHER THERE WOULD BE A NY TRANSFER OF COPYRIGHT AT THE TIME OF SALE OF SOFTWARE. THE OBS ERVATIONS OF THE HON'BLE BENCH CAN BE SUMMARISED AS UNDER: A PERUSAL OF THE ABOVE PROVISIONS OF THE COPYRIGH T ACT REVEALS THAT THE COMPUTER SOFTWARE IS INCLUDED IN THE DEFINITION OF LITERARY WORK AND IS COVERED UNDER THE PURVIEW AND SCOPE OF COPYR IGHT. THE EXCLUSIVE RIGHTS TO DO OR AUTHORIZE THE DOING OF CE RTAIN ACTS AS MENTIONED IN CLAUSE (A) AND CLAUSE (B) OF SECTION 1 4 VESTS IN THE OWNER OF THE WORK SUCH AS TO REPRODUCE THE WORK, TO ISSUE COPIES, TO MAKE TRANSLATION OR ADAPTATION, TO SELL OR GIVE ON COMMERCIAL RENTAL IN RESPECT OF A WORK. THE INTERNAL USE OF THE WORK FOR THE PURPOSE IT HAS BEEN PURCHASED DOES NOT CONSTITUTE RIGHT TO USE THE COPY RIGHT IN WORK. OUR ABOVE ALSO FINDS SUPPORT FROM CERTAIN OTH ER PROVISIONS OF THE COPYRIGHT ACT. 12. THUS, FROM THE ABOVE JUDGMENTS, IT MAY BE NOTED TH AT IN THE ABOVE SAID CASES IT HAS BEEN HELD THAT IN ABSENCE OF TRAN SFER OF RIGHTS TO AUTHORISE DOING OF CERTAIN ACTS AS MENTIONED IN SEC TIONS 2, 13 & 14 OF THE COPYRIGHT ACT IT CANNOT BE SAID THAT THERE WAS TRAN SFER OF COPYRIGHT. THEREFORE, IN VIEW OF THESE JUDGMENTS IT WAS VEHEME NTLY ARGUED THAT THE PAYMENT ON SALE OF SOFTWARE SHALL NOT FALL WITHIN T HE DEFINITION OF ROYALTY, AS PER DTAA. 13. TURNING BACK TO THE FACTS OF THIS CASE, IT IS NOTE D THAT THE RIGHTS AND OBLIGATIONS OF THE PARTIES, I.E. THE ASSESSEE AND I TS CUSTOMER, VIZ. HLL FLOW 11 I.T.A. NOS.83 & 84/MUM/2007 FROM THE MASTER AGREEMENT. THEREFORE, THE RELEVANT CLAUSES OF THIS AGREEMENT WERE EXAMINED BY US, AND ARE REPRODUCED B ELOW:- 'ARTICLE 2-LICENSES: 2.1 GRANT: UPON ISSUANCE OF A PURCHASE ORDER BY ANY PARTICIPANT TO QAD, QAD SHALL, IN CONSIDERATION OF THE LICENSE FEE TO BE PAID, GRANT TO SUCH PARTICIPANT A NON-EXCLUSIVE, NON-TRANSFERAB LE LICENSE, FOR PERPETUAL USE , TO USE THE PRODUCTS ON ONE (1) HARDWARE SYSTEM AT THE SITE DESIGNATED IN THE PURCHASE ORDER IN ACCORD ANCE WITH THE TERMS AND CONDITIONS ESTABLISHED IN THIS AGREEMENT. SUCH LICENSE SHALL INCLUDE THE RIGHT TO USE THE ENGLISH LANGUAGE VERSION OF THE LICENSED PRODUCTS AND ONE (1) ADDITIONAL LANGUAGE V ERSION AT THE SITE. FOR PURPOSES OF THIS LICENSE GRANT, A HARDWAR E SYSTEM MAY INCLUDE UP TO FOUR (4) SERVERS AT ANYONE LICENSED P ARTICIPANT. OWNERSHIP RIGHTS : LICENSED PARTICIPANTS SHALL NOT ACQUIRE ANY RIGHTS OF OWNERSHIP IN THE PRODUCTS. LICENSED PARTICIPANTS ACQUIRE ONLY THE RIGHT TO USE THE PRODUCTS SUBJECT TO THE TERMS OF T HIS AGREEMENT. BACKUP COPIES : LICENSED PARTICIPANT MAY COPY THE PRODUCTS FOR SAFEKEEPING (ARCHIVAL) OR BACKUP PURPOSES , PROVIDED THAT ALL SUCH COPIES OF PRODUCTS ARE SUBJECT TO THE PROVISIONS OF THIS AGREEMENT, AND ALSO PROVIDED THAT EACH COPY SHALL INCLUDE IN R EADABLE FORMAT ANY AND ALL CONFIDENTIAL, PROPRIETARY AND COPYRIGHT NOTICES OR MARKINGS CONTAINED IN THE ORIGINAL. 2.3 ASSIGNMENT : THE RIGHTS GRANTED HEREIN ARE RESTRICTED FOR USE SOLELY BY LICENSED PARTICIPANTS AND MAY NOT BE ASSI GNED, TRANSFERRED, OR SUB LICENSED, EXCEPT AS EXPLICITLY AGREED UNDER THIS AGREEMENT AS SET FORTH IN ARTICLE 13.6, WITHOUT THE PRIOR WRITTEN PERMISSION OF QAD. EACH LICENSED PARTICIPANT SHALL BE AUTHORIZED TO MAKE USE OF THE PRODUCTS IN THE FORM IN WHICH THEY ARE PROVIDED TO LICENSED PARTICIPANT (MACHINE READABLE OBJECT CODE) SOLELY FOR LICENSED PARTICIPANT'S OWN INTERNAL DATA PROCESSING OPERATIONS. LICENSED PARTICIPANT AGREES NOT TO USE THE PRODUCTS FOR TIMESHARING, RENTAL OR SERVICE BUREAU. ARTICLE 4-TRANSFER OF PROGRAMS ON HARDWARE SYSTEM-U PGRADE OF LICENSE: 4.3 UPGRADE FEE : A LICENSE TO PROGRAMS MAY BE UPGRADED, SUCH AS TO A HIGHER NUMBER OF USERS CLASSIFICATION, BY PAYM ENT OF QAD OF AN UPGRADE FEE EQUAL TO THE DIFFERENCE BETWEEN THE THE N CURRENT LICENSE FEE LIST PRICE IN EFFECT FOR PARTICIPANT FO R THE LICENSED 12 I.T.A. NOS.83 & 84/MUM/2007 PROGRAMS AT THE DESIRED UPGRADE LEVEL AND THE LICEN SE FEES PAID TO DATE FOR THAT LICENSE. ARTICLE 9-MODIFLCATION RIGHTS: 9.1 MODIFICATIONS: QAD PROVIDES SOME PORTIONS OF PR ODUCTS IN SOURCE CODE FORM AND OTHER PORTIONS IN OBJECT CODE FORM. P ARTICIPANT MAY MODIFY ANY SOURCE CODE. PARTICIPANT MAY NOT MODIFY ANY PORTION OF THE OBJECT CODE. PARTICIPANT MAY NOT USE QAD PRODUC TS WITHOUT OBJECT CODE MODULES. THE OBJECT CODE CONTAINS LICENSE NUMBER, DATE OF LICENSE AND OTHER LICENSE INFORMATION. THIS INFO RMATION IS PLACED IN THE OBJECT CODE PORTIONS TO PREVENT UNAUTHORIZED AND UNLICENSED DISTRIBUTIONS OF THE PRODUCTS. PARTICIPANT MAY NOT SUBVERT OR CHANGE ANY OF THIS INFORMATION. 9.2 OWNERSHIP OF MODIFICATIONS: THE PARTIES HEREBY AGREE THAT THE OWNERSHIP OF ALL INTELLECTUAL PROPERTY RIGHTS EMBODIED IN, OR BY, ANY MODIFICATION TO THE PROGRAMS CREATED BY, OR FOR, PA RTICIPANT UNDER THIS AGREEMENT, SHALL VEST SOLELY IN QAD. PARTICIPANT HEREBY ASSIGNS ALL RIGHTS TITLE AND INTEREST IN ALL SUCH MODIFICAT IONS TO THE PRODUCTS TO QAD. (EMPHASIS SUPPLIED IN BOLD AND UNDERLINE) 14. ON THE BASIS OF ANALYSIS OF THE RELEVANT CLAUSES O F THE MASTER AGREEMENT AND OTHER FACTS BROUGHT BEFORE US, SALIENT FEATURES OF THE AGREEMENT DEFINING RIGHTS AND OBLIGATIONS OF THE PA RTIES CAN BE SUMMARISED AS UNDER:- I) THE ASSESSEE COMPANY HAS GRANTED TO HLL A NON-EX CLUSIVE, NON- TRANSFERABLE, LICENSE FOR PERPETUAL USE. II) THE LICENSE WAS FOR USE OF PRODUCT ON ONE HARDW ARE SYSTEM. A HARDWARE SYSTEM MAY INCLUDE UP TO FOUR SERVERS. III) HLL DID NOT ACQUIRE ANY COPYRIGHTS IN THE PROD UCT. IV) THE LICENSE COULD BE USED BY HLL ALONE AND HLL WAS NOT PERMITTED TO ASSIGN, TRANSFER OR SUBLICENSE. V) HLL WAS PERMITTED TO USE THE LICENSE FOR THE PUR POSE OF ITS OWN OPERATION AND WAS NOT PERMITTED TO EXPLOIT IT COMME RCIALLY. 13 I.T.A. NOS.83 & 84/MUM/2007 VI) IT WAS EXPLAINED THAT A SOURCE CODE IS A COMPUT ER PROGRAMME WRITTEN IN ANY OF THE SEVERAL PROGRAMMING LANGUAGES EMPLOYED BY COMPUTER PROGRAMMERS. AN OBJECT CODE IS THE VERSION OF A PROGRAMME IN WHICH THE SOURCE CODE LANGUAGE IS CONV ERTED OR TRANSLATED INTO THE MACHINE LANGUAGE OF THE COMPUTE R WITH WHICH IT IS TO BE USED. THE OBJECT CODE IS AN ADAPTATION OR MECHANICAL TRANSLATION OF THE SOURCE CODE ENTITLED TO COPYRIGH T PROTECTION. IT WAS EMPHASISED THAT THOUGH HLL WAS PERMITTED TO MODIFY SOURCE CODE BUT WAS NOT PERMITTED TO MODIFY OBJECT CODE. T HE AGREEMENT GRANTED LIMITED RIGHTS TO HLL PERMITTING TO CHANGE SOURCE CODE SO AS TO MAKE THE PRODUCT COMPATIBLE TO THE LOCAL LAWS AN D REGULATIONS LIKE SERVICE TAX ETC. THE SAID CHANGE IN THE SOURCE CODE COULD NOT BE OPERATIONAL TILL THE OBJECT CODE WAS MODIFIED BY TH E ASSESSEE COMPANY. HENCE, THE LIMITED RIGHT OF MODIFICATION Q UA THE SOURCE CODE GRANTED TO HLL CANNOT BE VIEWED ADVERSELY. VII) THE RIGHTS IN MODIFICATION TO PROGRAMS SHALL V EST IN QAD. VIII) THE COMPUTER PROGRAM IS GOVERNED BY THE COPYR IGHT ACT, 1957. IX) HLL IS NOT PERMITTED TO DO ANY ACT REFERRED TO IN SECTION 14 OF THE COPYRIGHT ACT, 1957. X) THE ASSESSEE COMPANY HAS THEREFORE NOT GRANTED T O HLL ANY RIGHT IN A COPYRIGHT. 15. HAVING EXAMINED VARIOUS CLAUSES OF THE AGREEMENT, WE HAVE ALSO GONE THROUGH RELEVANT PROVISIONS OF THE COPYRIGHT A CT, 1957. IT WAS NOTED BY US THAT AS PER SECTION 2(A) OF THE COPYRIGHT ACT , ADAPTATION MEANS,- I) IN RELATION TO A DRAMATIC WORK, THE CONVERSION O F THE WORK INTO A NON-DRAMATIC WORK; II) IN RELATION TO A LITERARY WORK OR AN ARTISTIC W ORK, THE CONVERSION OF THE WORK INTO A DRAMATIC WORK BY WAY OF PERFORMANCE IN PUBLIC OR OTHERWISE; 14 I.T.A. NOS.83 & 84/MUM/2007 III) IN RELATION TO A LITERARY OR DRAMATIC WORK, AN Y ABRIDGEMENT OF THE WORK OR ANY VERSION OF THE WORK IN WHICH THE STORY OR ACTION IS CONVEYED WHOLLY OR MAINLY BY MEANS OF PICTURES IN A FORM SUITABLE FOR REPRODUCTION IN A BOOK, OR IN A NEWSPAPER, MAGAZINE OR SIMILAR PERIODICAL; IV) IN RELATION TO A MUSICAL WORK, ANY ARRANGEMENT OR TRANSCRIPTION OF THE WORK; AND V) IN RELATION TO ANY WORK, ANY- USE OF SUCH WORK I NVOLVING ITS REARRANGEMENT OR ALTERATION; 16. NOW, IF WE ANALYSE AND COMPARE VARIOUS PROVISIONS OF THE COPYRIGHT ACT WITH THE RELEVANT CLAUSES OF THE MASTER AGREEM ENT, IT IS NOTED THAT THE SAID AGREEMENT DOES NOT PERMIT HLL TO CARRY OUT ANY ALTERATION OR CONVERSION OF ANY NATURE, SO AS TO FALL 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 NO RIGHT WAS GI VEN TO HLL FOR COMMERCIAL EXPLOITATION OF THE SAME. IT IS ALSO NOTED THAT TH E TERMS OF THE AGREEMENT DO NOT ALLOW OR AUTHORISE HLL TO DO ANY OF THE ACTS COVERED BY THE DEFINITION OF COPYRIGHT. UNDER THESE CIRCUMSTANC ES, THE PAYMENT MADE BY HLL CANNOT BE CONSTRUED AS PAYMENT MADE TOWARDS USE OF COPYRIGHT PARTICULARLY WHEN THE PROVISIONS OF INDIAN INCOME-T AX ACT AND DTAA ARE READ TOGETHER WITH THE PROVISIONS OF THE COPYRIGHT ACT, 1957. 17. FURTHER, IT IS ALSO NOTED BY US THAT DTAAS OF FEW COUNTRIES MAKE A SPECIFIC MENTION THAT PAYMENT MADE FOR SOFTWARE WOU LD BE INCLUDED WITHIN THE DEFINITION OF ROYALTY. REFERENCE CAN BE MADE TO THE DTAA WITH MALAYASIA, ROMANIA, KAZAKHISTAN AND MOROCCO. H OWEVER INDIA NETHERLANDS DTAA DOES NOT INCLUDE SOFTWARE WHILE DE FINING ROYALTY. 15 I.T.A. NOS.83 & 84/MUM/2007 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 ROYALTY . 18. IT IS FURTHER NOTED BY US THAT IDENTICAL ISSUE CAM E UP BEFORE THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DATAMINE INTERNATIONAL LTD VS ADDNL DIT (IN ITA NO5651/DEL/2010 ORDER DT 14-03-20 16) WHEREIN VARIOUS CONTENTIONS WERE RAISED BY THE REVENUE TO A RGUE THAT THE PAYMENT RECEIVED ON ACCOUNT OF SALE OF SOFTWARE WOU LD AMOUNT TO ROYALTY FOR VARIOUS REASONS. THE BENCH DISCUSSED ALL THE ARGUMENTS MADE BY THE REVENUE IN DETAIL AND HELD THAT THE PAY MENT MADE ON ACCOUNT OF SOFTWARE SHALL NOT FALL WITHIN THE DEFIN ITION OF ROYALTY. RELEVANT PART OF THE ORDER OF THE BENCH IS REPRODUC ED HEREUNDER: 5. NOW, WE ESPOUSE THE `END USER AGREEMENT BETWEEN DATAMINE CORPORATE LTD. AND THE END-USER OF THE SOF TWARE PRODUCTS, WHO PURCHASES SUCH SOFTWARE THROUGH THE A SSESSEE, A DISTRIBUTOR OF THE SOFTWARE PRODUCT. A COPY OF THIS AGREEMENT IS PLACED AT PAGE 122 ONWARDS OF THE PAPER BOOK. CLAUS E USAGE RIGHTS CLEARLY STATES THAT DATAMINE CORPORATE LTD. (DCL) GRANTS TO THE END USER: THE PERPETUAL RIGHT TO USE THE NU MBER OF SEATS OF THE SOFTWARE PRODUCTS. IT FURTHER PROVIDES THAT : THE PERPETUAL RIGHT TO USE THE SOFTWARE REFERS ONLY TO THE VERSIO N OF THE PRODUCT THAT WAS AVAILABLE WHEN THE PURCHASE WAS MADE AND D OES NOT ENTITLE YOU TO RECEIVE FURTHER UPDATES OR ENHANCEME NTS TO THE SOFTWARE... A SIGNIFICANT CLAUSE OF THE AGREEMENT STATES THAT: THIS AGREEMENT DOES NOT TRANSFER THE INTELLECTUAL PROPERTY RIGHTS TO THE PRODUCTS TO YOU. THEN, THERE HAVE BEEN SPEC IFIED CERTAIN DOS AND DO NOTS, WHICH ARE AS UNDER:- UNDER THIS AGREEMENT YOU MAY: A. INSTALL THE SOFTWARE ON ANY NUMBER OF COMPUTERS OVER WHICH YOU HAVE CONTROL; B. MAKE COPIES OF THE SOFTW ARE IN MACHINE READABLE FORM FOR BACKUP PURPOSES; C. MAKE COPIES OF ANY DOCUMENTATION FOR YOUR USE ONLY; AND D. EXECUTE AS MANY SIMULTANEOUS COPIES OF THE SOFTWARE 16 I.T.A. NOS.83 & 84/MUM/2007 PRODUCTS AS YOU HAVE PURCHASED SEATS. YOU MAY NOT: A. CONTRIVE FOR THE SOFTWARE TO BE EXECUTED BY MORE THAN THE NUMBER OF SIMULTANEOUS USERS FOR WHICH YOU HAVE PURCHASED SEATS; B. MODIFY, TRANSLATE, REVERSE ENGI NEER, DECOMPILE, DISASSEMBLE OR CREATE SIMILAR OR DERIVAT IVE SOFTWARE PROGRAMS BASED ON SOFTWARE PRODUCTS YOU HA VE PURCHASED; OR C. ASSIGN, RENT OR LEASE ANY RIGHTS I N THE SOFTWARE OR ACCOMPANYING DOCUMENTATION IN ANY FORM TO ANY THIRD PARTY WITHOUT THE PRIOR WRITTEN CONSENT O F DCL OR ITS AUTHORIZED CHANNELS WHICH, IF GIVEN, IS SUBJECT TO THE THIRD PARTYS CONSENT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. 6. THIS CLAUSE FAIRLY INDICATES THAT THE END USER C AN INSTALL THE SOFTWARE ON ANY NUMBER OF COMPUTERS, MAKE COPIES FO R BACK UP PURPOSES FOR HIS OWN USE ONLY BUT WITH THE QUALIFIC ATION THAT HE CANNOT OPERATE/EXECUTE SIMULTANEOUS COPIES OF THE S OFTWARE PRODUCT MORE THAN THE PURCHASED SEATS. FOR EXAMPLE, IF THREE COPIES OF A PRODUCT ARE PURCHASED, THESE THREE SOFT WARE CAN BE INSTALLED IN ANY NUMBER OF COMPUTERS, BUT, AT A TIM E THE USAGE CANNOT BY OF MORE THAN THREE SEATS. IF ONLY ONE COP Y IS PURCHASED, THAT CAN BE INSTALLED BY THE END CUSTOME R ON ANY NUMBER OF COMPUTERS, BUT, AT A TIME ONLY ONE CAN BE USED. THEN, THERE IS A WARRANTY CLAUSE IN THIS AGREEMENT WHICH PROVIDES THAT THE WARRANTY DURATION VARIES FROM PRODUCT TO PRODUC T AND DURING SUCH WARRANTY PERIOD, THE DATAMINE GROUP WILL REPAI R ANY PROGRAMME ERROR THAT MAY HAVE BEEN FOUND. A PERUSAL OF THE ABOVE CLAUSES OF THE END USER AGREEMENT DIVULGES TH AT THE END USER ACQUIRES PERPETUAL RIGHT TO USE THE SOFTWARE A ND THE NUMBER OF PERMISSIBLE SEATS TO THE USER IS EQUAL TO THE NU MBER OF COPIES PURCHASED. IT FURTHER SHOWS THAT INTELLECTUAL PROPE RTY RIGHTS VEST IN CORPORATE ALONE AND THE END USER HAS SIMPLY A RI GHT TO USE THE PRODUCT, WHICH IS ALBEIT PERPETUAL. 7. UNDER SUCH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER THE SALE OF SOFTWARE CAN BE TREATED AS `ROYALTY AS HELD BY THE AUTHORITIES OR `BUSINESS RECEIPTS AS CANVASSED BY THE ASSESSEE. THE LD. AR WAS FAIR ENOUGH TO CONCEDE THAT EXPLANAT ION 4 TO SECTION 9(1)(VI) INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 BRINGS CONSIDERA TION FOR RIGHT TO USE A COMPUTER SOFTWARE WITHIN THE AMBIT OF `ROY ALTY. IT WAS, 17 I.T.A. NOS.83 & 84/MUM/2007 HOWEVER, SUBMITTED THAT THE DTAA HAS NOT BEEN CORRE SPONDINGLY AMENDED IN LINE WITH THE SECTION 9(1)(VI) OF THE AC T, SO AS TO BRING PAYMENT FOR RIGHT TO USE A COMPUTER SOFTWARE WITHIN THE PURVIEW OF ARTICLE 13 OF THE DTAA. THIS ARGUMENT WAS VEHEME NTLY COUNTERED BY THE LD. DR, WHO SUBMITTED THAT INSERTI ON OF EXPLANATION 4 TO SECTION 9(1)(VI) SHOULD ALSO BE RE AD INTO THE DTAA AND THUS GOING BY THE LANGUAGE OF ARTICLE 13 O F THE DTAA AS SO AMENDED, THE CASE OF THE ASSESSEE FALLS WITHI N THE SAME. 8. 1. WE FIRST TAKE UP THE CONTENTION OF THE LD. DR THAT THE RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF THE AC T SHOULD BE CONSIDERED FOR DETERMINING THE TAXABILITY OF THE AM OUNT EVEN UNDER THE DTAA. THIS CONTENTION, IN OUR CONSIDERED OPINION, IS PARTLY CORRECT. ANY AMENDMENT CARRIED OUT TO THE PR OVISIONS OF THE ACT WITH RETROSPECTIVE EFFECT SHALL NO DOUBT HA VE THE EFFECT OF ALTERING THE PROVISIONS OF THE ACT BUT CAN NOT PER SE HAVE THE EFFECT OF AUTOMATICALLY ALTERING THE ANALOGOUS PROV ISION OF THE TREATY. THERE ARE CERTAIN PROVISIONS IN SOME TREATI ES WHICH DIRECTLY RECOGNIZE THE PROVISIONS OF THE DOMESTIC L AW. FOR EXAMPLE, ARTICLE 7 IN CERTAIN CONVENTIONS PROVIDES THAT THE DEDUCTIBILITY OF EXPENSES OF THE PERMANENT ESTABLIS HMENT SHALL BE SUBJECT TO THE PROVISIONS OF THE DOMESTIC LAW. I N SUCH A CASE, IF ANY RETROSPECTIVE AMENDMENT IS MADE TO THE PROVISIO NS OF THE ACT GOVERNING THE DEDUCTIBILITY OF THE EXPENSES, TH E SAME SHALL APPLY UNDER THE TREATY AS WELL. 8.2. ARTICLE 3(3) OF THE DTAA PROVIDES THAT ANY TER M NOT DEFINED IN THE CONVENTION SHALL, UNLESS THE CONTEXT OTHERWI SE REQUIRES, HAVE THE MEANING WHICH IT HAS UNDER THE LAWS OF THA T STATE CONCERNING TAX TO WHICH THE CONVENTION APPLIES. THE NITTY-GRITTY OF ARTICLE 3(3) IN THE PRESENT CONTEXT IS THAT IF A PARTICULAR TERM HAS NOT BEEN DEFINED IN THE TREATY BUT THE SAME HAS BEEN DEFINED IN THE ACT AND FURTHER THERE IS A RETROSPECTIVE AMENDMENT TO THAT TERM UNDER THE ACT, THEN IT IS THIS AMENDED DEFINITION OF THE TERM AS PER THE ACT, WHICH SHALL APPLY IN THE TREATY AS WELL. IF HOWEVER A PARTICULA R TERM HAS BEEN SPECIFICALLY DEFINED IN THE TREATY, THE AMENDMENT T O THE DEFINITION OF SUCH TERM UNDER THE ACT WOULD HAVE NO BEARING ON THE DEFINITION OF SUCH TERM IN THE CONTEXT OF THE C ONVENTION, UNLESS THE DTAA IS ALSO CORRESPONDINGLY AMENDED. A COUNTRY WHICH IS PARTY TO A TREATY CANNOT UNILATERALLY ALTE R ITS PROVISIONS. 18 I.T.A. NOS.83 & 84/MUM/2007 AN AMENDMENT TO A TREATY CAN BE MADE BILATERALLY AF TER ENTERTAINING DELIBERATIONS FROM BOTH THE COUNTRIES WHO SIGNED IT. IF THERE IS NO AMENDMENT TO THE PROVISION OF THE TR EATY BUT THERE IS SOME AMENDMENT ADVERSE TO THE ASSESSEE IN THE AC T, WHICH PROVISION HAS BEEN SPECIFICALLY DEFINED IN THE TREA TY OR THERE IS NO REFERENCE IN THE TREATY TO THE ADOPTION OF SUCH PRO VISION FROM THE ACT, THEN SUCH AMENDMENT WILL HAVE NO EFFECT ON THE DTAA. 8.3. REVERTING TO THE FACTS OF THE EXTANT CASE, WE OBSERVE THAT THE TERM 'ROYALTIES' HAS BEEN DEFINED IN THE DTAA A S PER ARTICLE 13(3). SUCH DEFINITION OF THE TERM 'ROYALTIES' AS P ER THIS ARTICLE IS EXHAUSTIVE. PURSUANT TO THE INSERTION OF EXPLANATION (4) BY THE FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT, NO CORRESPONDING A MENDMENT HAS BEEN MADE IN THE DTAA TO BRING THE DEFINITION O F `ROYALTIES AT PAR WITH THAT PROVIDED UNDER THE ACT. SUBJECT MA TTER OF THE EXPLANATION 4 IS OTHERWISE NOT A PART OF THE DEFINI TION OF `ROYALTIES AS PER ARTICLE 13 OF THE DTAA. AS SUCH, IT BECOMES VIVID THAT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RETROSPECTIVE INSERTION OF EXPLANATION 4 TO SECTION 9(1)(VI) SHOULD BE READ IN TO THE DTAA ALSO,CANNOT BE ACCEPTED. 9. NOW WE PROCEED TO EVALUATE THE CONTENTION OF THE LD. AR THAT THE PROVISIONS OF THE DTAA DO NOT PERMIT TAXABILITY OF RECEIPT FROM SALE OF SOFTWARE AS `ROYALTIES, DEFINED AS PER ARTICLE 13, WHOSE RELEVANT PART READS AS UNDER : - ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISIN G IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAW OF THAT STATE; BUT IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES IS A RESIDENT OF THE OT HER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXC EED : 19 I.T.A. NOS.83 & 84/MUM/2007 (3) FOR THE PURPOSES OF THIS ARTICLE, THE TERM 'ROY ALTIES' MEANS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATIO N FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILMS, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RA DIO OR TELEVISION BROADCASTING, ANY PATENT,TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, O R FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OTHER THAN INCO ME DERIVED BY AN ENTERPRISE OF A CONTRACTING STATE FRO M THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC. 10. PARA 1 OF THIS ARTICLE PROVIDES THAT `ROYALTIES ARISING IN INDIA AND PAID TO A RESIDENT OF UK MAY BE TAXED IN UK. PA RA 2 PROVIDES THAT SUCH ROYALTIES MAY ALSO BE TAXED IN INDIA. AS THE ASSESSEE IS A RESIDENT OF UK,INCOME FROM ROYALTIES ARISING IN I NDIA, IS OTHERWISE CHARGEABLE TO TAX IN INDIA AT THE STIPULA TED RATE OF TAX. BUT IN ORDER TO TAX ANY AMOUNT UNDER THIS ARTICLE, IT IS SINE QUA NON THAT THE RECEIPT MUST FALL WITHIN THE SCOPE OF `ROYALTIES AS DEFINED IN PARA 3 OF THE ARTICLE 13. THE AO HAS ENC LOSED THE CASE OF THE ASSESSEE WITHIN SUB-PARA (A) OF PARA 3. IT I S APPARENT THAT SUB-PARA (B) OF PARA 3 OF ARTICLE 13, DEALING WITH CONSIDERATION FOR THE USE OF ANY INDUSTRIAL, COMMERCIAL OR SCIENT IFIC EQUIPMENT ETC., HAS ABSOLUTELY NO RELEVANCE IN THE PRESENT CO NTEXT AS NO EQUIPMENT HAS BEEN TRANSFERRED BY THE ASSESSEE TO T HE END USERS, WHICH IS SIMPLY A SOFTWARE. NOW COMING TO SU B-PARA (A) OF PARA 3 OF THE ARTICLE, WE FIND THAT THE TERM `ROYAL TIES HAS BEEN DEFINED TO MEAN A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIEN TIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILMS, TAP E OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RA DIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK, DES IGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 20 I.T.A. NOS.83 & 84/MUM/2007 11. THE DEPARTMENT HAS COVERED THE CASE WITH IN THE FOUR CORNERS OF THIS ARTICLE ON TWO COUNTS. FIRST IS THA T THE CONSIDERATION FROM THE ALLEGED SALE OF SOFTWARE IS NOTHING, BUT, FOR `USE OF PROCESS. IN OUR CONSIDERED OPINION, THIS APPROACH IS NOT CORRECT BECAUSE THE ASSESSEE HAS NOT ALLOWED EN D USERS TO USE ANY `PROCESS. OBVIOUSLY, A `COMPUTER SOFTWARE CANNOT BE TREATED AS A `PROCESS BECAUSE THE END USERS BY USI NG THE SOFTWARE DO NOT HAVE ANY ACCESS TO THE SOURCE CODES . WHAT IS AVAILABLE FOR THEIR USE IS SOFTWARE PRODUCT AS SUCH AND NOT THE PROCESSES EMBEDDED IN IT. TO CITE AN EXAMPLE, WHEN WE PURCHASE A REFRIGERATOR AND PLACE VEGETABLES ETC. INTO IF FO R COOLING, WHAT WE USE FOR COOLING IS REFRIGERATOR AND NOT ITS IN-B UILT PROCESSES OR TECHNOLOGY WHICH FACILITATED IN THE MANUFACTURING O F A REFRIGERATOR. IN THE SAME MANNER, SEVERAL PROCESSES MAY BE INVOLVED IN MAKING A COMPUTER SOFTWARE, BUT THE CUS TOMER USES THE SOFTWARE AS SUCH AND NOT THE PROCESSES INVOLVED INTO IT. WE, THEREFORE, REFUSE TO ACCEPT THE VIEW POINT OF THE R EVENUE THAT THE ASSESSEE RECEIVED CONSIDERATION FROM END USERS FOR THE USE OF OR THE RIGHT TO USE ANY `PROCESS. 12.1. AS REGARDS SECOND COUNT, THE LD. DR ACCENTUAT ED ON THE LANGUAGE OF PARA 3(A) OF THE ARTICLE 13 TO CANVASS A VIEW THAT THE ASSESSEE RECEIVED THE AMOUNT FOR ALLOWING USE OF CO PYRIGHT IN THE MINING SOFTWARE. A BARE PERUSAL OF THIS PARA DECIPH ERS THAT THE TERM ROYALTIES HAS BEEN DEFINED TO MEAN A CONSIDE RATION FOR THE USE OF OR THE RIGHT TO USE ANY `COPYRIGHT OF LITERA RY, ARTISTIC OR SCIENTIFIC WORK , PATENT, TRADEMARK AND DESIGN ETC . THIS CONTENTION RAISED ON BEHALF OF THE REVENUE NEEDS TO BE DEALT IN TWO SEGMENTS. FIRSTLY, WE FIND THAT THERE IS NO SPE CIFIC MENTION OF `COMPUTER SOFTWARE IN PARA 3(A) OF THE ARTICLE 13 ALONG WITH LITERARY, ARTISTIC OR SCIENTIFIC WORK, PATENT, TRAD EMARK ETC. SUCH LANGUAGE OF THE DTAA IS IN SHARP CONTRAST TO THE SP ECIFIC USE OF THE TERM `COMPUTER SOFTWARE OR `COMPUTER SOFTWARE PROGRAMME TOGETHER WITH LITERARY,ARTISTIC OR SCIEN TIFIC WORK, PATENT, TRADEMARK ETC. IN MANY DTAAS. TO ILLUSTRATE , ARTICLE 12 OF THE DTAA BETWEEN INDIA AND MALAYSIA DEFINES ROYALT IES TO MEAN `PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATIO N FOR THE USE OF OR RIGHT TO USE ANY COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK.. PLAN, KNOW HOW, COMPUTER SOFTW ARE PROGRAMME, SECRET FORMULA OR PROCESS.. SIMILARLY, THE DTAA 21 I.T.A. NOS.83 & 84/MUM/2007 BETWEEN INDIA AND KAZAKHSTAN DEFINES THE TERM ROYA LTIES IN ARTICLE 12(3)(A) TO MEAN : PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION F OR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTI STIC OR SCIENTIFIC WORK INCLUDING SOFTWARE, CINEMATOGRAPH FILMS. SIM ILARLY, THE DTAA WITH TURKMENISTAN ALSO DEFINES `ROYALTIES IN ARTICLE 12 TO MEAN : PAYMENTS OF ANY KIND RECEIVED AS CONSIDERAT ION FOR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERAR Y, ARTISTIC OR SCIENTIFIC WORK, .. COMPUTER SOFTWARE, ANY PATENT, TRADE MARK. IT IS THUS CLEAR THAT WHEREVER THE GOVERNME NT OF INDIA INTENDED TO INCLUDE CONSIDERATION FOR THE USE OF SO FTWARE AS ROYALTIES, IT EXPLICITLY PROVIDED SO IN THE DTAA WITH THE CONCERNED COUNTRY. SINCE ARTICLE 13(3)(A) OF THE DT AA WITH UK DOES NOT CONTAIN ANY CONSIDERATION FOR THE USE OF O R THE RIGHT TO USE ANY `COMPUTER SOFTWARE, THE SAME CANNOT BE IMP ORTED IN TO IT. 12.2. THE SECOND SEGMENT, WHICH IS QUITE PERTINENT, IS THAT ARTICLE 13(3)(A) ENCOMPASSES CONSIDERATION FOR THE USE OF O R THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIF IC WORK ETC. AS `ROYALTIES. EVEN IF WE PRESUME FOR A MOMENT, WITH WHICH WE DO NOT AGREE, THAT A COMPUTER SOFTWARE IS COVERED WITH IN ANY OF THE TER MS SPECIFICALLY MENTIONED IN THE ARTICLE, SUCH AS `INF ORMATION CONCERNING COMMERCIAL EXPERIENCE ETC., THEN ALSO THE INSTANT SALE CONSID ERATION CANNOT BE BROUGHT WITHIN THE PURVIEW OF ARTICLE 13. THIS I S FOR THE REASON THAT IN ORDER TO BE COVERED WITHIN THE SCOPE OF THI S ARTICLE, IT IS NECESSARY THAT USER SHOULD GET A COPYRIGHT OF `INFO RMATION CONCERNING COMMERCIAL EXPERIENCE ETC. AND NOT THE OUTPUT OR PRODUCTS OF `LITERARY WORK, OR `INFORMATION CONCER NING COMMERCIAL EXPERIENCE ETC. THERE IS A MARKED DISTIN CTION BETWEEN THE USE OF ANY COPYRIGHT OF A LITERARY WORK ETC. AND USE OF A LITERARY WORK ETC. AS SUCH. WHEREAS THE USE OF COPYRIGHT OF LITERARY OR ARTISTIC WORK, ETC., ENABLES THE USER T O TAKE COPIES OF SUCH LITERARY OR ARTISTIC WORK ETC. FOR ITS PURPOSE , THE SIMPLICITOR USER OF SUCH LITERARY OR ARTISTIC WORK, ETC., DOES NOT CONFER IN THE USER ANY SUCH RIGHT TO COPY. 12.3. AT THIS JUNCTURE, IT BECOMES RELEVANT TO SEE AS TO WHETHER THE END CUSTOMERS HAVE BEEN GIVEN A COPYRIGHT OF TH E SOFTWARE OR THE SOFTWARE AS SUCH. THE LD. DR HARPED ON THE R ELEVANT PARTS 22 I.T.A. NOS.83 & 84/MUM/2007 OF THE ASSESSMENT ORDER TO PUT FORTH THAT IT HAS BE EN SPECIFICALLY MENTIONED IN THE END USER AGREEMENT THAT THE CUSTOM ER GETS SIMPLY THE RIGHT TO USE THE PRODUCT UNDER THE LICEN SE, WHICH IS NON-TRANSFERRABLE. IT WAS ARGUED THAT THERE ARE SEV ERAL RESTRICTIONS PLACED AS PER THE TERMS OF THE LICENSE WHICH PREVENT THE CUSTOMER FROM USING IT AS PER ITS OWN SWEET WIL L. 12.4. THIS CONTENTION OF THE LD. DR CAN BE BETTER A PPRECIATED AFTER HAVING A LOOK AT THE RELEVANT SECTIONS OF THE COPYRIGHT ACT. SECTION 14 OF THIS ACT DEFINES `COPYRIGHT TO MEAN : `THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORIZE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY :- A. IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK NOT BEING A COMPUTER PROGRAMME,- I. TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLU DING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS, II. TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT B EING COPIES ALREADY IN CIRCULATION, III. TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC, IV. TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORDI NG IN RESPECT OF THE WORK, V. TO MAKE ANY TRANSLATION OF THE WORK VI. TO MAKE ANY ADAPTATION OF THE WORK VII. TO DO, IN RELATION TO A TRANSLATION OR AN ADAP TATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB CLAUSES (I) TO (VI) B. IN THE CASE OF A COMPUTER PROGRAMME- (I). TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A) (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMME : PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE 23 I.T.A. NOS.83 & 84/MUM/2007 PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. . EXPLANATION - FOR THE PURPOSES OF THIS SECTION, A C OPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A CO PY ALREADY IN CIRCULATION. 12.5. WHEN WE CONSIDER THE RELEVANT PARTS OF THE EN D USER AGREEMENT, IT CLEARLY EMERGES THAT THE CUSTOMERS HA VE NOT BEEN ASSIGNED ANY OF THE THINGS WHICH HAVE BEEN MENTIONE D IN SECTION 14 OF THE COPYRIGHT ACT, SO AS TO CONSTITUTE AN ASS IGNMENT OF A COPYRIGHT OF THE COMPUTER SOFTWARE TO THE END USER. INSOFAR AS THE VIEW POINT OF THE LD. DR ABOUT THE TAKING OF CO PIES OF THE SOFTWARE BY THE END CUSTOMER IS CONCERNED, WE FIND THAT THE SAME IS FOR SELF USE AND THUS COVERED BY SECTION 52 OF THE COPYRIGHT ACT, WHICH ENUMERATES CERTAIN ACTS THAT D O NOT AMOUNT TO INFRINGEMENT OF COPYRIGHT. THE RELEVANT P ART OF THIS PROVISION IS AS UNDER : - (1) THE FOLLOWING ACTS SHALL NOT CONSTITUTE AN INFRINGEMENT OF COPYRIGHT NAMELY AA. THE MAKING OF COPIES OR ADAPTATION OF A COMPUTE R PROGRAMME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FROM SUCH COPY. I.IN ORDER TO UTILIZE THE COMPUTER PROGRAMME FOR TH E PURPOSES FOR WHICH IT WAS SUPPLIED, OR II. TO MAKE BACK UP COPIES PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE IN ORDER ONLY TO UTILIZE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED; 12.6. WE HAVE DISCUSSED SUPRA THE RELEVANT CLAUSES OF THE END USER AGREEMENT AND SEEN WHAT HAS BEEN PRECISELY TRA NSFERRED TO THE END USERS OF THE SOFTWARE. IT CLEARLY EMERGES T HAT NONE OF THE ELEMENTS OF `COPYRIGHT AS MENTIONED IN SECTION 14 OF THE COPYRIGHT HAVE BEEN TRANSFERRED TO THE END USER INA SMUCH AS HE CANNOT DO ANY OF THE THINGS AS SET OUT IN CLAUSES ( A) (I) TO (VI) OF SECTION 14, TO THE EXTENT APPLICABLE,NOR CAN HE SEL L OR GIVE ON COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAM. ON THE OTHER HAND, WHAT HAS BEEN PERMITTED TO HIM IS ALL T HAT IS PERMISSIBLE UNDER SECTION 52 OF THE COPYRIGHT ACT, TO THE EXTENT 24 I.T.A. NOS.83 & 84/MUM/2007 APPLICABLE, WHICH SIMPLY FACILITATES HIM TO USE THE SOFTWARE WITHOUT INFRINGING COPYRIGHT. THIS CONCLUSIVELY DEM ONSTRATES THAT THE END USERS HAVE PAID CONSIDERATION FOR THE USE O F A COMPUTER SOFTWARE AND NOT COPYRIGHT OF A COMPUTER SOFTWARE. AS THE DTAA TREATS CONSIDERATION FOR THE USE OF COPYRIGHT OF A LITERARY OR ARTISTIC WORK, ETC. AS ROYALTIES, THERE CAN BE NO Q UESTION OF INCLUDING CONSIDERATION FOR THE USE OF A LITERARY O R ARTISTIC WORK, ETC. WITHIN THE AMBIT OF `ROYALTIES AS PER ARTICLE 13(3)(A) OF THE DTAA. 12.7. THERE IS ANOTHER DIMENSION OF THIS ISSUE. WHI LE GOING THROUGH THE DISTRIBUTORS AGREEMENT, WE HAVE NOTED T HAT THE ASSESSEE HAS SIMPLY PURCHASED SHRINK-WRAPPED SOFTWA RE OR OFF- THE-SHELF SOFTWARE FROM THE CORPORATE. THE ASSESSEE WAS NOT ALLOWED TO USE THE COPYRIGHT OF SUCH SOFTWARE, WHIC H OBVIOUSLY VEST IN THE CORPORATE. SINCE THE ASSESSEE ITSELF HA S NOT ACQUIRED ANY COPYRIGHT IN THE MINING SOFTWARE, IT CANNOT RES ELL OR TRANSFER ANYTHING MORE THAN WHAT IT HAS ACQUIRED. WE, THEREF ORE, HOLD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR SALE OF SHRINK WRAPPED SOFTWARE CANNOT BE CONSIDERED AS `ROYALTIES WITHIN THE MEANING OF ARTICLE 13 OF THE DTAA AS THE SAME IS A CONSIDERATION FOR SALE OF A COPYRIGHTED PRODUCT AND NOT USE OF AN Y COPYRIGHT. 13.1. NOW WE TAKE UP THE CONTENTION OF THE LD. DR T HAT PROVISIONS OF SECTION 9(1)(VI) SHOULD BE APPLIED TO DETERMINE THE TAXABILITY OF THE AMOUNT. IT WAS CONTENDED THAT AS THE LD. AR HAS ADMITTED THE AMOUNT OF SALE OF SOFTWARE COVERED UNDER EXPLAN ATION 4 TO SECTION 9(1)(VI), THE SAME SHOULD BE TAXED AS SUCH. 13.2. IN THIS REGARD, WE FIND THAT SUB-SECTION (1) OF SECTION 90 OF THE ACT PROVIDES THAT THE CENTRAL GOVERNMENT MAY EN TER INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY OTHER COUNTRY FOR THE GRANTING OF RELIEF OF TAX IN RESPECT OF INCOME ON W HICH TAX HAS BEEN PAID IN TWO DIFFERENT TAX JURISDICTIONS. SUB-S ECTION (2) OF SECTION 90 UNEQUIVOCALLY PROVIDES THAT WHERE THE CE NTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA UNDER SUB-S ECTION (1) FOR GRANTING RELIEF OF TAX OR FOR AVOIDANCE OF DOUB LE TAXATION, THEN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGRE EMENT APPLIES, ' THE PROVISIONS OF THIS ACT SHALL APPLY T O THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE'. THE CRUX OF SUB-SECTION (2) IS THAT WHERE A DTAA HAS BEEN ENTERED INTO WITH ANO THER COUNTRY, THEN THE PROVISIONS OF THE ACT SHALL APPLY ONLY IF THEY ARE 25 I.T.A. NOS.83 & 84/MUM/2007 MORE BENEFICIAL TO THE ASSESSEE. IN SIMPLE WORDS, I F THERE IS A CONFLICT BETWEEN THE PROVISIONS UNDER THE ACT AND T HE DTAA,THE ASSESSEE WILL BE SUBJECTED TO THE MORE BENEFICIAL P ROVISION OUT OF THE TWO. IF THE PROVISION OF THE ACT ON A PARTICULA R ISSUE IS MORE BENEFICIAL TO THE ASSESSEE VIS-A-VIS THAT IN THE DT AA, THEN SUCH PROVISION OF THE ACT SHALL APPLY AND VICE VERSA. TH E HONBLE SUPREME COURT IN THE CASE OF CIT V. P.V.A.L. KULAND AGAN CHETTIAR (2004) 267 ITR 654 (SC) HAS HELD THAT THE PROVISION S OF SECTIONS 4 AND 5 ARE SUBJECT TO THE CONTRARY PROVISION, IF ANY, IN DTAA. SUCH PROVISIONS OF A DT AA SHALL PREVAIL OVER THE ACT AND WORK AS AN EXCEPTION TO OR MODIFIC ATION OF SECTIONS 4 AND 5. SIMILAR VIEW HAS BEEN TAKEN BY TH E HONBLE BOMBAY HIGH COURT IN CIT V. SIEMENS AKTIONGESELLSCH AFT (2009) 310 ITR 320 (BOM.). IN THE LIGHT OF THE ABOVE DISCU SSION, IT BECOMES VIVID THAT IF THE PROVISIONS OF THE TREATY ARE MORE BENEFICIAL TO THE ASSESSEE VIS-A-VIS ITS COUNTERPAR T IN THE ACT, THEN THE ASSESSEE SHALL BE ENTITLED TO BE RULED BY THE P ROVISIONS OF THE TREATY. WE HAVE HELD ABOVE THAT AMOUNT FROM SALE OF SOFTWAREFALLS UNDER ARTICLE 7 (BUSINESS PROFITS) AN D NOT UNDER ARTICLE 13 (ROYALTIES). SINCE THE POSITION AS PER T HE DTAA IS MORE BENEFICIAL TO THE ASSESSEE IN COMPARISON WITH THAT UNDER THE ACT, IN WHICH THE RECEIPTS ADMITTEDLY FALL UNDER SECTION 9(1)(VI), WE HOLD THAT THE ASSESSEE IS ENTITLED TO EXERCISE OPTI ON IN HIS FAVOUR BY CHOOSING TO BE GOVERNED BY THE DTAA. 14.1. BE THAT AS IT MAY, WE FIND THAT THERE IS ANOT HER ASPECT OF THE MATTER. THIS IS WITHOUT PREJUDICE TO OUR FINDIN G THAT CONSIDERATION FOR SALE OF SOFTWARE DOES NOT FALL WITHIN THE SCOPE OF THE TERM `ROYALTIES. EVEN IF THE VIEW POINT OF THE AO IS ACCEPTED FOR A MOMENT, WITH WHICH WE DO NOT REALLY AGREE, THAT SUCH AMOUNT FALLS UNDE R PARA 3(A) OF ARTICLE 13, IN OUR CONSIDERED OPINION, EVEN THEN TH E AMOUNT CANNOT BE TAXED AS `ROYALTIES BECAUSE OF THE OPERA TION OF PARA 6 OF ARTICLE 13, WHICH READS AS UNDER : - 6. THE PROVISIONS OF PARAGRAPHS 1 AND 2 OF THIS AR TICLE SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR F EES FOR TECHNICAL 26 I.T.A. NOS.83 & 84/MUM/2007 SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH TH E ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE THRO UGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFOR MS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT, PROPERTY OR C ONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICA L SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANE NT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROV ISION OF ARTICLE 7 (BUSINESS PROFITS) OR ARTICLE 15 (INDEPEN DENT PERSONAL SERVICES) OF THIS CONVENTION, AS THE CASE MAY BE,SHALL APPLY. 14.2. PARA 6 OF ARTICLE 13, TO THE EXTENT APPLICABL E, STATES THAT THE PROVISIONS OF PARAGRAPHS 1 AND 2 OF THIS ARTICL E SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR F EES FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINES S IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FO R TECHNICAL SERVICES ARISE THROUGH A PERMANENT ESTABLISHMENT SI TUATED THEREIN. IN SIMPLE TERMS, THIS MEANS THAT THE AMOUN T FALLING UNDER PARA 3 OF ARTICLE 13 CANNOT BE TAXED AS ROYAL TIES UNDER PARAS 1 AND 2, IF THE BENEFICIAL OWNER OF THE ROYAL TIES, BEING A RESIDENT OF A CONTRACTING STATE (UK), CARRIES ON BU SINESS IN THE OTHER CONTRACTING STATE (INDIA) IN WHICH THE ROYALT IES ARISES THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN (INDIA). ONCE THESE CONDITIONS ARE SATISFIED, THEN THE LATER PART OF PARA 6 COMES INTO PLAY, AS PER WHICH THE PROVISION OF ARTI CLE 7 (BUSINESS PROFITS) OF THIS CONVENTION SHALL APPLY. IN OTHER W ORDS, ON THE FULFILLMENT OF THE CONDITIONS IN THE FIRST PART OF PARA 6, THE AMOUNT SHALL NOT BE CONSIDERED AS `ROYALTIES UNDER PARAS 1 AND 2 OF ARTICLE 13, BUT SHALL FALL FOR CONSIDERATION UND ER ARTICLE 7 OF THE DTAA, BEING, `BUSINESS PROFITS. THERE IS NO DISPUT E ON THE FACT THAT THE ASSESSEE IS A UK COMPANY HAVING ITS BRANCH OFFICE IN INDIA (WHICH IS ITS PERMANENT ESTABLISHMENT) AND TH E TRANSACTIONS IN QUESTION ARE SALE OF COMPUTER SOFTW ARE MADE BY SUCH PERMANENT ESTABLISHMENT TO CERTAIN PARTIES IN INDIA. THIS SHOWS THAT ALL THE REQUISITE CONDITIONS FOR THE APP LICABILITY OF FIRST PART OF PARA 6 OF ARTICLE 13 ARE FULLY SATISFIED. O N SUCH FULFILLMENT, THE AMOUNT OF `ROYALTIES IS LIABLE TO BE CONSIDERE D UNDER ARTICLE 7 27 I.T.A. NOS.83 & 84/MUM/2007 (BUSINESS PROFITS). AS THE ASSESSEE HAS DECLARED SU CH RECEIPTS UNDER ARTICLE 7, THE VIEW TAKEN BY THE AUTHORITIES IN THIS REGARD, SHIFTING SUCH AMOUNT FROM ARTICLE 7 (BUSINESS PROFI TS) TO ARTICLE 13 (ROYALTIES), BEING CONTRARY TO THE MANDATE OF TH E DTAA, IS LIABLE TO BE AND IS HEREBY SET ASIDE. 15. IN THE FINAL ANALYSIS, WE APPROVE THE ASSESSEE S STAND ON THE SALE OF COMPUTER SOFTWARE AS BUSINESS PROFITS, BY J ETTISONING THE REVENUES VIEWPOINT OF ROYALTY. THIS GROUND IS ALLO WED. 19. THUS, FROM THE PERUSAL OF THE AFORESAID DECISION, IT IS CLEAR THAT ALL THE ARGUMENTS HAVE BEEN DULY ANALYSED AND ADDRESSED BY THE BENCH WHILE DECIDING THIS ISSUE. THE ARTICLES OF DTAA BETWEEN INDIA AND NETHERLANDS ARE IDENTICALLY WORDED. NO AMENDMENT HAS BEEN BROU GHT OUT IN THE DTAA SO FAR. ARTICLE 12(4) OF DTAA BETWEEN INDIA AND NE THERLANDS DEFINES THE TERM ROYALTYAS UNDER:- 4. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEA NS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ART ISTIC OR SCIENTIFIC WORK, INCLUDING MOTION PICTURE FILMS AND WORKS ON F ILM OR VIDEO TAPE FOR USE IN CONNECTION WITH TELEVISION, ANY PAT ENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROC ESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE. 20. IT MAY BE NOTED FROM THE ABOVE SAID DEFINITION THA T IT IS IDENTICAL TO THE DEFINITION GIVEN IN THE INDO UK DTAA. FURTHER, THIS DEFINITION DOES NOT INCLUDE THE WORD COMPUTER PROGRAMME OR SOFTWARE . IT HAS BEEN HELD BY THE BENCH AFTER MAKING ANALYSIS IN DETAIL THAT T HE PAYMENT IS MADE FOR THE CUSTOMER FOR USING THE SOFTWARE AS SUCH AND NOT THE PROCESS INVOLVED IN IT. IT IS FURTHER NOTED THAT SINCE THE DEFINITI ON GIVEN IN ARTICLE 12(4) OF THE DTAA DOES NOT CONTAIN ANY CONSIDERATION FOR THE USE OR RIGHT TO USE IN COMPUTER PROGRAMME OR SOFTWARE, THE SAME CANNOT BE IMPORTED INTO 28 I.T.A. NOS.83 & 84/MUM/2007 IT. FURTHER, AS DISCUSSED ABOVE ALSO, THE PERUSAL OF CLAUSES OF THE MASTER AGREEMENT DEMONSTRATE THAT THE CUSTOMER, VIZ. HLL H AS PAID THE CONSIDERATION FOR USE OF COMPUTER SOFTWARE AND NOT COPYRIGHT OF THE COMPUTER SOFTWARE . BUT, THE DTAA TREATS CONSIDERATION FOR THE USE O F COPYRIGHT OF A LABORATORY OR ARTISTIC WORK, ETC. AS ROYALTY, THERE CAN BE NO QUESTION OF INCLUDING CONSIDERATION FOR THE USE OF A LABORATORY OR ARTISTIC WORK, ETC WITHIN THE AMBIT OF ROYALTY DEFINED IN ARTICLE 12(4) OF THE DTAA. 21. IT WAS ALSO ARGUED BY THE REVENUE THAT PROVISIONS OF SECTION 9(1)(VI) SHOULD BE APPLIED, AND IF THESE ARE SO APPLIED, THE N THE SALE OF SOFTWARE SHALL BE COVERED UNDER EXPLANATION 4 TO SECTION 9( 1)(VI), AND, THEREFORE, THE SAME SHOULD BE BROUGHT TO TAX AS SUCH. IN THIS REGARD ALSO, IT IS NOTICED BY US THAT NO CORRESPONDING AMENDMENT HAS BEEN MADE IN THE PROVISIONS OF THE DTAA. UNDER THESE CIRCUMSTANCES, THE ASSESS EE WOULD BE ENTITLED TO THE PROVISIONS, WHICH ARE MORE BENEFICIAL TO THE ASSESSEE OUT OF THE PROVISIONS OF INDIAN INCOME-TAX ACT AND DTAA BETWEE N INDIA AND THE NETHERLANDS, IN VIEW OF PROVISIONS CONTAINED IN SEC TION 90(2) OF THE ACT. WE HAVE ALREADY HELD THAT AS PER THE PROVISIONS OF INDIA NETHERLANDS DTAA, THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUN T OF SALE OF SOFTWARE WOULD NOT FALL WITHIN THE DEFINITION OF ROYALTY A S PROVIDED IN ARTICLE 12(4) OF THE DTAA. UNDER THESE CIRCUMSTANCES, IT WILL NO T BE LEGALLY PERMISSIBLE FOR US TO REFER TO THE PROVISIONS OF THE ACT TO DEC IDE THE TAXABILITY OF THIS AMOUNT IN THE HANDS OF THE ASSESSEE IN INDIA. THUS , IN OUR CONSIDERED VIEW, BASED UPON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LEGAL POSITION AS DISCUSSED ABOVE, THE IMPUGNED AMOUNT RE CEIVED BY THE ASSESSEE IS IN THE NATURE OF BUSINESS PROFITS ASSES SABLE UNDER ARTICLE 7 OF INDIA NETHERLANDS DTAA AND WOULD NOT BE TAXABLE AS ROYALTY UNDER 29 I.T.A. NOS.83 & 84/MUM/2007 ARTICLE 12 OF THE DTAA. THUS, THIS GROUND IS DECID ED IN FAVOUR OF THE ASSESSEE. 22. GROUNDS 3 & 4: DURING THE COURSE OF HEARING IT WAS STATED THAT THESE GROUNDS WILL BECOME INFRUCTUOUS IF GROUND 2 I S DECIDED IN FAVOUR OF THE ASSESSEE. SINCE WE HAVE DECIDED GROUND 2 IN FA VOUR OF THE ASSESSEE, GROUNDS 3 & 4 ARE DISMISSED AS INFRUCTUOUS AT THIS STAGE. 23. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. 24. NOW WE SHALL TAKE UP APPEAL FOR AY. 1999-2000 IN IT A NO.84/MUM/2007. 25. GROUND 1 RELATES TO REOPENING OF ASSESSMENT WHICH HAS NOT B EEN PRESSED BEFORE US, THEREFORE, DISMISSED. 26. GROUND 2: THIS GROUND RELATES TO RE-CHARACTERIZATION OF INCO ME RECEIVED FROM LICENSING OF SOFTWARE, AS ROYALTY A S AGAINST BUSINESS INCOME AS WAS CLAIMED BY THE ASSESSEE. THIS GROUND IS IDENTICAL TO GROUND 2 OF AY. 1998-99, THIS HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE. IT WAS SUBMITTED THAT FACTS AS WELL AS LEGAL POSITI ON ARE IDENTICAL IN THIS YEAR AS WELL; THEREFORE, THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE, FOLLOWING OUR ORDER FOR AY 1998-99. 27. GROUNDS 3 & 4 ARE IDENTICAL TO GROUNDS 3 & 4 OF A.Y. 1998-99 AND IN VIEW OF OUR ORDER FOR A.Y. 1998-99, THESE GROUNDS A RE DISMISSED AS INFRUCTUOUS AT THIS STAGE. 28. AS A RESULT, THIS APPEAL OF THE ASSESSEE IS ALSO P ARTLY ALLOWED. 30 I.T.A. NOS.83 & 84/MUM/2007 29. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THIS 21 ST DAY OF DECEMBER, 2016. SD/- SD/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 21 ST DECEMBER, 2016 PK/- COPY TO : THE APPELLANT THE RESPONDENT THE CIT(A) THE CIT THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , L-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES