DCIT CEN CIR 20, MUMBAI V. PURNANDU JAIN (HUF), MUMBAI

ITA 927/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0974 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 03-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M V RAJGURU
• Keywords: Business income; Double taxation relief; Retrospective amendment; Permanent establishment
• Section: 201(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO S . 926 & 927/ BANG /2012 ( / ASSESSMENT YEAR: 2009 - 10 & 2010 - 11 ) M/S. SHELL INDIA MARKETS PRIVATE LIMITED TRENT HOUSE, FIRST FLOOR, G BLOCK, PLOT NO. C - 60, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI - 400 051 / VS. ITO (INTERNATIONAL TAXATIONS), WARD 2(1), BANGALORE (NOW TRANSFERRED TO ITO (TDS) - LTU, MUMBAI)) ./ ./ PAN/GIR NO. AAICS1404 P ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI MADHUR AGARWAL & SHRI DINESH PATIL / RESPONDENT BY : SHRI M. V. RAJGURU / DATE OF HEARING : 30.10.2017 / DATE OF PRONOUNCEMENT : 08.01. 2018 / O R D E R PER SHAMIM YAHYA , A. M.: T HESE ARE APPEALS BY THE ASSESSEE DIRECTED THE AGAINST ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - IV, BANGALORE DATED 30.05.2012 AND PERTAIN S TO THE ASSESSMENT YEAR S 2009 - 10 AND 2010 - 11. 2. T HE COMMON GROUNDS OF APPEAL READ AS UNDER: 2 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED ASSESSMENT YEAR 2009 - 10 1. THE LEARNED CIT(A) HAS ERRED, IN LAW, AND IN FACTS, BY UPHOLDING THE ORDER ISSUED BY THE INCOME - TAX OFFICER (INTERNATIONAL TAXATION), WARD - 2(1), BANGALORE ('THE LEARNED AO') UNDER SECTION 201(1) AND 201(1A) OF THE ACT. THE APPELLANT CRAVES THAT THE ORDERS OF THE LEARNED CIT(A) AND THE LEARNED AO, BEING BASED ON INCORRECT INTERPRETATION OF LAW, ARE BA D IN LAW AND HENCE, BE SET ASIDE AND THE DEMAND BE QUASHED. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS BY UPHOLDING THE ORDER OF THE LEARNED AO BY HOLDING THAT THE APPELLANT WAS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT, ON THE PAYMENTS MADE BY THE APPELLANT TO SHELL INTERNATIONAL EXPLORATION AND PRODUCTION BV ('SIEP BV'), SHELL INTERNATIONAL BV ('SIBV') AND SHELL GLOBAL SOLUTIONS INTERNATIONAL BV ('SCSI BV'), COLLECTIVELY KNOWN AS SHELL OVERSEAS ENTITIES FOR ACQUIRING ACCESS/USER RIGHTS OF SOFTWARE. 3. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY UPHOLDING THE ORDER OF THE LEARNED AO, AND HENCE, ERRED ON THE FOLLOWING COUNTS: 3.1 HOLDING T HAT THAT THE GRANT OF USER RIGHTS AMOUNTS TO TRANSFER OF RIGHT IN RESPECT OF A COPYRIGHT. 3.2 NOT APPRECIATING THE DISTINCTION BETWEEN A TRANSACTION INVOLVING THE 'TRANSFER OF COPYRIGHTED ARTICLE' AND 'TRANSFER OF RIGHTS IN A COPYRIGHT'. 3.3 HOL DING THAT WHEN A PERSON HAS THE EXCLUSIVE RIGHT TO DO OR AUTHORISE THE DOING OF THE ACTS SPECIFIED IN THE SECTION 14 OF THE COPYRIGHT ACT, 1957 IN THE CASE OF A LITERARY WORK IN WHICH COPYRIGHT SUBSISTS, SUCH RIGHT IS CONSIDERED AS COPYRIGHT, IRRESPECTIVE OF THE FACT WHETHER THAT PERSON IS PERMITTED TO COMMERCIALLY EXPLOIT THE WORK OR AUTHORISED TO USE THE WORK FOR HIS OWN USE. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY UPHOLDING THE ORDER OF THE LEARNED AO BY CONCLUDING THAT THE CONSID ERATION PAID FOR THE USE OF COPYRIGHTED SOFTWARE IS IN THE NATURE OF 'ROYALTY', BOTH UNDER THE ACT AND THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETHERLANDS ('THE TAX TREATY'). 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY NOT ACCEPTING THE CONTENTIONS FILED BY THE APPELLANT WHILE DISTINGUISHING THE CASE OF THE APPELLANT FROM THE FACTS OF THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SAMSUNG ELECTRONICS CO LTD AND OTHERS (ITA NO 2808 OF 2006 AND OTHERS). 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY UPHOLDING THE ORDER OF THE LEARNED A.O., DEEMING THE APPELLANT AS AN ASSESSEE IN DEFAULT FOR NON - DEDUCTION OF TAXES AT SOURCES UNDER SECTION 195 OF THE ACT. 3 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED 7. THE LEARNED CIT(A) HAS ERRED IN LAW AN D IN FACTS, BY CONFIRMING A SUM OF RS.5499,090 (# 1) AS PAYABLE THE APPELLANT UNDER SECTION 201(1) OF THE ACT FOR A.Y. 2009 - 10. 8. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS, BY CONFIRMING THE AMOUNT OF RS.14,74,990 (# 2) AS INTEREST UNDER SECTION 2 01(1A) OF THE ACT FOR A.Y. 2009 - 10. (# 1) - RS.4926,310/ - FOR A.Y. 2010 - 11 (# 2) RS.9,66,000/ - FOR A.Y. 2010 - 1 1 3. DURING THE FINANCIAL YEARS 2008 - 09 AND 2009 - 10, THE ASSESSEE COMPANY HAD MADE PAYMENTS T OWARDS PURCHASE OF LICENSED SOFTWARE FROM T H E F OLLOWING F OREIGN COMPANIES, COLLECTIVELY KNOWN AS SHELL OVERSEAS ENTITIES: SL. NO. N AME OF THE FOREIGN COMPANY TO WHOM PAY MENTS WERE MADE F.Y. TOTAL PAYMENT IN RS. 01 SHELL INTERNATIONAL BV 2008 - 09 25,43,600 02 S HELL INTE RNATIONAL BV 2 009 - 10 21,70, 256 03 SHELL GLOBAL SOL U TIONS INTERNATIONAL 2 008 - 09 1,39 ,6 9,003 04 SHE LL GLOBAL SOLUTIONS INTERNATIONAL 200 9 - 10 1,82 , 73 , 640 05 SHELL INTERNATIONAL EXPLORATION & PR ODUCTION BV 2008 - 0 9 3,84,78 , 291 06 SHELL INTERNATIONAL EXPLORATION & PR ODUCTION BV 2 00 9 - 10 2,7 6,15,756 07 SHELL INTERNATIONAL LTD. 2009 - 10 12,03,637 ALL THE ABOVE PAYMENTS WERE MADE WITHOUT DEDUCTING ANY TAX AT SOURCE. THE ASSESSEE IS AN INDIAN COMPANY AND THE PAYEES ARE FOREIGN COMPANIES INCORPORATED IN NETHERLANDS. 4. THE ASSESSING O FFICER WAS OF THE OPINION THAT ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE FROM THESE PAYMENTS WHICH IN HIS OPINION WERE ROYALTY PAYMENTS. IN RESPONSE , THE ASSESSEE SUBMITTED AS UNDER: 4 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED 1. THA T IT HAS BEEN GRANTED ONLY RIGHT TO ACCESS A PARTICULAR SOFTWARE APPLICATION AND HAS NOT OBTAINED ANY RIGHT TO COMMERCIALLY EXPLOIT THE SOFTWARE AND MAKE MULTIPLE COPIES OF THE SAME. ACCORDING TO THE ASSESSEE FOR THE PURPOSE OF CATEGOR IZING INCOME F ROM A TRANSACTION AS AMOUNTING TO ROYALTY WHAT IS TO BE SEEN IS WHETHER THE TRANSFEREE HAS THE RIGHT OF COMMERCIAL EXPLOITATION OF THE INTELLECTUAL PROPERTY CONTAINED THEREIN. IN THE INSTANT CASES, AS IT IS NO T PERMITTED TO EXPLOIT THE COPYRIGHT CO MMERCIALLY , THE ASSESSEE DOES NOT HAVE THIS RIGHTS A S SOCIATED WITH A COPYRIGHT I N T ERM S OF SEC. 14 OF THE COPYRIGHT ACT. THEREFORE IN SUCH CASE , WHAT IT ACQUIRED CANNOT BE CONSIDERED AS A COPYRIGHT RIGHT; 2. THAT I T HAS OBTAINED ONLY A U S ER RIGHT IN THE COPYRIGHTED ARTICLE IN THE FORM OF SOFTWARE APPLICATIONS AND NOT THE RIGHT OF USE OF COPYRIGHT. WHEREAS USE OF COPYRIGHT ENCOMPASSES EXPLOITATION OF THE RIGHTS EMBEDDED IN A COPYRIGHT, A MERE USER RIGHT IS A LIMITED RIGHT AND CONSIDERATION PAI D FOR S UCH USER RIGHT CANNOT BE REGARDED AS C ONSIDERATION FOR US E OF OR RI GH T TO U S E A COPYRIG HT; 3 . N ONE OF THE SUPPLIERS HAVE PROVIDED THE ASSESSEE WITH SOURCE CODE OR ANY TECHNICAL DOCUMENTATION PERTAINING TO SOFTWARE APPLICATION. THE INTELLECTUAL PROPERTY RIGHT ASSOCIA T ED WI TH THE SOFTWARE DOES NOT VEST WITH THE ASSESSEE BUT IS R ETAINED BY THE CONCERNED SUPPLIER. HENCE THE PAYMENTS CANNOT BE HELD FOR THE USE OF COPYRIGHT BUT THE PAYMENT W OULD BE TOWARDS USE OF COPYRIGHTED ARTICLE; 4. UNDER THE INDIAN COPYRIGHT ACT , A MERE TRANSFER OF A COMPUTER PROGRAMME TO ANOTHER PERSON DO ES NOT AMOUNT TO AL LOWING THE U SE OF THE COPYRIGHT BY S UC H OTHER PERSON. HOWEVER, IF THE OWNER OF COPYRIGHT AUTHORIZES THE OTHER PERSON TO REPRODUCE THE WORK IN ANY MATERIAL FORM OR TO MAKE ANY TRANSLATION OF THE W ORK OR TO MAKE ANY ADAPTATION OF THE WORK IT WOULD BE CONSTRU ED AS THE GRANT OF A RIGHT TO USE THE COPY RIGHT IN THE COMPUTER PROGRAM . TH E RIGHT GRA NTED TO THE ASSESSE E TO USE THE SOF TWARE SHOULD NOT BE REGARDED AS THE RIGHT TO USE T H E COPYRI GHT SINCE I T INVOLVES O NLY A M ERE TRANSFER OF USER RIGHT OF A COPYRIGHTED A RTICLE TO ANOTHER PERSON AND DOE S NOT TO ALLOWING THE USE OF THE COPYRIGHT BY SUCH OTHER PERSON. IN SUPPORT OF ITS CLAIM THAT THE PAYMENTS IN QUESTION ARE NOT FEES F OR TECH NICAL SERVICES, IT IS SUBMITTED THAT NO MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICE S WERE RECEIVED. IT WAS ALSO SUBMITTED THAT AS THE S UM PAID TO THE ABOVE COMPANIES NOT TAXABLE IN INDIA, THER E IS NO LIABILITY TO DEDUCT TAX IN RESPECT OF THE SAME. THE ASSESSEE 5 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED QUOTED SEVERAL CASE LAWS IN SUPPORT OF ITS CLAIM WHEREIN IT HAS BEEN HELD TH AT THE PAYMEN T S FOR THE IMPORT OF SOFTWARE IS NOT ROYALTY. 5. HOWEVER ASSESSING OFFICER WAS NOT CONVINCED. HE ELABOR ATELY CONSIDERED THE ISSUE AND CO NCLUDED AS UNDER; FROM THE ABOVE DISCUSSION, IT HAS BEEN PROVED THAT THE PAYMENT MADE BY THE ASSESSEE TO T HE SUPPLIERS, AS LISTED ABOVE, DURING THE F.YS. 2008 - 09 & 2009 - 10 FOR THE USE OF SOFTWARE OF WHICH THESE SUPPLIERS ARE THE COPYRIGHT HOLDERS, CONSTITUTE ROYALTY, BOTH UNDER SEC. 9(1)(VI) OF THE INCOME TAX ACT, 1961, AND UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETHERLANDS, AND IS CHARGEABLE TO TAX IN INDIA. SEC. 195 OF THE INCOME TAX ACT, 1961, CASTS AN OBLIGATION ON THE PERSON MAKING PAYMENT OF THE SUMS CHARGEABLE TO TAX TO A FOREIGN COMPANY TO DEDUCT TAX AT THE TIME OF MAKING SUCH P AYMENT, OR AT THE TIME OF CREDITING THE AMOUNT, WHICHEVER IS EARLIER. BUT NO TAX HAD BEEN DEDUCTED BY THE ASSESSEE THEREON EITHER AT THE TIME OF CREDITING OR SUBSEQUENTLY. AS THE ASSESSEE HAS FAILED TO DISCHARGE ITS OBLIGATION TO DEDUCT TAX AT SOURCE AS ST IPULATED U/S. 195 OF THE INCOME TAX ACT, 1961, AS PER THE PROVISIONS OF SEC. 201(1) OF THE INCOME TAX ACT, 1961, FOR THE ASST. YEARS 2009 - 10 AND 2010 - 11. I AM HOLDING THE ASSESSEE AS ASSESSEE IN DEFAULT IN RESPECT OF TAX NOT DEDUCTED AT SOURCE IN RESPECT O F ROYALTY PAYABLE TO THE SUPPLIERS LISTED ABOVE. 6. AGAINST THE ABOVE ORDER , THE ASSESSEE APPEALED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 7. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AGREED W ITH THE FINDING OF THE ASSESSING OFFICER . HE NOTED THE SUBMISSION OF THE ASSESSEE AND RELIANCE BY THE ASSESSEE UPON THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF D CIT VS. ERICSSON A . B ., NEW DELHI (IN ITA 504/2007 AND OTHERS VIDE ORDER DATED 23.12.2011 ) . HOWEVER , HE PROCEEDED TO PLACE RELIANCE UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF C IT VS SAMSUNG ELECTRONICS CO . LTD . & OTHERS (IN ITA NO. 2808 OF 2006 6 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED AND OTHERS ) . MAKING QUOTATIONS FROM THE AFORESAID ORDER , THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONCLUDED AS UNDER : IN THE CIRCUMSTANCES WHEN IT IS NOT IN THE DISPUTE THAT THE ISSUES RAISED IN THE APPEAL ARE SQUARELY COVERED AGAINST THE APPELLANT IN DECISION OF THE JURISDICTIONAL HIGH COURT ( SUPRA) WHICH IS BINDING ON THE UNDERSIGNED , THE UNDERSIGNED IS DUTY BOUND T O FOLLOW THE SAME . FURTHER, THROUGH FINANCE BILL 2012, THE EXPLANATION 4 & 5 (WHICH READS AS UNDER) ARE PROPOSED TO BE INSERTED WITH RETROSPECTIVE EFFECT WITH EFFECT FROM 01 - 06 - 1976 TO CLAUSE (VI) TO SUB - SECTION (1) OF SEC.9 OF THE INCOME TAX ACT, ALSO MA KES IT CLEAR THAT THE PAYMENT FOR THE ' USE OF SOFTWARE AMOUNT TO ROYALTY : 'EXPLANATION 4: - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF AIL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. 'EXPLANATION 5: - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT - A) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY OR INFORMATION IS WITH THE PAYER; B) SUCH RIGHT, PROPERTY OR INFO RMATION IS USED DIRECTLY BY THE PAYER; C) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION IS IN INDIA. IN VIEW OF THE ABOVE, TAX U/S. 201(1) AND CONSEQUENTIAL INTEREST U/S. 201(1A) OF THE INCOME TAX ACT, 1961 IMPOSED BY THE AS SESSING OFFICER FOR THE ABOVE ASSESSMENT YEARS IS UPHELD. 8. AGAINST ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS . THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY SEVERAL 7 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED DECISIONS OF THE ITAT , MUMBAI. HE SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FOLLOWED THE HONBLE KARNATAKA HIGH COURT DECISION. HOWEVER , HE SUB MITTED THAT THERE IS CONTRARY HONBLE DELHI HIGH COURT DECISIO N WHICH IS IN F AVOUR OF THE ASSESSEE. HE SUBMITTED THAT IN THE ABSENCE OF ANY JURISDICTIONAL HIGH COURT DECISION , THE RATIO FROM THE HONBLE APEX COURT DECISION IN THE CASE OF CIT V. VEGETABLE PRODUCTS LTD. [1973] 88 ITR 192 (SC) H AS BEEN FOLLOWED BY THE I TAT MUMBAI AND FOLLOWING THE HONBLE DELHI HIGH COURT DECISION , THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 10. PER CONTRA , THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THIS CASE HAS FOLLOWED THE HONBLE KARNATAKA HIGH COURT DECISION WHICH WAS THE JURISDICTIONAL HIGH COURT FOR THE LD. COMMISSIONER OF INCOME TAX (APPEALS). HENCE , THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT NO - FAULT CAN BE FOUND IN THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS) WHO HAS FOLLOWED HIS JURISDICTIONAL HIGH COURT DECISION AS PER THE MANDATE OF LAW. 11. IN REJOINDER , THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE TAXPAYER ENTITY IN THIS CASE HAS GOT MERGED WITH THE CONCERN WHOSE JURISDICTION L IES WITH ASSESSING OFFICER AND THE ITAT AT MUMBAI. HENCE , HE PLEADED THAT THE JURISDICTIONAL HIGH COURT IN THIS PRESENT APPEAL BEFORE THE ITAT IS NOT HONBLE KARNATAKA HIGH COURT. THE LD. COUNSEL OF THE ASSESSEE HAS MADE THE F OLLOWING SUBMISSION S: 8 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED SHELL TE CHNOLOGY INDIA PRIVATE LIMITED ('STIPL'), A COMPANY HAVING ITS REGISTERED OFFICE IN BANGALORE MER GED WITH SHELL INDIA MARKETS PRIVATE LIMITED ('THE APPELLANT'). THE APPOINTED DATE OF MERGER AS PER THE AMAL GAMATION SCHEME (ENCLOSED AS ANNEXURE 1) WAS 1 APRI L 2008. THE AM ALGAMATION SCHEME WAS APPROVED BY THE BANGALORE HIGH COURT VIDE ORDER DATED 22 FEBRUARY 2010 AND MADRAS HIGH COURT VIDE ORDER DATED 24 FEBRUARY 2010. STIPL HAD MADE CERTAIN PAYMENTS FOR THE FINANCIAL YEARS 2008 - 09 AND 2009 - 10 I.E. AFTER THE APPOINTED DATE OF MERGER BUT BEFORE THE EFFECTIVE DATED OF THE MERGER. HOWEVER, ON ACCOUNT OF THE APPOINTED DATE OF THE ME RGER , BEING 1 ST APRIL, 2008, THE PAYMENTS WERE DEEMED TO HAVE BEEN MADE BY THE APPELLANT, AS ALL ACTS DONE BY STIPL AFTER THE APPOINTE D DATE WAS DEEMED TO HAVE BEEN DONE BY STIPL. THE ISSUE INVOLVED IN THE INSTANT CASE IS WHETHER TAX WAS REQUIRED TO BE WITHHELD ON THE PAYMENTS MADE BY THE APPELLANT TO NON - RESIDENT ('NR') ENTITIES IN THE FINANCIAL YEARS 2008 - 09 AND 2009 - 10. IN THE INSTA NT CASE, THE ORDER UNDER SECTION 201 (1) & 201 (1 A) OF THE INCOME - TAX ACT, 1961 ('THE ACT') WAS PASSED I* THE OFFICER IN BANGALORE ON 11 MARCH 2011 AND THE 'CIT(A)' ORDER WAS PASSED BY THE CIT(A), BANGALORE ON 30 MAY 2012. THE APPELLANT AGAINST THE ORDER P ASSED BY THE CIT(A), BANGALORE, FILED AN APPEAL BEFORE THE BANGALORE INCOME TAX APPELLATE TRIBUNAL ('ITAT') ON 24 JULY 2012. TH E APPELLANT FILED AN APPLICATION FOR THE TRANSFER OF FILES TO THE MUMBAI JURISDICTION BEFORE THE AO VIDE LETTER D A TED 30 JULY 20 12 (ENCLOSED AS ANNEXURE 2). SUBSEQUENTLY, THE AO PASSED AN ORDER DATED 24 AUGUST 2012 (ENCLOSED AS ANNEXURE 3) FOR TRANSFER OF FILES FROM BANGALORE TO MUMBAI AS THE APPELLANT (AMALGAMATED COMPANY) IS ASSESSED TO TAX IN MUMBAI. ON RECEIPT OF THE ORDER, THE APPELLANT FILED AN APPLICATION FOR TRANSFERRING THE CAPTIONED APPEALS FROM BANGALORE ITAT TO MUMBAI ITAT ON 29 AUGUST 2012 (ENCLOSED AS ANNEXURE 4). CONSIDERING THE APPLICATION FILED BY THE APPELLANT, THE PRESIDENT OF THE TRIBUNAL TRANSFERRED THE OPTIONED APPEALS TO MUMBAI ITAT VIDE ORDER DATED 4 JANUARY 2013 (ENCLOSED AS ANNEXURE 5). SIMILARLY, THE RILES RELATING TO THE CAPTIONED APPEALS WERE ALSO TRANSFERRED TO LTD, MUMBAI. IN THE INSTANT CASE, THE TRANSACTION FOR PAYMENT TO NR ENTITIES IS ACTUALLY A TR ANSACTION ENTERED BY THE TRANSFEREE I. E. THE APPELLANT AS STATED AFORESAID. THE APPELLANT AT THE DATE OF PASSING OF THE ORDER BY THE AO WAS ASSESSED TO TAX IN MUMBAI AND THE AO AS WELL AS THE CIT(A) HAS PASSED THE ORDER IN THE NAME OF THE APPELLANT. THUS, THE DATE ON WHICH THE TRANSACTIONS WERE UNDERTAKEN AS WELL 9 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED AS THE DATES ON WHICH THE ORDERS WERE PASSED, THE JURISDICTION OF THE APPELLANT WAS AT MUMBAI. WE ALSO WISH TO BRING TO YOUR HONORS NOTICE, INSTRUCTION NO. 8/2011 DATED 11 AUGUST 2011 (ATTACHED AS ANNEXURE 6) RELATING TO INSTRUCTIONS ON PROCESS OF FILING APPEALS TO ITAT. PARA 7 OF THE SAID INSTRUCTION SPECIFIES THE PROCEDURE TO BE FOLLOWED ON THE TRANSFER OF JURISDICTION OUTSIDE OF CIT'S CHARGE DURING THE PENDENCY OF APPEAL. IT PROVIDES THAT IN A C ASE OF TRANSFER OF JURISDICTION OVER A CASE INVOLVING TWO DIFFERENT BENCHES OF ITAT DURING THE PENDENCY OF APPEAL, NECESSARY STEPS SHALL BETAKEN BY THE TRANSFEROR CIT TO REQUEST THE ITAT BENCH WHERE THE CASE IMPENDING TO TRANSFER THE SAME TO THE BENCH OF I TAT HAVING JURISDICTION OVE R THE CASES OF TRANSFEREE AO. 12. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT JURISDICTION OF COURT IS DETERMINED BY SITUS OF TRANSFEREE ASSESSING OFFICER. FOR THIS PROPOSITION , HE PLACED RELIANCE UPON FOLLOWING CASE LAWS : 1 . CIT VS. AAR BEE INDUSTRIES [2013] 36 TAXMANN.COM 308 (DELHI) 2. CIT VS. SAHARA INDIA FINANCIAL CORPN. LTD. [2007] 162 TAXMAN 357 (DELHI) 13. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED CASE LAWS FOR THE PROPOSITION THAT DECISION OF NON JURISDICTIONAL HIGH COURT IS NOT BINDING ON MUMBAI ITAT. 14. ACCORDINGLY , THE LEARNED COUNSEL SUBMITTED THAT THE MUMBAI ITAT HAS JURISDICTION OVER THE ASSESSEE AND, THE MUMBAI ITAT HAS THE JURISDICTION TO DECIDE ON THE ISSUE RAISED BY THE ASSESSEE OF NON - DEDUCTION OF TAXES ON PAYMENT TO NR ENTITIES BASED ON THE JURISDICTIONAL DECISIONS [BOMBAY HIGH COURT (IN THE MATTER OF SERVICE TAX) AND MUMBAI ITAT]. THE MUMBAI ITAT WHILE DECIDING ON THE ISSUE IS NOT BOUND BY THE DECISION FOLLOWED BY THE CIT(A) IN THE CASE OF SAMSUNG ELECT RONICS (SUPRA). 10 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED 15. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PROPOSITIONS. WE FIND OURSELVES IN AGREEMENT WITH THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE THAT THERE I S NO HONBLE BOMBAY HIGH COURT DECISION O N THIS ISSUE . IN SUCH CIRCUMSTANC ES , THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN NATIONAL STOCK EXCHANGE OF INDIA LTD. (IN ITA NO.7735/MUM./2011 DATED 18.05.2017) HAS CONSIDERED IDENTICAL ISSUE AS UNDER : 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. 7. LD. COUNSEL OF THE ASSE SSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF HONBLE DELHI HIGH COURT. HE FURTHER REFERRED TO SEVERAL OTHER CASE LAWS OF TRIBUNAL IN FAVOUR OF THE ASSESSEE. THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE WH ICH WERE ALSO BEFORE THE LD. CIT - A IN BRIEF ARE AS UNDER: THE APPELLANT HAS PURCHASED SOFTWARE FOR THE INTERNAL USE AND IS OPERATIONAL SOFTWARE. THE APPELLANT WAS GRANTED NON - EXCLUSIVE & PERPETUAL LICENSE TO USE THE SOFTWARE ENUMERATED IN THE AGREEMENT SO LELY FOR INTERNAL OPERATION. THE GENERAL TERMS AND CONDITIONS AND THE RESTRICTIONS UNDER WHICH THE SAID SOFTWARE IS PROVIDED TO THE APPELLANT, UNDER THE LICENSE AGREEMENT ARE AS FOLLOWS: (I) THE APPELLANT HAS NO RIGHT TO USE, COPY, DUPLICATE OR DISPLAY TH E SOFTWARE EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT. (II) THE APPELLANT CANNOT MAKE MORE COPIES OF THE SOFTWARE THAN WHAT IS SPECIFIED IN THE AGREEMENT. (III) THE APPELLANT CANNOT PROVIDE ACCESS TO THE SOFTWARE TO ANYONE, OTHER THAN APPELLANT'S EM PLOYEES, CONTRACTORS OR CONSULTANTS UNDER A WRITTEN CONTRACT BY WHICH ALL OF THEM WOULD BE BOUND BY THE TERMS AND CONDITIONS AS ARE APPLICABLE TO THE APPELLANT ON PURCHASE OF SOFTWARE. (IV) THE APPELLANT CANNOT SELL LICENSE, DISTRIBUTE, PLEDGE, LEASE, RENT OR COMMERCIALLY SHARE (INCLUDING TIMESHARE) THE ABOVE SOFTWARE OR ANY RIGHTS THEREIN. (V) THE APPELLANT CANNOT MODIFY, TRANSLATE, REVERSE ENGINEER, DECRYPT, DECOMPILE, DISASSEMBLE, CREATE DIRECTIVE WORKS BASED ON, OR OTHERWISE ATTEMPT TO DISCOVER THE ABOV E MENTIONED SOFTWARE SOURCE CODE OR UNDERLYING IDEAS OR ALGORITHMS. THERE IS NO ACQUISITION OF COPYRIGHT WHICH REMAINS THE PROPERTY WITH THE SUPPLIER. GENERALLY THERE ARE TWO TYPES OF SOFTWARES NAMELY, 'UNBRANDED SOFTWARE' WHICH IS SPECIALISED AND EXCLUSIV ELY CUSTOM MADE TO CATER TO THE 11 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED NEEDS OF INDIVIDUAL CLIENTS, AND 'BRANDED SOFTWARE' OR 'OFF - THE - SHELF SOFTWARE' WHICH IS STANDARDISED AND MARKETED AS SUCH. WHEN OFF - THE - SHELF SOFTWARE IS SOLD THERE IS NO DOUBT THAT THE ESSENCE OF SUCH TRANSACTION IS AN OUT RIGHT SALE. THE SAID SOFTWARE PURCHASED BY THE APPELLANT COMPANY IS 'OFF THE SHELF' SOFTWARE/SHRINK WRAPPED SOFTWARE. THE APPELLANT COMPANY IS AUTHORIZED TO USE ONLY THE SOFTWARE AND CANNOT TAMPER/COPY/SALE THE SAME TO ANY OTHER PERSON. THE SAID SOFTWARE I S DELIVERED ELECTRONICALLY BY DOWNLOADS FROM THE RESPECTIVE WEBSITES. ACTIVATION KEY/CODE IS THEN E - MAILED FOR INITIALIZATION. SOFTWARE IS THEN INSTALLED BY PUTTING THE ACTIVATION KEY/CODE AND PROMPT - BASED INSTALLATION IS DONE THEREAFTER. THUS, THE APPELLA NT COMPANY DOES THE INSTALLATION BY ITSELF AND NO ONSITE SUPPORT IS PROVIDED BY ANY OF THE VENDORS. SOURCE CODE IS NOT MADE AVAILABLE TO THE APPELLANT COMPANY AND IT IS PROVIDED WITH ACTIVATION CODE ONLY FOR INSTALLATION. THEREFORE, THE APPELLANT COMPANY D OES NOT HAVE ANY COPYRIGHT TO GIVE IT FORWARD TO ANY OTHER PERSON TO USE. THE TRANSFER OF LICENSED SOFTWARE CANNOT BE CONSIDERED AS 'ROYALTY' WITHIN THE MEANING OF ARTICLE 12(3) OF THE INDIA - US TAX TREATY. AS PER THE PROVISIONS LAID DOWN IN CLAUSE (V) OF E XPLANATION (2) TO SECTION 9(1)(VI), THE CONSIDERATION FOR TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE), INTER - ALIA, IN RESPECT OF ANY COPYRIGHT IS TREATED AS ROYALTY INCOME. THUS, TRANSFER OF RIGHTS IN RESPECT OF COPYRIGHT IS ENVISAG ED AND UNLESS THE TRANSFEREE DOES NOT ACQUIRE AND ENJOY THE SAME RIGHTS AS THAT OF THE TRANSFEROR, IT CANNOT BE SAID THAT THERE IS ANY SUCH TRANSFER AS ENVISAGED IN CLAUSE (V) OF EXPLANATION (2) TO SECTION 9(1)(VI). IN THE INSTANT CASE NON - EXCLUSIVE AND NO N - TRANSFERABLE LICENSE HAS BEEN GRANTED TO THE APPELLANT. AS LICENSEE, THE APPELLANT IS ALLOWED TO USE THE SOFTWARE ONLY FOR ITS OWN BUSINESS WITHOUT ANY LIBERTY TO LOAN, RENT, SELL, SUB - LICENSE OR TRANSFER THE SAID SOFTWARE OR ANY RIGHTS THEREIN. THEREFOR E, IT CANNOT BE SAID THAT THERE IS ANY TRANSFER OF ALL OR ANY RIGHTS IN THE SOFTWARE PURCHASED BY THE APPELLANT. THE DEFINITION OF THE TERM 'ROYALTY' UNDER THE INDO - USA D.T.A.A. IS AS UNDER: THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE 12(3) MEANS: A) P AYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC TO USE, ANY COPYRIGHT OF A LITERACY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH, FILMS OR WORK ON FILMS, TAPES OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM TH E ALIENATION OF ANY SUCH RIGHTS OR PROPERLY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, OR USE OR DISPOSITION THEREOF, AND (B) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUI PMENT, 12 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARA 1 OR ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARA 2(C) OR 3 ARTICLE 8. THIS DEFINITION IS MUCH NARROWER AND RESTRICTED THAN THE DEFINITION OF 'ROYALTY' UNDER THE INCOME - TAX ACT. IN THE CASE OF SAMSUNG ELECTRONIC CO. LTD. (SUPRA) THE BENCH HAS CONSIDERED THIS ISSUE AND HAD GIVEN A FINDING, THAT UNDER THE INDO - US DT AA, PAYMENT MADE FOR A COPYRIGHTED ARTICLE IS NOT 'ROYALTY' AND THAT ONLY ARTICLE '7' IS ATTRACTE D. THE OECD COMMENTARY CLARIFIES THE DISTINCTION BETWEEN THE RIGHT TO USE COPYRIGHT AND TRANSFER OF A COPYRIGHTED ARTICLE. ACCORDING TO OECD, ONLY A TRANSFER THAT ENABLES A TRANSFEREE TO COMMERCIALLY EXPLOIT SOFTWARE COPYRIGHT WILL GIVE RISE TO ROYALTY INC OME. BUT WHERE THE TRANSFEREE GETS EXCLUSIVE RIGHTS FOR USE, THOUGH IT IS SHORT OF FULL OWNERSHIP, IT WILL NEVERTHELESS BE A CASE OF SALE OF SOFTWARE. IN SUCH CASES, THE TRANSACTION WILL BE OUTSIDE THE TAX NET IN INDIA AS THE SAID TRANSACTION WILL GIVE RIS E TO BUSINESS INCOME AND IN THE ABSENCE OF PERMANENT ESTABLISHMENT (PE) IN INDIA OF MINITAB INC. OF U.S.A, BUSINESS INCOME ARE NOT BE CHARGEABLE TO TAX IN INDIA AS PER ARTICLE 7 OF INDIA - USA DT AA. THERE IS NO ACQUISITION OF THE SOFTWARE RIGHTS IN THE PRE SENT CASE AND THAT THE COPYRIGHT WILL REMAIN THE PROPERTY OF THE SUPPLIER. IT IS AN OUTRIGHT SALE OF THE SOFTWARE BY THE NON - RESIDENT TO THE APPELLANT COMPANY AND THUS THE PAYMENT MADE BY THE APPELLANT IS NOT FOR 'ROYALTY'. THE PAYMENTS FOR OBTAINING COMPU TER SOFTWARE IS IN THE NATURE OF BUSINESS RECEIPTS. THE BENEFICIARY OF THE RECEIPTS IS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA. THEY ARE NOT HAVING ANY FIXED PLACE OF BUSINESS THROUGH WHICH THEIR BUSINESS IS WHOLLY OR PARTLY CARRIED ON IN INDIA. TH EREFORE, NO OPERATIONS HAVE BEEN CARRIED IN INDIA I.E. NO PART OF THE BUSINESS ACTIVITIES IS CARRIED IN INDIA BY THE NON - RESIDENT SELLERS. THEREFORE, THE INCOME DOES NOT ACCRUE OR ARISE IN INDIA AND HENCE THERE BEING NO LIABILITY TO INCOME - TAX IN INDIA, TH ERE IS NO WITHHOLDING TAX LIABILITY ON SUCH PAYMENTS. 8. VARIOUS DECISIONS RELIED UPON BY THE LD. COUNSEL OF THE ASSESSEE ARE AS UNDER: (A) DIT VS INFRASOFT LTD. (264 CTR 329) (DEL HE) (B) DIT VS NOKIA NETWORKS QY (358 ITR 259) (DEL HE) (C) DIT VS ERICSSO N A. B. (343 ITR 470) (DEL HE) (D) CIT VS HALLIBURTON EXPORT INC (ITA NO 363 OF 2016) (DEL HE) (E) DDIT VS RELIANCE INDUSTRIES LTD (159 ITO 208) (MUM ITAT) (F) CAPGIMINI BUSINESS SERVICES (INDIA) LTD VS ACIT (158 ITD 1) (MUM ITAT) (G) ADIT VS. BAAN GLOBAL BV (ITA NO 7048/MUM/2010) (MUM ITAT) (H) GALATEA LIMITED VS CIT (157 ITD 938) (MUM ITAT) 13 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED (I) ADIT (IT) VS FIRST ADVANTAGE (P) LTD (77 TAXMANN.COM 195) (MUM ITAT) 9. PER CONTRA LD. DR SUBMITTED THAT THOUGH THE HONBLE DELHI COURT HAS DECIDED THE SIMILAR ISS UE IN FAVOUR OF THE ASSESSEE THERE ARE HONBLE KARNATAKA HIGH COURT DECISIONS WHICH ARE IN FAVOUR OF THE REVENUE. HE SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE IN THE CASES OF CIT V. SYNOPSIS INTERNATIONA L OLD LTD., 212 TAXMAN 0454 (KAR.HC), DATED:03 - 08 - 2010, CIT V SAMSUNG ELECTRONICS CO. LTD. & OTHERS, (2011) 345 ITR 0494, KAR HC, DATED:15.10.2011, CIT V. WIPRO LTD. (2011), 355 ITR 0284(KAR)/ 203 TAXMAN 621 (KAR.) HC, DATED: 15.10.2011 AND CIT VS. CGI INF ORMATION SYSTEMS AND MANAGEMENT CONSULTANTS (P) LTD., (2014) 48 TAXMANN.COM 264 (KAR), DATED: 9 - 6 - 2014. THAT THE HIGH COURT OF KARNATAKA HAS DECIDED THE ISSUE OF SOFTWARE ROYALTY, BOTH BEFORE THE INSERTION OF EXPLANATIONS 4, 5 AND 6 IN SECTION 9(1)(VI) OF THE LT. ACT BY THE FINANCE ACT, 2012 AND EVEN AFTER THEIR INSERTION. THAT THE INSERTION OF THESE EXPLANATIONS HAS NOT ALTERED THE VIEWS OF HON'BLE HIGH COURT OF KARNATAKA AND ON THE CONTRARY THE VIEWS OF THE HON'BLE HIGH COURT HAVE BEEN REAFFIRMED. 10. LD. DR FURTHER SUBMITTED THAT ITS THAT EXPLANATION 4 INSERTED SECTION 9(1)(VI), HAS TO BE GIVEN RETROSPECTIVE EFFECT, IN AS MUCH AS IT IS CLARIFICATORY IN NATURE. IN THIS REGARD HE SUBMITTED THAT WHETHER AMENDMENT/EXPLANATIONS INSERTED IN THE INCOME TAX ACT CAN BE READ INTO THE DTAA OR NOT HAS TO BE CONSIDERED ON THE ANVIL OF AMBULATORY APPROACH TO INTERPRETATION OF TREATY, AS AGAINST STATIC APPROACH ADOPTED BY THE HONBLE DELHI HIGH COURT. HE FURTHER SUBMITTED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. SIEMENS AG, 310 ITR 320 HAS APPROVED THE AMBULATORY APPROACH. LD. DR FURTHER SUBMITTED THAT EMINENT AUTHOR KLAUS VOGEL IN HIS COMMENTARY HAS ALSO SUPPORTED AMBULATORY APPROACH. ACCORDING TO THIS APPROACH, LAW IN FORCE AS PER THE DOMESTIC LAW WOULD BE LAW AS IT STANDS ON THE DATE OF APPLICATION OF TREATY. AS AGAINST THIS STATIC APPROACH CONSIDERS THAT LAW IN FORCE AS PER THE DOMESTIC LAW WOULD BE LAW AS IT STOOD ON THE DATE OF ENTERING INTO OF TREATY. 11. LD. DR FURTHER SUBMITTED THAT IN A RECENT DECIS ION IN THE CASE OF DIT VS. NEW SKIES SATELLITE BV & OTHERS, 382 ITR 0114, DATED: 08 - 02 - 2016, THE HON'BLE DELHI HIGH COURT IN PARAS 48 TO 50 OF ITS ORDER SEEMS TO HAVE CORRECTED ITS EARLIER STAND REGARDING DECISION OF BOMBAY HIGH COURT IN THE CASE OF SIEMEN S AG, SUPRA AND ACKNOWLEDGED THAT THE BOMBAY HIGH COURT HAS FOLLOWED AMBULATORY APPROACH TO INTERPRETATION OF TREATIES. (PARAS). THAT THE HON'BLE DELHI HIGH COURT HAS BEEN VERY CATEGORICAL IN THIS REGARD WHEN IN PARA 50 OF ITS ORDER IT HAS HELD THAT: '... ..THE BOMBAY HIGH COURT SEEMS TO ACCEPT THE AMBULATORY APPROACH IN SUCH A SITUATION, THUS ALLOWING FOR SUCCESSIVE AMENDMENTS INTO THE REALM OF 'LAW IN 14 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED FORCE'. WE EXPRESS NO OPINION IN THIS REGARD SINCE IT IS NOT IN ISSUE BEFORE THIS COURT.... 12. HENCE LD . DR PLEADED THAT IN VIEW OF THE ABOVE PLEADINGS THIS ISSUE SHOULD BE DECIDED IN FAVOUR OF THE REVENUE. 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. BEFORE PROCEEDING FURTHER WE MAY REFER TO THE RELEVANT LAW AND CLAUSES OF DTAA SECTION 9(1)(VI) : THE FOLLOWING INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. INCOME BY WAY OF ROYALTY PAYABLE BY (A) THE GOVERNMENT ; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR IN FORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA ; OR (C) A PERSON WHO IS A NON - RESIDENT, WHERE THE RO YALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA : PROVI DED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM CONSIDERATION FOR THE TRANSFER OUTSIDE INDIA OF, OR THE IMPARTING OF INFORMATION OUTSIDE INDIA IN RESPECT OF, ANY DATA, DOC UMENTATION, DRAWING OR SPECIFICATION RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY, IF SUCH INCOME IS PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1ST DAY OF APRIL, 1976, AND THE AGREE MENT IS APPROVED BY THE CENTRAL GOVERNMENT : PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER SOFTWARE SUPPLIED BY A NON - RESIDENT MANUFACTURER ALONG WITH A COMPUTER OR COMPUTER - BASED EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWARE EXPORT, SOFTWA RE DEVELOPMENT AND TRAINING, 1986 OF THE GOVERNMENT OF INDIA. EXPLANATION 1. FOR THE PURPOSES OF THE FIRST PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEMENT IS MADE IN ACC ORDANCE WITH PROPOSALS APPROVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE; SO, HOWEVER, THAT, WHERE THE RECIPIENT OF THE INCOME BY WAY OF ROYALTY IS A FOREIGN COMPANY, THE AGREEMENT SHALL NOT BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE UNLESS, BEFORE THE EXPIRY OF THE TIME ALLOWED UNDER SUB - SECTION (1) OR SUB - SECTION (2) OF SECTION 139 (WHETHER FIXED ORIGINALLY OR ON EXTENSION) FOR FURNISHING THE RETURN OF INCOME FOR THE 15 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1977, OR THE ASSESSMENT YEAR IN R ESPECT OF WHICH SUCH INCOME FIRST BECOMES CHARGEABLE TO TAX UNDER THIS ACT, WHICHEVER ASSESSMENT YEAR IS LATER, THE COMPANY EXERCISES AN OPTION BY FURNISHING A DECLARATION IN WRITING TO THE ASSESSING OFFICER (SUCH OPTION BEING FINAL FOR THAT ASSESSMENT YEA R AND FOR EVERY SUBSEQUENT ASSESSMENT YEAR) THAT THE AGREEMENT MAY BE REGARDED AS AN AGREEMENT MADE BEFORE THE 1ST DAY OF APRIL, 1976. EXPLANATION 2. FOR THE PURPOSES OF THIS CLAUSE, 'ROYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT E XCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMU LA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL ; (IVA) THE USE OR RIGHT TO USE ANY IND USTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB - CLAUSES (I) TO (IV), (IVA) AND(V). EXPLANATION 3. FOR THE PURPOSES OF THIS CLAUSE, 'COMPUTER SOFTWARE' MEANS ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE AND INCLUDES ANY SUCH PROGRAMME OR ANY CUSTOMIZED ELECTRONIC DATA. EXPLANATION 4. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLU DED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED. 16 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED EXPLANATION 5. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE ROY ALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERATION IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION, WHETHER OR NOT (A) THE POSSESSION OR CONTROL OF SUCH RIGHT, PROPERTY OR INFORMATION IS WITH THE PAYER; (B) SUCH RIGHT, PROPERTY OR INFORMATION IS USED DI RECTLY BY THE PAYER; (C) THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION IS IN INDIA. EXPLANATION 6. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE EXPRESSION 'PROCESS' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED TRANSMISSION BY SA TELLITE (INCLUDING UP - LINKING, AMPLIFICATION, CONVERSION FOR DOWN - LINKING OF ANY SIGNAL), CABLE, OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY, WHETHER OR NOT SUCH PROCESS IS SECRET; 14. THE TERM ROYALTY HAS BEEN DEFINED IN ARTICLE 12(3) OF THE INDO - USA D TAA AS UNDER: - A) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTISTIC TO USE, ANY COPYRIGHT OF A LITERACY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH, FILMS OR WORK ON FILMS, TAP ES OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHTS OR PROPERLY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, OR USE OR DISPOSITION THEREOF, AND (B) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE ANY INDUSTRIAL, COMMERCI AL OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARA 1 OR ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARA 2(C) OR 3 ARTICLE 8. WE FIND THAT IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN A DIT (IT) VS. FIRST ADVANTAGE P. LTD (77.TAXMANN.COM 195). WHERE SIMILAR ITEM AND SAME DTAA WITH USA WAS UNDER CONSIDERATION. THE TRIBUNAL VIDE ORDER DATED 11.01.2017 HAD HELD AS UNDER, IN FAVOUR OF THE ASSESSEE WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LD D.R PLACED HIS RELIANCE ON VARIOUS CASE LAWS INCLUDING THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CGI INFORMATION SYSTEMS & MANAGEMENT CONSULTANTS ( P) LTD (2014)(275 CTR 72), SYNOPSIS INTER NATIONAL OLD LTD (2013)(212 TAXMAN 0454) AND CIT VS. SAMSUNG ELECTRONICS CO LTD (2011)(245 CTR 0481) IN ORDER TO SUPPORT THE ORDER PASSED BY THE AO. ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS OBTAINED ONLY LICENSE TO USE THE 17 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED SOFTWARE. HE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO USE THE SOFTWARE FOR ITS INTERNAL BUSINESS OPERATIONS ONLY (CLAUSE 1 OF THE AGREEMENT). HE SUBMITTED THAT THE CLAUSE 2(B) OF THE AGREEMENT CURTAILS THE RIGHTS OF THE ASSESSEE AND READS AS UNDER: 2(B) LICENSEE MAY NOT (I) (OTHER THAN ACCESSING THE SOFTWARE AS CONTEMPLATED BY THIS AGREEMENT) ATTEMPT TO CIRCUMVENT ANY SECURITY DEVICE OR LICENSING RESTRICTION CONTAINED IN THE SOFTWARE; (II) ASSIGN, LOAN, RENT, LE ASE, SUBLEASE, LICENSE, SUBLICENSE, ENCUMBER, MORTGAGE, TRANSLATE, MODIFY, ALTER, ADAPT, DECOMPILE, OR DISASSEMBLE THE SOFTWARE OR CREATE DERIVATE WORKS BASED ON THE SOFTWARE OR OTHERWISE REVERSE ENGINEER THE SOFTWARE; (III) MAKE COPIES OF LICENSOR DOCUMENTATION EXCEPT FOR ONE INTERNAL ARCHIVAL COPY FOR EACH LICENSED USER OR (IV) REMOVE ALTER, COVER OR OBFUSCATE ANY COPYRIGHT NOTICE OR OTHER PROPRIETARY RIGHTS NOTICE PLACED IN OR ON OR DISPLAYED BY THE SOFTWARE AN D THE DOCUMENTATION, WHETHER IN MACHINE LANGUAGE OR HUMAN READABLE FORM... THE LD A.R SUBMITTED THAT THE OWNERSHIP, TITLE AND INTEREST IN THE IPR OF THE SOFTWARE VESTED WITH THE US COMPANY AND THE ASSESSEE HAS NO RIGHT IN RESPECT OF THE SAME EXCEPT THE LICENSE TO USE THE SOFTWARE AS EXPRESSLY GRANTED UNDER THE AGREEMENT. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS OBTAINED ONLY COPYRIGHTED ARTICLE FROM THE US COMPANY AND NOT THE COPYRIGHT IN THE SOFTWARE. ACCORDINGL Y HE SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE TO A COPYRIGHTED ARTICLE, WHICH IS AKIN TO OFF THE SHELF SOFTWARE IS NOT ROYALTY. HE SUBMITTED THAT THE HONBLE DELHI HIGH COURT, IN THE CASE OF DIT VS. IFRASOFT LTD (264 CTR 329) HAS TAKEN I TS VIEW IN FAVOUR OF THE ASSESSEE IN THIS MATTER AND HENCE THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT, WHICH WAS RELIED UPON BY THE LD D.R, NEED NOT BE FOLLOWED. HE SUBMITTED THAT THE IDENTICAL ISSUES HAVE BEEN DECIDED BY THE CO - ORDINA TE BENCHES OF TRIBUNAL IN VARIOUS CASES IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISIONS RENDERED BY HONBLE DELHI HIGH COURT. HE SUBMITTED THAT THE CO - ORDINATE BENCH OF MUMBAI ITAT, IN ITS RECENT DECISION DATED 13 - 06 - 2016 RENDERED IN ITA NO.7048/MUM/ 2010 IN THE CASE OF ADIT VS. M/S BAAN GLOBAL B V (NOW KNOWN AS INFORMATION GLOBAL SOLUTION (BARNEVELD) BV) HAS CONSIDERED AN IDENTICAL ISSUE UNDER THE PROVISIONS OF INCOME TAX ACT AS WELL AS INDIA - US DTAA AND HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE . HE FURTHER SUBMITTED THAT THE PROVISIONS OF DTAA WILL PREVAIL OVER RETROSPECTIVE AMENDMENT MADE IN THE INCOME TAX ACT. WE NOTICE THAT THE CO - ORDINATE BENCH OF TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN THE CASE OF M/S BAAN GLOBAL B V (SUPRA) H AS CONSIDERED AN IDENTICAL ISSUE AND RENDERED ITS DECISION AS UNDER: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND ALSO THE VARIOUS DECISIONS, CITED BEFORE US. 18 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED THE SOLE ISSUE INVOLVED BEFORE US IS, WHETHER THE PAYMENT RECEIVED BY THE ASSESSEE ON SALE OF COMPUTER SOFTWARE PRODUCT IS TO BE TREATED AS INCOME BY WAY OF ROYALTY OR BUSINESS INCOME. IN CASE, IF IT IS A BUSINESS INCOME, THEN ADMITTEDLY, ASSESSEE BEING A NON - RESIDENT CO MPANY WITH NO PERMANENT ESTABLISHMENT IN INDIA, THE SAME WILL NOT BE TAXABLE IN INDIA AND IF IT IS A ROYALTY, THEN IT HAS TO BE TAXED AT THE RATE OF 15% AS PROVIDE UNDER THE TREATY. THUS, THE ONLY ISSUE FOR CONSIDERATION IS, WHETHER THE S AID PAYMENT FALLS WITHIN THE TERMS OF ROYALTY UNDER ARTICLE 12(4) OF INDIA - NETHERLAND DTAA OR UNDER 9(1)(VI) OF INCOME TAX ACT. HERE AGAIN, IT IS AN UNDISPUTED FACT THAT, ASSESSEE BEING A TAX RESIDENT OF NETHERLAND HAS SOUGHT BENEFIT UNDER INDO NETHERLAND DTAA, THEREFORE, THE PAYMENT RECEIVED BY THE ASSESSEE FROM ITS INDIAN SUBSIDIARY, INFOR INDIA HAS TO BE EXAMINED UNDER THE TREATY PROVISIONS. BRIEFLY RECAPITULATING THE RELEVANT FACTS FOR THE PURPOSE OF OUR ADJUDICATION EMANATING FROM T HE IMPUGNED ORDER IS THAT, ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND SALE OF COMPUTER SOFTWARE AND ALSO PROVIDES OTHER GENERAL SERVICES IN RELATION TO THE SOFTWARE. FOR BOTH THE ACTIVITIES, IT HAS ENTERED INTO A DISTR IBUTION AGREEMENT WITH ITS INDIAN SUBSIDIARY INFOR INDIA WHICH MAINLY FUNCTIONS AS A DISTRIBUTOR OF COMPUTER SOFTWARE. SO FAR AS PAYMENTS RECEIVED FROM OTHER GENERAL SERVICES OF RS.4,79,36,944/ - , SAME HAS BEEN OFFERED TO TAX IN INDIA AS FEE FOR TECHNICAL SERVICES ON WHICH THERE IS NO DISPUTE. THE DISPUTE IS WITH REGARD TO THE PAYMENT OF RS.3,75,25,291/ - RECEIVED BY THE ASSESSEE COMPANY AS A SALE CONSIDERATION FOR THE COMPUTER PRODUCTS SUPPLIED BY IT. THE COMPUT ER SOFTWARE IS SOLD OFF SHELF WHICH IS MAINLY USED BY THE INDIAN CUSTOMER IN THEIR BUSINESS FOR FINANCIAL ACCOUNTING, INVENTORY MANAGEMENT, HR MANAGEMENT ETC. INFOR INDIA CARRIES OUT MARKETING AND SALE OF THE SOFTWARE IN INDIA AND PL ACES ORDER WITH THE ASSESSEE. THE SOFTWARE SUPPLIED IS THEN DISTRIBUTED TO THE INDIAN CUSTOMERS THROUGH INFOR. THE CONSIDERATION CHARGED BY INFOR INDIA IS BASED ON TERMS AGREED BETWEEN THE ASSESSEE AND INFOR INDIA AS PER TH E DISTRIBUTION AGREEMENT. UNDER THE TERMS OF THE AGREEMENT, AS NOTED BY THE CIT(A), THERE IS NO TRANSFER OF ANY COPYRIGHT IN THE SOFTWARE PRODUCT. THE PAYMENT RECEIVED BY THE ASSESSEE IS PURELY TOWARDS A COPYRIGHTED SOFTWARE PRODUCT AS AGAINST THE PAYMENT FOR ANY COPYRIGHT ITSELF. THE ASSESSEE DOES NOT GIVE ANY RIGHT TO USE THE COPYRIGHT EMBEDDED IN THE SOFTWARE. IN OTHER WORDS, THE INDIAN CUSTOMER (OR INFOR INDIA) EXCEPT FOR THE LIMITED RIGHT TO ACCESS THE COPYRIGHT SOFTWAR E FOR ITS OWN BUSINESS PURPOSE DOES NOT ACQUIRE ANY KIND OF RIGHT TO EXPLOIT THE COPYRIGHT IN THE COMPUTER SOFTWARE. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE DEPARTMENT AND, THEREFORE, WHAT HAS BEEN INCORPORATED AND STATED BY THE CIT(A) IN HI S ORDER IS RECKONED AS ADMITTED FACTS. 19 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED NOW, ON THESE FACTS, WE HAVE TO DECIDE, WHETHER THE PAYMENT RECEIVED BY THE ASSESSEE CAN BE RECKONED AS ROYALTY WITHIN THE TERMS OF ARTICLE 12(4) OF DTAA. BEFORE THAT, THE RELEVANT PARAGRAPH OF ARTICLE 12 DEALING W ITH THE DEFINITION OF ROYALTY READS AS UNDER: - 4. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. FROM THE PLAIN READING OF THE ARTICLE IT CAN BE INFERRED THAT, IT REFERS TO PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. THUS, IN ORDER TO TAX THE PAYMENT IN QUESTION AS ROYALTY, IT IS SINE QUA NON THAT THE SAID PAYMENT MUST FALL WITHIN THE AMBIT AND SCOPE OF PARA 4 OF ARTICLE 12. THE MAIN EMPHASIS ON THE PAYMENT CONSTITUTING ROYALTY IN PARA 4 ARE FOR A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE ANY COPYRIGHT.......... THE KEY PHRASES FOR THE USE OR THE RIGHT TO USE ANY COPYRIGHT OF; ANY PATENT.......; OR PROCE SS, OR FOR INFORMATION.........,; OR SCIENTIFIC EXPERIENCE, ETC., ARE IMPORTANT PARAMETER FOR TREATING A TRANSACTION IN THE NATURE OF ROYALTY. IF THE PAYMENT DOESNT FIT WITHIN THESE PARAMETERS THEN IT DOESNT FALL WITHIN TERMS O F ROYALTY UNDER ARTICLE 12(4). THE COMPUTER SOFTWARE DOES NOT FALL UNDER MOST OF THE TERM USED IN THE ARTICLE BARRING USE OF PROCESS OR USE OF OR RIGHT TO USE OF COPYRIGHTS HERE FIRST OF ALL, THE SALE OF SOFTWARE CANNOT BE HELD TO BE COVERED UNDER TH E WORD USE OF PROCESS, BECAUSE THE ASSESSEE HAS NOT ALLOWED THE END USER TO USE THE PROCESS BY USING THE SOFTWARE, AS THE CUSTOMER DOES NOT HAVE ANY ACCESS TO THE SOURCE CODE. WHAT IS AVAILABLE FOR THEIR USE IS SOFTWARE PRODUCT AS SUCH AND NOT THE PR OCESS EMBEDDED IN IT. SEVERAL PROCESSES MAY BE INVOLVED IN MAKING COMPUTER SOFTWARE BUT WHAT THE CUSTOMER USES IS THE SOFTWARE PRODUCT AS SUCH AND NOT THE PROCESS, WHICH ARE INVOLVED INTO IT. WHAT IS REQUIRED TO BE EXAMINED IN THE IMPUGNED CASE AS T O WHETHER THERE IS ANY USE OR RIGHT TO USE OF COPYRIGHT? THE DEFINITION OF COPYRIGHT, THOUGH HAS NOT BEEN EXPLAINED OR DEFINED IN THE TREATY, HOWEVER, THE VARIOUS COURTS HAVE CONSISTENTLY OPINED THAT THE DEFINITION OF COPYRIGHT AS GIVEN IN THE COPYRIGHT ACT, 1957 HAS TO BE TAKEN INTO ACCOUNT FOR UNDERSTANDING THE CONCEPT. SECTION 14 OF THE SAID ACT DEFINES THE COPYRIGHTS TO MEAN AS UNDER: - 20 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED 14.MEANING OF COPYRIGHT FOR THE PURPOSES OF THIS ACT, 'COPYRIGHT' MEANS THE EXCLUSI VE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORISE 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 INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II)TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III)TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV)TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORDING IN RESPECT OF THE WORK; (V)TO MAKE ANY TRANSLATION OF THE WORK; (VI)TO MAKE ANY ADAPTATION OFTHE WORK; (VII)TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATION OF THE WORK, ANY OF T HE 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 C OPY OF THE COMPUTER PROGRAMME: PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL. (C) IN THE CASE OF AN ARTISTIC WORK, - (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING DEPICTION IN THREE DIMENSIONS OF A TWO DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC; (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB - CLAUSES (I) TO (IV); (D) IN THE CASE O F CINEMATOGRAPH FILM, (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGRAPH OF ANY IMAGE FORMING PART THEREOF; 21 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE O N EARLIER OCCASIONS; (III) TO COMMUNICATE THE FILM TO THE PUBLIC; (E) IN THE CASE OF SOUND RECORDING, - (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLE SS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE SOUND RECORDING TO THE PUBLIC. EXPLANATION: FOR THE PURPOSES OF THIS SECTION, A COPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALREADY IN CI RCULATION. THUS, THE DEFINITION OF COPYRIGHT IN SECTION 14 IS AN EXHAUSTIVE DEFINITION AND IT REFERS TO BUNDLE OF RIGHTS. IN RESPECT OF COMPUTER PROGRAMMING, WHICH IS RELEVANT FOR THE ISSUE UNDER CONSIDERATION BEFORE US, THE COPYRIGHT MAINLY CONSIS TS OF RIGHTS AS GIVEN IN CLAUSE (B), THAT IS, TO DO ANY OF THE ACT SPECIFIED IN CLAUSE (A) FROM (I) TO (VII) AS REPRODUCED ABOVE. THUS, TO FALL WITHIN THE REALM AND AMBIT OF RIGHT TO USE COPYRIGHT IN THE COMPUTER SOFTWARE PROGRAMME, THE AFO RESAID RIGHTS MUST BE GIVEN AND IF THE SAID RIGHTS ARE NOT GIVEN THEN, THERE IS NO COPYRIGHT IN THE COMPUTER PROGRAMME OR SOFTWARE. AS NOTED BY THE CIT(A), UNDER THE TERMS OF THE AGREEMENT BETWEEN THE ASSESSEE AND INFOR INDIA, THE AGREEMENT SPECIFICALLY FORBIDS THEM FROM DECOMPILING, REVERSE ENGINEERING OR DISASSEMBLING THE SOFTWARE. THE AGREEMENT ALSO PROVIDES THAT THE END USER SHALL USE THE SOFTWARE ONLY FOR THE OPERATION AND SHALL NOT SUBLICENSE OR MODIFY THE SOFTW ARE. NONE OF THE CONDITIONS MENTIONED IN SECTION 14 OF THE COPYRIGHT ACT ARE APPLICABLE. IF THE CONCLUSION OF LD, CIT(A) ARE BASED ON THESE FACTS AND AGREEMENT, THEN HE HAS RIGHTY CONCLUDED THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE IS FOR PUR E SALE OF SHRINK WRAPPED SOFTWARE OFF THE SHELF AND HENCE, CANNOT BE CONSIDERED AS A ROYALTY WITHIN THE MEANING OF ARTICLE 12(4) OF THE DTAA, AS THE SAME IS CONSIDERATION FOR SALE OF COPYRIGHTED PRODUCT AND NOT TO USE OF ANY COPYRIGHT. 12. ONE OF THE I SSUE WHICH WAS RAISED BY THE LD. DR BEFORE US IS THAT, THE EXPLANATION 4 TO SECTION 9(1)(VI) WHICH HAS BEEN WITH BROUGHT BY FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT IN SECTION 9(1)(VI), THEREFORE, THE MEANING AND DEFINITION OF ROYALTY AS GIV EN THEREIN SHOULD BE READ INTO THE DTAA. WE ARE UNABLE TO APPRECIATE THIS CONTENTION OF THE LD. DR BECAUSE THE RETROSPECTIVE AMENDMENT BROUGHT INTO STATUTE WITH EFFECT FROM 01.06.1976 CANNOT BE READ INTO THE DTAA, BECAUSE 22 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED THE TREATY HAS NOT BEEN C ORRESPONDINGLY AMENDED IN LINE WITH NEW ENLARGED DEFINITION OF ROYALTY. THE ALTERATION IN THE PROVISIONS OF THE ACT CANNOT BE PER SE READ INTO THE TREATY UNLESS THERE IS A CORRESPONDING NEGOTIATION BETWEEN THE TWO SOVEREIGN NATIONS TO AMEND THE SPECIFIC PROVISION OF ROYALTY IN THE SAME LINE. THE LIMITATION CLAUSE CANNOT BE READ INTO THE TREATY FOR APPLYING THE PROVISIONS OF DOMESTIC LAW LIKE IN ARTICLE 7 IN SOME OF THE TREATIES, WHERE DOMESTIC LAWS ARE MADE APPLICABLE. HERE IN THIS CASE, THE ROYALTY H AS BEEN SPECIFICALLY DEFINED IN THE TREATY AND AMENDMENT TO THE DEFINITION OF SUCH TERM UNDER THE ACT WOULD NOT HAVE ANY BEARING ON THE DEFINITION OF SUCH TERM IN THE CONTEXT OF DTAA. A TREATY WHICH HAS ENTERED BETWEEN THE TWO SOVEREIGN NATIONS, THEN ONE COUNTRY CANNOT UNILATERALLY ALTER ITS PROVISION. THUS, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LD. DR THAT THE AMENDED AND ENLARGED DEFINITION SHOULD BE READ INTO THE TREATY. IDENTICAL VIEW HAS BEEN EXPRESSED IN THE FOLLOWING CASES ALSO: - (A) M/S QUAOLCOMM INDIA P LTD VS. ADIT (ITA NOS. 1664 TO 1667/HYD/2011) (B) RELIANCE INDUSTRIES LTD & ORS (47 CCH 94)(MUM - TRIB) (C) CAPGEMINI BUSINESS SERVICES (INDIA) LTD (46 CCH 253) (MUM - TRIB) WE NOTICE THAT THE ABO VE SAID DECISIONS HAVE BEEN RENDERED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF INFRASOFT LTD (SUPRA) AND OTHER DECISIONS RENDERED BY HONBLE DELHI HIGH COURT. ACCORDINGLY, BY FOLLOWING THE DECIS IONS RENDERED BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL, WE UPHOLD THE ORDERS PASSED BY LD CIT(A) IN BOTH THE YEARS UNDER CONSIDERATION. 15. IN THIS REGARD WE MAY ALSO REFER TO HONBLE DELHI HIGH COURT EXPOSITION ON THIS SUBJECT IN THE CASE OF DIT VS ERICSSON AB 343 ITR 470 AS UNDER: THAT IN ORDER TO QUALIFY AS ROYALTY PAYMENT, WITHIN THE MEANING OF SECTION 9(1)(VI) AND PARTICULARLY CLAUSE (V) OF EXPLANATION 2 THERE TO, IT IS NECESSARY TO ESTABLISH THAT THERE IS TRANSFER OF ALL OR ANY RIGHTS (INCLUDIN G THE GRANTING OF ANY LICENCE) IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. SECTION 2(0) OF THE COPYRIGHT ACT, 1957, MAKES IT CLEAR THAT A COMPUTER PROGRAMME IS TO BE REGARDED AS A LITERARY WORK. THUS, IN ORDER TO TREAT THE CONSIDERA TION PAID BY THE CELLULAR OPERATOR AS ROYALTY, IT IS TO BE ESTABLISHED THAT THE CELLULAR OPERATOR, BY MAKING SUCH PAYMENT, OBTAINS ALL OR ANY OF THE COPYRIGHT RIGHTS OF SUCH LITERARY WORK. THIS WAS NOT ESTABLISHED. IT WAS NOT EVEN THE CASE OF THE REVENUE T HAT ANY RIGHT CONTEMPLATED' UNDER SECTION 14 OF THE 1957 ACT STOOD VESTED IN THE CELLULAR OPERATOR AS A CONSEQUENCE OF ARTICLE 20 OF THE SUPPLY CONTRACT. DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 23 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED ARTICLE.' EVEN ASSUMING THAT THE PAYMENTS MADE BY THE CELLULAR OPERATOR WERE REGARDED AS A PAYMENT BY WAY OF ROYALTY AS DEFINED IN EXPLANATION 2 BELOW SECTION 9(1)(VI), NEVERTHELESS, IT COULD NEVER BE REGARDED AS ROYALTY WITHIN THE MEANING OF THE TERM IN ARTICLE 13 , PARAGRAPH (3) OF THE DT AA. THIS IS SO BECAUSE THE DEFINITION IN THE DTAA IS NARROWER THAN THE DEFINITION IN THE ACT. ARTICLE 13(3) BRINGS WITHIN THE AMBIT OF THE DEFINITION OF ROYALTY A PAYMENT MADE FOR THE USE OF OR THE RIGHT TO USE A COPYRIGHT OF A LI TERARY WORK. THEREFORE, WHAT IS CONTEMPLATED IS A PAYMENT THAT IS DEPENDENT UPON THE USER OF THE COPYRIGHT AND NOT A LUMP SUM PAYMENT AS WAS THE POSITION IN THE PRESENT CASE. ONCE THE PAYMENT IN QUESTION WAS NOT ROYALTY WHICH WOULD COME WITHIN THE MISCHIEF OF CLAUSE (VI) THE EXPLANATION TO SECTION 9(1) WOULD HAVE NO APPLICATION. THE PAYMENT RECEIVED BY THE ASSESSEE WAS TOWARDS THE TITLE AND GSM SYSTEM OF WHICH SOFT - WARE WAS AN INSEPARABLE PART INCAPABLE OF INDEPENDENT USE AND IT WAS A CONTRACT FOR SUPPLY O F GOODS. THEREFORE, NO PART OF THE PAYMENT, THEREFORE COULD BE CLASSIFIED AS PAYMENT TOWARDS ROYALTY. 16. FROM THE ABOVE CASE LAWS IT IS AMPLY CLEAR THAT IT HAS BEEN HELD THAT THE SOFTWARE SOLD BY M/S. MINITAB INC USA TO THE ASSESSEE FELL INTO THE CATEGO RY OF COPYRIGHTED ARTICLE AGAINST ACQUISITION OF COPYRIGHT WHICH QUALIFIED AS ROYALTY PAYMENT. FURTHERMORE HONBLE DELHI HIGH COURT HAD HELD THAT EVEN IF THE ITEM WAS REGARDED AS ROYALTY PAYMENT AS DEFINED IN EXPLANATION TO SECTION 9(1)(VI) NEVERTHELES S THE DTAA WOULD PREVAIL WHERE ROYALTY IS DEPENDENT UPON THE USE OF THE COPYRIGHTS AND NOT A LUMP SUM AS WAS IN THE PRESENT CASE. THAT ONCE THE PAYMENT IN QUESTION WAS NOT ROYALTY WHICH WOULD, WITHIN THE MISCHIEF OF CLAUSE (VI) THE EXPLANATION TO SECTION 9 (1) WOULD HAVE NO APPLICATION. 17. IN THIS REGARD WE HAVE NOTED THAT HONBLE KARNATAKA HIGH COURT HAS TAKEN A CONTRARY VIEW AS UNDER IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO LTD (SUPRA). (HEAD NOTES ONLY) THE ASSESSEE IMPORTED SHRINK - WRAPPED/ OFF - THE - SHELF SOFTWARE FROM SUPPLIERS IN FOREIGN COUNTRIES AND MADE PAYMENT FOR THE SAME WITHOUT DEDUCTING TAX AT SOURCE U/S 195. THE AO & CIT (A) HELD THAT THE PAYMENTS WERE ASSESSABLE TO TAX AS ROYALTY U/S 9(1)(VI)/ ARTICLE 12 AND THAT THE ASSESSEE WAS L IABLE TO PAY THE TAX U/S 201. ON APPEAL, THE TRIBUNAL RELIED ON THE JUDGEMENT OF THE SUPREME COURT IN TATA CONSULTANCY SERVICES VS. STATE OF AP 271 ITR 401 (SC) AND HELD THAT THE ASSESSEE HAD ACQUIRED A COPYRIGHTED ARTICLE BUT NOT THE COPYRIGHT ITSELF AND SO THE AMOUNT PAID WAS NOT ASSESSABLE AS ROYALTY. ON APPEAL BY THE DEPARTMENT, HELD REVERSING THE TRIBUNAL: (I) U/S 9(1)(VI) OF THE ACT & ARTICLE 12 OF THE DTAA, PAYMENTS OF ANY KIND IN CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGH T OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK IS DEEMED TO BE ROYALTY. UNDER THE COPYRIGHT ACT, 24 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED 1957, A SOFTWARE PROGRAMME CONSTITUTES A COPYRIGHT. A RIGHT TO MAKE A COPY OF THE SOFTWARE AND USE IT FOR INTERNAL BUSINESS BY MAKING COPY OF THE SAME AND S TORING IT ON THE HARD DISK AMOUNTS TO A USE OF THE COPYRIGHT U/S 14 (1) OF THAT ACT BECAUSE IN THE ABSENCE OF SUCH A LICENCE, THERE WOULD HAVE BEEN AN INFRINGEMENT OF THE COPYRIGHT. ACCORDINGLY, THE ARGUMENT THAT THERE IS NO TRANSFER OF ANY PART OF THE COP YRIGHT AND THE TRANSACTION INVOLVES ONLY A SALE OF A COPYRIGHTED ARTICLE IS NOT ACCEPTABLE. THE AMOUNT PAID TO THE SUPPLIER FOR SUPPLY OF THE SHRINK - WRAPPED SOFTWARE IS NOT THE PRICE OF THE CD ALONE NOR SOFTWARE ALONE NOR THE PRICE OF LICENCE GRANTED. IT IS A COMBINATION OF ALL. IN SUBSTANCE UNLESS A LICENCE WAS GRANTED PERMITTING THE END USER TO COPY AND DOWNLOAD THE SOFTWARE, THE CD WOULD NOT BE HELPFUL TO THE END USER; (II) THERE IS A DIFFERENCE BETWEEN A PURCHASE OF A BOOK OR A MUSIC CD BECAUSE WHILE THESE CAN BE USED ONCE THEY ARE PURCHASED, SOFTWARE STORED IN A DUMB CD REQUIRES A LICENSE TO ENABLE THE USER TO DOWNLOAD IT UPON HIS HARD DISK, IN THE ABSENCE OF WHICH THERE WOULD BE AN INFRINGEMENT OF THE OWNERS COPYRIGHT. (TCS VS. STATE OF AP DISTINGUI SHED AS BEING IN THE CONTEXT OF SALES - TAX); 18. WE HAVE ALSO NOTED THE SUBMISSION OF THE LD. DR THAT THE SELLER OF THE SOFTWARE HAS A COPYRIGHT UPON IT. THAT DISTINCTION BETWEEN COPYRIGHT AND COPYRIGHTED ARTICLE WAS ORIGINALLY COINED BY THE US INTERNAL RE VENUE SERVICE. HE HAD ALSO SUBMITTED THAT THIS INTERPRETATION IS SUPPORTIVE OF INTERNAL REVENUE OF THE USA AS MAJORITY OF THE SOFTWARE AND THE COPYRIGHTS ORIGINATE FROM USA. BY TERMING SUCH TRANSFER OF SOFTWARE WHICH ARE UNDER COPYRIGHT IN THE USA AS COPYR IGHTED ARTICLE THE SOFTWARE SELLERS OF THE USA WHERE TAKEN OUT OF THE AMBIT OF TAXATION OF THE OTHER COUNTRIES WHICH WERE PURCHASING/ACQUIRING THE SOFTWARE. FURTHERMORE LD. COUNSEL OF THE ASSESSEE HAS PLEADED THAT AFTER THE INSERTION OF EXPLANATION IV TO S ECTION 9(I)(IV), THIS SOFTWARE SALE HAS ALSO COME UNDER THE AMBIT OF ROYALTY. HOWEVER HONBLE DELHI HIGH COURT HAS APPLIED THE STATIC APPROACH UNDER WHICH DOMESTIC LAW AS AT THE TIME OF THE ENTERING OF THE DTAA IS APPLIED AND NOT THE DOMESTIC LAW AS PREVAI LING AS WHICH THE AMBULATORY APPROACHES MANDATES. HE HAS FURTHER SUBMITTED THAT EMINENT AUTHOR KLAUS VOGEL HAS ALSO FAVOURED THE AMBULATORY APPROACH. HE HAS FURTHER MENTIONED THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT HAS ALSO FAVOURED AMBULATORY APPROAC H IN SOME OTHER DECISIONS. WE ALSO NOTE THE LD. CIT - A HAS REFERRED TO A DECISION OF FEDERAL COURT OF AUSTRALIA IN THE CASE OF IBM VS. CIT (SUPRA) WHICH HELD THAT SIMILAR PAYMENT BY IBM AUSTRALIA TO IBM USA UNDER SIMILAR DTAA WAS ROYALTY PAYMENT. 19. WE HA VE CAREFULLY CONSIDERED THE ABOVE. HOWEVER WE FIND THAT ADMITTEDLY THERE IS NO DIRECT JURISDICTIONAL HIGH COURT DECISION ON THE SUBJECT. HOWEVER THERE IS A DIRECT HONBLE DELHI HIGH COURT DECISION WHICH IS IN FAVOUR OF THE ASSESSEE. AS AGAINST THIS THERE A RE DECISIONS OF HONBLE KARNATAKA HIGH COURT WHICH ARE IN FAVOUR OF REVENUE. IN THIS REGARD WE NOTE THAT HONBLE APEX 25 ITA NO. 926 & 927/BANG /2012 M/S. SHELL INDIA MARKETS PRIVATE LIMITED COURT IN THE CASE OF VEGETABLE PRODUCTS 88 ITR 192 HAD HELD THAT IF TWO CONSTRUCTIONS ARE POSSIBLE ONE IN FAVOUR OF THE ASSESSEE SHOULD BE ADOPTED. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT WE FOLLOW THE HONBLE DELHI HIGH COURT DECISION. ACCORDINGLY WE SET ASIDE THE ORDER OF AUTHORITY BELOW. WE HOLD THAT THE TRANSFER / SALE OF SOFTWARE IN THIS CASE IS NOT TAXABLE AS ROYALTY. HENCE TH E ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 195 OF THE INCOME - TAX ACT, BEFORE REMITTING THE MONEY TO THE US SUPPLIER. 16. RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE, WE SET ASIDE THE ORDER OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAV OUR OF THE ASSESSEE. 17. I N THE RESULT, TH IS APPEAL BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.01.2018 SD/ - SD/ - ( SANDEEP GOSAIN ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 08.01.2018 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI