QOGNIFY PTE LTD.,CHENNAI V. DCIT, INTERNATIONAL TAXATION, CIRCLE--1(2), CHENNAI

ITTPA 8/CHNY/2024

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The case involves Qognify Pte Ltd., a Singaporean company, which appealed against the final assessment order passed by the Deputy Commissioner of Income Tax, International Taxation, Chennai. The assessment order, based on directions from the DRP, treated the income from the supply of software as royalty, taxable in India. The Tribunal examined whether the payment received for the software, which included installation, testing, and maintenance services, constituted royalty under Indian tax law and the India-Singapore DTAA. The Tribunal found that the software was supplied without transferring any copyright, and thus, the payment did not qualify as royalty.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 475495 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 01-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-07-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 27-03-2024
• Other Referred Cases: Engineering Analysis Centre of Excellence Private Limited v. CIT, ACIT v. Hotel Blue Moon, CIT, International Taxation-2 vs. Microsoft Corporation, EY Global Services Ltd vs. ACIT, Symantec Asia Pacific Pte. Ltd. Vs. DCIT, M/s. Salesforce.com Singapore Pte ltd. Vs. Dy.DIT, Micron strategy Singapore Pte Ltd. vs. ACIT (International Taxation)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M.S. DEEPTHA
• Assessee Lawyers: PEXCY PARDIWALLA
• Keywords: Set aside; Reassessment proceedings; Principle of natural justice; TDS; Double taxation relief; Permanent establishment
• Section: 147; 148; 144; 143(2); 195; 274; 2

Judgement Text

" आयकर अपीलीय अिधकरण,‘डी’ ᭠यायपीठ,चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ᮰ी महावीर ᳲसह, उपा᭟यᭃ एवं ᮰ी एस. आर.रघुनाथा, लेखा सद᭭य के समᭃ BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT AND SHRI S.R.RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकर अपीलसं./IT(TP)A No.: 8/Chny/2024 िनधाᭅरण वषᭅ / Assessment Year: 2018-19 Qognify Pte Ltd., 120, Robinson Road, Level 9, #S0929, Singapore Through counsel Cyril Amarchand Mangaldas, Regus, KRM Plaza, Office No.824, South Towers, 8th Floor, No.2, Harrington Road, Chetpet, Chennai – 600 031. [PAN:AAACQ-4053-G] v. Deputy Commissioner of Income Tax, International Taxation, Circle - 1(2), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओरसे/Appellant by : Shri Pexcy Pardiwalla, Advocate, Shri Aditya Mehta, Advocate, Shri Debojit Mahanta & Shri Agneya Gopinath ᮧ᭜यथᱮकᳱओरसे/Respondent by : Smt. M.S. Deeptha, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 09.07.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 01.10.2024 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: Aforesaid appeal by assessee for Assessment Year (AY) 2018- 19 arises out of final assessment order dated 29.01.2024 passed by Ld. Assessing Officer (AO) u/s 147 r.w.s. 144C(13) pursuant to the directions of Ld. Dispute Resolution Panel-2, Bangalore (DRP) dated :-2-: IT(TP)A. No: 8/Chny/2024 12.12.2023 u/s 144C(1) r.w.s 144 and section 147 of the Income- tax Act, 1961 (hereinafter “the Act”). 2. The assessee has raised following grounds of appeal : 1. “That the Impugned Order passed by the Ld. AO pursuant to the directions of the Dispute Resolution Panel (hereinafter referred to as the \"Hon'ble DRP\"), is erroneous in law, contrary to the facts and circumstances of the case, based on surmises and conjectures, against law and principles of natural justice and thus is unsustainable. 2. Based on the facts and circumstances of the case and in law, the Ld. AO has erred in issuing notices under section 148A and section 148 of the Act without having jurisdiction at the relevant time, to assess the Appellant, thereby rendering the entire reassessment proceedings a nullity in law, nonest, invalid and void ab initio. 3. The Ld. AO has grossly erred in suomoto purportedly transferring the Appellant's jurisdiction from New Delhi to Chennai (i) in a mechanical and arbitrary manner; (ii) without following the mandatory procedure laid down under the Act; and (ii) without any intimation to the Appellant; and hence, such assumption of jurisdiction is contrary to the principles of natural justice, the mandatory provisions of the Act and is thus liable to be quashed, thereby also rendering the Impugned Order non est, invalid and void ab initio. 4. The Ld. AO has grossly erred in either (i) issuing a notice under Section 148 bearing an incorrect DIN and attempting to regularize same after a period of approximately one year, in blatant disregard of the applicable law and circulars issued by the Central Board of Direct Taxes; or (ii) issuing the same notice under Section 148 of the Act, bearing two distinct DINs. 5. The Ld. AO has erred by ignoring and/or not dealing with the Appellant's challenge to the Ld. AO's jurisdiction, and the purported transfer thereof. This is further exacerbated by the Ld. AO blindly acceding to the flawed reasoning of the Hon'ble DRP in dismissing ground numbers 3-6 raised by the Appellant before the Hon'ble DRP, especially in view of the fact that the said grounds do not even pertain to a jurisdictional challenge. 6. The Ld. AO has grossly erred in passing the Impugned Order without issuance of notice under section 143(2) of the Act, thereby rendering the impugned 'order non est, invalid and void ab initio as :-3-: IT(TP)A. No: 8/Chny/2024 held by the Hon'ble Supreme Court in the case of ACIT v. Hotel Blue Moon [2010] 321 ITR 362. 7. Based on facts and circumstances of the case and in law, the Ld. AO has erred in concluding the reassessment under section 144 of the Act, without appreciating that none of the conditions under section 144 of the Act were satisfied, which is evidenced by the self- contradictory observations rendered by the Ld. AO in the Impugned Order, whereby the Ld. AO on one hand acknowledges that the Appellant has inter alia submitted its manual returns, and in the immediate next paragraph records that the Appellant has not complied with the notices issued. Moreover, the Ld. AO has proceeded to complete the present assessment on an incorrect and self-serving interpretation of law that reassessment was getting time barred on 31 March 2023. 8. Based on facts and circumstances of the case and in law, the Ld. AO has erred in initiating reassessment proceedings without any \"reasons to believe\"; on the basis of mere suspicion, conjectures and surmises; and incorrect, incomplete and vague information; thereby rendering the reassessment proceedings non est, invalid and void ab initio. 9. Without prejudice to the above, on merits the Ld. AO has grossly erred in holding that the Appellant's income from licensing of software is chargeable to tax in India as royalty under section 9(1)(vi) of the Act and Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA\"). While doing so, 9.1. The Ld. AO has blatantly failed to provide any cogent reasoning as to why the binding principles laid down in the Hon'ble Supreme Court's judgement in Engineering Analysis Centre of Excellence Private Limited v. CIT and ANR [Civil Appeal No. 8733-8734 of 2018] are not squarely applicable to the facts of the Appellant in view of its End User License Agreement; 9.2. The Ld. AO has misinterpreted the clear and unambiguous terms of the Letter of Intent (hereinafter referred to as the LOI\") and the End User License Agreement (hereinafter referred to as the EULA\") between the Appellant and the end-user. A bare reading of the LOI and the EULA would make it clear that the Appellant provided multiple licenses for the software, which licenses were not permitted to be modified, and were in fact non-exclusive, and non- transferable qua the use of the computer software in question. In fact, the Ld. AO conveniently ignores the express stipulation in the EULA that no copyright in the computer programme is transferred; 9.3. The Ld. AO failed to appreciate that the end-user (i) could only use the software by installing it in its computer hardware and could not in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA; (ii) could only use the software :-4-: IT(TP)A. No: 8/Chny/2024 for the project for which it was provided, and nothing else. Hence what was transferred was merely a copyrighted article, and such arrangement does not involve granting of any rights in the 'copyright' itself, as has been categorically held the case of Engineering Analysis (supra) 9.4. The Ld. AO has incorrectly and without any basis concluded that the Appellant modified the software as per requirements of the end-user. Without prejudice, the Ld. AO has failed to appreciate that in the case of Engineering Analysis (supra), the Hon'ble Supreme Court has held that modifying/ customizing the software as per the specifications of the end-user does not create any interest or right in such end-user, which would amount to the use of or right to use any copyright, and thus, the payment received from licensing of such customized software will not be royalty under the DTAA. 10. Without prejudice to the above, even if the income is held to be chargeable under the Act read with the DTAA, the Ld. AO has erred in applying surcharge and cess over and above the prescribed tax rate under the DTAA. 11. The Ld. AO has erred in facts and in law in initiating penalty proceedings against the Appellant under section 274 read with section 270A of the Act.” 3. The brief facts of the case are that the assessee-company is engaged under the laws of Singapore and the assessee is a tax Resident of Singapore. The assessee is engaged for supply, installation, testing, commissioning and AMC of video management software and video analytics software for Vizag smart city project. The company does not have a permanent establishment or place of business in India. As per Form 15CA data received from M/s. L&T Ltd., it was seen that the assessee-company had provided the services of supply, installation, testing, commissioning and AMC of Video management software and video analytics software for Vizag Smart City project to M/s. L&T Ltd. As per the details of :-5-: IT(TP)A. No: 8/Chny/2024 remittances, the assessee was in receipt of Rs. 1,38,85,200/- during the Financial Year 2017-18 (A.Y 2018-19). According to A.O. the receipts from India during the year were not covered by the exemption of filing of return by Non-Resident entities u/s.115A of the Act and the case was reopened u/s.147 of the Act as income chargeable to tax had escaped assessment. The A.O. had issued statutory notices to the assessee and assessee had filed their submissions claiming that the receipt is not taxable in India since there is a transfer of copy of software without the transfer ‘copy right’ of the software. However, the A.O was not convinced with the reply of the assessee, passed an order by rejecting the assessee’s submission dated 29/01/2024 by taxing the said amount of Rs.1,38,85,200/- by holding as under: “1. The company incorporated under the laws of Singapore. The Assessee is engaged for supply, installation, testing, commissioning and AMC of video management software and video analytics software for Vizag smart city project. 2. In response to the Notice u/s 148A(b) of the Income Tax Act, 1961 dated 30.03.2022 assessee submission is as follows: \"BRIEF FACTS:- Larsen & Toubro Limited, Construction Smart World and Communication Division, Chennai, has issued Letter of Intent to M/s QognifyPte Limited, Singapore for Supply, Installation, Testing, Commissioning and AMC of Video Management Software (VMS) and Video Analytics Software (VA) for their Vizag Smart City Project. Copy of letter of Intent is attached as Annexure-1 :-6-: IT(TP)A. No: 8/Chny/2024 M/s QognifyPte Limited is a tax Resident of Singapore (Tax reft# 201532307H). Further, it does not have a Permanent Establishment or place of business in India. As per Letter of Intent issued by Larsen & Toubro Limited, the following are components of the work. S.No. Description Price in USD 1 Supply of Software 215,492 2 Software installation, testing and training 23,940 3 AMC/Support 45,568 Total 285,000 The Supply of software consists of supply of Video Management Software (VMS) and Video Analytics Software (VA). The further details of these software is mentioned in Letter of Intent. In words, it is supply of Software license for life time and software can be used only for Vizag Smart City Project M/s QognifyPte Limited supplied the Video Management Software (VMS) and Video Analytics Software (VÀ) through the Tax Invoice number - INVSG10256 dated 30.09.2017 and value of tax invoice was USD 215,492/- against which the they received the payment of Rs.1,38,85,200/- from Larsen & Toubro Limited. Copy of Tax Invoice number -INVSG10256 is attached as Annexure-2. VMS software allows you to manage camera and recording settings, view multiple camera feeds, and set alerts for tampering and motion detection. Video management software can also review and analyse your recorded video, giving you important information. Video Analytics software use advanced algorithms and machine learning to monitor, analyse and manage large volumes of video. They digitally analyse video inputs; transforming them into intelligent data which help in decision-making. From this software the work can be perceived, reproduced or otherwise communicated either directly or with the aid of machine or device. Larsen & Toubro Limited acquires merely software license giving him only the right to use the same for the Vizag Smart City Project and does not grant him any other rights in relation thereto. Hence there is transfer of copy of software without the transfer of copyright of software.” :-7-: IT(TP)A. No: 8/Chny/2024 Aggrieved by the order of the A.O. the assessee preferred an appeal before us. 4. The ld.AR assailing the action of the Assessing Officer/DRP stated that the assessment order passed by misconceiving the payment made towards copy of the software by M/s. L&T Ltd as copy right of the software and brought to tax as royalty. In support of the claim of the assessee, the ld.AR took us through the tax residence certificate (Page no. 61 & 62 of paper book), wherein the assessee is a resident tax payer at Singapore for the relevant assessment year. Further, the ‘letter of intent’(LOI) issued by M/s. L&T Ltd. to the assessee dated 21.09.2017 for supply, installation, testing, commissioning and AMC of Video Management Software (VMS) and Video Analytics Software (VA) for Vizag Smart City Project with an AMC till December, 2022 for US $285,000/- (Page No.11 to 14 of paper book) was brought to our notice to state that it is purely supply of software without any copy right and the LOI also states that AMC to be provided up to December, 2022. The ld.AR also took us through the End-User License Agreement (EULA) between the assessee and M/s. L&T Ltd, wherein it clearly shows that the software which has been ordered by M/s. L&T Ltd to the assessee grants a non-exclusive, non-transferable license to use :-8-: IT(TP)A. No: 8/Chny/2024 this software together with the application for total number of licenses with the following software license terms (Page No. 63 to 65 of paper book): END-USER LICENSE AGREEMENT [“EULA”] IMPORTANT- READ CAREFULLY BEFORE USING THIS SOFTWARE BY USING THIS SOFTWARE, YOU ACKNOWLEDGE THAT YOU HA VE READ THIS EULA, THAT YOU UNDERSTAND IT, AND THAT YOU AGREE TO BE BOUND BY ITS TERMS. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, IN THE EVENT OF A CONFLICT BETWEEN THE TERMS OF THIS EULA AND THE TERMS OF A SEPARATE WRITTEN AGREEMENT SIGNED BETWEEN QOGNIFY AND YOU, THE TERMS OF SUCH SEP ARA TE AGREEMENT SHALL GOVERN YOUR USE OF THIS SOFTWARE. FOR THE PURPOSE OF nus EULA, \"USING\" SHALL INCLUDE, WITHOUT LIMITATION, OPERA TING, COPYING, INSTALLING AND UTILIZING (EACH AS PERMITTED HEREUNDER) THE SOFTWARE IN OBJECT CODE FORM. IF YOU DO NOT AGREE TO THE TERMS OF THIS LICENSE, DO NOT USE THE SOFTWARE. QOGNIFY WILL NOT LICENSE THE SOFTWARE AND DOCUMENTATION TO YOU IF YOU DO NOT AGREE TO THE TERMS OF THIS LICENSE, IN WHICH CASE, YOU MUST IMMEDIATELY CEASE ANY USE OF THE SOFTWARE AND, WHERE APPLICABLE, RETURN THE SOFTWARE TO QOGNIFY. Software License Terms. (a) QOGNIFY grants to you a non-exclusive, non- transferable license to use this Software (in object code form only), together with the specifications and user documentation that accompany this Software (collectively \"Software Documentation\"), for the total number of licenses you have purchased from QOGNIFY or a QOGNIFY-authorized reseller or distributor. Such use shall be in accordance with and subject to the terms and conditions set forth herein. (b) No title or ownership of the Software or Software Documentation is transferred to you by way of this EULA.- Ownership of the Software, Software Documentation, an all modifications, enhancements, improvements, adaptations, translations and any derivative works thereof and any other intellectual property rights therein and thereto shall remain at all times with QOGNIFY and its licensors. (c) The Software and Software Documentation contain material that is protected by United States and international intellectual property laws, including copyright law, trade secret law, :-9-: IT(TP)A. No: 8/Chny/2024 and by international treaty provisions. All rights not expressly granted to you herein are reserved to QOGNIFY and its Ii censors. You shall not remove any proprietary notice of QOGNIFY and its licensors from the Software or Software Documentation. You may make a reasonable number of copies of the Software Documentation, provided such reproductions shall include any copyright or proprietary labels, legends or notices placed upon or included in the Software Documentation by QOGNIFY. You may make one ( 1) back-up archival copy of the Software, provided you reproduce all confidentiality and proprietary notices on such copy. (d) You shall not publish disclose, rent lease modify, loan, distribute alter or create derivative works of an kind based on the Software, Software Documentation or any part thereof. You shall not reverse engineer, decompile, unbundle, translate, adapt, or disassemble the Software, nor shall you attempt to create the source code from the object code for the Software. (e) Solely for Software expressly licensed by QOGNIFY directly (and not for the avoidance of doubt through a QOGNIFY- authorized reseller) on an on-premise, perpetual basis, QOGNIFY warrants that, during the period beginning on the dare of shipment or, in the case of Software delivered via QOGNTF Y's electronic software delivery system, the date on which the Software becomes available for download, and ending on the date that is ninety (90) days thereafter (\"Warranty Period\"), the Software will operate substantially in accordance with the applicable Software Documentation. Should the Software fail to comply with the warranty set forth in this Section during the Warranty Period, your sole and exclusive remedy and QOGNIFY's sole obligation with respect to Software shall be, in QOGNIFY's sole discretion, to correct or replace any portion of the Software not in compliance with this Section at no additional charge to you. The warranty provided in this Section does not include damage to Software resulting from a cause other than a defect or malfunction, including: (i) installation, maintenance, servicing or modification of the Software or part thereof by anyone other than QOGNIFY or a QOGNlFY-authorized technician; or (ii) use of the Software other than in accordance with the Software Documentation. (f) EXCEPT AS SET FORTH IN SECTION l(e) ABOVE, QOGNIFY MAKES NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED. WITHOUT LIMITING THE FOREGOING, QOGNIFY DOES NOT WARRANT THAT THE SOFTWARE IS OR WILL BE A CCU RA TE, ERROR- FREE OR UNINTERRUPTED OR MEET OR WILL MEET YOUR REQUIREMENTS. QOGNIFY MAKES NO IMPLIED WARRANTY OF i\\1ERCHANTABILITY OR QUALITY OR IMPLIED WARRANTY OF FITNESS FOR ANY PARTICULAR PURPOSE, AND NO IMPLIED :-10-: IT(TP)A. No: 8/Chny/2024 WARRANTY ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE. ACCORDINGLY QOGNIFY DISCLAIMS ANY AND ALL LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS. THE SOFTWARE MAY CAUSE YOUR COMPUTER TO AUTOMATICALLY CONNECT TO THE INTERNET. THE SOFTWARE MAY ALSO REQUIRE ACTIVATION OR REGISTRATION.” 5. On perusal of EULA, the ld.AR stated that it clearly states that ‘no title or ownership’ of the software or software documentation is transferred to M/s. L&T Ltd by the assessee and hence, the ownership of the software documentation, modification, enhancement, improvements, adaptions shall remain at all times with the assessee. Therefore, conclusion drawn by the Assessing Officer/DRP treating this as a sale of copy rights to consider as taxable under the head ‘royalty’ is erroneous and need to be set aside. In support of the claim of the assessee, the ld.AR relied on the decision of Hon’ble Supreme Court in the case of Engineering Analysis and Centre of Excellence Pvt Ltd vs CIT [Civil Appeal No. 8733 to 8734 of 2018], wherein it has been held that payments made to the supplier of software would constitute royalty, only if the copy right or ownership of software part with any of the rights/interest as specified in section 14(a) and 14(b) of the Copyright Act, 1952. The Hon’ble Supreme Court has further held that, the consideration for mere use of software for the purpose for which it was supplied does not amount to royalty for the use of :-11-: IT(TP)A. No: 8/Chny/2024 copyright in the software. Amongst other matters, the SC also upheld that the provisions of DTAA would apply over the provisions of section 9(1)(vi) of the Act as the same is more beneficial to taxpayers. Accordingly, the ld.AR stated that the income of the non- resident from licensing of software shall not be chargeable to tax in India as royalty as use/grant of right to use the software does not entail any use/grant of right to use the copyright in such software. Relevant paragraphs of Hon’ble Supreme Court decision have been reproduced below: \"When it comes to an end-user who is directly sold the computer programme, such end user can only use it by installing it in the computer hardware owned by the end-user and cannot in any manner reproduce the same for sale or transfer, contrary to the terms imposed by the EULA. In all these cases, the 'licence' that is granted vide the EULA, is not a licence in terms of Section 30 of the Copyright Act, which transfers an interest in all or any of the rights contained in Sections 14(a) and 14(b) of the Copyright Act, but is a 'licence' which imposes restrictions or conditions for the use of computer software. Thus, it cannot be said that any of the EULAs in question are referable to Section 30 of the Copyright Act, in as much as Section 30 of Copyright Act speaks of granting an interest in any of the rights mentioned in Sections 14(a) and 14(b) of the Copyright Act. The EULAs in all the appeals do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in Section 195 of the Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create :-12-: IT(TP)A. No: 8/Chny/2024 any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright ..... Our answer lo the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty Jot the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, of which the persons referred to in Section 195 of the Income-tax Act were not liable to de TDS under Section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment.\" (Emphasis supplied)” 6. Further, the Hon’ble Supreme Court concluded that it makes no difference whether the end-user enabled to use computer software that is customized to its specification and the same does not create any interest or right in such end-user which would amount to the use of or right to use any copy right and thus, the payment received from licensing of such customized software will not be a royalty under the DTAA held as under: \"A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under Section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in Section 14(a) and 14(b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the 'licensed' computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by Section 52(1)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customized to its specifications or otherwise. :-13-: IT(TP)A. No: 8/Chny/2024 A non-exclusive, non-transferable licence, merely enabling the use of a copyrighted product, is in the nature of restrictive conditions which are ancillary to such use, and cannot be construed as a licence to enjoy all or any of the enumerated rights mentioned in Section 14 of the Copyright Act, or created any interest in any such rights so as to attract Section 30 of the Copyright Act.\" 7. The ld.AR further relied on the following judgments of Hon’ble High Court of Delhi, wherein it is held that whether payments were made by India end-user/distributor to non-resident company which was computer software manufacturer/supplier for resale/use of computer software through distribution agreements, in light of the fact that the issue has been settled by the Hon’ble Supreme Court in Engineering Analysis (Supra), said payment did not amount to royalty for use of copyright in computer software, and same did not give rise to any income taxable in India.  CIT, International Taxation-2 vs. Microsoft Corporation [2022] 445 ITR 6 (Delhi)  EY Global Services Ltd vs. ACIT [2021] 441 ITR 54 (Delhi) 8. The ld. AR brought to our notice that, following the decision of Hon’ble Supreme Court with a specific reference to the provisions of India-Singapore DTAA the following cases also have been decided in favour of the assessee:  Symantec Asia Pacific Pte. Ltd. Vs. DCIT – ITA No. 2013/Del/2017  M/s. Salesforce.com Singapore Pte ltd. Vs. Dy.DIT – ITA No. 4915/Del/2016 :-14-: IT(TP)A. No: 8/Chny/2024  Micron strategy Singapore Pte Ltd. vs. ACIT (International Taxation) – ITA No. 2686/Del/2018 9. Further, the ld.AR stated that the payments received by the assessee from the Indian entity M/s. L&T Ltd will not amount to royalty u/s. 9(1)(vi) of the Act. He further stated as below: “Section 9(1)(vi) of the Act inter alia provides that income by way of royalty payable by an Indian resident would be deemed to accrue or arise in India, if the royalty is for the purpose of earning any income from any source in India. Explanation 2 to section 9(1)(vi) defines \"royalty\" to be a consideration for the transfer of all or any rights (including the granting of a license) or use of any copyright, literary, artistic or scientific work, patent, invention, model, design, secret formula or process or trade mark or similar property. Explanation 4 was inserted in Section 9(1)(vi) to clarify that the \"transfer of all or any rights\" in respect of any right, property or information included and had always included the \"transfer of all or any right for use or right to use a computer software\". Hence, the computer software was included in the definition and within the scope of the words right, 'property' or information' as provided under clauses (b) and (c) to Section 9(1)(vi) of the Act. Article -12 of Double Taxation Avoidance Agreement (DTAA) between India and Singapore define \"royalty\" to mean consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work. There is no provision like Explanation 4 to section 9(1)(vi)(b) in the Tax Treaty, which artificially expands the scope of the term 'royalty' by providing that transfer of all or any rights includes transfer of all or any right for use or right to use a computer software. The term 'royalty' is exhaustively defined under the Tax Treaties to 'mean' payment made for the use or right to use any copyright in a literary work. Meaning of the said term under the Act is different and wider than the Tax Treaty in as much as transfer of all or any rights includes granting of a license, in respect of any copyright of Since the license granted to end users does, not create any interest any literary work or right in the software, grant of such license would not amount to the \"use of or right to use\" of copyright and, hence, it would not qualify as royalty under the Tax Treaty. :-15-: IT(TP)A. No: 8/Chny/2024 The phrase \"in respect of used in the Act means \"in\" or \"attributable to\" Thus, in order to quality as royalty even under the Act, it is a sine qua non that there has to be transfer of all or any rights in a copyright by way of license or otherwise. Since the license granted to end users did not involve granting of any interest in the rights of an owner of a copyright, payment made for such license does not qualify as royalty both under the Act as well as the Tax Treaty. Moreover, the definition of royalties under the Tax Treaty is narrower and more beneficial. In terms of Article 12 of the relevant Tax Treaties, the payments made by resident Indian end-users/distributors to non-resident computer software suppliers, as consideration for the own use of the computer software, does not constitute royalty since the payment is not for the use of or the right to use copyright in the computer software. It is hereby concluded that the receipt of Rs.1,38,85,200/- is not characterized as royalty, hence it is not deemed to accrue or arise in India under section 9(1)(vi) of the Income tax Act, 1961. Hence consideration received for sale of software, is not taxable as royalty under the Act read with the relevant tax treaty.” 10. In light of the above arguments the ld.AR stated that the payment received by the assessee is taxable in India and hence prayed for setting aside the order of the Assessing Officer/DRP by allowing the appeal of the assessee. 11. Per contra, the ld.DR asserting the action of the Assessing Officer/DRP stated that the issue has been discussed in detail by the Assessing Officer which has been supported by the ld.DRP and hence prayed for confirming the order of the Assessing Officer. :-16-: IT(TP)A. No: 8/Chny/2024 12. We have heard the rival contentions and gone through the materials available on record and orders of the authorities below. It is undisputed fact that the assessee is a non-resident company incorporated under the laws of Singapore with Tax reference No.201532307H and did not have PE in India. During the assessment year the assessee has received an order for supply, installation, testing, commission and AMC of Video Management Software and Video Analytics Software for Vizag Smart city project from M/s. L&T Ltd for an amount of Rs.1,38,85,200/- (285,000 US Dollars). On perusal of letter of intent the following are the components of the purchase order placed by M/s. L&T Ltd to the assessee: Sl.No Description Price in USD 1 Supply of software 215,492 2 Software installation, testing and training 23,940 3 AMC/Support 45,568 Total 285,000 13. It is further stated that warranty/AMC should also be provided by the supplier up to December, 2022 by the assessee to M/s. L&T Ltd. On perusal of EULA entered between the assessee and M/s.L&T Ltd, it clearly mentions that ‘no title or ownership of the software’ or its documentation is transferred to the buyer (M/s. L&T Ltd) and :-17-: IT(TP)A. No: 8/Chny/2024 also the ownership of the software and its modification rights shall remain at all times with the assessee only which reads as under: Software License Terms. “(a) QOGNIFY grants to you a non-exclusive, non-transferable license to use this Software (in object code form only), together with the specifications and user documentation that accompany this Software (collectively \"Software Documentation\"), for the total number of licenses you have purchased from QOGNIFY or a QOGNIFY-authorized reseller or distributor. Such use shall be in accordance with and subject to the terms and conditions set forth herein. (b)No title or ownership of the Software or Software Documentation is transferred to you by way of this EULA. Ownership of the Software, Software Documentation, an all modifications, enhancements, improvements, adaptations, translations and any derivative works thereof and any other intellectual property rights therein and thereto shall remain at all times with QOGNIFY and its licensors. (c)The Software and Software Documentation contain material that is protected by United States and international intellectual property laws, including copyright law, trade secret law, and by international treaty provisions. All rights not expressly granted to you herein are reserved to QOGNIFY and its Ii censors. You shall not remove any proprietary notice of QOGNIFY and its licensors from the Software or Software Documentation. You may make a reasonable number of copies of the Software Documentation, provided such reproductions shall include any copyright or proprietary labels, legends or notices placed upon or included in the Software Documentation by QOGNIFY. You may make one (1) back-up archival copy of the Software, provided you reproduce all confidentiality and proprietary notices on such copy. (d)You shall not publish disclose, rent lease modify, loan, distribute alter or create derivative works of an kind based on the Software, Software Documentation or any part thereof. You shall not reverse engineer, decompile, unbundle, translate, adapt, or disassemble the Software, nor shall you attempt to create the source code from the object code for the Software.” :-18-: IT(TP)A. No: 8/Chny/2024 14. Considering the present facts and circumstances, supply of software sale made by the assessee to M/s.L&T Ltd, of India cannot be treated as royalty u/s.9(1)(vi) of the Act and hence, the action of the Assessing Officer cannot be accepted. Further, the assessee’s claim of software is only a sale of software but not the copyright of the software and treated as royalty by relying on the Hon’ble Supreme Court decision in the case of Engineering Analysis and Centre of Excellence Pvt Ltd vs. CIT(Supra), wherein the Hon’ble Supreme Court held as under: “payments made to the supplier of software would constitute royalty, if the copy right ownership of software part with any of the rights/interest as specified in section 14(a) and 14(b) of the Copyright Act, 1952. The Hon’ble Supreme Court has further held that, the consideration for mere use of software for the purpose for which it was supplied does not amount to royalty for the use of copyright in the software. Amongst other matters, the SC also upheld that the provisions of DTAA would apply over the provisions of section 9(1)(vi) of the Act as the same is more beneficial to taxpayers.” 15. Further, the decision of Hon’ble Supreme Court is considered in the case of CIT vs. Microsoft Corporation (Supra) and also in EY Global Services Ltd (Supra) and held that mere supply of software without a sale of copyright cannot be treated as royalty to bring it to tax u/s.9(1)(vi) of the Act. The same analogy has been following with reference to India-Singapore DTAA in the following cases and decided in favour of the assessee by excluding the supply of :-19-: IT(TP)A. No: 8/Chny/2024 software without any copyright as non-taxable under Income-tax Act, 1961. Considering the facts and circumstances of the case, the assessee has supplied only the copy of the software to M/s.L&T Ltd for an amount of Rs.1,38,85,200/- (285,000 US Dollars) for Vizag Smart City Project without any copyright of the software or the ownership and hence cannot be termed as royalty to bring it to tax u/s.9(1)(vi) of the Act and therefore, we do not countenance the action of the Assessing Officer/DRP in taxing the above transaction in India. 16. Therefore, in the present case by respectfully following the Hon’ble Courts decisions(supra) relied by the assessee and facts and circumstances, we are of the considered opinion that the supply of software by the assessee cannot be brought to tax either u/s.9(1)(vi) of the Act or under the India-Singapore DTAA and hence, we set aside the order of the Assessing Officer/DRP by allowing the ground No.9 raised by the assessee. Since, the assessee’s appeal is decided in their favour on merits in ground No.9, the legal grounds raised from ground No. 1 to 8 are not adjudicated as it becomes academic. :-20-: IT(TP)A. No: 8/Chny/2024 17. In the result, appeal filed by the assessee is allowed. Order pronounced in the court on 01st October, 2024 at Chennai. Sd/- (महावीर िसंह ) (MAHAVIR SINGH) उपा᭟यᭃ/Vice President Sd/- (एस. आर.रघुनाथा) (S. R. RAGHUNATHA) लेखासद᭭य/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated, the 01st October, 2024 JPV आदेशकीŮितिलिपअŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT - Chennai 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "