SYNAMEDIA ASIA PRIVATE LIMTIED,SINGAPORE V. ITO, INTERNATIONAL TAXATION, WARD-2(1), BENGALURU

ITITA 606/BANG/2025

AI Insights

The case involves Synamedia Asia Pvt. Ltd., a foreign company, appealing against the assessment order which treated their income from maintenance and support services as royalty income, taxable in India. The Tribunal considered previous rulings and the India-Singapore Double Taxation Avoidance Agreement (DTAA) to determine whether the income should be classified as royalty or business profits. The Tribunal found that the services provided did not make available any technical know-how to the Indian customers, and thus, the income from these services should not be treated as royalty. The Tribunal's decision was influenced by the Supreme Court's judgment in the Engineering Analysis Centre of Excellence case, which clarified the distinction between royalty and business profits in the context of software and related services.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706054 (ITAT-BANGALORE)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2022-2023
• Other Referred Cases: Engineering Analysis Centre of Excellence Private Limited vs. CIT
• Laws Referred To: Double Taxation Avoidance Agreement (DTAA) between India and Singapore
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARITHIVEL V
• Assessee Lawyers: RAJAGOPAL U
• Keywords: Business income; Tax effect; TDS; Earning of tax free income; Double taxation relief; Application of stay
• Section: 142(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE – PRESIDENT AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER S.A. No. 30/Bang/2025 (in IT(IT)A No. 606/Bang/2025) & IT(IT)A No. 606/Bang/2025 Assessment Year : 2022-23 M/s. Synamedia Asia Pvt. Ltd., 1 Paya Lebar Link, #04-01 Paya Lebar Quarter, Singapore – 408 533. PAN: ABCCS1700R Vs. The Income Tax Officer, International Taxation, Ward – 2(1), Bengaluru. APPELLANT RESPONDENT Assessee by : Shri Rajagopal .U, CA Revenue by : Shri Parithivel .V, JCIT – DR Date of Hearing : 25-04-2025 Date of Pronouncement : 30-06-2025 ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER The assessee filed the present stay application in S.A. No. 30/Bang/2025 seeking the stay of the collection of demand of Rs. 92,26,600/-. When the stay application is taken up for hearing, the Ld.AR submitted that the issue raised in the present appeal has been decided by the orders of the Coordinate Bench of this Tribunal in ITA No. 3350/Bang/2018 dated 14/02/2022, IT(IT)A Nos. 255/Bang/2014 & 504, 505 & 363/Bang/2017 dated 12.11.2011, IT(IT)A Nos. 530 & Page 2 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 742/Bang/2023 dated 31/10/2023 and also enclosed the orders given effect to the orders of the ITAT dated 18/12/2023 and prayed to grant an absolute stay. 2. We have also considered the said submissions made by the Ld.AR and also perused the above referred orders and since the present dispute raised in this assessment year is also one and the same, in order to maintain consistency, we are taking up the appeal in IT(IT)A No. 606/Bang/2025 for hearing out of turn which is posted for hearing on 29/07/2025. 3. The present appeal was filed by the assessee challenging the assessment order dated 09/01/2025 in respect of the A.Y. 2022-23 and raised the following grounds: “The grounds mentioned hereinafter are without prejudice to one another: 1. The Order of the Learned Assessing Officer and the Honourable Dispute Resolution Panel (Hon'ble DRP) in so far as it is prejudicial to the interest of the Appellant is not justified under the facts and circumstances of the case and is liable to be quashed. 2. The Directions of the Honourable DRP in so far as the same are prejudicial to the interest of the Appellant are not justified in law and on facts and circumstances of the case. 3. As regards the addition of income from maintenance and support services of Rs. 8.01,85,694 as royalty income. a. The learned Assessing Officer has erred, in law and in facts, by adding income from maintenance and support services of Rs. 8,01,85,694 as taxable royalty income in the hands of the Appellant. b. The Appellant earns income from maintenance support services in India. The maintenance support services income qualify as business income under Article 7 of Double Taxation Avoidance Agreement (DTAA) between India and Singapore and the same is not taxable in India. Page 3 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 c. The payments would qualify as \"royalty\" under Article 12 of the tax treaty only if the consideration is for the use of, or the right to use any copyright, patent, trade mark, design or model, plan, secret formula or process. Article 12 of DTAA between India and Singapore defines Royalty as payments of any kind received as a consideration for the use of, or the right to use (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent. trade mark. 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 right, property or information (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities related to shipping and air transport. d. The learned Assessing Officer has failed to appreciate the fact that the Appellant only transfers the 'right to use the software' to the third party customers and does not transfer the right to use the copyright embodied in such software. Third party customers are not entitled of the right to reproduce/issue copies for commercial exploitation as per the terms of agreement. The rights of third-party customers are restricted to use of the software for their captive usage in business. Sale of right to usage of software cannot be regarded as royalty income as per the beneficial provisions of tax treaty. e. The ownership of a material object, i.e. the copyrighted article, is distinct from the ownership of a copyright. The right to use a copyright in software is totally different from the right to use the software embedded in a CD or any other medium. The Copyright vests with the person who has an exclusive right to do all or any of the acts specified under copyright law. The owner/ holder of a copyright is permitted to exploit the copyright commercially. Only when the copyright owner grants to any other person a right to commercially exploit the copyright in the software (i.e. a license to reproduce, develop, distribute, etc.) the consideration in respect of the same shall be regarded as \"payment for use or right to use a copyright\" and accordingly, be classified as \"royalty\". f. The learned Assessing Officer has failed to appreciate the fact that mere supply of copyrighted article, without Page 4 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 parting with any of the rights in the copyright or without the right to commercially exploit the copyright in the software, does not amount to a \"transfer of use of copyright\" in such copyrighted article/software. The Appellant does not provide transfer of copy rights. g. The learned Assessing Officer has erred in construing the facts of the agreement stating that Bharti is the deemed owner of the NDS hardware and software and it is also allowed to make copies of the software as well. The learned Assessing Officer has failed to note that as per Article 3.01 of the agreement, it states that the Appellant grants to Bharti Airtel non-exclusive and non-transferable rights. The usage of NDS software and hardware is only for the sole purpose of developing and transmitting the service to Subscribers using Set-top-boxes and to make two back up copies of the NDS software incorporating the embedded software on backup server for the limited purpose of ensuring the provision of uninterrupted service in the event that the primary server fails to function properly. h. The learned Assessing Officer failed to appreciate the fact that the agreement has license restriction clause. In Article 3.02 of the agreement, it is mentioned that except for the permitted back-up copies for testing and disaster recovery, Bharti shall make no more copies of the NDS software, embedded software or third party software that for which it has paid the applicable license fees. Bharti Airtel shall not sub-license, rent, lease, sell or otherwise transfer or distribute copies of the NDS software to any third party, whether as a stand-alone or bundled product except for the purpose of sub-licensing subscribers for accessing the services. i. The learned Assessing Officer failed to appreciate the fact that only when the copyright owner grants to any other person a right to commercially exploit the copyright in the software (i.e. a license to reproduce, develop, distribute, etc.) the consideration in respect of the same shall be regarded as \"payment for use or right to use a copyright\" and accordingly, be classified as \"royalty\". On the other hand, transfer of a copyrighted article/ software enables the recipient to use the software within its own business or for personal use, as an end-user (such as downloading and operating the programs, including copying the program onto the computer or making an Page 5 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 archival copy, etc.) While the recipient acquires ownership of the copyrighted article, he is not permitted to commercially exploit the copyright in the software. j. The learned Assessing Office failed to appreciate the fact that the use or right to use copyrighted article partakes the character of purchase/ sale of 'goods' or 'tangible property', and receipts on account of granting of license for the use or right to License the copyrighted article shall be classified as \"Business Profits\" under the tax treaty. Accordingly, the income from maintenance and support services received by the Appellant cannot be regarded as 'royalty' under the DTAA treaty. k. The receipts from maintenance and support services cannot be considered as fees from technical services as per the article 12 of DTAA between India and Singapore. The learned Assessing Officer is not justified in concluding that the customer is provided person training as well to use the hardware and the software. The learned Assessing Officer has failed to note that though the Appellant uses specialized usage technical knowledge of hardware / software, no technical knowledge, skill, knowhow or process is made available to the service recipients. As an end result of the provision of services, the customer is not equipped with any specialized technical knowledge or skill which he may independently use after the end of the contract between such customer and the Appellant. The services are not rendered in a manner which equips the service recipient to deploy similar technology or techniques in future without depending on the Appellant. l. The learned Assessing Officer has erred in facts and laws that as per the Double Taxation Avoidance Agreement, if there is no transfer of make available of knowledge, then it is not considered as taxable income. The learned Assessing Officer has failed to apply the provisions of Double Taxation Avoidance Agreement between India and Singapore. The Appellant is a tax resident of Singapore. Section 90(2) of the Act permits a taxpayer to opt between being taxed under the provisions of the Indian Income Tax Act or the relevant Double Taxation Avoidance Agreement (DTAA) treaty, whichever is more beneficial to the taxpayer. The Appellant is eligible to be taxed as per the provisions of the tax treaty to the Page 6 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 extent they are more beneficial than the provisions of the Income Tax Act. m. The learned Assessing Officer has erred in inferring the agreement clause relating to engineering changes. The learned Assessing Officer has wrongly understood that the Appellant can make changes to the components of NDS System to suit the needs of the customer with the prior approval of the latter. However, it is mentioned in the agreement that the Appellant can provide improved updated version / make upgradation to the existing unit either at the same price of the old unit or at free of cost. n. The learned Assessing Officer has erred in determining that once a technology is allowed to be used under certain terms and conditions, and payments were made thereon, such payments shall amount to royalty payments. The learned Assessing Officer has erred in facts and laws by not considering the provisions of Double Taxation Avoidance Agreement to conclude whether the payments received amount to royalty or not. o. The learned Assessing Officer has erred in concluding that the model and the design of the platform is unique and the processes used are determined in the form of subscription packages and the payment is for the design, the model and the use of process and not for any product as such. The products offered by the Appellant are the facilities provided to its customers. The Appellant has offered a wide range of multi-products designed for its customers in general. The Appellant has not designed any special products which can be exclusively used by a single customer. p. The learned Assessing Officer has failed to appreciate the fact that the Appellant's business activities of providing video solutions globally, come under the purview of the decision of Hon'ble Apex Court in the case of Engineering Analysis Centre of Excellence Private Limited 12021] 125 taxmann.com 42 (SC). q. The learned Assessing Officer failed to appreciate the fact that the Appellant's supply of software is similar to the issue ruled by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd [2021] 125 taxmann.com 42 (SC). The terms of agreement of Appellant does not provide transfer of copy rights. The rights of third-party customers are restricted to use of the Page 7 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 software for their business purpose and does not provide them any right to make copies of the software and exploit it commercially. As provided in clause 3.02 of the agreement the third-party customers are restricted from making any copies more than the number of copies for which payment has been made by them. The third parties are making payment for copyrighted article and not the copyright itself. No copyright is transferred to the third- party customers in the Appellant's case and accordingly the payment would not constitute royalty. r. The learned Assessing Officer ought to know that the Hon'ble Apex Court noted that the definition of royalty under the DTAAs under consideration necessarily requires grant of a copyright in software to the licensee for the payment to qualify as royalty. Since the payment made by end users and distributors did not involve payment for grant of any right specified under the ICA, payments made by the distributors and end users do not qualify as royalty under the DTAA. Such payments qualify as business income not taxable in India under the DTAA. 4. Without pre-judice to the above mentioned points, the income from maintenance and support services income cannot be considered as taxable income from fees from technical services. a. Without pre-judice to the above mentioned points, the maintenance and support services income cannot be considered as taxable fees for technical services. b. The maintenance and support services provided are not ancillary and subsidiary to the application or enjoyment of some right, property or information for which a royalty payment is made. The Appellant performs regular routine maintenance checks on headend components and systems, for example, monitoring the size of database files, etc. The Appellants support engineers carry out the health check of the headend/system that has been installed at customer site, to ensure that the system continues to operate at maximum efficiency. c. The learned Assessing Officer has failed to understand that while rendering services by the Appellant. no technical knowledge, skill, knowhow or process is made available to the service recipients. As an end result of the provision of services, the customer is not equipped with any specialized technical knowledge or skill which he may Page 8 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 independently use after the end of the contract between such customer and the Appellant. Hence there is no transfer of make available of knowledge. d. The learned Assessing Officer has erred in facts and laws by not considering the provisions of Double Taxation Avoidance Agreement to conclude whether the payments received are taxable income or not. The Appellant is a tax resident of Singapore. The Appellant is eligible to be taxed as per the provisions of the tax treaty to the extent they are more beneficial than the provisions of the Income Tax Act. e. The learned Assessing Officer has erred in facts and laws by not considering the definition of fees for technical services as mentioned in Article 12 of the tax treaty between India and Singapore. Based on the definition as mentioned in Article 12 of the tax treaty, it could be said that consideration for services would be regarded as Fees for Technical Services (FTS), if such services are technical or consultancy in nature and such services are (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the royalties are received: or (b) make available technical knowledge, experience, skill, knowhow or process, or consist of the development and transfer of a technical plan or technical design. Accordingly. if either of the conditions are not satisfied then the services fees cannot be regarded as FTS. While the support services would be regarded as being 'technical' in nature, it needs to be additionally analyzed whether such services satisfies any of the additional conditions stated under (a) or (b) above and also whether such services falls within the ambit of the exclusionary clause (i.e., Clause 5 of Article 12 of the tax treaty). f. The learned Assessing Officer has ought to know that in the definition of Fees for Technical Services in the tax treaty, the first category addresses payments for services that are connected with the production of royalties. Thus, this includes technical and consulting services that are ancillary and subsidiary to the application or enjoyment of an intangible from which a royalty is received under a license (or a contingent sale). as well as those services that are ancillary and subsidiary to the application or enjoyment of industrial, commercial or scientific equipment for which a royalty is received under a lease. To the extent that services are not considered ancillary and subsidiary Page 9 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 to the application or enjoyment of some right, property, or information for which a royalty payment is made, such services are considered FTS if they fall into the second category of technical or consulting services - those which make available technical knowledge, experience, skill, know how, or processes, or consist of the development and transfer of a technical plan or technical design. g. The learned Assessing Officer has failed to appreciate the fact that the support services rendered by the Appellant do not fulfil the conditions of 'making available of knowledge' or any technical knowledge, experience, skill know how or processes, or consist of the development and transfer of a technical plan or technical design to the third- party customers in India. As per the article 12 - Royalties and Fees for Technical Services of DTAA between India and Singapore. the services provided by a non-resident to a resident is not taxable in India, if there is no make available of knowledge. Hence the receipts form maintenance and support services received by the Appellant is not taxable in India. The Appellant has also furnished Tax Residency Certificate which is a mandatory requirement to avail the benefits of DTAA. 5. The Learned AO has erred tax computation by considering the exempt income (as explained in the above paragraph 3 and paragraph 4) as taxable income. The Learned AO has wrongly considered maintenance and support services income as taxable income. 6. The Learned AO has erred in tax computation by applying the wrong tax rates, considering erroneous interest and fee amount. 7. The Honourable Dispute Resolution Panel erred in sustaining the addition made by the Ld. AO in his order. 8. The Ld Income Tax Officer has erroneously raised the tax demand. The Appellant humbly requests to grant a stay order for the demand raised. 9. The Appellant submits that each of the above grounds are mutually exclusive and without prejudice to one another. 10. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of objection Page 10 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 at any time before or at the time of hearing before the Honourable Income Tax Appellate Tribunal (`Tribunal'), so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law. For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.” 4. The brief facts of the case are that the assessee is a foreign company and e-filed their return of income on 24/11/2022 by declaring an income of Rs. 4,02,710/-. Thereafter the case has been selected for scrutiny under CASS to verify the refund claim of the assessee. Thereafter notice u/s. 142(1) was issued for which the assessee submitted the various details called for by the AO. The assessee had claimed TDS deduction of Rs. 81,56,520/- as a refund. The company is engaged in the business of providing video solutions globally for Pay TV operators such as Bharati Telemedia Ltd, CCN Den Network Pvt. Ltd., Den Networks Ltd., Den Adn Network Pvt. Ltd, Atria Convergence Technologies Ltd. and Den Satellite Network Pvt. Ltd. During the year, the assessee had received income from the support and service rendered to the local customers and claimed the said income as exempt in their return of income. The assessee relied on the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. The AO not accepted the said claim and proposed to treat the said income as royalty and therefore it should be added to the total income of the assessee. 5. The assessee filed their submissions on 07/03/2024 and explained the services rendered by the assessee to the various companies. The assessee also submitted that similar issue came up for consideration before this Tribunal in respect of the A.Y. 2020-21 and this Tribunal by an order dated 31/10/2023 in IT(IT)A No. 530/Bang/2023 had held that the services rendered by the assessee were merely technical one and after sales support service and did not make available technical knowhow to Indian customers in order to treat the same as royalty. The assessee also relied on the India – Page 11 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 Singapore DTSAA and submitted that the support and maintenance services provided by the assessee would not fall within the ambit of FTS as per the said DTAA. The AO had rejected the submissions made by the assessee and observed that the revenue had filed a review petition before the Hon’ble Supreme Court against the judgment rendered in Engineering Analysis Centre of Excellence Pvt. Ltd. and the said review is pending. Finally, the AO held that the payments received by the assessee from its customers would be a royalty within the meaning of Article 12(3) of the DTAA and are chargeable to tax under the Article 12(2) thereof. On that basis, a draft assessment order was issued to the assessee on 27/03/2024. 6. The assessee filed their objections before the DRP-2, Bangalore. In the objections filed before the Ld.DRP, apart from explaining the activities carried out by the assessee, had also pointed out the order of the Coordinate Bench of this Tribunal in IT(IT)A Nos. 530 & 742/Bang/2023 dated 31/10/2023 in respect of the A.Ys. 2020-21 and 2021-22 in the appendix to statement of facts. The assessee also furnished the copies of the order giving effect to the order of the ITAT, Bangalore vide order in IT(IT)A Nos. 530 & 742/Bang/2023 dated 31/10/2023 on 18/12/2023 in which the assessing officer had accepted the orders of the ITAT and granted the relief by not subjecting the payments received by the assessee for the support and services rendered to various companies. 7. The Ld.DRP had considered the issue and also the orders of the Coordinate Bench of this Tribunal in respect of the assessee’s own case for the A.Ys. 2020-21 and 2021-22 and confirmed the order of the AO by treating the payments received by the assessee as royalty. Even though the Ld.DRP had extracted the principles laid down by the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. reported in 432 ITR 471, it had observed that the reliance on the decision by the assessee is misplaced. The Ld.DRP also observed that department has already filed a review petition before the Hon’ble Supreme Court against the Page 12 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 judgment of Engineering Analysis Centre of Excellence Pvt. Ltd. The Ld.DRP had miserably failed to considered the orders of the Coordinate Bench as well as the orders giving effect to the order of the ITAT, Bangalore which are dated 18/12/2023 well before the directions issued by the Ld.DRP on 27/12/2024. The AO pursuant to the directions of the Ld.DRP had confirmed his proposals and treated the payments made by the assessee’s customers as royalty within the meaning of Article 12(3) of the DTAA entered into between India and Singapore and chargeable to tax under Article 12(2) of the DTAA. 8. As against the said order of the AO, the present appeal has been filed by the assessee before this Tribunal. 9. At the time of hearing, the Ld.AR submitted that the nature of the activity done by the assessee are one and the same and in respect of the A.Ys. 2006-07, 2010-11, 2012-13 and 2013-14 and 2014-15, the Coordinate Bench of this Tribunal in ITA No. 3350/Bang/2018 dated 14/02/2022, IT(IT)A Nos. 255/Bang/2014 & 504, 505 & 363/Bang/2017 dated 12.11.2011, IT(IT)A Nos. 530 & 742/Bang/2023 dated 31/10/2023 had held that the payments received by the assessee for the support and services rendered by them to the various customers are not a royalty as per Article 12(3) of the India-Singapore DTAA. 10. The Ld.DR relied on the orders of the lower authorities and submitted that the revenue had filed a review petition before the Hon’ble Supreme Court against the judgment rendered in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. reported in 432 ITR 471. The Ld.DR also submitted that the department had not accepted the orders of the Coordinate Bench of this Tribunal on merits but in view of the low tax effect, no further appeals were preferred before the Hon’ble High Court. Page 13 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 11. We have heard the arguments of both sides and perused the materials available on record. 12. It is a fact that the issue of the receipts by the assessee from the customers towards the support and service rendered by them for providing video solutions globally would not be treated as a royalty and therefore the said services rendered by the assessee would be a technical and after sales support services without making available the technical knowhow to their customers and therefore the receipts towards such support services could not be treated as royalty was not fees for technical services. We have also perused the orders of the Coordinate Bench of this Tribunal and also the orders giving effect to the orders of the ITAT, Bangalore and to take a consistent view, we are also following the above orders of the Coordinate Bench. We have also put a question on the Ld.DR whether any appeals before the higher forums are pending in respect of the assessee or in respect of the similar issues for which the Ld.DR replied in the negative and therefore we are decided to follow the earlier orders of this Tribunal. 13. For the sake of easy reference, we are extracting the finding of the Coordinate Bench of this Tribunal in IT(IT)A No. 742/Bang/2023 in the assessee’s own case dated 31/10/2023. “4. We note that for A.Y. 2014-15 and for the preceding assessment years, this Tribunal has considered identical issue on similar facts. From the orders placed in the paper book, we note that this Tribunal has analysed the terms on the license agreement between assessee with its customers and concluded that the terms of the agreement in the case of assessee is similar with various circumstances that has been observed by Hon’ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT reported in [2021] 125 taxmann.com 42. Coordinate Bench of this Tribunal for A.Y. 2014-15, after considering all the aspects and the orders passed in the preceding assessment years observed and held as under: “9. With regard to issue (i) where the receipts towards software license treated as 'royalty' the Tribunal has held that,— Page 14 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 27. The terms of the licence in the present case does not grant any proprietory interest on the licencee and there is no parting of any copy right in favour of the licencee. It is non- exclusive non-tranferrable licence merely enabling the use of the copy righted product and does not create any interest in copy right and therefore the payment for such licence would not be in the nature of royalty as defined in DTAA. We therefore hold that the sum in question cannot be brought to tax as royalty. 10. The next issue raised by the assessee is the treatment of software receipts embedded in hardware as regarded as 'royalty'. This issue is also considered by the Tribunal in assessee's own case (supra) where the Tribunal has held that— 24. The terms of the other licence agreement between the various parties have not been set out in the order of assessment though the copies of the same are available in the Paper Book. The terms of the agreement are clearly similar to the terms of the agreement which the Hon'ble Supreme Court analyzed in the case of Engineering Analysis. We shall anlyse the terms of the Agreement between the Assessee and Bharati Telemedia as a sample. Techinical and commercial proposal given by the Assessee alongwith the STB provides technical specifications for the engineering of the relevant systems. That by itself cannot be the basis to conclude that there has been use of any copyright or that technical services have been provided. This is like providing a technical and user manual describing the system and does not imply granting of any copyright rights or transferring technical knowledge. The software is only licensed for use without granting any license over the copyrights [see article 3 - 3.01 - clause (a) at Page 58]. There are further restrictions on such license like (a) no copies to be made (b) no reverse engineering decompiling or otherwise (c) no sub-license rights (see clause Page 15 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 3.02 at Page 59). The clauses are typical clauses in a Software End User License Agreement (EULA) as analysed by Hon'ble Supreme Court in the Engineering Analysis case (see paras 45 - 47 of the SC judgment). The Viewing cards, Set Top Boxes and the software to run it are together an integrated system. This is similar to the fourth category examined by the Supreme Court. The Supreme Court approved the judgment of Delhi High Court (para 118 ) in the cases of Ericsson and Nokia which dealt with the sale of integrated telecom equipment with embedded software (para 110). The AO also acknowledges that STB, Viewing Card and embedded software is an integrated system. There were certain inferences drawn by the AO based on the FAO given along with the STB. Even if software is licensed and not sold, it is akin to sale based on real nature of transaction. Bharti is just a distributor of Assessee's products (i.e., integrated system). Distributor is buying products for onward sale - para 45 of SC judgment. Use of hardware and software to run are key characteristics of an integrated system. Even if it is licensed, the real nature is that of a sale as per para 51 of SC judgment (one has to look at the real nature of the transaction upon reading the agreement as a whole as laid down by the Hon'ble Supreme Court and para 52 of SC judgment (licensing is akin to sale - reference to SC judgment in TCS case). With reference to paras 4.1 to 4.8 of FAO, it is clear from para 73 of SC judgment that granting of license has to be granting license over copyright rights as per section 14(b) read with 14(a) of Copyright Act. In para 97 the Hon'ble Supreme Court has observed that under software license agreement, customer is licensed to only use the software as such and not the copyrights in the software, therefore granting of license in such cases does not amount to royalty (Assessee's case is similar - see article 3.01 and 3.02 of the Agreement). In para 109 of SC judgment, it has been specifically laid down that it is wholly incorrect to say that license in Page 16 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 software EULA is license to use copyrights. In para 117 for overall conclusions of SC in the context of distinction between license over copyright and license to use copyrighted product - specifically para 117(v), the Hon'ble Supreme Court has held that even if fee schedule refers to royalty payment, this is consideration for purchase of an integrated system. One has to look at the overall agreement and the real nature of the transaction (para 51 of SC judgment). On the AO's reference in para 4.4 of FAO as license being for use of IPR over viewing cards and software is incorrect since as per article 3.01 and 3.02 (page 58-59 of paper book), license is for simplicitor use of the software, with several restrictions. Also, as per clause 3.04 (No license to accessed materials) and clause 3.05 (Ownership), no license whatsoever is granted over using the IPR in the software. License is to only use software to enable using the accompanying hardware, as part of an integrated system. Aspect of training referred to in para 4.5 of FAO does not advance AO's case since software and hardware are part of an integrated system akin to supply of goods. When training is provided to use it, it is similar to initial training provided by a vendor of any high end electronic or integrated equipment (for example, telecom equipment as examined by Delhi HC in Ericsson case). This doesn't amount to training in furtherance of license of copyright. With reference to para 4.6 on provision of operations and maintenance manual, this is akin to provision of a User Manual which describes the functioning of any equipment. For example, every sale of a TV comes with an operations and user manual. With refence to para 4.7, the providing of AMC services like repair, etc is akin to post-sale standard AMC services provided in the case of any sale of equipment. This AMC service does not in any way make the original transaction a royalty transaction. Since the AY is AY 2010-11 (i.e., prior to the Finance Act, 2012 amendment by way of inserting Explanation 4 to Section 9(1)(vi) of the Page 17 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 Act, as per the SC in its judgment, the Finance Act, 2012 amendment has to be read as expanding the scope of royalty with prospective effect from the Assessment Year 2013-14 (After FA, 2012 was enacted) and cannot be upheld as clarificatory so as to apply retrospectively for previous assessment years (para 73 - 74, 78 and 79). Therefore, the payments made under the customer contracts are not be treated as \"royalty\" under section 9(1)(vi) of the Act itself for the subject AY 2010- 11, even without reference to the DTAA. Under the DTAA, clearly these are not \"royalty\" payments under article 12 of the India - UK DTAA as held by the SC (UK DTAA has also been examined by the SC para 40. 25. As already observed in the earlier paragraph, the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (2021) 125 Taxmann.com 42 (SC) held that A copyright is an exclusive right that restricts others from doing certain acts. A copyright is an intangible right, in the nature of a privilege, entirely independent of any material substance. Owning copyright in a work is different from owning the physical material in which the copyrighted work may be embodied. Computer programs are categorised as literary work under the Copyright Act. Section 14 of the Copyright Act states that a copyright is an exclusive right to do or authorise the doing of certain acts in respect of a work, including literary work. The Hon'ble Court took the view that a transfer of copyright would occur only when the owner of the copyright parts with the right to do any of the acts mentioned in section 14 of the Copyright Act, 1957(Copyright Act). In the case of a computer program, section 14(b) of the Copyright Act, speaks explicitly of two sets of acts: 1. The seven acts enumerated in sub- clause (a); and 2. The eighth act of selling or giving of commercial rental or offering for sale or commercial rental any copy of the computer program. The seven acts as enumerated in section 14(a) of the Copyright Act, in respect of Page 18 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 literary works are: 1. To reproduce the work in any material form, including the storing of it in any medium electronically; 2. To issue copies of the work to the public, provided they are not copies already in circulation; 3. To perform the work in public, or communicate it to the public; 4. To make any cinematographic film or sound recording in respect of the work; 5. To make any translation of the work; 6. To make any adaptation of the work; and 7. To do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (1) to (6). The court held that a licence from a copyright owner, conferring no proprietary interest on the licensee, does not involve parting with any copyright. It said this is different from a licence issued under section 30 of the Copyright Act, which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. What is 'licensed' by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly supplied to the resident end-user, is the sale of a physical object which contains an embedded computer program. Therefore, it was a case of sale of goods. The payments made by end-users and distributors are akin to a payment for the sale of goods and not for a copyright license under the Copyright Act. The decision of the Hon'ble Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd. [2011] 16 taxmann.com 141 (Karn.), on which the revenue authorities placed reliance in making the impugned addition stood overruled by the Hon'ble Supreme Court. We have already set out the terms of the Agreement under which software in question was sold by the Assessee to its distributions and the terms of the EULA. The same are identical to the case decided by the Hon'ble Supreme Court and hence the ratio laid down therein would squarely apply to the present case also. Page 19 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 26. On the question whether the provisions of the Act can override the provisions of the DTAA, the Hon'ble Court held that Explanation 4 was inserted in section 9(1)(vi) of the ITA in 2012 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\". The court ruled that Explanation 4 to section 9(1)(vi) expanded the scope of royalty under Explanation 2 to section 9(1)(vi). Prior to the aforesaid amendment, a payment could only be treated as royalty if it involved a transfer of all or any rights in copyright by way of license or other similar arrangements under the Copyright Act. The court held that once a DTAA applies, the provisions of the Act can only apply to the extent they are more beneficial to the taxpayer and therefore the definition of 'royalties' will have the meaning assigned to it by the DTAA which was more beneficial. It was held that the term 'copyright' has to be understood in the context of the Copyright Act. The court said that by virtue of article 12(3) of the DTAA, royalties are payments of any kind received as a consideration for \"the use of, or the right to use, any copyright \"of a literary work includes a computer program or software. It was held that the regarding the expression \"use of or the right to use\", the position would be the same under explanation 2(v) of section 9(1)(vi) because there must be, under the licence granted or sales made, a transfer of any rights contained in sections 14(a) or 14(b) of the Copyright Act. Since the end-user only gets the right to use computer software under a non-exclusive licence, ensuring the owner continues to retain ownership under section 14(b) of the Copyright Act read with sub- section 14(a) (i)-(vii), payments for computer software sold/licenced on a CD/other physical media cannot be classed as a royalty. Page 20 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 11. The last issue of receipts on account of rendering support services regarded as FTS, is also considered by the Tribunal in assessee's own case (supra) and held that \"28. On the question whether the sums in question can be taxed as FTS, we agree with the submissions made by the learned counsel for the Assessee set out in paragraph-18 & 19 of this order and hold that the sums in question cannot be brought to tax as FTS. 29. As far as the question whether the sum which was offered to tax by the assessee and which by virtue of our conclusions as aforesaid cannot be regarded as royalty or FTS and hence cannot be taxable, the Revenue should be directed to not to tax the aforesaid sum also. The first aspect that may require consideration is as to whether the assessee can seek to lay a claim that the amount offered tax in the return of income is not taxable. On this issue, the law is well settled and the Hon'ble Delhi High Court in the case of Indglonal Investments and Finance Limited v. ITO, Writ Petition (Civil) 15639/2006 and 7127/2008 dated 36-2011 after considering the decision rendered in the case of CIT v. Shelly Products 261 ITR 361 (SC) came to the conclusion that if by mistake or inadvertently or on account of ignorance included in his return of income in income which is not income within contemplation of law, bring the same to the notice of tax authorities and the tax authorities can grant him relief and repay of tax in excess. The Hon'ble Court referred to article 265 of the Constitution of India which provides that there shall be no tax levied or collected except by authority of law. We therefore are of the view that in the light of the discussion in the earlier part of this order regarding taxability of receipts on sale of set-top- box, the amount offered to tax by the assessee which is now found to be not taxable cannot be brought to tax. We hold and direct accordingly and allow the ground of appeal.\" 12. The order of the DRP in assessee's own case for the assessment 2016-17 dated 31-3- Page 21 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 2021 (Page number 1790 to 1803 of Paper Book) was submitted and was taken on record. In the said order we observe that the DRP has considered the identical issues and has issued directions to the AO to delete the additions. With regard to issue of treating receipts pertaining to software license and the receipts towards embedded software as 'royalty' the DRP in para 1.5 of the order had allowed the ground in favour of the assessee following the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd (supra). With regard to treatment of receipts towards Support Services as 'FTS\" the DRP in para 2.3 had discussed the provisions article 13 of India - UK DTAA in addition to placing reliance on the judgment of the Supreme Court and on and held that \"The service contract of the assessee with Indian customer is merely a technical and after sales support services. These services are not making available the technical know- how to the Indian Customers. We find that 'make available' clause as per article 13 is not being satisfied in present case. Therefore the addition made by the AO is deleted. Accordingly this ground is allowed\" 13. We have taken into consideration the materials on record and the binding effect of the order of the coordinate bench of the Tribunal in assessee's own case (supra). Respectfully following the judgment of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. (supra) and the order of the coordinate bench of the Tribunal in assessee's own case (supra), we allow this appeal in favour of the assessee with regard to issues contended before us.” Respectfully following the above view which is based on the decision of Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT(supra), we do not find any reason to uphold the order of the Ld.AO and the addition made therein is hereby Page 22 of 22 S.A. No. 30/Bang/2025 & IT(IT)A No. 606/Bang/2025 deleted. Accordingly, the grounds raised by assessee from 3 to 5 stands allowed.” 14. In view of the above said findings given by the coordinated bench of this Tribunal in the assessee’ own case, we are also allowing the present appeal filed by the assessee on the above terms. Since we are disposing of the main appeal, the stay application becomes infructuous and therefore we are dismissing the same. 15. In the result, the appeal filed by the assessee is allowed and the stay application is dismissed as infructuous. Order pronounced in the open court on 30th June, 2025. Sd/- Sd/- (PRASHANT MAHARISHI) (SOUNDARARAJAN K.) Vice – President Judicial Member Bangalore, Dated, the 30th June, 2025. /MS / Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. Guard file 6. CIT(A) By order Assistant Registrar, ITAT, Bangalore "