IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH - ITAT
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH - ITAT IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH - ITAT
18plan, secret formula or process or for information concerning industrial,commercial or scientific experience, including gains derived from thealienation of any such rights or properly which are contingent on theproductivity, or use or disposition thereof, and(b) Payments of any kind received as a consideration for the use of, or theright to use any industrial, commercial or scientific equipment, other thanpayments derived by an enterprise described in Para 1 or art. 8(Shippingand Air Transport) from activities described in Para 2(c) or 3 art. 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) theBench has considered this issue and had given a finding, that under the Indo-USDTAA, payment made for a copyrighted article is not “Royalty” and that onlyArticle ‘7’ is attractedThe Bangalore A-Bench of Tribunal in the case of Hewlett-Packard (India)(P) Ltd.vs. ITO 5 SOT 660 (Bang) held as follows :“ Section 9(1)(vi) provides that royalty receivable by a non-resident from aperson in India is deemed to accrue or arise in India. Further, section 90(2)provides that if the provisions of Tax Treaty between India and the countryof the non-resident are more beneficial to such non-resident, then theprovisions of Tax Treaty shall override the provisions of the Act [para 6).Article 12(3) of the India-USA DTAA defines the term ‘royalty’. As per theIndia-USA DTAA royalty in respect of the subject-matter of a copyrightincludes only the payments for the use i.e., exploitation of the copyright ofsuch literary/artistic or scientific work. Therefore, in order to be classified asroyalty, the right of the person in possession of the subject-matter of acopyright should be to utilize such copyright in the manner which isotherwise protected by the respective copyright law in favour of the ownerof the copyright. The use of a copyright of a copyrighted work is differentfrom use of such work itself. The acquisition of a product, wherein thesubject-matter of copyright is embedded, without right to exploit the
19copyright, does not amount to use or right to use the copyright of suchliterary/artistic/scientific i.e., copyrighted work [para 6].Further, as per clause 13.1 of the OECD model commentary, payments madefor acquisition of partial rights in copyright would represent a royalty wherethe consideration is for the right to use the programmes in a manner thatwould, without such license, constitute an infringement of the copyright. Inother words, the payment can constitute royalty only if the transferor grantsto the transferee the right to use the copyright of the product. If, on the otherhand, the use of the programmes by the transferee (by acquiring a copy ofsuch programme) is in a manner which does not constitute infringement ofthe copyright, the payment therefor would not amount to royalty.Therefore, under the OECD model commentary also payments for acquiringa copy of a computer programme would not be treated as payments for rightto use the copyright in the computer programmes. Accordingly suchpayments are to be considered s commercial income under article 7 and notas royalty under article 12 of the India-USA DTAA [paras 6.2 and 6.3].Further, the computer programme may be copyright as intellectual propertydoes not alter the fact that once in the form of a floppy disc or other medium,the programme is tangible, movable and available in the market place. Thefact that some programmes may be tailored for specific purposes need notalter their status as ‘goods’ because the code definition included ‘speciallymanufactured goods’’. In the case of Tata Consultancy Services v. State ofAndhra Pradesh [2004] 271 ITR 401 / 141 Taxman 132 the Apex Court afterciting several decisions of the Courts of the USA has noted that acquisitionof a copy of computer programmes, which is a copyrighted article, amountsto sale of such article [para 6.7].Therefore, the payment made by the assessee to ‘H’ was not in the nature ofroyalty but was subject-matter of article 7 of the India-USA DTAA. Furtherit was an admitted fact that H, did not have any permanent establishment inIndia. Therefore, the assessee had no obligation to deduct tax at source onsuch payments made to H, USA. Therefore, the claim of the assessee wasliable to be allowed.[para 6.8].Applying these propositions to the facts of the case, we uphold the order of the firstappellate authority wherein it is held that :
- Page 5: 54. Aggrieved, the Revenue is in ap
- Page 8 and 9: 8iv) The assessee cannot provide ac
- Page 10: 103. Limited WarrantiesTIBCO warran
- Page 13 and 14: 13(i) to reproduce the work in any
- Page 15 and 16: 15It is clear from the above defini
- Page 17: 17The tests laid down in para 168 o
- Page 21: 2114. In the result, all the appeal
19copyright, does not amount to use or right to use the copyright of suchliterary/artistic/scientific i.e., copyrighted work [para 6].Further, as per clause 13.1 of the OECD model commentary, payments madefor acquisition of partial rights in copyright would represent a royalty wherethe consideration is for the right to use the programmes in a manner thatwould, without such license, constitute an infringement of the copyright. Inother words, the payment can constitute royalty only if the transferor grantsto the transferee the right to use the copyright of the product. If, on the otherhand, the use of the programmes by the transferee (by acquiring a copy ofsuch programme) is in a manner which does not constitute infringement ofthe copyright, the payment therefor would not amount to royalty.Therefore, under the OECD model commentary also payments for acquiringa copy of a computer programme would not be treated as payments for rightto use the copyright in the computer programmes. Accordingly suchpayments are to be considered s commercial income under article 7 and notas royalty under article 12 of the India-USA DTAA [paras 6.2 and 6.3].Further, the computer programme may be copyright as intellectual propertydoes not alter the fact that once in the form of a floppy disc or other medium,the programme is tangible, movable and available in the market place. Thefact that some programmes may be tailored for specific purposes need notalter their status as ‘goods’ because the code definition included ‘speciallymanufactured goods’’. In the case of Tata Consultancy Services v. State ofAndhra Pradesh [2004] 271 ITR 401 / 141 Taxman 132 the Apex Court afterciting several decisions of the Courts of the USA has noted that acquisitionof a copy of computer programmes, which is a copyrighted article, amountsto sale of such article [para 6.7].Therefore, the payment made by the assessee to ‘H’ was not in the nature ofroyalty but was subject-matter of article 7 of the India-USA DTAA. Furtherit was an admitted fact that H, did not have any permanent establishment inIndia. Therefore, the assessee had no obligation to deduct tax at source onsuch payments made to H, USA. Therefore, the claim of the assessee wasliable to be allowed.[para 6.8].Applying these propositions to the facts of the case, we uphold the order of the firstappellate authority wherein it is held that :
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