DY CIT (INT TAX) 4(1)(2) MUMBAI, MUMBAI vs. TRANS UNION LLC, USA

However, insofar as A.Ys. 2020-21 and 2022-23 are concerned, the assessee took the stand that the receipts are not taxable.

However, the A.O. was not convinced and he proceeded to treat the receipts as royalty both u/s. 9(1)(vi) as well as under the treaty provisions. While doing so, he also commented that the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra) would not cover the transactions under consideration. Further, he observed that since the Revenue has preferred review petition to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC against the aforesaid judgement of the Hon'ble Supreme Court, the issue has not reached finality. Hence, the receipts have to be made taxable in India.

6. Findings and Decision: 6.1 On a careful reading of the above submissions of the Appellant, the broad arguments of the Appellant can be categorized as follows: • The receipts earned by the Appellant from the software licenses are not chargeable to tax as 'royalty' as per the provisions of the India-USA DTAA • The nature of software licenses and rights granted by the Appellant as squarely covered factually by the Hon'ble Supreme Court's decision in its decision of Engineering Analysis (supra) • The AO has mis-interpreted the clauses of the license agreement and has arrived at erroneous conclusions • Each and every contention raised by the AO is bad in law and facts - as specifically rebutted by the Appellant I have gone through the detailed submissions filed by the Appellant along with the relevant factual set of documents filed by the Appellant before me. On perusal of the above submissions by the Appellant, I have set out my analysis and decision as follows: Applicability of the decision of the Hon'ble Apex Court in Engineering Analysis (supra): 6.2 The AO's main contention is that the case of the Appellant does not contain the same facts as analyzed by the Hon'ble Apex Court in Engineering Analysis (supra). This in my opinion is not a correct statement made by the AO. 6.3 It is seen that the Apex Court has analyzed four categories of software licenses. and I opine that the case of the Appellant clearly falls under Category 1 as covered by the Hon'ble Supreme Court (i.e., Computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer). Therefore, the AO is not correct in stating that only category 4 (i.e., software embedded in hardware) is the only category analyzed by the Apex Court. 6.4 Further, the Appellant in its submissions has drawn out a comparison on the facts of its case vis-à-vis the decision of the Apex Court in Engineering Analysis (supra). A summary of the same is captured below for easy reference. 6.5 In fact, the Appellant has brought out a comparison of the Apex Court's decision for each of the license agreements in the Appellant's case. For sake of brevity, I have captured the summary of the characteristics of the agreements in the Appellant's case vis-à-vis the Apex Court's decision:

Relevant terms As per iCRS software Adviser Decision center of the agreement Engineering platform platform platform Analysis Centre of Excellence Private Limited

Terms of the what is granted TU CIBIL TU CIBIL The licensee license to TU the accepts non- accepts non- accepts, a non- distributor only transferable, transferable, transferable, exclusive, exclusive right exclusive right non-exclusive transferable and license in and license in right and license license to India to use the India to use the to use within computer Software in Software in India, the software Object Code form Object Code licensed only during the form only during materials during term of the the term of the the term of this agreement agreement agreement Clause 2.1 of the Clause 2.1 of Clause 2.1 of agreement the agreement the agreement Rights and expressly TU CIBIL shall TU CIBIL shall TU CIBIL shall ownership stipulated that no not acquire any not acquire any not acquire any copyright in the right, title, right, title, right, title, computer interest, interest, interest, program copyright, trade copyright, trade copyright, trade secret, patent, or secret, patent, or secret, patent, or other proprietary other other rights through proprietary proprietary this license rights in or to rights in or to the licensed the licensed Clause 2.3 of the materials materials agreement Clause 2.3 of Clause 2.3 of the agreement the agreement Nature extent There is no TU CIBIL TU CIBIL The licensee rights granted further right to promises and promises and promises and Indian Co sub-license or agrees not to agrees not to agrees not to transfer, nor is copy, distribute, copy, distribute, copy, distribute, there any right to transfer (by any transfer (by any transfer (by any reverse- means), display, means), display, means), display, engineer, modify, sublicense, rent, sublicense, rent, sublicense, rent, reproduce in any reverse-engineer, reverse- reverse- manner decompile, or engineer, engineer, otherwise than disassemble the decompile, or decompile, or permitted by the Software or any disassemble the disassemble the license to the part thereof, Software or any Software or any end-user without the prior part thereof, part thereof, written consent without the prior without the prior of the Company written consent written consent of the Company of the Company Clause 2.2 of the agreement Clause 2.2 of Clause 2.2 of the agreement the agreement

6.6 I do find merit in the above comparison drawn by the Appellant to state that the facts as analyzed by the Apex Court is similar to that of the Appellant. This is seen from the relevant clauses of the license agreements of ICRS, Adviser and Decision center platform as furnished by the Appellant in its factual paper book of documents. Therefore, I am of the considered view that the Hon'ble Apex Court's decision is squarely applicable to the Appellant's case.

6.7 Granting of modification rights by the Appellant The AO has also raised some contentions in the assessment order that the Appellant has parted with modification/ adaptation rights to the respective licensees and therefore the Appellant has parted with the rights as contained in section 14(a) and section 14(b) of the Indian Copyright Act. I disagree with the argument of the AO that the Appellant has provided modification rights to the licensees. I base my conclusion on the following inferences: 6.8 At the outset, the Apex Court has held that there must be a transfer by way of license or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act 6.9 Further, the Apex Court has held that section 52 of the Copyright Act provides that making a copy of the software for utilization as well as a backup copy for temporary protection by the lawful possessor would not constitute infringement of copyright. 6.10 From a combined reading of section 14(a), 14(b) and 52(aa) of the Copyright Act, it is seen that merely because an adaptation of the software happens, it cannot amount to an infringement of the software license and therefore can never be said that copyright is provided by the licensor to the licensee. 6.11 Further, basis a reading of all the license agreements submitted by the Appellant the following commonalities arise (extracts of one agreement [Adviser] captured for brevity): • The licensee shall not acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights through this license 2.3. Except solely as explicitly set forth in this Agreement or to the extent otherwise required for a party's performance under this Agreement, nothing in this Agreement shall be construed, by implication or otherwise, to grant any other right or license to a party under any patent, Invention, copyright, or any other intellectual property right, now or hereafter owned, controlled by, or licensed to, the other party. Except solely as explicitly set forth in this Agreement, TransUnion CIBIL has not, and shall not, through this Agreement or otherwise, acquire any right, title, interest, copyright, trade secret, patent, or other proprietary rights in or to the Licensed Materials. Moreover, except for the express limited rights of usage granted to TransUnion CIBIL above, the entire right, title and interest in and to the Licensed Materials shall remain vested in Trans Union. • The licensee promises and agrees not to copy, distribute, transfer (by any means), display, sublicense, rent, reverse-engineer, decompile, or disassemble the Software or any part thereof, without the prior written consent of the Company 2.2 TransUnion CIBIL shall not copy (other than for back-up purposes), distribute, transfer (by any means), display. sublicense, rent, reverse-engineer, decompile, or disassemble the License Materials nor any part thereof, without the prior, written consent of Trans Union. The License does not include any rights to Third Party Software, unless

TransUnion explicitly otherwise grants such rights to Trans Union CIBIL in a written amendment that expressly sets forth the terms of any such license to Third Party Software. • The Source code is not granted access to the licensee 2.6 Trans Union is not required to deliver to Trans Union CIBIL the Source Code for the Trans Union Adviser Platform. 6.12 It would seem that the very wording/ language of the above clauses clearly evidence that the Appellant has not parted with any rights and the licensee cannot modify/ transfer/ sublicense/ reverse-engineer/ decompile/ disassemble. Further, it is also clearly stated that the copyright of the software is not acquired by the licensee through this agreement. 6.13 Further, the last few lines of the clause so relied by the AO states the following: .... Upon the mutual, written agreement of Licensor and Licensee, during the term of this Agreement, Licensor shall develop Modifications of the Software beyond those described in the immediately preceding sentence, as may be requested by the Licensee" (emphasis supplied) Therefore, on a plain reading, it is seen that it is the licensor (Appellant) who has the right to modify the software being the legal and economic owner of the license. 6.14 Therefore, whenever a change in the software is required, the licensee can only request the licensor to do such modification and it is the licensor being the sole owner of the copyright/ Source Code be in a position to do such modification. Hence, modification undertaken by a licensor on a software owned by the licensor can in no way amount to a transfer of rights in a copyright to the licensee and the learned AO's reasoning fails in this regard. Merely because the modification as a word is included on a conservative basis to cover all types of situations and eventualities, it cannot be said that explicitly the licensee possesses the right to modify the software. This is affirmed by the Apex Court as well in its decision (in Paragraph No. 38 and 117). 6.15 Similarly the jurisdictional Mumbai Tribunal in the case of Tata Consultancy Services Ltd. vs DCIT [2023] 154 taxmann.com 372 (Mumbai Trib.) has held that the same shall not amount to copyright infringement and therefore not be liable to tax as royalty. Basis the above discussions, reading of the agreements and on perusal of the relevant paragraphs in the Apex Court's decision, I am of the view that the right to modify the software is not granted to the licensee and since the licensee is specifically restricted from making copies/ reproduce the license etc, it cannot be said that an infringement under the provisions of section 52(aa) of the Copyright Act occurs. Therefore, I do not concur with the conclusion reached by the AO on account of modification rights in the license agreements 6.16 I have also gone through the other contentions of the AO and have summarized the same along with my inference:

Contention raised by the AO Decision The agreements submitted by the Appellant are I agree to the submissions made by the related party agreements and cannot be taken Appellant (as per Point No. 56 to 60 of the at face value (Page No. 5, Para No. 6.4 of the written submission of the Appellant) and assessment order) disagree to the AO's contentions The license agreement for CRS mentions that I agree to the submissions made by the it is an 'exclusive right and not an agreement Appellant (as per Point No. 61 to non-70 of the with a ' exclusive right as analyzed by the written submission of the Appellant) and Hon'ble Supreme Court Page No. 13, Para No. disagree to the AO's contentions 8 of the assessment order passed for AY 2021- 22-1.e., subsequent AY The Apex Court's decision applies only to Already opined in the Appellant's favor above cases where software is embedded onto a in analyzing the Apex Court's decision to the hardware (like CD etc) and not a case as per Appellant's case the Appellant's case (Page No. 5, 6, Para No. 6.5 of the assessment order) The agreements show that the Appellant has Already opined in the Appellant's favor above parted with the rights as contained in section 14(a) and section 14(b) of the Indian Copyright Act and hence the licensee has the right to adapt/ modify the software as per the license agreements (Page No.

7. Para No. 6.8 of the assessment order)

The iCRS agreement shows that it is not I agree to the submissions made by the licensing of any off the shelf software but Appellant (as per Point No. 99 to 106 of the rather is towards development of customized written submission of the Appellant) and software for TU CIBIL (i.e., the licensee) disagree to the AO's contentions based upon ICRS Platform which is not covered under the Apex Court's decision (Page No. 10, 11, Para No. 7 of the assessment order passed for AY 2021-22-i.e., subsequent AY)

The agreements contain references to I agree to the submissions made by the maintenance and support services and Appellant (as per Point No. 107 to 129 of the therefore, it not an off the software as covered written submission of the Appellant) and by the Court's decision. Further, payment disagree to the AO's contentions towards usage of portal as in the Appellant's case is not covered by the Apex Court's decision (Page No. 7. Para No. 6.8 of the assessment order)

The judgment of the Apex Court by agree to the I agree to the submissions made by the submissions made by placing reliance on Appellant (as per Point No. 130 to 133 of the Singapore DTAA will not apply to USA DTAA written submission of the Appellant) and and certain observations of the Court is not disagree to the AO's contentions factually correct and the Revenue has preferred a Review Petition before the Apex Court (Page No. 13, Para No.7.2 of the assessment order)

Basis the above, given that the Apex Court's decision in Engineering Analysis (supra) applies to the Appellant's case, and further given that the Appellant is a tax resident of USA and therefore eligible to invoke the favorable provisions of the India-USA DTAA, I hold the following: to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC • The receipts earned by the Appellant from the software licenses are not chargeable to tax as 'royalty' as per the provisions of the India-USA DTAA • The nature of software licenses and rights granted by the Appellant as squarely covered factually by the Hon'ble Supreme Court's decision in its decision of Engineering Analysis (supra) Accordingly, the grounds of the Appellant in Ground No. 1 to 5 are allowed in favour of the Appellant in its entirety.

Even, the license agreement is clear in its term that the source code access is not granted to the licensee. The allegation of the A.O. that the licensee has been granted modification right has also been answered by learned First Appellate Authority by stating that in terms with section 14(a) and section 14(b) of the Indian Copyright Act, there must be a transfer by way of license or otherwise of all rights mentioned in section 14(a) and section 14(b) of the Indian Copyright Act. He has also referred to section 52 of the Copyright Act which provides for making copy of the software for internal utilization as well as temporary backup protection in which event it would not constitute infringement of copyright. to 1475/Mum/2025 (A.Ys.2020-21 to 2022-23) Dy. CIT(International Taxation)-4(1)(2) vs. Trans Union LLC 11. From the observations of learned First Appellate Authority, it can be seen that he has examined in detail each of the points raised by the A.O. and has rebutted them with cogent reasoning to establish that the issue is squarely covered by the ratio laid down by the Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Private Limited (supra). No material has been brought on record by the department to demonstrate that while providing the software licenses to the end users, the assessee has transferred the copyright as well. Therefore, in our considered opinion, the ratio laid down by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra) squarely applies to the facts of the present case. Though, the A.O. was conscious about this position, however, he has made a futile attempt to bring the receipts to tax, which is otherwise not taxable. In view of the aforesaid, we do not intend to interfere with the well-reasoned order of learned First Appellate Authority.