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Income Tax Appellate Tribunal, DELHI BENCH ‘I - 2’: NEW DELHI
various hardware(s) and software(s), from time to time. In order to Steria (India) Ltd. Vs. ACIT meet such requirements, in a cost effective manner, the assessee had entered into an Intra-Group Supplier Agreement. Steria France had negotiated with external suppliers and subscribed centralized purchases from them, in the interest of all its group affiliates. The objective for undertaking centralized purchases was to bargain competitive prices for the Steria Group’s purchase requirements.
Under the terms of the Agreement entered by the assessee, Steria France would purchase material (hardware or software) or services and thereafter resale within the Group entities for subsidiaries’ local needs. Such resale, as per the Agreement, is done without rendering additional services and without adding any markup. It has been further submitted that apropos the aforesaid Agreement, the assessee has purchased certain software licenses for a sum aggregating to Rs.9,28,28,017/- from Steria France in the course of the year and the licenses, as per the invoices, are as under:
- Paulo Alto & Wildfire -Software License charge -Messaging 360 One -Call Windows - Antivirus + Tactem -Active Directory costs Steria (India) Ltd. Vs. ACIT - Microsoft Maintenance - One IT Catalogue - Hermes -Desktop Services SCCM
5.12 It has been submitted that payments made to Steria France were in respect of software licenses only and, were not towards use of copyright in the software covered within the meaning of ‘royalty’ under section 9(1 )(vi) of the Act.
5.13 It is seen that under Section 195 of Act, an obligation is cast on a person making payment to a non-resident of any sum, which is chargeable under the provisions of the Act, to deduct tax at the rates in force, at the time of payment of such sum or at the time of credit thereof to the account of the payee, whichever is earlier. As per the aforesaid provision, tax is required to be withheld in respect of payment made to a non- resident. [Refer GE India Technology Centre (P) Ltd v. CIT: 327
ITR 456]. Further, if we consider the ambit of definition of ‘royalty’ as defined in section 9(1)(vi) of the Act, it is seen that clause (v) of explanation to section 9(l)(vi) provides that consideration paid for transfer of inter alia all or any rights in Steria (India) Ltd. Vs. ACIT respect of any copyright as falling within the meaning of royalty.
In the present case, considering that the issue under consideration is payment made towards software, which is a copyrighted article/asset, it needs to be considered whether the payment made is for obtaining rights in respect of copyright in the software, which is governed by the provisions of Copyright
Act, 1957. Further, it would be pertinent to note that the Steria
France is a resident of France (TRC and no PE certificates are placed in the paper book). As per section 90(2) of the Act, the provisions of the Act shall be overridden by the provisions of the DTAA, to the extent the latter are more beneficial to a non- resident assessee. In the present case, Article 13 of India -
France DTAA deals with taxability of royalty paid by an Indian resident to French resident. The said Article reads as under:
"ARTICLE 13 - Royalties and fees for technical services and payments for the use of equipment - 1. Royalties, fees for technical services and payments for the use of equipment arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.
Steria (India) Ltd. Vs. ACIT 2. However, such royalties, fees and payments may also be taxed in the Contracting State, in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed 10 per cent of the gross amount of such royalties, fees and payments. 3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes 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. ”
5.14 The definition of royalty under the India-France
DTAA is, thus, much narrower in scope than the definition under the Act.
5.15 The Copyright Act, 1957 defines computer programme as a set of instructions expressed in words, codes, schemes, or any other form including a machine readable
Steria (India) Ltd. Vs. ACIT medium capable of causing a computer to perform a particular task or achieve a particular result. The Copyright Act further defines the term “literary work” as including computer programmes, table compilation including computer databases.
The term ‘copyright’ in case of a ‘computer program’ has been defined in section 14 of the Copyright Act as an exclusive right to reproduce including storing in any medium by electronic mean, to issue copies of the work to public, to make any adaptation, etc. in relation to a literary work including computer programme. In other words, in terms of the aforesaid section, in order for a person to be considered as having a copyright in a literary work, including computer programme, such person must have an exclusive right to reproduce or to issue copies or to adapt, or to sell or give on commercial rental the computer program. In the present case, the software purchased by the assessee are standardized and not customized products and in terms of the contracts with the external suppliers/ Steria France of such software, the assessee acquires a non-exclusive, non- transferable right to distribute the software and is prohibited from copying, modifying or further development of the software.
Steria (India) Ltd. Vs. ACIT Therefore, the purchase of software by the assessee in terms of the Agreement only results in the transfer of a copyrighted article rather than a copyright right and payment received for the same would not be in the nature of royalty in the hands of Steria France.
5.16 We are guided to reach such a finding by relying on the judgment of the Hon’ble Delhi High Court in the case of DIT v. Infrasoft Ltd.: (220 Taxman 274). In this case, the assessee, an international software marketing and development company of an international group, had claimed that amount received by it under license agreement for allowing use of software was not taxable as royalty. The Hon’ble Delhi High
Court upheld the order of the Tribunal wherein it was held that amount received by the assessee under the license agreement for allowing the use of the software would not be royalty under the DTAA since what was transferred was neither the copyright in the software nor the use of the copyright in the software, but what was transferred was the right to use the copyrighted material or article which was distinguishable from the rights in a copyright. Accordingly, payments received by the assessee in Steria (India) Ltd. Vs. ACIT this regard would be taxable as business income. It may also be pertinent to note that the Hon’ble Delhi High Court in the aforesaid decision has distinguished the ratio decidendi laid down by the Karnataka High Court in the case of CIT v.
Samsung Electronics Co. Ltd. (supra). Accordingly, the reliance placed by the assessing officer on the decision of Samsung
Electronics (supra) is misplaced.
5.17 We have also perused the Intra- Group Supplier
Agreement entered into between Steria France and the asessee we find that it is provided that the hardware and software purchases by Steria France is re-sold to the assessee without additional services and without any markup. Thus, there is no transfer of any right in respect of the copy of right and it is a case of mere transfer of a copy of righted article. The payment is in the purchase of license or a copy righted article and it represents only the purchase price and the same cannot be considered as royalty either under the Act or under the provisions of DTAA. It will be worthwhile to extract the following observations of the Hon’ble Delhi High Court from the judgment
Steria (India) Ltd. Vs. ACIT in the case of DIT vs. Infra Soft Ltd. (Del) (supra) at this juncture:
“96. The amount received by the Assessee under the license agreement for allowing the use of the software is not royalty under the DTAA.
What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same docs not give rise to any royalty income and would be business income.
We are not in agreement with the decision of the Karnataka High Court in the case of Samsung Electronics Co. Ltd (supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) pf the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection
Steria (India) Ltd. Vs. ACIT against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software.”
5.18 Accordingly, respectfully following the ratio of the judgment of the Hon’ble Delhi High Court in DIT vs. Infra Soft Ltd (supra), we are of the considered the opinion that tax was not required to be deducted at source in respect of the payment made to Steria France for the purchase of computer software license/s and therefore, in view of the above cited judgment we direct the AO/TPO to delete the disallowance.
5.19 Ground No.7 challenging the levy of interest u/s 234B of the Act is consequential and needs no separate adjudication.
6.0 In the final result, the appeal of the assessee stands partly allowed for statistical purposes.
Order pronounced in the Open Court on 01/05/2020.