ADIT (IT)-2(1), MUMBAI vs. M/S. RELIANCE INFOCOMM LTD( NOW MERGED WITH RELIANCE COMMUNICATIONS LTD), NAVI MUMBAI

लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार/ PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dated 12/05/2008 of CIT(A)XXXI, Mumbai the Assessing Officer (AO) has filed the present appeal.The assessee had purchased telecommunication software from M/s. Atrica Ireland Ltd.It made an application to the AO to send the remittances to Ireland without deducting tax at source.Vide its order,dated 25/01/2007,passed u/s 195(2) of the Act, the AO held that the payment made by assessee for purchase of software would qualify as royalty as per DTAA and as per provisions of section 9(1)(vi) of the Act.He directed the assessee to deduct tax @ 10% on gross amount payable to Atrica Ireland Ltd. 2.Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority(FAA) and made detailed submissions.After considering various clauses of the Agreement entered into between the assessee and the non-resident entity,he held that payment made by the assessee for purchase of software was not royalty, that the payment to M/s. Atrica Ireland Ltd.was to be assessed as business income of non-resident entity, that M/s. Atrica Ireland Ltd.did not have any Permanent Establishment (PE) in India, that as per Article-7 of DTAA the assessee was not liable to pay tax in India.

According to the assessee the software licensed to Reliance under the software licence agreement is an 'off the shelf'/Shrink Wrapped' software which assists telecom companies in billing in an efficient, profitable billing operation with strong focus on customers and Revenue management. The software licensed by assessee is standard products already developed and made available to other customers.

However, the Learned Assessing Officer (AO') held that the amounts receivable by Intec Ireland for supply of 'off the shelf' software to Reliance are for grant of 'copyright' and accordingly, the receipts are in the nature of 'Royalty' as per amended Section 9(1)(vi) of the Act and Article 12 of the India-Ireland Tax Treaty. XXXX 57. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied upon by both parties. The assessee is a company incorporated in Ireland and is a tax resident of Ireland. During the Assessment Year 2010-11 assessee had inter-alia supplied billing software to Reliance Industries Limited for the purpose of billing their customers. The software license agreement has been originally entered into between Reliance and Intec Billing, America a group Company of the assessee which was earlier known as ADC Software System, America. The said assessment has been subsequently assigned to Intec Ireland the Assessee in entirety by assignment letter dated 08.04.2005.

The key features of the said software provided by the assessee are that the software provided by Intec Ireland is a comprehensive business solution addressing transaction management, billing and customer care issues related to telecom industry players. It provides solution for efficiently managing high volumes of transactions and keeping audit trails for all the transactions, thus preventing data loss and frauds. It is a highend integrated software comprising of number of functional modules/ packages targeted at specific business areas. These modules can be used independently or in conjunction with each other to address specific requirements of the user. These modules support invoice generation, product pricing, product rating accounts receivables and billing operations. Further, they also support localization of 2

On perusal of the clauses of the above agreement, it is clear that Intec Ireland exclusively owns all the Intellectual Property Rights (IPR) in the software. Intec Ireland has merely granted a copyrighted article to Reliance and not the 'copyright in the article. Hence, Reliance does not use or have any right to use the copyright in the software products and lntec Ireland merely grants a right to use software for Reliance's own use in India.

The very same agreement and the Software supplied by the assessee to Reliance has been subject matter in dispute in the Assessment Year 2002-03 and Coordinate Bench of the Tribunal in ITA.No. 3196/Mum/2007 dated 05.02.2010 held that sale of Software by the assessee to the end customer does not involve any transfer of copyright either in part or in whole and therefore consideration paid by the distributer cannot be said to be a payment for right of use copyright or transfer of use of copyright. In holding so the Coordinate Bench observed as under: - XXXX 61. Further, it is the finding of the DRP that in the present case the issue involved is that Shrink Wrapped/off the shelf software recently the Mumbai Tribunal in the case of Capgemini Business Services (India) Ltd (supra) after considering all the decision available on the issue including the one relied on by the Assessing Officer and the Ld.DR in the case of Samsung Electronics Company Ltd. & Others (supra), Verizon Communication Singapore (supra), Reliance lnfocom Ltd. (supra) and Viacomm 18 Media 39 (A.Y: 2010-11) Intec Billing Ireland Pvt. Ltd. (supra) held that where the payment is made for the copyrighted article the same cannot be considered as payment for the transfer of the copyright and cannot be taxed as royalty by observing as under:- XXXXX 67. As rightly submitted by the Ld. Counsel for the assessee that the definition of Royalty under the Indo-Ireland Tax Treaty is pari-materia as that under Indo-US Tax Treaty and the Coordinate Bench of the Tribunal had already decided the issue of taxability of supply of software under the same agreement in favour of the Intec- Ireland with reference to the IndoUS Tax treaty for the Assessment Year 2002-03, wherein it has been held 44 ITA NO.1535/MUM/2014 (A.Y: 2010-11) Intec Billing Ireland that receipts from supply of software are not taxable in the hands of IntecIreland as Royalty. Therefore, since both the treaties are pari-materia with each other, we hold that the receipts from supply of software are not taxable in the hands of Intec–Ireland as Royalty under new Ireland tax treaty. Intec-Ireland does not have PE in India and accordingly amounts received by Intec-Ireland towards supply of software are not liable to tax in India. Therefore, in view of the above discussion and respectfully following the said decisions, we hold that payment received by the assessee was not in the nature of Royalty and cannot be therefore brought to tax.” On 2/2/2018,while deciding 56 appeals filed by the AO ,we have deliberated upon identical issue.