INTECH BILLING IRELAND,MUMBAI vs. DDIT (IT) RG 3(1), MUMBAI

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.

The DRP accepted the view of the learned AO and held that the amount received by the assessee from Reliance was for the 'use of or right to use of copyright' and hence, in the nature of Royalty as defined under Article 12 of the India Ireland Tax Treaty. In para 5.4 of the DRP order, the DRP after perusal of the documents submitted by the assessee has accepted the fact that the software supplied by lntec Ireland to Reliance is in the nature of a shrink wrapped/ off the shelf software. Therefore, in the facts of the present case, the DRP accepts that in assessee’s case the present software is in the nature of a shrink wrapped/off the shelf software. However, the DRP placing reliance on the Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd [345 ITR 494] and the decision of the Mumbai Bench in the case of DDIT v. Reliance Infocomm Ltd held payment made by RIL to the assessee is for the use of or right to use of copyright and is royalty within the meaning of Article 12 of India Ireland DTAA. Aggrieved by the final

Learned Counsel for the assessee submits that the payments received by the Assessee is not for the use of or the right to use any patent, trademark, design or model, plan, secret formula or process or information concerning industrial, commercial or scientific experience., but for use of a 'copyrighted article' which emanates from use of the 'copyright'. Ld. Counsel for the assessee referring to paragraph 3(a) of Article 12 (which defines the term 'Royalty' for the purpose of India Ireland Tax Treaty) submitted that it does not include supply of a 'copyrighted article' and only such payments, which have been made for the use of, or the right to use the copyright in the literary, artistic or scientific work will qualify as 'royalty' under the India Ireland Tax Treaty. The relevant extract of Article 12 of India Ireland Tax Treaty is reproduced below for ready reference: "3. (a) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, al* 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 the use of or the right to use industrial, (A.Y: 2010-11) Intec Billing Ireland commercial or scientific equipment, other than an aircraft, or for information concerning industrial. commercial or scientific experience”

Learned Counsel for the assessee referring to the above submits that only in a situation where the payments are for the use of 'copyright' in copyrighted article, the said receipts can be treated as "royalty". It is submitted that the payments received by the Assessee is in fact for the sale of a copyrighted article and not for the use of the copyright in the said copyrighted article. As it is evident from the nature of software and the terms of the software licence agreement, Reliance has not made any payments for use of a copyright or right to use a copyright in the software. The Assessee has only supplied copyrighted software to Reliance and not any rights in the said software. Accordingly, receipts from Reliance are not taxable as 'Royalty' in the hands of Assessee under Article 12 of India- Ireland Tax Treaty.

Learned Counsel for the assessee further submitted that the issue of taxability of revenues received from supply of off the shelf/ shrink wrapped software from Reliance under the same agreement has been decided by the Hon’ble Mumbai Income Tax Appellate Tribunal ('Tribunal') in favour of Intec Billing America vide its order dated 5 February 2010 (ITA No 3196/Mum/07 for AY 2002-03) ('Intec America') (formerly known as ADC Software Systems USA). The Hon’ble Tribunal after examining

He submits that copy of the order of the Hon’ble Tribunal is placed at page Nos. 155 to 160 of the paper book. Learned Counsel for the assessee drew our attention to the fact that the definition of 'Royalty' under the India Ireland Tax Treaty is pari-materia as that under India USA Tax Treaty and copy of the same is placed at Page Nos. 174 to 198 of the paper book. As the above decision of the Hon’ble Mumbai Tribunal has already decided the issue of taxability of supply of software under the same agreement in favour of lntec Ireland, Learned Counsel for the assessee submitted that the receipts from supply of software are not taxable in the hands of Intec Ireland as 'Royalty' under India Ireland Tax

Ld. Counsel for the assessee placed reliance on the decision of Patspin India Ltd vs DCIT [129 ITD 35] wherein it was held that when the issue is already covered by an earlier order of the Tribunal, that too in assessee's own case, a Co-ordinate Bench of the Tribunal should not differ from the earlier decision of the Bench simply for the reason that a contrary view is possible.

Reliance is placed in the ruling of Hon’ble Supreme Court in the case of CIT v. Kulu Valley Transport Co. P. Ltd. [77 ITR 518] where it is held that "even if two views are possible the view which is favorable to the assessee must be accepted while construing the provisions of a taxing statute." This principle has been reiterated by various Courts including the Supreme Court in CIT v Vegetable Products Ltd. 88 ITR 192 (SC) wherein it has been held that if two views in regard to interpretation of a provision are possible, the Court would be justified in adopting that construction which favor’s the assesse.

Learned Counsel for the assessee submitted that recently, the Delhi High Court in case of Halliburton Export Inc. (ITA No. 3631 of 2016) which approved the Delhi Tribunal's decision in its own case (152 ITD 803) (copy of the decision is enclosed at pages 213 to 228 of the paper book) has held that the right to use a programme is totally different from the right to use a programme embedded in a software and the payment made for the same cannot be said to be received as consideration for use of or right to use of any copyright to bring it within the definition of 'royalty' under a DTAA. The Hon'ble High Court also held that where the provision of the treaty is more beneficial to the assesse, the treaty would prevail over the Act. The Delhi High Court relied on its own decision in case of DIT vs Infrasoft Limited [220 Taxman 273].

He submitted that the Mumbai Tribunal recently in case of Capgemini Business Services (India) Ltd [TS-100-ITAT-2016(Mum)] (copy of the decision is placed at pages 325 to 346 of the paper book)

Learned Counsel for the assessee submitted that the decision of the jurisdictional Mumbai Tribunal has been rendered after considering all the factors and the same is directly applicable to the case of assessee.

He further submitted that the Hon’ble Mumbai Tribunal in case of Galatea Limited v. DCIT [46 ITR (Trib.) 690] (copy of the decision is enclosed at pages 347 to 364 of the paper book) has held that payment for the copyrighted article will not be taxed as "Royalty" as defined under the Article 12(3) of India-Israel tax treaty.

Ld. Counsel for the assessee submitted that the Hon’ble Delhi High Court in the case of Ericsson Radio Systems AB (343 ITR 470) held that the consideration paid by the cellular operators can be treated as Royalty' only if the cellular operators had obtained all or any of the copyrights in such software that is protected in India as a literary work. Further, the Hon’ble High Court held that a distinction also needs to be made between acquisition of a 'copyright right' and a 'copyrighted article'.

Ld. Counsel for the assessee submitted that the Hon’ble Mumbai Tribunal in case of DDIT vs Solidworks Corporation [17 ITR (Trib) 510] for AY 2006-07, following the decision of Hon’ble Delhi High Court in the case of Ericsson AB, has held that the receipts from supply of software are not taxable as Royalty'.

Ld. Counsel for the assessee submitted that in view of the all the above judicial precedence, it can be said that the payments received by the Intec Ireland form Reliance is not for the use of or the right to use any (A.Y: 2010-11) Intec Billing Ireland patent, trademark, design or model, plan, secret formula or process or information concerning industrial, commercial or scientific experience., but for use of a 'copyrighted article' instead of use of the 'copyright'.

As per the provisions of Section 90(2) of the Act, a non-resident assessee is eligible to be governed under the provisions of the Act or the Tax Treaty, whichever is more beneficial. As submitted above, Intec Ireland is a tax resident of Ireland and hence is eligible to claim the benefits of the Treaty. During AY 2010-11, Intec Ireland has received revenues of ₹.4,72,60.001 from Reliance for grant of software. The said receipts are not in the nature of 'Royalty' but in the nature of 'Business Profits' and since, lntec Ireland does not have Permanent Establishment ('PE') in India within the meaning of Article 5 of India Ireland Tax Treaty. the said receipts are not taxable as 'Business Profits' in India. Accordingly, the receipt from license of software was not offered to tax by the Appellant in the Return of income. Copy of the acknowledgement of filing income tax return along with the computation of income and notes to return of income is enclosed vide page 72 to page 75 of the paper book. This position of the appellant in the return of income was on the basis of ITAT order in AY 2002-03 while adjudicating the case of Intec Billing America (on the very same agreement) wherein, the said revenue is held to be not taxable.

It is submitted that paragraph 3(a) of Article 12 (which defines the term 'Royalty' for the purpose of India Ireland Tax Treaty) does not include supply of a 'copyrighted article' and only such payments. which have been made for the use of. or the right to use the copyright in the literary, artistic or scientific work will qualify as 'royalty' under the India Ireland Tax Treaty.

It is submitted that in order to fall within the meaning of 'Royalty' under the India Ireland Tax Treaty, whether the consideration is for the 'use' or 'right to use' is not relevant. In either case, the consideration has to be in respect of a 'copyright' of a literary, artistic or scientific work.

It is submitted that the consideration paid for 'computer software; has not been specifically included in the definition of royalty under the Act. As the term ‘Royalty' has already been defined under Article 12(3) of the India Ireland Tax Treaty, the provisions of the Article 3(2) would not be (A.Y: 2010-11) Intec Billing Ireland applicable in the present case. Further, Ld. Counsel for the assessee reiterate that since Intec Ireland is a tax resident of Ireland, it is eligible to claim benefits of the India Ireland Tax Treaty. Accordingly, as per provisions of Section 90(2) of the Act, provisions of the Act or India Ireland Tax Treaty, whichever is more beneficial would be applicable.

Ld. Counsel for the assessee submitted that, as it is evident from the nature of software and the terms of the software licence agreement. Reliance has not made any payments for use of a copyright or right to use a copyright in the software. The Assessee has only supplied license to use the software which was right to use copyright in the software and not any rights in the said software. Accordingly, receipts from Reliance are not taxable as 'Royalty in the hands of Assessee under Article 12 of India- Ireland Tax Treaty. Issue in appeal in relation to the impugned agreement in the case is covered in lntec Billing America's case for AY 2002-03.

The Ld. Counsel for the assessee submitted that the provisions of DTAA will prevail over retrospective amendment made under the Act. The definition of Royalty is provided under Section 9(1)(vi) of the Act and under Article 12(3) of the India Ireland Tax Treaty. In this regard, it is submitted that the Finance Act 2012 has incorporated Explanation 4 to Section 9(1)(vi) of the Act which reads as under:

A comparison of the definition of 'royalty' as provided under the Tax Treaty and the Act shows that the same are not a paramateria with each other. The definition provided under the Tax Treaty is very short and restrictive definition, whereas, the definition of royalty as provided under the Act is very wide and inclusive. Since the definition provided under the royalty in the Tax Treaty is more beneficial to the Appellant. hence as per the provisions of Section 90, the definition of royalty as provided under Tax Treaty is to be considered in the present case. Accordingly, assuming without admitting that the receipts of lntec Ireland are liable to tax as per the amended definition of 'Royalty' in the Act, 'the said revenues would not be so covered by the favorable definition of 'Royalty' in the India Ireland Tax Treaty.

However, in the assessment order, the learned AO has not considered submission of the assessee in relation to the impact of applicability of provisions of Tax Treaty to the extent more beneficial to the assessee as per Section 90(2) of the Act. As Intec Ireland is eligible for the benefits under India Ireland Tax Treaty, it is submitted that the (A.Y: 2010-11) Intec Billing Ireland definition of royalty amended vide Explanation 4 cannot be applied to tax treaty. Reliance in this regard, is placed on the following judicial precedents wherein it was held that the amendments made to the Act by the Finance Act 2012 would not have an impact on the positions adopted under the Tax Treaties since there has been no amendment in the Tax Treaties.

The Hon’ble Delhi High Court, recently in the decision of New Skies Satellite BV & Ors. (382 ITR 114) (copy of the decision is placed at pages 347 to 364 of the paper book) has also held that the unilateral amendment made by the Parliament of a one state will not automatically amend the DTAA's signed by that state with the other states.

Therefore, in view of the above, he submits that assuming without admitting that the revenues from supply of software are chargeable to tax in India under the Act, the Hon'ble High court has held that a unilateral amendment of the definition of "Royalty" in the Act would not automatically amend the definition of "Royalty' in the DTAA. Accordingly, the said revenues would not be taxable as 'Royalty" in India by virtue of Article 12 of the India Ireland Tax Treaty.

Ld. Counsel for the assessee further submitted that the Jurisdictional Mumbai ITAT in case of WNS North America [152 TTJ 145]

The Jurisdictional Mumbai ITAT decision in case of B4U International Holdings Limited ('B4U') [181 ITR (Trib.) 62] has held that despite the amendment to the Act (vide the Finance Act 2012), such payment would not be taxable as ‘royalty' since there was no change in the treaty between India and USA (in this case payer was USA company).

The Jurisdictional Mumbai ITAT decision in case of Baan Global BV (ITA No. 7048/M/2010) has held that one contracting state which is a party to a treaty cannot unilaterally alter its provision and enlarge the scope of any term from the prism of its domestic law. If there is no amendment in (A.Y: 2010-11) Intec Billing Ireland the treaty and if any amendment is carried out under the domestic law then same cannot be read into the treaty.

Further, the Hon’ble Delhi High Court, recently in case of New Skies Satellite BV & Ors (382 ITR 114) has also held that the unilateral amendment made by the Parliament of a one state will not automatically amend the DTAA's signed by that state with the other. The Hon’ble Delhi High Court concluded that the amendment vide Finance Act 2012 will not affect Article 12 of the Tax Treaty. it would follow that the first determinative interpretation given to the word royalty' prior to the amendment in the Act will continue to hold the field for the purpose of assessment years preceding the Finance Act. 2012 and in all cases which involve a Tax Treaty unless the said Tax Treaties are amended jointly by both the parties. He submits that the above decisions are squarely applicable to the Intec Ireland, as there is no amendment in the definition of 'Royalty' in India-Ireland Tax Treaty. He submitted that the amendments in the Act cannot be read into India-Ireland Tax Treaty. In light of the above, without prejudice to the lntec Ireland's arguments that its receipts are not taxable under Article 12 of India-Ireland Tax Treaty. In case Intec Ireland is held to be taxable under the Act, it is submitted that under Section 90(2) of the Act, Intec Ireland is eligible to claim treaty

Ld. Counsel for the assessee strongly placed reliance on the following decisions in support of the above contentions that in the case of shrink wrapped/ off the shelf, Software does not amount to Royalty. (i) Galatea Limited [46 ITR 690] Mumbai Tribunal. (ii) Capegemini Business Services (India) Ltd [46 CCH 253] Mumbai Tribunal. (iii) Datamine International Limited [46 CCH 296] Delhi Tribunal. (iv) Solid Works Corporation [ITA.No. 8721/M/2010] Mumbai Tribunal. (v) Reliance Industries Ltd & Ors [47 CCH 94 (Mum)] (vi) Baan global BV [ITA.No.7048/M/2010] Mumbai Tribunal. (vii) Galatea Limited [47 CCH 325] Mumbai Tribunal. (viii) Halliburton Export Inc [152 ITD 803 (Del Tribunal) Dated 14 February 2014 approved by (ITA.No. 363/ 2016) Delhi (High Court)] (ix) Qad Europe B.V. [ITA.Nos. 83 & 84/Mum/2007] Mumbai Tribunal (x) First Advantage Private Limited [ITA.No. 3031/Mum/2010 & ITA.No. no. 3032/Mum/2010] Mumbai Tribunal (xi) Dassault Systemes, Mumbai Tribunal [79 taxmann.com 205] (xii) National Stock Exchange of India, Mumbai Tribunal [ITA.No. 7735/Mum/2011] (xiii) Mckinsey Knowledgement Centre India Private Limited, New Delhi Tribunal [ITA.No. 407/Del/2013].

Ld. DR strongly supported the orders of the DRP. Ld. DR submitted that during the course of hearing, it was argued on behalf of the assesse that the matter was covered in favour of the assessee by Mumbai Tribunal's orders in various cases wherein consideration paid for purchase/supply/licence of software has been held to be not Royalty. In this regard while relying completely on the on the order of the AO, among others, it was submitted that for the reasons given in the foregoing

In some of its recent decisions like DDIT (IT) Vs Reliance industries Ltd. (2016) 69 Taxamm.com 311 dated: 18/05/20 6, Galatea Ltd. Vs DCIT (IT) dated 29/06/2016, and ADIT(IT) Vs. Baan Global BV dated: 13/06/2016 the Hon'ble Mumbai Tribunal has decided the issue of Purchase/lease/supply of software whether shrink wrapped or embedded software in favour of the assessee by holding the consideration paid for purchase/lease/supply of software as not Royalty under the relevant DTAAs. While holding so the Hon'ble Tribunal has relied on the Delhi High Court decisions in the cases of DIT v. Infrasoft Ltd., 264 CTR 0329, dated 22-11-20131 DIT vs Nokia networks OY,', 358 ITR 0259, dated: 7-09-2012 and in the case of DIT vs. Ericson A.B, 343 ITR 0470, dated: 23-12-2011.

In all these cases, the High Court/Mumbai Tribunal have held that the consideration involved was not for the use or right but for copyrighted article. The High court/Tribunal have examined the issue of Royalty only under clause (v) of Explanation 2 to section 9(1)(vi) of the Act and corresponding clause of the DTAA (Ref Para 24 of Reliance, (supra) and (A.Y: 2010-11) Intec Billing Ireland para 64 of Infrasoft, (supra) but not under any other clause of Explanation 2 to section 9(1)(vi)/DTAA even though the use of software is covered under clause (iii) of Explanation 2 to section 9(1)(vi) of the Act/DTAA as use of process.

It is submitted that the AO in his Assessment Order dated 26.12.2013 has held the consideration received by the assessee for for sale/supply/lease of software as Royalty for the use or right to use of copyright in software under the clause (v) of Explanation to Section 9(1)(vi) of DIAA. The AO in this regard has relied upon the Karnataka High Court decisions in the cases of M/s Synopsis, supra, M/s Samsung supra and M/s Wipro, (supra) and others. The DRP in its order dated: 11.12.2013 has also relied on the aforesaid decisions of the Karnataka High court and on the Mumbai Tribunal Decision in the case of DIT(IT) Vs. Reliance Infocomm Ltd. (Mum Trib.) dated 06.09.2013 in which case the Hon'ble Tribunal in deciding the appeals in favour of various other assessees, though available at the time of passing of orders by AO/DRP was not relied upon in the instant case before the AO/DRP. Therefore, they did not have the occasion to examine whether the ratio of the said case applied to the instant case. Therefore, in my humble submissions, it may not be appropriate to say that the case of the assessee is covered by the favorable decisions of Delhi High Court. Therefore, in my respectful (A.Y: 2010-11) Intec Billing Ireland submissions, the assessee's case needs to be examined afresh on facts and on law before extending it the benefit of favorable decisions. I may also mention here that on similar facts, the Tribunals have set as aside, the appeal of the assessee back to CIT(A) in the following two cases.

Global Tele Systems Ltd., Dated 20.04.2016, Mumbai Tribunal 2. Appeal& T Ltd. 152 ITD 0873, Ahmedabad Tribunal In view of the above submissions, the matter may kindly be set aside back to the file of the AO/DRP.

ALTERNATE PLEA: In case, the matter in the present Appeal is treated as covered in favour of the assessee, the following alternate plea may kindly be taken on record so that the issues are kept alive in appeals before the Hon'ble High Court.

The main features of the Delhi High Court decisions in the cases of Infrasoft Ltd. (supra), Nokia networks OY, (supra) and Ericson A.B, (supra) and the decisions of the Mumbai Tribunal based on Delhi High Court are as follows: (i) that the license granted to the licensee permitting him to download the computer programme and storing it in computer for its own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purposes. The said process is necessary to make the program functional and (A.Y: 2010-11) Intec Billing Ireland to have access to it. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do.

The Karnataka High Court on the other hand has decided the issue in favour of the revenue in the cases of CIT V. Synopsis International Old Ltd., 212 Taxman 0454 (Kar.HC), dated: 03.08.2010 CIT V Samsung Electronics Co. Ltd. & Others, (2011) 345 ITR 0494, Kar HC, dated 15.10.2011, CIT V. Wipro Ltd. (2011),355 ITR 0284(Kar)/ 203 Taxman 621 (Kar.) HC, dated: 15.10.2011 and CIT Vs. CGI information Systems and Management consultants (P) Ltd., (2014) 48 Taxmonn.com 264 (KAR), dated: 9-6-2014. The High court of Karnataka has decided the issue of software Royalty, both before the insertion of Explanations 4, 5 and 6 in Section 9(1)(vi) of the l.T. Act by the Finance Act 2012 and even after their insertion. The insertion of these Explanations has not altered the views of Hon’ble High Court of Karnataka and on the contrary the views of the Hon'ble High court have been reaffirmed. The basic features of all these decisions rendered by the Karnataka High Court are as follows: (i) that the consideration paid is for the rights in respect of copyright and the user of the confidential information embedded in the software/computer programme amounts to royalty both under the Act and under the DTAA.( para 45 of Synopsis, supra)

Out of all the High Court decisions discussed above, the latest decision on the issue is by the Karnataka high Court in the case of CGI Information (a June 2014 decision), supra which is in favour of the revenue. The latest decision by the Delhi High court on the issue is in the case of Infrasoft Ltd., supra, a November, 2013 decision.

The Jurisdictional Tribunal while dealing with the issue of software royalty in the case of DIT(IT) Vs. Reliance Infocomm Ltd. (Mum Trib.) dated 06.09.2013 has followed the interpretation of royalty given under the Act as well as under the DTAA by the Karnataka High Court in the cases of Synopsis International, supra and Samsung Electronics, supra deciding the issue in favour of the Revenue. This order of the Tribunal has since been recalled by the Tribunal vide an order dated: 18/11/2016 on a MA filed by the assesse. The main grounds for recalling of the aforesaid order of the tribunal were twofold:

The Finance Act, 2012 has among others, inserted Explanation 4 to Section 9(1)(vi) retrospectively, which reads as follows: "Explanation 4- For the removal of doubts, it is hereby clarified that transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of licence) irrespective of the medium through which such right is transferred." "Computer software" has been defined in Explanation 3 to S.9(1)(vi) of the Act.

On the issue whether the Amendments/Explanations inserted in the Income Tax Act can he read into the DTAA or not, in my respectful submissions and with utmost respect, the Delhi High Court in the case of (A.Y: 2010-11) Intec Billing Ireland Infrasoft, supra and other cases which have been followed by the Mumbai Tribunal seem to have misquoted the Bombay High Court while saying that Bombay High court in the case of CIT v. Siemens Aktiongesellschaft, 310 ITR 320) (BOM HC) held that Amendments in the Act cannot be read into the DT AA. While appreciating the Siemens AG, (supra) the following facts may kindly be noted: (i) The exact question of law before the Hon'ble High Court was NOT that whether Amendments in the I.T. Act can be read into the DTAA or not and therefore, the Hon'ble High Court cannot be said to have answered it as claimed.

Mumbai Tribunal, in the case of Viacom 18 Media (P.) Ltd. [162 TTJ 336] has explained the import of Bombay High Court decision in the case of Siemens AG, supra in the right perspective in paras 16 and 17 of its order while rejecting the assessee’s argument that the High Court has held that Amendments in the Act cannot be read into DTAAs. This decision of the Tribunal has not been over ruled by the High Court so far.

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

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.

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

Even otherwise, the Revenue has not cited any direct case law of the jurisdictional High Court of Bombay before us. In the case laws cited by the Revenue of the Hon'ble Karnataka High Court in the matter of "CIT vs. Samsung Electronics Company Ltd." (supra) and "ClT vs. Synopsis International Old Ltd." (supra) though a view in favour of the Revenue has been taken, but, the Hon'ble Delhi High Court in the case of “D1T vs. Infrasoft Ltd." (supra) which is a latter decision and has discussed the Samsung case also has taken the view in favour of the assessee. The Hon’ble Delhi High court has taken the identical view favoring the assessee in the case of "D1T vs Nokia Network" (supra) and in the case of "DIT vs. Ericson A.B." (supra) also. The Hon'ble Bombay High gaud in the case of "The Addl. Commissioner of Sales Tax vs. M/s Ankit international," Sales Tax Appeal No.9 of 2011 vide order dated 15 September, 2011 while relying upon the decisions of the Hon'ble Supreme Court in "The Commissioner of Income Tax V. Vegetable Product Ltd." (1973) 88 ITR 192 and in "Mauri Yeast India Pvt. Ltd. V. State of UP." (2008) 14 VST 259(SC) (2008) 5 S.C. C. 680 has held that, if two views in regard to the interpretation of a provision are possible, the Court would be justified in adopting that construction which favours the assessee. Reliance can also be placed in this regard on the decision of Hon'ble Supreme Court in "Bihar State Electricity Board and another vs. M/s. Usha Martin Industries and another: (1997) 5 SCC 289. We accordingly adopt the construction in favour of the assessee. In view of our discussion made above, this issue is accordingly decided in favour of the assessee."

The Coordinate Bench in the case of Galatea Limited v. DCIT (supra) held that payment for the copyrighted article will not be taxed as (A.Y: 2010-11) Intec Billing Ireland "Royalty" as defined under the Article 12(3) of India-Israel tax treaty. The Bench observed as under: - "35. Thus, the status of the provisions in the treaty is kept same as was in the pre- amended law as contained in the provisions of the Act. According to these provisions of the treaty, as has been explained in various judgments, transfer of copyright is different from transfer of copyrighted article. Thus, in view of the facts before us, even if the payment for software is taxed separately from hardware, on a standalone basis, even then the same would not fall within the scope of Article 12(3) since there was merely transfer of a copyrighted article, and not the copyright or any rights contained therein.")

The Hon'ble Delhi High Court in the case of Nokia Networks OY (supra) held that the payment for copyrighted article does not fall within the purview of 'Royalty' under the DTAA. The Hon'ble Delhi High Court observed as under: - "59. Be as it may, in order to qualify as royalty payment, within the meaning of Section 9(1)(vi) and particularly clause (v) of Explanation –II thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, artistic or scientific work. Section 2(o) of the Copyright Act makes it clear that a computer programme is to be regarded as 'literally work'. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the present case, this has not been established. It is not even the case of the Revenue that any right contemplated under Section 14 of the Copyright Act, 1957 stood vested in this cellular operator as a consequence of Article 20 of the Supply Contract. Distinction has to be made between the acquisition of a 'copyright right" and a "copyrighted article.

The Hon'ble Delhi High Court in the case of Ericsson Radio Systems AB (supra) observed as under: - "Be as it may, in order to qualify as royalty payment, within the meaning of Section 9(1) (vi) and particularly clause (v) of Explanation-11 thereto, it is necessary to establish that there is transfer of all or any rights (including the granting of any license) in respect of copy right of a literary, artistic or scientific work. Section 2(o) of the Copyright Act makes it clear that a computer programme is to be regarded as a 'literary work'. Thus, in order to treat the consideration paid by the cellular operator as royalty, it is to be established that the cellular operator, by making such payment, obtains all or any of the copyright rights of such literary work. In the presence case, this has not been established, it is not even the case of the Revenue that any right contemplated under Section 14 of the Copyright Act, 1957 stood vested in this cellular operator as a consequence of Article 20 of the Supply Contract. Distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article".

The Coordinate Bench in the case of DDIT v. Solidworks Corporation (supra) following the decision of Hon’ble Delhi High Court in the case of Ericsson AB held that the receipts from supply of software are not taxable as Royalty'

The Hon'ble Delhi High Court in the case of New Skies Satellite BV & Ors. (supra) held as under: -

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 Indo- US Tax treaty for the Assessment Year 2002-03, wherein it has been held

Ground No.4 of the grounds of appeal of the assessee is in respect of not granting the entire credit for TDS amounting to ₹.1,23,61,709/-, disregarding specific direction of the DRP.

Ld. Counsel for the assessee submits that a direction may be given to the Assessing Officer for granting credit for TDS as claimed by the assessee. Ld. DR has no serious objection in directing the Assessing Officer to allow credit for TDS, subject to verification.

On hearing both the parties, we direct the Assessing Officer to examine this issue and grant credit for TDS as claimed by the assessee, if found in order.

In the result, appeal of the assessee is partly allowed.