|CORAM:||D. Karunakara Rao (AM), Sanjay Garg (JM)|
|CATCH WORDS:||royalty, software licensing|
|COUNSEL:||M. M. Golvala|
|DATE:||February 29, 2016 (Date of pronouncement)|
|DATE:||March 7, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Entire law on whether consideration for user of software is assessable as "royalty" in the light of the different definitions in s. 9(1)(vi) and Article 12 of the DTAA and the conflicting judgements of various High Courts explained|
(i) In view of our detailed discussion made above, the assessee can not be said to have paid the consideration for use of or the right to use copyright but has simply purchased the copyrighted work embedded in the CD- ROM which can be said to be sale of ‘good’ by the owner. The consideration paid by the assessee thus as per the clauses of DTAA can not be said to be royalty and the same will be outside the scope of the definition of ‘royalty’ as provided in DTAA and would be taxable as business income of the recipient. The assessee is entitled to the fair use of the work/product including making copies for temporary purpose for protection against damage or loss even without a license provided by the owner in this respect and the same would not constitute infringement of any copyright of the owner of the work even as per the provisions of section 52 of the Copyright Act,1957.
(ii) 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 Karanatka High Court in the matter of “CIT vs.Samsung Electronics Company Ltd.” (supra) and “CIT 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 “DIT 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 favouring the assessee in the case of “DIT vs Nokia Network” (supra) and in the case of “DIT vs. Ericson A.B.” (supra) also. The Hon’ble Bombay High Court 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 U.P.” (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.