|COURT:||Madras High Court|
|CORAM:||Anita Sumanth J, M. Sathyanarayanan J|
|CATCH WORDS:||computer software, royalty|
|DATE:||January 4, 2017 (Date of pronouncement)|
|DATE:||January 27, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 9(1)(vi) 'Royalty' on transfer of software rights: There is a difference between sale of a 'copyrighted article' and the 'copyright' itself. S. 9(1)(vi) applies only to the latter and not the former. Explanation 4 inserted by FA 2012 w.r.e.f. 01.06.1976 has to be read and understood only in that context and cannot be expanded to bring within its fold transactions beyond the realm of the provision|
(i) The Madras High Court in CIT Vs. Neyveli Lignite Corporation Ltd., reported in 243 ITR 458 states thus explaining the concept of Royalty:-
“The term “’royalty’ normally connotes the payment made by a person who has exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Mere passing of information concerning the design of a machine which is a tailor-made to meet the requirement of a buryer does not by itself amount to transfer of any right of exclusive user, so as to render the payment made therefor being regarded as ‘royalty’“.
(ii) Courts have consistently noted the difference between a transaction of sale of a ‘copyrighted article’ and one of ‘copyright’ itself. See Tata Consultancy Services Vs. State of Andhra Pradesh  271 ITR 401[SC] ; Sundwiger EMFG  266 ITR 110 ; Dassault Systems K.K., In Re, (2010) 229 CTR 125 [AAR] ; ISRO Satellite Centre [ISAC] , In Re  307 ITR 59 [AAR] ; and Asia Satellite Telecommunications Co. Vs. DIT  332 ITR 340 [Delhi].
(iii) The provisions of section 9(1)(vi) as a whole, would stand attracted in the case of the latter and not the former. Explanations 4 and 7 relied by the authorities would thus have to be read and understood only in that context and cannot be expanded to bring within its fold transaction beyond the realm of the provision. The Tribunal has relied on the decision of the Division Bench of the Delhi High Court in the case of The Principal Commissioner of Income Tax V. M.Tech India Pvt Ltd, which supports our view as above. It is brought to our notice that the decision of the Delhi High Court has not been accepted by the Department and an SLP is pending. Be that as it may, in view of the facts and circumstances as observed above, we have no hesitation in dismissing the Departmental Appeal answering the questions of law in favour of the assessee and against the Revenue.