{"id":7176,"date":"2013-09-09T12:00:53","date_gmt":"2013-09-09T06:30:53","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=7176"},"modified":"2013-09-09T12:20:55","modified_gmt":"2013-09-09T06:50:55","slug":"ddit-vs-reliance-infocom-ltd-lucent-technologies-itat-mumbai-consideration-for-supply-of-software-which-is-not-embedded-in-equipment-is-taxable-as-royalty","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/ddit-vs-reliance-infocom-ltd-lucent-technologies-itat-mumbai-consideration-for-supply-of-software-which-is-not-embedded-in-equipment-is-taxable-as-royalty\/","title":{"rendered":"DDIT vs. Reliance Infocom Ltd\/ Lucent Technologies (ITAT Mumbai)"},"content":{"rendered":"\n\n
Click here to download the judgement (reliance_software_royalty.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nConsideration for supply of software which is not embedded in equipment is taxable as “royalty”<\/strong> <\/p>\n

The assessee, Reliance Infocomm Ltd, wanting to establish a wireless telecommunications network in India, entered into a contract with Lucent Technologies for supply of software required for the telecom network. The assessee claimed, relying on Tata Consultancy Services<\/a><\/strong> 271 ITR 401 (SC), Ericson AB<\/a><\/strong> 343 ITR 370 (Del), Nokia Networks OY<\/a><\/strong> 25 taxmann.com 225 & Motorola<\/strong> 270 ITR (AT) (SB) 62, that the amount paid by it to Lucent for acquiring the software was for purchase of a \u201ccopyrighted article<\/em>\u201d and \u201cgoods<\/em>\u201d and that it was not assessable to tax as \u201croyalty<\/em>\u201d u\/s 9(1)(vi) or Article 12(3) of the India-USA DTAA. The claim was upheld by the CIT(A). On appeal by the department to the Tribunal HELD allowing the appeal: <\/p>\n

There is a distinction between a case where the software is supplied along with hardware as part of the equipment and there is no separate sale of the software and a case where the software is sold separately. Where the software is an integral part of the supply of equipment, the consideration for that is not assessable as \u201croyalty<\/em>\u201d. However, in a case where the software is sold separately, the consideration for it is assessable as \u201croyalty<\/em>\u201d. On facts, the assessee had acquired the software independent of the equipment. It had received a license to use the copyright in the software belonging to the non-resident. The non-resident supplier continued to be the owner of the copyright and all other intellectual property rights. As there was a transfer of the right to use the copyright, the payment made by Reliance to Lucent was \u201cfor the use of or the right to use copyright<\/em>\u201d and constituted \u201croyalty<\/em>\u201d under s. 9(1)(vi) and Article 12(3) of the India-USA DTAA (Synopsis International<\/strong> 212 Taxman 454 (Kar), Samsung Electronics<\/a><\/strong> 345 ITR 494 (Kar), Lucent Technologies<\/strong> 348 ITR 196 (Kar), Citrix Systems<\/strong> 343 ITR 1 (AAR) & Microsoft\/Gracemac Corp<\/a><\/strong> 42 SOT 550 (Del) followed). <\/p><\/blockquote>\n

This view runs counter to Solid Works<\/a><\/strong> & TII Telecom<\/a><\/strong>. For more on the subject see Is Income From Software Taxable As \u201cRoyalty\u201d?<\/a><\/strong>, Why Software Income Is Not Taxable Despite Retro Law In Finance Act 2012<\/a><\/strong>. See also the law in Singapore<\/a><\/strong><\/div>\n","protected":false},"excerpt":{"rendered":"

There is a distinction between a case where the software is supplied along with hardware as part of the equipment and there is no separate sale of the software and a case where the software is sold separately. Where the software is an integral part of the supply of equipment, the consideration for that is not assessable as \u201croyalty<\/em>\u201d. However, in a case where the software is sold separately, the consideration for it is assessable as \u201croyalty<\/em>\u201d. On facts, the assessee had received a license to use the copyright belonging to the non-resident. The non-resident supplier continued to be the owner of the copyright and all other intellectual property rights. As there was a transfer of the right to use the copyright, the payment made by Reliance to Lucent was \u201cfor the use of or the right to use copyright<\/em>\u201d and constituted \u201croyalty<\/em>\u201d under s. 9(1)(vi) and Article 12(3) of the India-USA DTAA. <\/p>\n

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