ITA NO.1535/MUM/2014
Intec Billing Ireland vs. ADIT
A.Y: 2010-11, Date of Order: 8th January,
2018
Taxpayer, a non-resident company, licensed
an ‘off-the-shelf’/’shrink wrapped’ billing software to an Indian company
(ICo). The software provided comprehensive business solution in transaction
management, billing and customer care issues related to telecom industry
players.
Taxpayer contended that the software
licensed to ICo was a standard product which was also licensed to various other
customers. Under the license agreement, ICo only acquired a right to use a copy
of the software for its business purposes. The right to make multiple copies
was also limited only for the internal business operations of ICo. ICo had no
right to resell the software or commercially exploit the software. The
Intellectual Property Rights (IPR) in the software was exclusively owned by the
Taxpayer. Hence, the payment made by ICo was for a “copyrighted article” and
not for use of “copyright”. Consequently, such payment does not qualify as
“royalty” under Article 12 of the India-Ireland DTAA.
AO held that the payment received by
Taxpayer for supply of ‘off-the-shelf’ software to ICo was for grant of ‘copyright’ and accordingly, the receipts
qualified as ‘Royalty’ u/s. 9(1)(vi) of the Act as well as Article 12 of
India-Ireland DTAA.
The Dispute Resolution Panel (DRP) accepted
the fact that the software was a shrink wrapped/ off-the-shelf software.
However, in light of the decisions in CIT vs. Samsung Electronics Co. Ltd.
(2012) 345 ITR 494 and DDIT vs. Reliance Infocom Ltd (2014) 159 TTJ 589,
DRP held that the payment made by ICo was for the use of or right to use
copyright and hence, the payment qualified as royalty within the meaning of
Article 12 of the DTAA.
Aggrieved, the Taxpayer appealed before the
Tribunal.
Held
– The terms
of the agreement clearly indicated that the IPR in the software was owned by
the Taxpayer and ICo was merely granted right to use a ‘copyrighted article’.
– Taxpayer merely granted right to use the
software to ICo for its own use in India, without any right to use the
copyright therein. Thus, the payment made by ICo did not qualify as royalty as
per Article 12 of the India Ireland DTAA.
– In various decisions1, it has been held that grant of license of
shrink wrapped software does not amount to transfer of copyright and hence the
payment for such license does not qualify as royalty.
– The license agreement under consideration
and the software supplied by the Taxpayer to ICo was subject matter of
consideration before the co-ordinate bench of Tribunal wherein it was held that
sale of software to end-customer does not involve transfer of copyright and
hence payment for such license does not qualify as royalty.
– Though the decision of the co-ordinate bench
was in the context of India-USA DTAA, the definition of Royalty under the
applicable Indo-Ireland Tax DTAA being pari materia to Indo-US Tax DTAA,
payment for supply of software will not be taxable as royalty in the hands of
Taxpayer even under India-Ireland DTAA.
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1 Illustratively, Halliburton Export Inc.
(ITA No. 3631 of 2016), Solid Works Corporation [2012] 51 SOT 34 (Mumbai)
Dassault Systems vs. DDIT (79 taxmann.com 205)
