Reliance General Insurance Co. Ltd. Vs ITO (ITAT Mumbai)
We shall first advert to the remittance of USD 100,000 made by the assessee towards licence fees to M/s Fair Isaac International Corpn. We have perused the copy of the agreement entered into by the assessee with M/s Fair Isaac International Corpn i.e “Fair Isaac Order Form-Blaze Advisor”, dated 31.03.2008. We find that the assessee had entered into the aforesaid agreement with M/s Fair Isaac International Corpn. for acquiring a non-exclusive, non-transferable, non-assignable and a non-sublicenseable license to use the Fair Isaac Software Product viz. “Blaze Advisor” software for its internal business purposes, subject to host of additional terms and limitations contemplated in the body of the said agreement. We are of the considered view that from a perusal of the agreement it can safely be gathered that the assessee had made the remittance of USD 100,000 to M/s Fair Isaac International Corpn. for grant of license to use its copyrighted software viz. “Blaze Advisor” software for its internal business purposes. We further find from a perusal of the agreement that the assessee was clearly divested of all its rights to either transfer, assign and sub-license the said software. We are of the considered view that there is a clear distinction between royalty paid on transfer of copyright right and consideration for copyrighted articles. In our considered view the right to use of copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. Rather, we are of a strong conviction that for enjoyment of some or all the rights which the copyright owner has is necessary to invoke the royalty definition. In the backdrop of our aforesaid observations we are of the considered view that a non-exclusive and non-transferable license enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of India-USA DTAA. Rather, where the purpose of the license or the transaction is only to restrict the use of the copyrighted product for internal business purpose of the licensee, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. We thus, finding ourselves to be in agreement with the contention advanced by the ld. A.R that as the assessee had only been granted a non-exclusive and non-transferable license to use the copyrighted article i.e “Blaze advisor” software by M/s Fair Isaac International Corpn. which had retained with itself the copyrights of the same, therefore, the amount received by the licensor viz. M/s Fair Isaac International Corpn. from the assessee did not give rise to any royalty income within the meaning of Article 12(3) of the India-USA tax treaty. We find that our aforesaid view stands fortified by the judgment of the Hon‟ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329 (Del), wherein it has been held that the amount received pursuant to granting of license to use the copyrighted software for the licensees own business could not be brought to tax as “royalty” under Article 12(3) of the India-USA tax treaty. Still further, we find that the aforesaid view of the Hon’ble High Court of Delhi In the case of Infra soft Ltd. (supra) had recently been followed by a coordinate bench of the Tribunal viz. ITAT “C” bench, Mumbai in the bunch matters in the case of a group concern of the assessee i.e DDIT, Mumbai Vs. Reliance Communications Ltd. (ITA No. 837/Mum/2007; dated 02.02.2018). In the aforementioned case the Tribunal had observed that as the payment made by the assessee was for copyrighted article i.e software and there was no transfer of copyright of the software in any manner, thus the same did not amount to royalty within the definition of Article 12/13(3) of the respective tax treaties and resultantly the assessee remained under no obligation to deduct tax at source while making the remittances. We thus respectfully following the view taken by the Hon’ble High court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 264 CTR 329 (Del), therein conclude that the remittance of USD 100,000 made by the assessee to M/s Fair Isaac International Corpn. for grant of license to the assessee to use its copyrighted product viz. “Blaze Advisor” software for its internal business purposes only could not be brought to tax as “royalty” under Article 12(3) of the India-USA DTAA. We thus, in terms of our aforesaid observations conclude that as no liability was cast upon the assessee to deduct tax at source at the time of making of the aforesaid remittance, hence the latter cannot be held as being an assessee in default within the meaning of Sec 201 of the Act.
FULL TEXT OF THE ITAT JUDGMENT
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-11, Mumbai, dated 30.09.2011 which in itself arises from the order passed by the A.O under Sec. 201(1) & 201(1A) of the Income Tax Act, 1961 (for short „Act‟), dated 31.03.2010 for A.Y 2009-10. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:
“1. The learned Commissioner of Income Tax (Appeals) -11 [CIT(A)] erred in confirming the order of the Income tax Officer (IT) – TDS-2, Mumbai (TDS Officer) holding the appellant as an assessee in default for alleged failure to withhold tax on payment to Fair Isaac Corporation (Fair Isaac) and thereby confirming the order u/s 201(1)/201(1A) by the TDS Officer.
Your appellant submits that the order of the CIT(A) is incorrect in law and in facts and that the order u/s.201(1)/201(1A) ought to be cancelled.
2. The learned CIT(A) erred in holding that payment of US $ 1,00,000 to Fair Isaac is covered by the meaning of “royalty” as defined in section 9(1)(vi) of the Income Tax Act (Act) and also under Article 12(3) of the Treaty for Avoidance of Double Taxation between India and USA (Treaty) and thereby holding that the same is liable to withholding tax u/s.195 of the Act and under the Treaty.
Your appellant submits that the payment of US $ 1,00,000 to Fair Isaac was for non exclusive and non transferable licence for use of software and the same is not covered by the meaning of the “royalty” both under the Act and under the Treaty and the same is not liable to tax under the Act and under Article 7 of the Treaty and therefore the provisions of section 195 were not applicable and accordingly the order of TDS Officer u/s.201(1)1/201(1A) ought to be cancelled.
3. The learned CIT(A) erred in holding that the payment of maintenance fees of US $ 15,000 to Fair Isaac is also taxable as royalty and accordingly liable to withholding tax u/s. 195 of the Act and under the Treaty.
Your appellant submits that the payment of. US $ 15,000 was towards maintenance fees of the software and the same falls within the meaning “fees for technical services” under the Act but not under the Treaty and accordingly the same was not liable to tax under the Treaty and therefore the provisions of section 195 were not applicable and accordingly the order of TDS Officer u/s. 201(1)1/201(1A) ought to be cancelled.
4. The learned CIT(A) erred in holding that the payment of training fees of US $ 14,000 to Fair Isaac is liable to tax under the Act and under the Treaty as “fees for technical services” and accordingly liable to withholding tax u/s.195 of the Act and under the Treaty.
Your appellant submits that the payment of US $ 14,000 was towards training fees and the same falls within the meaning “fees for technical services” under the Act but not under the Treaty and accordingly the same was not liable to tax under the Treaty and therefore the provisions of section 195 were not applicable and accordingly the order of TDS Officer u/s. 201(1)1/201(1A) ought to be cancelled.
5. The learned CIT(A) erred in confirming the action of the TDS Officer in grossing up the payment for computing the amount of withholding tax in respect of which the appellant is held to be an assessee in default.
Your appellant submits that the payment to Fair Isaac ought not to have been grossed up for calculating the withholding tax.
6. The learned CIT(A) erred in dismissing the ground relating to charging of interest u/s.201(1A) in respect of the amount of withholding tax computed on the payment to Fair Isaac.
Your appellant submits that the interest u/s.201(1A) ought to have been cancelled.
7. Your appellant craves leave to add to, alter, amend or vary all or any of the aforesaid ground of appeal as they/their representative may deem fit.”
2. Briefly stated, the A.O was in receipt of information that the assessee had made certain foreign remittances without deduction of tax at source to non-resident entities, as under:
