Case Law Details
Atos IT Solutions and Services Vs DCIT (ITAT Mumbai)
The assessee has entered into global contract with Microsoft License fees and kept the ownership with them. Based on the above contract, the assessee has entered into separate agreement with the Atos India for recharge of costs pertaining to usage of the above licenses by Atos India. Accordingly, based on the usage of the Licenses the assessee has charged the same to Atos India as per the above said agreement. The assessee has filed copies of above said agreement entered with Atos India and relevant invoices raised to Atos India. Ld AR took us through the above said agreement and invoices to highlight that the assessee has charged only to the extent the Atos India has made request for usage of the approved Microsoft Licences as per their requirements. The invoices are raised based on the actual utilization of the Licences. The revenue authorities treated the above said services as Royalty or FTS. On careful consideration, we observe that the License for usage of the copy righted products are with Microsoft only and the assessee has acquired global right and transferred the above said Licenses to its group entities based on the requirements. Whether this transaction falls under the category of Royalty or FTS is the issue. We observe that the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd (supra) held that Microsoft Software products are sold to end users by Microsoft Corporation and whatever the license which are routed thru the middle man, the Microsoft does not grant any right or interest, least of all, a right or interest to reproduce the computer software. Further such reproduction is expressly interdicted and expressly stated that no vestige of copyright is at all transferred either to the distributor or to the end user. Therefore, it does not fall in the category of Royalty or copy right.
Further we observe that in the case of EY Global Services Ltd, which is similar to the facts in the case of the Assessee, in which Hon’ble High Court has relied upon the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd., v. CIT [125 taxmann.com42 (SC)]. The decision of the above is reproduced below:
“13. A reading of the above judgment would clearly show that for the payment received by EYGSL (UK) from EYGBS (India) to be taxed as “royalty”, it is essential to show a transfer of copyright in the software to do any of the acts mentioned in section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licencee, does not entail parting with the copyright. Where the core of a transaction is to authorise the end-user to have access to and make use of the licenced software over which the licencee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as “royalty”.
14. In the present case, the EYGBS (India), in terms of the Service Agreement and the MOU, merely receives the right to use the software procured by the EYGSL (UK) from third-party vendors. The consideration paid for the use of the same therefore, cannot be termed as royalty’ as held by the Supreme Court in Engineering Analysis Centre (supra). In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the Agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term ‘royalty’ as held by the Supreme Court in Engineering Analysis Centre (supra).
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