DDIT Vs. Reliance Communication Ltd. (RM) (ITAT Mumbai)
Challenging the orders of the CIT(A)-XXXI,Mumbai,of various dates, the Assessing Officers (AO.s) have filed above mentioned appeals. Issue involved in all the appeals is identical- relief granted by the First Appellate Authority(FAA) to the asses sees for the alleged violation of the provisions of section 40(a)(i)of the Act. The AO.s were of the opinion that there was failure on part of the assessees of not deducting tax at source for the payments made by them to the non-resident-entities. Considering the commonness of the issue, we are adjudicating these appeals together.
Assessee- company are part of Reliance (ADAG) Group. The group consists many an entities, including Reliance Communication Ltd. (RCL), Reliance Telecom Ltd., Reliance BPO Ltd. and Reliance Communication Infrastructure Ltd. RCL. is engaged in business of telecommunication. Other three entities were also connected with wireless telecommunication net-work in India. For that purpose, they entered into various contracts with non-resident-entities and made certain payments for purchase of software. The assessees made applications u/s.195 of the Act, requesting the AO.s to allow them to make payments to non residents without deducting tax at source. However, the AO.s held that payments made by them to the non residents were taxable in India,that they should deduct tax at source before making such payments. Accordingly, the assessees deducted the taxes.
2. Aggrieved by the orders of the AO.s, passed u/s. 1 95(2)of the Ac, the assessees preferred appeals before the First Appellate Authority (FAA) and made elaborate submissions. Considering various clauses of the Contracts entered in to by the assessee with the suppliers, he held that the assessees did not own any rights for transferring the software licenses, that they were not having the power to decode the machine code of the software nor did they had the power to make copies of software (except for back-up), that they had obtained only the right to use the software for their business purpose and obtained no other rights in the Software, that the assessee had acquired the hardware and software simultaneously, that they did not acquire any right of duplication of software except for its own use. He also deliberated upon the provisions of the Indian Copyright Act, 1957 (ICA) and held that payment made by them for acquiring copy of the software did not amount to royalty within the definition under Article 12(3)of the DTAA.s. He referred to various clauses of the agreements entered into between the assessees and the vendors. Finally, he allowed the appeals filed by them holding that there was no obligation on part of the assessees to deduct tax at source for the payments made to the non-resident entities.
3. Before us, the (DR) submitted that software was a Process/an Invention/an Equipment/ transfer of all or any rights in respect of the software, that the consideration received for the use or the right to use the software constituted royalty, that in the decision of Solid Works (42 SOT 13) Tribunal had not considered the arguments of Software being a Process/an Invention /an Equipment. He referred to websites and dictionaries and contended that Software was a Process as defined in Expl.2 to section 9(l)(vi) of the Act. He also relied on the definition of the term Invention given under the Oxford Dictionary and Black Laws Dictionary to hold that Software is an invention. Referring to the term ‘Equipment’ from Wikipedia website and relying on the decision of the Poompuhar Shipping Corporation Ltd. (360 ITR 257), he submitted that payment made by the assessee for purchase of software fell under the head ‘equipment-royalty’. He also relied on the definition of the royalty as per DTAA and stated that definition of the royalty was same in all DTAA.s,that some of the DTAA.s did not include equipment-royalty under the definition of royalty, that after amendment in the Act, the definition of royalty had become very vast and the same was also applicable to the tax treaties.
He further relied on section 14 of the ICA and submitted that to reproduce the work in any material form including the storing of it in any medium by electronic means covered under the definition of computer programme, that the assessee had stored or reproduced the software in equipment and therefore payment made by it for purchase of software fall under the definition of royalty, that as per section 30 of the ICA the assessee had received interest / rights to use the software and therefore the same fell under royalty, that there were no decisions which had considered section 30 of the ICA, that as per section 51 of the ICA copyright in a work would be deemed to be infringed when any person, without a license granted by the Owner of the copyright did anything.He relied on the judgments of Synopsis International Old Ltd.(212 Taxman 454), Samsung Electronics Co. Ltd. (345 ITR 494) of Hon’ble Karnataka High and argued that payment made by the assessee for purchase of software was royalty payment,that it was liable to deduct TDS for the said payments,that the Hon’ble Karnataka High Court had considered the provisions of the ICA and had rightly held that payment made for use of software was copyright, that Hon’ble Court had also held that it was not necessary that there should be a transfer of exclusive right in copyright and where consideration paid was for rights in respect of copyright and for user of confidential information embedded in software/computer programme it would fall within mischief of Expl.(2)of section 9(l)(vi) of the Act and there would be a liability to pay tax,that facts of Ericsson’s case were different from the judgments of Samsung and Synopsis, that the facts of the case under appeal were similar to the facts of Samsung (supra) and Synopsis (supra), that there were no contradictory decisions to those facts.He further argued that supply of hardware and software were of two different articles and relied on the decision of the Hon’ble Supreme Court in the case of M/s. PSI Data System Ltd. (Civil Appeal 491 of 1989. dated 17.12.1996) and stated that for the purpose of custom and excise duties both the items i.e.- Hardware & software were separate,that for the purpose of income tax also, purchase of software was a separate item regardless of whether it was purchased standalone or was bought along with hardware.
The DR relied on the cases of Elkem Technology (250 ITR 164) Sunray Computers (P.) Ltd. & Lucent Technologies Hindustan Ltd. (348 ITR 196) Mahyco Monsanto Biotech (India) (P.) Ltd. (74 taxmann.com 92/58 GST 339), Citrix Systems Asia Pacific Pty Ltd. (343ITR 1), Millennium IT Software (338 ITR 391), IMT Labs (India) (P.) Ltd. (287 ITR 450), Synopsis International (212 Taxman 454), Rishiroop Chemicals Pvt. Ltd. (36 ITD35) and contended that payment made by the assessee for purchase of software was covered by the definition of royalty, that it was liable to deduct TDS on the said payments.
3.1. The (AR) referred to four contracts entered in to on dated 31/07/2002, with Lucent Technologies, Hindustan Private Limited (LTHPL), namely, Wireless Equipment Contract (Pg. 1-55, Vol. 44); Wireless Software Contract (Pg. 56-73, Vol. 44); Wireless Service Contract (Pg. 74- 101, Vol. 44); Wireless Network General Terms and Conditions (‘GTC Contract’- Pg. 102-289, Vol. 44). He also referred to Wireless Software Assignment and Assumption Agreement, dated 5/08/2002 entered in to with Lucent Technology GRL LLC (Lucent) wherein LTHPL assigned the Software Contract to Lucent (Pg. 290-294, Vol. 44). He contended that payment made to Lucent/ other vendors for the purchase of software in pursuance of the aforementioned Contracts did not constitute royalty, as per the definition given under the Act and the DTAA.s.
3.2. He referred to the definition of ‘royalty’ given under the India-USA DTAA and argued that as per the definition, the term royalties included any payment towards the use or right to use any copyright, that royalties as a subject-matter of a copyright connoted only the payments for the use i.e. exploitation of such copyright in the software, that it was different from the use of the copyrighted article i.e. the software itself, that the acquisition of a product (software)-in which the subject matter of copyright was embedded-did not amount to use of or right to use the copyright of such product (software), that to constitute royalty, a person must be entitled to utilise the copyright in a manner which was otherwise protected by the relevant copyright law in favor of the Owner of such copyright, that the use of or the right to use the software was not the same as use of or the right to use the copyright of the software, that the assessee merely had the domain over the copyrighted article and used such copyrighted article for its business purpose (internal use), that it had neither used nor did it had the right to use the copyright in software, that the payments made by the assessee to Lucent and other vendors did not constitute royalty.
3.3. Referring to the various clauses of Contracts entered in to with LTHPL and Lucent, the AR stated that the nature of purchase made by the assessee and the rights and terms and conditions in respect of the use of the software proved that payment made by the assessee was not royalty, that the Equipment Contract was to support the Software Contract and vice versa, that the two contracts would be rendered unworkable in absence of either of the Contracts, that the Service Contract dealt with services in respect of the installation, commissioning, operation, management and maintenance of all the Wireless Reliance Network, that the GTC Contract dealt with the background of the Contract,that all the agreements were not identical, that the FAA had, after examining the relevant clauses in respect of each of the Agreements, decided that the payment made by the assessee was for acquiring copy of software programme, that he had also held that the assessees did not acquire any copyright over such software,that the DR did not challenge the aforesaid finding of the FAA.He referred to the case of Ericsson A.B. (343 ITR 470)
He relied upon the cases of Ericsson A.B.(supra), Infra soft Ltd. (220 Taxman 273), ZTE Corporation (392 ITR80), National Stock Exchange of India Ltd. (ITA/773 5/Mum. /20U), OECD Commentary on Article 12 and stated that the facts of the assessees’ cases were similar to that of Ericsson’s case, that the payment made by the assessees to Lucent and other vendors for supply of software was not royalty within the meaning of the Act or the DTAA,that Ericsson A.B. was also one of the vendors/ deductees to whom the assessees had made payments for purchase of software, that treating the payment of software to Ericsson A.B. as royalty in the hands of the assessees/ deductors was not correct, that payments made to other suppliers was not royalty as the Hon’ble Delhi High Court had-based on similar agreement-held that the said payment was not royalty, that payment made for purchase of software was for the use of copyrighted article which was distinct from the copyright, that the same did not constitute royalty under the provisions of the Act as well as DTAA.
3.4. Regarding software being a process /an Invention/an Equipment, he submitted that after the order of the Solid Works (supra) the Tribunals and/or High Courts had considered the arguments advanced by the DR, that they had deliberated upon the arguments of Software being a Process/an Invention, an Equipment, that the judicial forums had decided the issue in favor of the assessee after considering all the arguments advanced by the Department, that the case of Poompuhar was of no help, that in that matter the Hon’ble Madras High Court had held that ship was an equipment, that the same is therefore not relevant to decide the issue raised in the present case,
Referring to the provisions of the ICA, the AR stated that same were already considered in the various decisions by the Hon’ble High Court as well as Benches of Tribunal including Jurisdictional Tribunal. In that regard he relied upon the cases of ZTE Corporation (392 ITR 80), Reliance Industries Ltd. (69 taxmann.com 311), Baan Global BV (71 taxmann.com 213), Shell Information Technology International BV (80 taxmann.com 64), Qad Europe BV (77 taxmann. com 267); Solid Works Corpn. (supra) I.T.C. Ltd. (79 taxmann.com 206) Black Duck Software Inc. (86taxmann.com 62). He contended that the DR was factually incorrect in ascertaining that section 30 of the ICA was not been considered in any of the decisions, that in the matter of Dassault Systems K.K. (188Taxman223) section 30 of the ICA was considered, that above order was deliberated upon in the cases of Ericsson AB (supra) Solid Works Corpn. (supra). He also referred to Visteon Technical & Services Centre (P.) Ltd. (81 taxmann.com 390); Financial Software & Systems (P.) Ltd. (47 taxmann.com 410); HITT Holland Institute of Traffic Technology B.V. (78 tavmann.com 101).
About the matter of Mahyco Monsanto Biotech (India) (P.) Ltd (supra), relied upon by the DR, the AR argued that in that matter the question before the Hon’ble Bombay High Court was whether provision of proprietary technology for protection of particular seeds was taxable as ‘sale’ or ‘service’, that the Hon’ble High Court had held the transaction was a ‘transaction of sale, as against ‘service’ as claimed by the Petitioners,that after considering the aforesaid decision in Mahyco Monsanto’s case (supra), the Tribunal in the case of Qad Europe B.V. (77 taxmann.com 267) had held that absence of transfer of rights to authorize doing of certain acts, mentioned in sections 2, 13 and 14 of the ICA, it could not be said that there was a transfer of copyright. The AR also referred to the matter of Synopsis International (supra) and stated that after considering the decision of Karnataka High Court in the case of Synopsis (supra) in the cases of Alcatel Lucent USA Inc. (ITA/1131, 7299 & 7300/Mum/2010) Reliance Industries Ltd. (supra) and National Stock Exchange of India Ltd. (supra), it was held by the Tribunal that payment made for use of software did not constitute royalty. Referring to the case of Samsung, he stated that it was considered in many a matters by the Tribunal. He also stated that the facts of the case of Synopsis (supra)were totally different from the facts of the present case. Referring to the case of Citrix Systems Asia Pacific Ptv Ltd.(supra). the AR stated that the Hon’ble Delhi High Court in the case of M Tech India (P.) Ltd. (381 ITR 31) had considered the decision of the AAR in Citrix Systems Asia and had held that payment made for purchase of software as a product would be treated as a payment for purchase of software rather than payment for use or right to use software.
About Millennium IT Software (338 ITR 391)and IMT Labs (India) (P.) Ltd.the AR submitted that both the AARs were considered in Citrix Systems (supra) which in turn had been considered by the Delhi Tribunal as well as the Delhi High Court in Halliburton and M. Tech’s case,that the AARs were only applicable to the assessee who applied for and not to other assessee.
Referring to the matter of Rishiroop Chemicals Pvt. Ltd. (supra), the AR submitted that the Tribunal in that case had held that in case of conflicting decisions of the High Court other than jurisdictional High Court, the view which appeared better had to be adopted or under certain circumstances, the view which was favorable to the tax payer would prevail,that in the case of Vegetable Products Ltd. (88 ITR 192) the Hon’ble Apex court had held that in case of difference in view, the view favorable to the assessee ought to be taken, that Rishroop had no application in the present case.About M/s. PSI Data System Ltd. Vs. Collector of Central Excise (Civil Appeal 491 of 19891- order dated 17.12.1996), the AR contended that the question before the Hon’ble Supreme Court was whether the value of software implanted into the computer had to be taken into account for the purpose of valuation to compute the excise duty,that the decision had no applicability in the present case. The AR further stated that the issue in the present appeals were not subject matter of the case of Elkem Technology (250 ITR 164)
4. We have heard the rival submissions and perused the material before us. We find that the assessee group companies were engaged in the business of providing telecommunication services,that for build-up of Wireless Telecommunication Network they had entered into various contracts with non-resident-vendors for supply of software, that the contracts can broadly be categorized as Equipment Contract, Software Contract, Service Contract, GTC Contract and Assignment Agreement. For the better understanding of the facts all the contracts/agreements will have to considered cumulatively. The basic issue to be decided is as to whether the payments, made by the group entities to the non-resident vendors for supplying them software for installing wireless network, can be treated as royalty or not.
Term ‘royalty’, used in commercial and business world frequently, is understood to be a compensation/consideration/feed paid to an Owner for the use of his intellectual property like patents, copyrighted-works, franchises or natural resources. A royalty payment is made by those who wish to make use of it for the purposes of generating revenue or other such desirable activities. In most cases, royalty is designed to compensate the Owner for the asset’s use and they are legally binding. The terms under which royalties are based on is called a license agreement. The license agreement defines the limits and restrictions of the royalties, such as its limitations pertaining to geographic territory, how long the agreement will last or the type of products with particular royalty cuts. License agreements are regulated specially if the resource Owner is the government or if the license agreement is a private contract.We would like to refer to the case of Ahmedabad Manufacturing and Calico Printing Mills (139 ITR 806), wherein the word royalty has been defined as follows:
“In the case of secret processes, patents, special inventions, when right of exploitation is given by the Owner of the inventions, patents, etc., to a third party instead of outright sale, then for the right to exploit these inventions, secret processes, some amount may be paid and the amount paid may be correlated to the extent of the exploitation. It is in this sense that license agreements for the exploitation of patents, inventions, etc., are being entered into in modern commercial world and as part of such agreements, even knowledge derived from his own experience and technical know-how for the most economical and efficient user of the patents, inventions, etc., are parted with by the Licensor to the licensee. Payments of this kind are known as royalties. This is also evident from several double taxation avoidance agreements between the Govt. of India and foreign countries such as Sweden in which the term “Royalty” has been defined. That such payments are royalties is also evident from the definition of the word “Royalty” in s. 9(1)(vi), Explanation 2, which was subsequently introduced by the Finance Act, 1976, with effect from June 1, 1976.”
The Hon’ble Madras High Court has in the matter of Neyveli Lignite Corporation Ltd. (243 ITR 459)defined the term royalty as under:
“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 tailor-made to meet the requirement of a buyer 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”.
In the case of Asia Satellite Telecommunications Co. Ltd. (332 ITR 340) the term royalty was explained in following manner:
“Clause (vi) of section 9(1) of the Act,makes income by way of royalty payable by certain persons chargeable to tax. The term “royalty” is assigned a specific meaning in Explanation 2 to clause (vi) of section 9(1) of the Act. Sub-clause (i) of the Explanation deals with a situation where rights in intellectual property are transferred including “the granting of a license”. What sub-clause (i) envisages is the transfer of “rights in respect of property” and not transfer of “right in the property”. In the first category, the rights are purchased which enable use of those rights, while in the second category, no purchase is involved, only a right to use has been granted. Thus, the definition of the term “royalty” in respect of the copyright, literary, artistic or scientific work, patent, invention, process, etc. does not extend to the outright purchase of the right to use an asset. In the case of royalty, the Ownership on the property or right remains with the Owner and the transferee is permitted to use the right in respect of such property. According to sub-clause (iii) of the Explanation, even consideration paid for use of intellectual property would qualify as “royalty”. Clause (vi) makes payments made for services rendered in connection with activities referred to in sub-clauses (i) to (iv), (iva) and (v) “royalty” for the purpose of section 9 . Explanation 2 has to be read as part and parcel of section 9(1)(vi) of the Act.”
4.1. For taxation purposes the term royalty has to be understood in the manner it has been defined by the Act/tax treaties. Section 9(1)of the Act reads as under:
The following incomes shall be deemed to accrue or arise in India—
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India :
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(vi) income by way of royalty payable by—
(a) the Government ; or
(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government : Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a license) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986, of the Government of India :
Explanation 1.— For the purposes of the first proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date ; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.
Explanation 2.— For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—
the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model,design,secret-formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
(iva) the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB ;
(v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).
Explanation 3.— For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data.
Explanation 4.— For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.
Explanation 5.— For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—
(a) the possession or control of such right, property or information is with the payer ;
(b) such right, property or information is used directly by the payer ;
(c) the location of such right, property or information is in India.
Explanation 5.— For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fiber or by any other similar technology, whether or not such process is secret ;
In the tax treaties, entered in to with above mentioned five countries, the term royalty has been also been dealt with. We are reproducing the relevant portion of the DTAA.s. Article 12 of Australia India DTAA contains following provisions about Royalty:
(3) The term “royalties” in this article means payments or credits, whether periodical or not, and, however described or computed, to the extent to which they are made as consideration for :
(a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right ;
(b) the use of, or the right to use, any industrial, commercial or scientific equipment ;
(c) the supply of scientific, technical, industrial or commercial knowledge or information ;
the rendering of any technical or consultancy services (including those of technical or other personnel) which are ancillary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-paragraph (a), any such equipment as is mentioned in sub-paragraph(b) or any such knowledge or information as is mentioned in sub-paragraph(c) ;
Royalty provision, as per the India-Israel tax treaty(Article 12), can be summarized as under:
3. The term “royalties” as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematography films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.
Article 13 of the India-Sweden Double Taxation Avoidance Agreement provides as follows ;
3. The term ‘royalties’ as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematography films, films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, any patent, trade mark, design or model, plan,secret formula or process,or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.
Following are the provisions of royalty (Article 12)in the India Singapore DTAA:
The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use:
(a) any copyright of a literary, artistic or scientific work, including cinematography film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information ;
(b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described ih paragraph 4(b) or 4(c) of Article 8.
Now,we would refer to Article 12 of the Indo- USA tax treaty and it reads as under:
“3. The term “royalties ” as used in this article means:
“(a) payments of any kind received as consideration for the use for the right TO use, any copyright of a literary, artistic, or scientific work, including cinematography films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience including gains derived from the alienation of any such right or property which were contingent on the productivity, use of disposition thereof;
A comparison of the provisions of DTAA.s and the section 9 of the Act clearly reveal that term royalty does not connote the same meaning even if both are casually glanced at.In the DTAA.s royalty means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematography films, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. But, the Act has expanded the meaning of Royalty by adding explanations to the section.The canvass of term royalty is broader in the Act, as compared to the above referred tax treaties. While making amendments to the Act, the Parliament has not amended the DTAA.s with the above mentioned five countries. So, the treaties, as they are,will be applicable and will govern the tax incidence of the transactions covered by them, if an assessee opts out for them. It has to be remembered that while dealing with taxation of non-resident-entities provisions of tax treaties have to considered and that domestic law will not have preference over the DTAA.s.
5. In the appeals before us,the issue has arisen with regard to entities that are located in 5 countries.About 20 vendors have supplied software to the assessee. We are tabulating the vendors as per the ITA.s and Countries:
