Indian Kanoon - Search engine for Indian Law

10. We have heard the rival contentions and perused the record. The assessee had received limited user rights and IT support fees for providing access to certain software like lotus notes and MS Office to Sandvik Asia Pvt. Ltd. Since the assessee was providing limited user rights in the software which related to lotus notes and MS Office, in order to enable Sandvik Asia to adopt globally accepted practices of Sandvik group and payments for such services were not royalty as it does not include the right of copyright or literary, artistic, scientific work. Since the payments were being made for copyrighted article, the receipts would not be covered by the definition of 'royalty' either under the Sandvik AB provisions of the Act or under Article 12 of DTAA between India and Sweden. The Assessing Officer in the draft assessment order vide para 27 observed that the assessee had not submitted End-user License Agreement entered into with Sandvik Asia for the rights to use software. He further holds that exact nature of software provided and the terms and conditions were not known. Referring to the definition of 'computer' as per Explanation 3 to section 9(1)(vi) of the Act and also taking into consideration the provisions of Indian Copyright Act with special reference to section 2(iv), the Assessing Officer was of the view that computer software can also be considered as scientific work. Referring to amendments by the Finance Act, 2012 under which Explanation 4 has been inserted after section 9(1)(vi) of the Act, the Assessing Officer came to the conclusion that payment received was in the nature of royalty and taxable as royalty under section 9(1)(vi) of the Act. The Assessing Officer noted that the assessee was tax-resident of Sweden with which India had DTAA and Article 12(3) of DTAA, the term 'royalty' was defined. Since the source code or the object code of software was protected under the Copyright Act, the Assessing Officer was of the view that software qualifies for the same. Thus, the Assessing Officer held the payment received for right to use software and for support services was clearly 'royalty' as defined in Article 12(3) and DTAA as well as Explanation 2 to section 9(1)(vi) of the Act. Further, reliance was placed on several decisions of various High Courts and the Assessing Officer thus, did not accept the plea of assessee and held the said receipts as taxable in the hands of assessee being in the nature of royalty both under the Income Tax Act and DTAA.