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"69. The Tribunal has held and rightly so that the question whether there was a transfer of a copyright right or only of a copyrighted article must be determined taking into account all the facts and circumstances of the case and the benefits and burden of ownership which have been transferred."

Accordingly, in the following paragraphs, the facts of the present case are examined in the light of the decision of Hon'ble High Court in the case of Infrasoft Ltd. i. Nature of Contract - It may be noted that the clients of the assessee like Infosys, Tech Mahindra, Virtusa, 3i Infotech etc are engaged in the business of developing software themselves. As explained in the following paragraphs, the agreement between the assessee and its clients are more in the nature of "Software Development Agreements" than "pure sale of softwares as goods". The contract/agreement between the assessee and Infosys [Paper Book-3] and more specifically, the 'Statement of Work' [p.295 to 298] and 'Exhibit-C' [p.293] when analysed, clearly brings out the fallacy in the assessee's contention that the transaction is a 'sale simplicitor'. As per the agreement, the assessee not only provides Infosys its proprietary software, it also provides both the "Source Code" [cl. 1.4, p.270; cl. 3(d) of Statement of Work, p.296; cl. 9.1,p.280 & cl.9.3, p.281]as well as the "Object Code"

ii. Significance of Source & Object Code & creation of Derivative works - Another important point of departure from the facts in the case of Infrasoft is the provision of "Source Code" & "Object Code" of the supplied software to the client. After becoming a party to the Agreement on Trade-Related Page | 30 Aspects of IP Rights (TRIPs), India has significantly amended its IP laws to comply with various requirements set out in TRIPs. Article 27(1) of TRIPs states that patent protection for new, inventive and industrially applicable inventions must be available without discrimination based on the technical field of an invention. In respect of software, Article 10(1) of TRIPs mandates the protection of computer programs, whether in source code or object code, as literary works under the Berne Convention, to which India has also acceded. It is in this context that the importance of the provisions of the agreement making available the source & object codes to the licensee must be examined. These are the codes which can be used to adapt, customize and integrate the systems of the client with that of the assessee so as to enable the client to create/prepare/develop derivative softwares/programs or new products which can be used by the 'end users' or can be commercially exploited. Cl.2.1 (ii) r.w. cl. 3.1(b) of the agreement clearly provides that Infosys can "modify and prepare derivative works based on the Software [supplied by the assessee], including, without limitation, incorporating the Software in whole or in part, into Infosys's own products and developing new products based on the Software." This is a very powerful provision which gives the right to the client not only to create derivative works, but also to incorporate the software supplied by the assessee in the existing 'products' and 'new products' to be developed by the client. It is in the context of these 'products' that the provision of 'bonus' on the basis of feedback from the end-users must be looked at.

■ Copying Test - It has already been highlighted earlier that the client has been permitted to make unlimited copies/users as long as additional license fee is paid. Moreover, such additional license fee is no payable if the number of users exceeds 100,000. Furthermore, the client is at liberty to enable and allow its employees, subsidiaries and third party contractors working for it to use the software. Similarly, provision of source code permits the client to embed whole or part of assessee's software in the products developed by it so that the end users and other customers using client's software can use the assessee's software as well. It cannot be said that the licensee is copying the program onto its computer's hard drive or random access memory for making an archival copy. Provision of the source & object codes to the client ensures that the license granted by the Assessee is NOT limited to those necessary to enable the licensee to operate the program and in reality, is something more than it.

28. We find the Hon'ble Delhi High Court in the case of PCIT Vs. M Tech India Private Limited reported in 381 ITR 31 has held that where payments are 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 to be considered as a royalty. The relevant observation of the Hon'ble High Court from para 10 onwards reads as under :-

10. The Assessee had entered into a "VAR Agreement" with THPL.

Paragraph 1.1 of the said agreement expressly indicates that THPL had appointed the Assessee (described as VAR) to "market and sell the products" in the Territory. Article 2 of the said Agreement provides for "VAR's Obligations". Clause (a) of paragraph 2.1 of Article 2 expressly provides that the Assessee "Shall promote, market and sell the Products in accordance with a business plan which shall be submitted to Trak within three (3) months of the effective date of the Agreement". Paragraph 4.2 entitles the Assessee to, inter alia, use the software and source codes for a limited purposes to sell and promote the software for use by third parties; demonstrate the software to third parties; and to customise the software for the purposes of End Users. The said agreement further contains a number of covenants to ensure that the Intellectual Property Rights in respect of the software, related material and source codes remains with THPL. A plain reading of the aforesaid agreement indicates that the Assessee has appointed for the purposes of reselling THPL's software.