Indian Kanoon - Search engine for Indian Law

12. Subsequently, on being called by the AO the assessee filed certain additional details. It was argued that Section 5 of the Master License Agreement (MLA) contains the terms of payment. The MLA has specifically made the bifurcation between license fees and service fees. As per the agreement the license fees is to be payable in the non-refundable installments which are required to be paid on the completion of each phase of software development. However, service fees will be charged for the further maintenance of the software, if required. Service fees will not be charged for the first twelve months from the completion of contract and thereafter maintenance fees will be charged as per the terms and conditions given in the agreement. It was submitted that the services are required to be rendered for customization of the said software for the use and facilitation of Page | 13 any customer. As the softwares are Standard forms, the customization is necessary considering the diverse situations. Also, a regular backup of trouble shooting is necessary if there are any unintended bugs / problems. The assessee company aims at trouble shooting from the USA establishment. For this purpose, it has a ready support services on a 24 X 7 basis. The problems of the clients are aimed at being sorted out on an offline basis. However, in case of necessity, the executives are required to visit the clients establishments and fix the problems. For all these jobs, separate service charges are levied.

d) The software for which license is granted is not a "same for all customers" software, is also confirmed from the fact that there are detailed acceptance procedures set out. There should be no question of acceptance / rejection in case of a standard software. The software is run in the premises of the customer, for the customer to see whether it meets its criterions.

e) Customer can even go for certain enhancements as desired.

f) The supplier is required to keep the software, for which license is given, updated & maintained to be able to keep on carrying out the processes as desired by the customer.

[cl. 2.1 (iv), p.271] of such software. The statement of work Page | 29 clearly highlights the duties and responsibilities of the assessee as that of an integrator who customizes and integrates the software supplied by it with the software developed by Infosys. Such customization and integration of both the softwares is a prerequisite for creating 'adaptations ' &'derivatives'. [cl. 2.1 (ii),p.271; cl. 3.1(b), p.272; cl. 4, p.273; Statement of Work, p. 295-296 and Exhibit-E, p.300] The above observation that the agreement is 'something more than a pure sale simplicitor' is further strengthened by the payment terms as per 'Exhibit-C' [p.293] which provides for payments on the basis of milestones/phases [also cl.3.1(a), p.272] as well as after 'Final Acceptance' by Infosys. In fact, there is a provision of payment of "Bonus" on completion of organization wide roll out and satisfactory feedback from the client as well as "End Users". All the above facts clearly proves that the agreement between the assessee and the client is not in the nature of a pure 'sale simplicitor' of shrink- wrapped/off-the-shelf software as claimed by the assessee but one of developing, customizing & integrating the software of the assessee with that of the client for the ultimate use by the end-users. This is one of the most significant differences between the facts in the case of Infrasoft & that of the assessee.

1. Elektrobit Automotive GMBH Vs. DDIT 2018-TII-166- ITAT-Del.

2. Pine Labs (P.) Ltd. Vs. Gemalto Terminals India (P) Ltd. & Ors. FAO (OS) 635 of 2009 order dated 03.08.2011

25. We have considered the rival arguments made by both the sides, perused the orders of the AO and DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case is engaged in sale of licenses of its software product called as Project Management Software (PMS). The PMS is considered as a BI Tool i.e. Business Intelligence Tool. It assists the users in regulating and effectively utilizing programmer's time on a collective basis with efficiency. We find the amount received by the assessee from its customers for sale of software products / licenses were treated by the AO as royalty and he taxed the same at applicable rate of tax. According to the AO and Ld. DR the software is delivered at the site of the end customer. There is a specific role out plan and installation and implementation Page | 40 programme. During the same the employees of the customer are given training on how to use the same. The services including updates, maintenance support etc are part and parcel of the contract. Once the license is granted the assessee is responsible to maintain it as it is their proprietary product. After granting of license, the assessee keeps on billing the customers. The software for use of which the license is granted qualified to be technical and commercial equipment. The application of various tests as regards of right to ownership, copying, commercial exploitation etc. clearly establish that the grantee/ license practically steps into the shoes of the owner/grantor/licensor and he enjoys the copy right to the extent of its grant to the exclusion of others. Therefore, the consideration received by the assessee falls in the category of royalty both u/s. 9(1) (vi) of the IT Act, 1961 and article 12 (3) (a) and article 12 (3) (b) of Indo US DTAA. 25.1 It is the submission of the Ld. Counsel for the assessee that the assessee being a USA company enters into agreements with the customers for sale of licenses. As per various clauses in the agreement the assessee retains the ownership of intellectual property rights relating to the software licenses sold to customers. The assessee permits the customers to merely use the software licenses for their business need. The assessee restricts its customers from duplicating/ adopting etc of the software products. It is the submission of the Ld. Counsel for the assessee that the moment restrictions are put regarding copying/duplicating/reproducing etc a copy right gets converted into a copy righted product. However, in the instant case, the Page | 41 assessee does not part with any copy right to the customers but merely extends a copy righted product to the customers. It is also his submission that unless and until a right protected under the copy right Act is not extended / shared with a party, and unless consideration is received for such a right, there is no case of any royalty for IT purpose. According to the Ld. AR the limb for sale / commercially rent as so made applicable for software, infact, ascribes copyright protection even in making of such use purpose copies. According to him the enhanced kitty of copyright protections for software, elevates the software family and makes the same highly protected from infringements. It is also his submission that the assessee has not transferred any rights for copying the softwares for commercial exploitation.