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"41. ...... The Income Tax Act does not specifically include the "computer software‟ in the term "literary work" and under such circumstances, if we apply the provisions of Income Tax to define the scope of „Literary Work‟, then perhaps the „computer software‟ will be out of the scope of the term royalty as defined under the DTAA. However, if we apply the Copyright Act, then the „computer software‟ will have to be included in the term „literary work‟ but to constitute „royalty‟ under the treaty, the consideration should have been paid for the use of or the right to use the copyright in the „literary work‟ and not the „literary work‟ itself.
'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 software, cinematograph films...'. Similarly, the DTAA Turkmenistan also defines 'Royalties' in Article 12 to mean : 'payments of any kind received as consideration for the use of or the right to use any copyright of literary, artistic or scientific work, ..... computer software, any patent, trademark...'. It is thus clear that wherever the Government of India intended to include consideration for the use of software as 'Royalties', it explicitly provided so ITA No(s). 2410/M/2007, 6449/M/2008 & 1718/M/2008 i2 Technologies( Netherland)BV in the DTAA with the concerned country. Since Article 13(3)(a) of the DTAA with UK does not contain any consideration for the use of or the right to use any 'computer software', the same cannot be imported into it.

51. The Ld. A.R. of the assessee, at this stage, has raised another important argument. He has submitted that the purchase orders for the softwares were made much prior to the year 2012. The dates of purchase orders have been mentioned in the 4th column of the table drawn in initial paras of this order. He has submitted that explanation 4 to section 9(1)(vi) has been inserted by Finance Act, 2012 with retrospective effect 01.06.1976, vide which the right for use or right to use a computer software including granting of license has been included in the definition of the term right, property or information, the consideration paid for which has been deemed to be income by royalty under section 9(1)(vi) of the Act. He has stated that the said explanation though preceded with the phrase ' it is hereby clarified and is followed by the words 'includes' and has always included' yet the said explanation cannot be applied retrospectively. He has stated that vide said explanation, computer software has been specifically added into the definition of right, property or information. However, prior to the insertion of explanation 4 to section 9(1)(vi), no such interpretation as has ever been done by any court of law to include computer software in the definition of right, property or information under section 9(1)(vi) of the Act. He has further invited our attention to sub clause (v) to Explanation 2 (as reproduced and discussed above) under which the consideration paid for the transfer of all or any rights in respect of any copyright in literary, artistic or scientific work was to be considered in the definition of royalty. He has further stated that the above clause (v) to Explanation 2 to section 9(1)(vi) as discussed above was in paramateria to the definition of royalty as provided under the treaty. He, therefore, has contended that in view of this, the assessee was not supposed to deduct TDS on the remittance made for the purchase of software prior to the bringing of amendment/insertion of Explanation 4 to the section 9(1)(vi) of the Act, as per the interpretation of the relevant provision done by various courts, the assessee was under bonafide belief that no TDS was deductable as the consideration paid for purchase off the shelf/shrink wrapped software would not fall in the definition of royalty. Even the above view of the assessee has been subsequently confirmed by the various decisions of the Tribunal in the own case of the assessee. He, bringing our attention to the orders dated 29.10.2010 (supra) and 26.11.2010 (supra) and also various other orders in the case of assessees in the earlier assessment years has contended that the different benches of the Tribunal have upheld the findings in relation to the interpretation of the provisions of section 9(1)(vi) made by the first appellate ITA No(s). 2410/M/2007, 6449/M/2008 & 1718/M/2008 i2 Technologies( Netherland)BV authority [CIT(A)] which has been summed up in the following points: ― (a) It is now established law that Computer software after being put on to a media then sold, becomes goods like any other Audio Cassette or painting on canvas or a book and that the Assessing Officer is wrong in holding that Computer software media, continues to be an intellectual property right and that the Assessing Officer was wrong in treating this computer software as a "Patent" or as "Invention‖ the payment cannot be termed as "Royalty". (b)That the definition of the term 'Royalty' in article 12(3) of the Indo-US DTAA is restrictive than what is provided in section 9(1)(vii) of the Income tax Act, 1961 that in such a situation the provisions of the Double Taxation Avoidance Agreement override the domestic law. (c) That the assessee has purchased a copyrighted article and not the copyright. There is no transfer of any part of copyright (d) As what is paid is not "royalty" under the Indo-US DTAA, and as it is covered Article 7, which deals with "Business Profit" and as the foreign party does not have Permanent Establishment in India, the same is not taxable in India and the assessee is not required to deduct tax at source from the said payment. (e) The present computer software cannot be treated as a patent or an invention.

53. The Ld. D.R., on the other hand, has stressed that since the Explanation 4 has been inserted with retrospective effect, hence the same should be read for the purpose of definition of royalty in the years in which the liability to deduct TDS had arisen.

54. We have considered the above submissions of the Ld. Representatives of the parties. Admittedly, as noted in 4th column of the table drawn in para 4 of this order, the purchase orders were made by the assessee for the softwares as mentioned in column No.5, prior to the bringing of amendment vide Finance Act, 2012, though the amendment has been made with retrospective effect from 01.06.1976. However, we find that the said amendment vide which the Explanation 4 has been inserted to section 9(1)(vi) has the effect of change in the law as was existing and even interpreted by the various higher courts of the country prior to the insertion of Explanation 4 in the said provision. By the introduction of the said Explanation 4, computer software has been specifically included in the definition of ‗right, property or information' which was never assumed to have been included by any court of law prior to the insertion of Explanation 4 vide amendment of Act of 2012. The Hon'ble Supreme Court in the case of ―Sedco Forex International Drill INC. & Others vs. Commissioner ITA No(s). 2410/M/2007, 6449/M/2008 & 1718/M/2008 i2 Technologies( Netherland)BV of Income Tax & another‖ (supra) has held that if an explanation added to a provision changes the law, then it is not to be presumed to be retrospective irrespective of the fact that the phrase used are ‗it is declared' or ‗for the removal of doubts'. As it is an admitted position that in the earlier years, not only the various High Courts but also the Tribunal in the cases of the assessee has taken a view that the consideration paid for the purchase of the software cannot be treated as royalty; the assessee was, thus, under the bonafide belief that no TDS/withholding of tax was required to be done in respect to said purchases. The assessee had no reason to believe or to foresee a subsequent event vide which the definition of royalty has been extended to include the consideration for the use of or right to use the software has been included in the definition of royalty under the Act. As per the existing law which was in operation at the time of purchase of software, the assessee was under the bonafide belief that there was no liability to deduct tax in respect of the consideration paid for the said purchase of software. It may be further observed that as the definition as was in existence before the insertion of Explanation 4, there was a remote possibility to give a broad interpretation to the definition of right, property or information so as to include the right to use or right for use of the software in the said definition. The Explanation 4 has brought and added a further meaning to the provision which was not supposed to be foreseen by the assessee. The co-ordinate bench of the Tribunal in the case of Rich Graviss Products (P.) Ltd. vs. ACIT (supra), while relying upon various other decisions of the Tribunal, has held that the disallowance cannot be made under section 40(a)(ia) on the basis of a subsequent amendment brought into the Act with retrospective effect. In view of this, even otherwise, the Explanation 4 inserted vide Finance Act, 2012 cannot be applied retrospectively to the case of the assessee as the said Explanation 4 has the effect of change in law and the assessee was not expected to foresee such change at the time of making the remittance in consideration of purchase of the software in question. Hence, under such circumstances, even otherwise, the assessee was not supposed to deduct TDS on such purchases."