Document Fragment View

Matching Fragments

3. At the outset, the learned Counsel for the assessee stated that CIT(A) has observed in Para 2.25 as under: -

"2.25 The appellant has merely supplied software to Reliance with the object code and the source code of the software vests with the Appellant. The object code is sufficient to carry out the desired functions on the software i.e. operating the software but this object code does not divulge any technical knowledge or trade secret of the Appellant. The ownership right of the intellectual property or know how or knowledge to produce the software remains with the Appellant. Accordingly, it is clear that no secret Formula or process or scientific experience is passed on by the appellant to Reliance. Arguments of the AO are therefore not accepted."
iii) the subject software had no independent value of its own,
iv) copyrights in the software were transferred to the customers,
v) access to the "source codes" in the software was granted to the assessee,
vi) the payment for software was not related to the productivity, use or number of subscribers,
vii) the customers did not have the right to commercially exploit the software,

7.1. We do not have even slightest doubt in our mind that the answers to questions number four and five, at paragraph 7, are plain and simple NO, if the agreements entered in to by the assessee with the non- resident suppliers of softwares are analysed. Similarly, remaining question will have positive answers. In the earlier paragraphs, we have summarised the main characteristics of the agreements. All the agreements stipulate that the assessee would be using the software for 'operation of its wireless network only'. Thus, it is clear that it was ITA No s . 5 04 / Mu m /2 0 10 & 19 3 4/ Mu m/ 2 01 4 prevented from utilising the software for commercial uses. Had the ultimate authority been with the assessee, it could have used the software in the manner it wanted. It could make copies of Software or the documentation or parts thereof for archival purposes only. Restriction on copying the software clearly establishes that the suppliers of the softwares were the sole and exclusive owner of the rights, title and property in Software and the Source Codes. Software Agreements forbid the assessee from transferring, assigning, sub-licensing, using by outsourcing, decompiling, reverse- engineering, disassembling/decoding the software. None of the agreement talks of transferring of copyright to the assessee by the suppliers - rather it is clearly mentioned in the agreements that copyright would remain with them. Agreements provide returning of the copies of the software to the vendors upon termination or cancellation of the agreements. So, we hold that the consideration paid by the assessee to the suppliers for acquiring copy of software was not for the 'use of copyright or transfer of right to use of copyright' the payment was made for the 'copyrighted article' and that the payments made by the assessee to the vendors of software cannot be taxed as royalty.