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A computer programme is a process when it executes instructions lying in it in passive state. Therefore, any consideration made for the use of process would amount to royalty. Explanation 2 has to be read as part and parcel of section 9(1)(vi) of the Act. Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1 (SC) applied.

The second proviso to section 9(1)(vi) carves out an exception from the main section exempting lump sum payment made by a resident for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Export, Software Development and Training, 1986 of the Government of India. It cannot stand on its own and hence cannot be held a substantive provision. Therefore, section 9(1)(vi) from the very inception included computer software for the purposes of royalty. If royalty income from the use or the right to use or transfer of all or any right (including the granting of the licence) in respect of copyright in computer programme was not taxable under section 9(1)(vi) of the Act, Parliament would not have prescribed a special rate of income-tax in respect of royalty income in respect of any computer software under section 115A(1A). The provisions of section 9(1)(vi) have to be considered in the light of the provisions of section 115A(1A) of the Act. The use of the expressions "in respect of copyright in any book to an Indian concern" or "in respect of any computer software to a person resident in India" in section 115A(1A) shows that for the purposes of income-tax copyright in "computer software" is IT(IT)ANos.1190, 1295/Bang/2014, 2845, 949, 950/Bang/2017, IT(TP)A Nos.374, 466/Bang/2013, 68, 205, 1299/Bang/2015, IT(TP)A Nos. 69, 191/Bang/2014, 559, 881/Bang/2016, IT(TP)A No.387/Bang/2017 different from copyright in any "book" though both are literary works under the Copyright Act, 1957.

It has been universally accepted that a literary work is entitled to copyright and wherefore, a literary work is entitled to be registered as copyright. In India, the provisions of section 2(o) of the Copyright Act, 1957, defines "literary work" as under:

"'literary work' includes computer programmes, tables and compilations including computer databases"

Therefore, "computer software" has been recognized as copyright work is also. Having regard to the above said definition of "royalty", we have to consider• the contents of software licence agreement entered into by the nonresident with Samsung Electronics and also the respondents IT(IT)ANos.1190, 1295/Bang/2014, 2845, 949, 950/Bang/2017, IT(TP)A Nos.374, 466/Bang/2013, 68, 205, 1299/Bang/2015, IT(TP)A Nos. 69, 191/Bang/2014, 559, 881/Bang/2016, IT(TP)A No.387/Bang/2017 in the case represented by Sri Ganesh, learned senior counsel and Sri Aravind Dattar, wherein it is a case of purchase, sale or distribution or otherwise of the off-the-shelf software. It is described as a "software licence agreement", wherein it is averred that customer accepts an individual, non- transferable and non-exclusive licence to use the licenced software program(s) on the terms and conditions enumerated in the agreement. It is further averred that the customer-Samsung Electronics- shall protect confidential information and shall not remove any copyright, confidentiality or other• proprietary rights provided by the nonresident. However, what is granted under the said licence is only a licence to use the software for internal business without having any right for making any alteration or reverse engineering or creating sub-licences. What is. transferred under the said licence is the licence to use the software and the copyright continue to be Jvith the non-resident as per the agreement. Even as per the agreement entered into with the other distributors as also the end-user licence agreement, it is clear that the distributor would get exclufive non-transferable licence within the territory for• which he is appointed and he has got right to distribute via resellers the software, upon payment of the licences set forth in exhibit A to the agreement only to end users pursuant to a valid Actuate shrinkwrap or other actuate licence agreement and except as expressly set forth in the said agreement, distributor may not rent, lease, loan, sell or• otherwise distribute the software the documentation or any derivative works based upon the software or documentation in whole or in part. Distributor shall not reverse engineer, decompile, or otherwise attempt to derive or modem the source code for the software. The distributor shall have no rights to the software other than the rights expressly set forth in the agreement. The distributor shall not mods or• copy any part of the software or documentation. The distributor may not use subdistributors for firther distribution of the software and documentation without the prior consent of Actuate. What is charged is the licence fee to be paid by the distributor of the software as enumerated in exhibit A to the agreement. Further, clause 6.01 of the agreement dealing with title states that the distributor acknowledges that actuate and its suppliers retain all right, title and interest in and to the original, and any copies (by whomever produced), of the software or documentation and ownership of all patent copyright, trade mark, trade secret and other intellectual property rights pertaining thereto, shall be and remain the sole property of Actuate. The distributor shall not be an owner of any copies of, or any interest in, the software, but rather is licenced pursuant to the agreement to use and distribute such copies. Actuate represents that it has the right to enter into the agreement and grant the licences provided therein and confidentiality is protected. Therefore, on reading the contents of the respective agreement entered into by the respondents with the non-resident, it is clear that under the agreement, what is transferred is only a licence to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement, as referred to above, and the nonresident supplier continues to be the owner of the copyright and all other intellectual property rights. It is well settled that copyright is a negative right. It is an umbrella of many rights and licence is granted for making use of the copyright in respect of shrink wrapped software/off-the-shelf software under the respective agreement, which authorizes the end user, i.e., the customer to make use of the copyright software contained in the said software, which is purchased off the shelf or imported as shrink wrapped software and the same would amount to transfer of part of the copyright and transfer of right to use the copyright for internal business as per the terms and conditions of the agreement. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of copyright or any part thereof under the agreements entered into by the respondent with the nonresident supplier of software cannot be accepted ............

"What is found, as a matter of fact, is that the assessee has been purchasing the software from Microsoft and sold it further in Indian market by no stretch of imagination, it would be termed as royalty."

Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright under the impugned agreements or licences cannot be accepted. Accordingly, we hold that right to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back up copy would itself amount to copyright work under section 14(1) of the Act and licence is granted to use the software by making copies, which work, but for the licence granted would have constituted infringement of copyright and the licencee is in possession of the legal copy of the software under the licence. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright and transaction only involves sale of copy of the copyright software cannot be accepted It is also to be noted that what is supplied is the copy of the software of which the respondent-supplier continues to be the owner of the copyright and what is granted under the licence is only right to copy the software as per the terms of the agreement, which, but for the licence would amount to infringement of copyright and in view of the licence granted the same would not amount to infringement under section 52 of the Copyright Act as referred to above. Therefore, the amount paid to the non-resident supplier towards supply of shrink-wrapped software, or oche shelf software is not the price of the C. D. alone nor software alone nor the price of licence granted. This is a combination of all and in substance, unless licence is granted permitting the end user to copy and download the software, the dumb C. D. containing the software would not in any way be helpful to the end user as software would become operative only if it is downloaded to the hardware of the designated computer as per the terms and conditions of the agreement and that makes the difference between the computer software and copyright in respect of books or prerecorded music software as book and prerecorded music C D. can be used once they are purchased, but so far as software stored in dumb C D. is concerned, the transfer of dumb C D. by itself would not confer any right upon the end user and the purpose of the C. D. is only to enable the end user to take a copy of the software and to store it in the hard disk of the designated computer if licence is granted in that behalf and in the absence of licence, the same would amount to infringement of copyright, which is exclusively owned by non- resident suppliers, who would continue to be the proprietor of copyright. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C. D. or the C. D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles separately from "computer" software within the meaning of the "copyright" as referred to above under section 14 of the Copyright Act.

Dassault Systems K K, In re [2010.1 322 ITR 125 (AAR) commented upon."

11.12. In Citrix Systems Asia Pacific Pty. Limited, In re (343 ITR 01)(AAR), the Authority ruled on the facts of the case that :-

"When a software is created by a person who acquires a copyright for it, he becomes the owner of that copyright. He can transfer or licence that right either by himself or through an agent. When he sells or licences the software for use, he also sells or licences the right to use the copyright embedded therein. If a software is used without being lawfully acquired either by purchase or by licence, that would amount to an infringement of the copyright because of the copyright embedded in the software. The software is a literary work and the copyright of the creator over the software is an important and commercially valuable right. So, whenever a software is assigned or licenced for use, there is involved an assignment of the right to use the embedded copyright in the software or a licence to use the embedded copyright, the intellectual property right in the software. It is not possible to divorce the software from the intellectual property right of the creator of the software embedded therein. Even the right to sell or give on rental, would amount to a copyright and would be a right to be dealt with as a copyright.