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2.Aggrieved by the orders of the AO.s,passed u/s.195(2)of the Ac,the assessees preferred appeals before the First Appellate Authority(FAA)and made elaborate submissions.Consider

-ing various clauses of the Contracts entered in to by the assessee with the suppliers,he held that the assessees did not own any rights for transferring the software licenses,that they were not having the power to decode the machine code of the software nor did they had the power to make copies of software(except for back-up),that they had obtained only the right to use the software for their business purpose and obtained no other rights in the Software,that the assessee had acquired the hardware and software simultaneously,that they did not acquire any right of duplication of software except for its own use.He also deliberated upon the provisions of the Indian Copyright Act,1957(ICA) and held that payment made by them for acquiring copy of the software did not amount to royalty within the definition under Article 12(3)of the DTAA.s.He referred to various clauses of the agreements entered into between the assessees and the vendors.Finally,he allowed the appeals filed by them holding that there was no obligation on part of the assessees to deduct tax at source for the payments made to the non-resident entities.

He further relied on section 14 of the ICA and submitted that to reproduce the work in any material form including the storing of it in any medium by electronic means covered under the definition of computer programme,that the assessee had stored or reproduced the software in equipment and therefore payment made by it for purchase of software fall under the definition of royalty,that as per section 30 of the ICA the assessee had received interest / rights to use the software and therefore the same fell under royalty,that there were no decisions which had considered section 30 of the ICA,that as per section 51 of the ICA copyright in a work would be deemed to be infringed when any person, without a licence granted by the Owner of the copyright did anything.He relied on the judgments of Synopsis International Old Ltd.(212 Taxman 454),Samsung Electronics Co. Ltd.(345 ITR 494) of Hon'ble Karnataka High and argued that payment made by the assessee for purchase of software was royalty payment,that it was liable to deduct TDS for the said payments,that the Hon'ble Karnataka High Court had considered the provisions of the ICA and had rightly held that payment made for use of software was copyright,that Hon'ble Court had also held that it was not necessary that there should be a transfer of exclusive right in copyright and where consideration paid was for rights in respect of copyright and for user of confidential informa - tion embedded in software/computer programme it would fall within mischief of Expl.(2)of section 9(l)(vi) of the Act and there would be a liability to pay tax,that facts of Ericsson's case were different from the judgments of Samsung and Synopsis, that the facts of the case under appeal were similar to the facts of Samsung (supra) and Synopsis (supra),that there were no contradictory decisions to those facts.He further argued that supply of hardware and software were of two different articles and relied on the decision of the Hon'ble Supreme Court in the case of M/s. PSI Data System Ltd. (Civil Appeal 491 of 1989.dated 17.12. 1996) and stated that for the purpose of custom and excise duties both the items i.e.- Hardware & software were separate,that for the purpose of income tax also, purchase of software was a separate item regardless of whether it was purchased standalone or was bought along with hardware.

XXXX 15.1.1 Subject to the terms of this Section 15, upon delivery of Software, Vendor hereby grants to Reliance or its Affiliates (and to third parties whom Reliance or its Affiliates had contracted to operate the Wireless Reliance Network on their behalf (and to the extent of the same) upon payment(of, or agreement to pay, the relevant license fees by Reliance and/ or its Affiliates, ajjerpetual, irrevocable, non-exclusive, unrestricted {within the Wireless RelianceNet\vork), unlimited (where specifically so identifiedin the relevant Documents), ro\alty-free license, to use such Software for the benefit of Reliance in connectionwith the Ownership operationand. maintenance of the Wireless Reliance Network in the Territory and the provision of relevant services in the Temton' to Reliance's customers. The Software shall beusedin accordance with therele\'ant Documents 15.1.4 Exceptas otherwise expresslyset forth in the Documents, Reliance shall use such Software only for the operation of the Wireless Reliance Network, oi\ in the case where the Software is purchased by or on behalf of Reliance Affiliates, for the operations of such Reliance Affiliates in the Wireless Reliance Network. The Software Licenses grant Reliance or Reliance Affiliates no right to and Reliance or Reliance Affiliates will not, sublicense such Software or modify, decompile, reverse engineer, or disassemble, or in any other manner decode Software furnished as object code for any reason. Reliance and Reliance Affiliates shall not copy the Software inchiding firmwwere except for the purposes of making a limited number of archival copies (for backup use in operating and maintaining the Wireless Reliance Network) in accordance with the Documentation and/ or the relevant Agreement, or as otherwise authorized in writing by the Vendor or as otherwise set out in the relevant Documentation. Except as provided below, no license is granted to Reliance to use the Software outside of the Territory. For {he avoidance of doubt, the changing bv Reliance or Reliance Affiliates of tables ami values in the Software, modification by Reliance and/or its Affiliates of the Software by using the tools provided in or with the Software or any modification, in accordance with and pursuant to the relevant Documentation, shall not constitute 'modification' of the Software provided always that Reliance ma\ only change, amend or modify Software which is designed for 'customer access' and to be so modified.

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 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.