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Showing contexts for: customized software in Aspect Software Inc., Usa vs Assessee on 18 May, 2015Matching Fragments
6. We have heard Mrs. Rashmi Chopra, the learned Counsel for the assessee and Shri. Sanjeev Sharma, the learned CIT, D.R. on behalf of the Revenue. We have also gone through elaborate written submissions filed by both the parties from time to time and perused the materials on record. We now proceed to dispose of the grounds raised by the assessee issue wise:
Ground No 2, 2.1 and 2.2
7. Ground 2 deals with revenue earned from supply of software taxed as "Royalty" under the Act and the Tax Treaty. The Assessee sells contact solutions to the customers in India which is combination of software and compatible hardware that enables the customer of Aspect US to answer customer request, log in complaints and route communications. The software and hardware both are integral parts of the solutions which the assessee sells to the customers and channel partners in India. While the hardware is sold, the software is licensed. With respect to software, the customer is granted partial rights permitting the use of software for internal use. The Assessee has submitted before the AO that, the revenue received from sale of software embedded with hardware is not taxable in the hands of the assessee as royalty under the provisions of the Act or under the Tax Treaty relying on the prepositions laid by the Hon'ble Delhi High Court in the case of DIT vs. Ericsson A.B. (343 ITR 470) and by the Delhi ITAT Special Bench in the case of Motorola Inc (95 ITD) on the subject. The assessee contended that the payment for software is for a copyrighted article and not for the copyright right and hence it is not taxable under Article 12 of the Tax Treaty.
10. The learned counsel for the assesee submitted that, the Assessee sells contact solutions and enterprise workforce optimization solutions (herein after referred to as "product" or "contact solutions"), to the call center companies in India and other countries. The contact solution is a combination of both hardware and software components that enables the customer of Aspect US to answer customer request, log in complaints and route communications. The customer buys a complete solution which is manufactured outside India. The software and hardware are both integral parts of the contact solutions which the assessee sells to the end user and Channel Partners in India. The contract is between Aspect US and the customer directly. The software is provided on a Compact Disk and is shipped directly to the end user/ Channel Partner as the case may be. In support of her submissions, the learned Counsel invited our attention to the invoices raised on customers and to Clauses 1 and 5 of the agreement between Aspect US and Infovision Information Services (P) Ltd (page 83 to 116 of PB 1) forming part of paper book-I, to demonstrate that what is sold to the customer, is product comprising of hardware and software embedded in it. It was also submitted that the hardware and software sales are made outside India by Aspect US and the title and risk of goods is passed to the end customers outside India. Therefore, in view of the decision of the Hon'ble Jurisdictional High Court in the case of DIT vs. Ericsson A.B. ( Supra)
(b) Some customers purchased license for the software from the assessee without purchase of the equipment: Only 8 customers out of a total of 63 customers have been sold software exclusively, implying majority of customers having purchased both hardware and software. Even this minority pertains to certain upgrades etc. which have been provided at cost. A selective sampling by the learned DR cannot be the basis to argue that software is being sold independently. Even otherwise, the question of whether software is embedded or not, becomes academic as in either situation the jurisdictional High Court in Nokia, Ericsson and Infrasoft decisions (SUPRA) has held that the payment cannot be royalty.
34. For the year under appeal, the assessee has contracts with 63 customers in India for supply of contact solutions and licensing of embedded software. The products are sold to customers in two ways: (i) directly to end users and (ii) through channel partners (i.e. resellers and distributors). Further, 8 out of 63 customers have been sold software exclusively, implying a majority of customers having purchased both hardware and software. Sample copies of the agreement with the end user and the channel partners along with invoices have been filed before us.