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18. On the basis of the findings/observations recorded by him, the CIT(A) held the income earned by the Assessee company from software licence is in the nature of royalty both under the domestic law and the DTAA and thus upheld the order of the AO holding the Income from software licence chargeable to tax in India as royalty under Section 9(1)(vi) of the Income Tax Act, 1961 read with Article 13 (Sic Article 12) of the DTAA.

19. Aggrieved by the order of the AO as confirmed by the CIT(A), the Assessee Company filed an appeal before the Income Tax Appellate Tribunal (ITAT for Short). ======================================================================= The ITAT noted that the amount received by the Assessee company had been treated as royalty income by the AO and the CIT(A) on the basis of Explanation 2 to Section 9(1)(vi) of the Act holding that there was transfer of some rights (including the granting of a licence) in respect of the copyright. The ITAT noted the stand of the Assessee company that there was no transfer of any right in respect of copyright by the Assessee and it was a case of mere transfer of a copyrighted article. The ITAT noted that if the payment received by the Assessee Company was for a copyright then it would classify as royalty both under the Income Tax Act, 1961 and under the DTAA. However, if the payment was for a copyrighted article then it would represent the purchase price of an article and could not be considered as royalty either under the Act or under the DTAA. The Tribunal noted the decision of a Special Bench of ITAT in the case of MOTOROLA INC., ERICSON R ADIO SYSTEM AB AND NOKIA ======================================================================= NETWORKS OY VS . DEPUTY CIT (2005) 147 TAXMAN 39 (DEL.). The Tribunal noted that the Special Bench of ITAT referring to the definition of "copyright", as given in Section 14 of the Copyright Act, 1957, had noted that the right mentioned in sub-clause (ii) of clause (b) of Section 14 was available only to a computer programme and if the licensees did not have any of such rights, as mentioned in clauses (a) and (b) of Section 14, it would mean that they did not have any right in the copyright and in such cases, the payments made to them could not be characterized as royalty under the Act for DTAA. The ITAT noted that the Special Bench of the Tribunal in the case of MOTOROLA INC. ( SUPRA), had held that since the licensees were not allowed to exploit the computer software commercially, they had acquired under licence agreement, only the copy righted software which by itself was an article and not any copyright therein. The ITAT relying on the judgment in the case ======================================================================= of MOTOROLA INC. (SUPRA), noted that in the case of the Assessee company, the licensee to whom the Assessee company had sold/licensed to the software was allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licensees was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub-licence or transfer the copy of software to any third party without the consent of Infrasoft. The licensee had been prohibited from copying, de-compiling, de-assembling, or reverse engineering the software without the written consent of Infrasoft. The ITAT further noted that the licence agreement between the Assessee Company and its customers stipulated that all copyrights and intellectual property rights in the software and copies made by the ======================================================================= licensee were owned by Infrasoft and only Infrasoft had the power to grant licence rights for use of the software. The ITAT further noted that the licence agreement stipulated that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorization device to Infrasoft.