Indian Kanoon - Search engine for Indian Law

Therefore, going by the principles as elucidated by the Technical Advisory Group of the OECD and the commentaries of renowned authors as well as the judicial precedents relied upon by the assesses, as referred to above, it Assessment Year: 2013-14 is apparent that the provision of software services cannot be said to be transactions for use of or right to use either any "process" or "equipment" by the appellant so as to render the amounts payable by the appellant to BT- Canada as "royalties" under the I.T. Act or the DTAA. The transactions are merely in the nature of provision of standard services. When we see from the perspective of the DTAA, it is trite that for any consideration to be taxed as 'royalties', it has to be first showed that the customer/payer has a 'right to use' of an right, information or property and secondly, such right, information or property should be in the nature of Intellectual Property Rights such as patent, formula, secret process, copyright or any other similar property. In the light of the various judicial decisions relied upon by the appellant, it is clear that amendment in domestic law does not affect the provisions of the tax treaty and even otherwise the said payments cannot be taxed in India subsequent to the amendments in the Act as the primary condition of right to use of equipment or process is not being fulfilled. Having said so, in the absence of right to use of equipment or the cloud server, the concept of cloud computing also cannot be invoked to tax the above said payments as royalties. There are enough judicial reliance that can placed on this proposition including the landmark judgement of the Hon'ble Supreme Court in the case of Azadi Bachao Andolan vs. UOI 263 ITR 706 (SC) where it has been unequivocally held that the interpretation given under the DTAAs ought to be given even where it is inconsistent with the provisions of the I.T Act. On going through the items for the purpose of which payments have been made by the appellant clearly shows that there was no 'use of' or 'right to use of' any right, property or information by the appellant. The nature of these items are clearly licensed softwares and applications, the cost of which has been incurred by BT-Canada and later recouped from the appellant. The Hon'ble Delhi High Court in Director of Income-tax vs. Infrasoft Ltd. [2013] 264 CTR 329 and Nokia Networks Oyj [2013] 358 ITR 259 has unequivocally held that payment towards software for self-use is nothing but consideration towards a copyrighted article but not towards right to use the embedded copyright. Strictly speaking, use of a copyright in a software for the purpose of commercial exploitation in terms of reproduction, sub-lisence etc. only would tantamount to royalties. Further, none of the payments have also been made towards use of any industrial, commercial, or scientific equipment.