Payments for software deemed to be for copyrighted articles are not taxable as royalty, as established by precedent concerning copyright transfer under tax law.

JUDGMENT :

K. V. ARAVIND, J.

Heard Sri E.I. Sanmathi, learned Senior Standing Counsel for the appellants–Revenue, and Sri T. Suryanarayana, learned Senior Counsel appearing for Smt. Tanmayee Rajkumar, learned counsel for the respondent–assessee.

2. These appeals by the Revenue are directed against the common order dated 03.09.2021 passed in ITA Nos. 1311 to 1313/BANG/2018, pertaining to the assessment years 2009-10, 2010-11, and 2012-13, by the Income Tax Appellate Tribunal, Bengaluru (for short, ‘the Tribunal’).

3. Since the substantial questions of law involved in these three appeals are common, they are heard together and are being disposed of by this common judgment.

4. The Revenue has raised the following substantial questions of law:

1. 'Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in by holding that the payment made to non-resident entities in respect of purchase of software was not royalty and that the same did not give rise to income taxable in India and therefore, the petitioners were not liable to deduct tax at source under Section 195 of the Act?

2. Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in holding that the payments made to non- resident entities were not in the nature of royalty as defined in Explanation 2 to Section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement as well?

3. Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in holding that the sale of software license did not include a right or interest in copyright, which thus did not give rise to payment of royalty and would be an Income deeded to accrue in India under Section 9(1)(vi) of the Act, requiring the deduction of tax at source?

4. Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in not considering the fact that the development of advanced cloud-based computer software by the assessee would not come under copyright as envisaged in Section 14(a)/14(b) of the Copy Right Act?

5. Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in not appreciating that conditions for holding applying Explanation 2(v) to Section 9(1)(vi) of the Act were fully satisfied in present case as payments were made to a non-resident by way of royalty for use of or the right to use any copy right and Review Petition filed by Revenue is pending for adjudication before Supreme Court in case Engineering Analysis Centre of Excellence (reported in 432 ITR page 471)?

5. The respondent–assessee is a foreign company engaged in the business of marketing and servicing data processing equipment. The assessee filed returns of income for the assessment years 2009-10, 2010-11, and 2012-13. During the course of scrutiny, the Assessing Officer held that the assessee had transferred copyrighted software for the purpose of making further sales, and accordingly held that the income was taxable as royalty under Section 9(1)(vi) of the Income-tax Act, 1961 (for short, ‘the Act’). The assessee, however, contended that what was sold was a copyrighted article and not the copyright itself. The Assessing Officer rejected this contention and held that there was a transfer of copyright between the end-user and the copyright holder, and that the payments made by the end-users for the subscription of the software fell within the ambit of Section 9(1)(vi) of the Act as royalty, and were, therefore, chargeable to tax in India.

6. The finding of the Assessing