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Income Tax Act, 1961: s.195 – Amount paid by resident in India to non-resident foreign software suppliers – Liability to deduct tax at source – Held: In view of the definition of royalties contained in Article 12 of the DTAAs, there is no obligation on the persons mentioned in s. 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright – The amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and same does not give rise to any income taxable in India, as a result of which the persons referred to in s.195 of the Income Tax Act are not liable to deduct any TDS under s.195 of the Income Tax Act. Income Tax Act, 1961: s.194E and s.195 – Distinction between – Held: s.194E of the Income Tax Act belongs to a set of various provisions which deal with TDS, without any reference to chargeability of tax under the Income Tax Act by the concerned non-resident assessee – This section is similar to s.193 and s.194 of the Income Tax Act by which deductions have to be made without any reference to the chargeability of a sum received by a non-resident assessee under the Income Tax Act – On the other hand, at the heart of s.195 of the Income Tax Act is the fact that deductions can only be made if the non resident assessee is liable to pay tax under the provisions of the Income Tax Act in the first place.Income Tax Act, 1961: Applicability of Income Tax Act, 1961 when DTAA applies – Held: Once a DTAA applies, the provisions of the Income Tax Act can only apply to the extent that they are more beneficial to the assessee and not otherwise – Further, by explanation 4 to s.90 of the Income Tax Act, it has been clarified by the Parliament that where any term is defined in a DTAA, the definition contained in the DTAA is to be looked at – It is only where there is no such definition that the definition in the Income Tax Act can then be applied. Income Tax Act, 1961: s.90 – Royalty – Meaning of – Held: As is now reflected by explanation 4 to s.90 of the Income Tax Act and under Article 3(2) of the DTAA, the definition of the term “royalties” shall have the meaning assigned to it by the DTAA, meaning thereby that the expression “royalty”, when occurring in s.9 of the Income Tax Act, has to be construed with reference to Article 12 of the DTAA – This position is also clarified by CBDT Circular No. 333 dated 02.04.1982 – Thus, by virtue of Article 12(3) of the DTAA, royalties are payments of any kind received as consideration for “the use of, or the right to use, any copyright” of a literary work, which includes a computer programme or software. Income Tax Act, 1961: s.9(1)(vi) explanation 4; s.195 – The question whether persons liable to deduct TDS under s.195 can be held liable to deduct such sums at a time when explanation 4 was factually not on the statute book, all deductions liable to be made and the assessment years in question being prior to the year 2012 – This question is answered by two latin maxims, lex non cogit ad impossibilia, i.e., the law does not demand the impossible and impotentia excusat legem, i.e., when there is a disability that makes it impossible to obey the law, the alleged disobedience of the law is excused – The “person” mentioned in s.195 cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by explanation 4 to s.9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute. Copyright Act, 1957: Copyright – Meaning of – Though the expression “copyright” has not been defined separately in the “definitions” section of the Copyright Act, yet, s.14 makes it clear that “copyright” means the “exclusive right”, subject to the provisions of the Act, to do or authorise the doing of certain acts “in respect of a work” – When an “author” in relation to a “literary work” which includes a “computer programme”, creates such work, such author has the exclusive right, subject to the provisions of the Copyright Act, to do or authorise the doing of several acts in respect of such work or any substantial part thereof. Copyright Act, 1957: s.14(b) – Right to use computer software – When, under a non-exclusive licence, an end-user gets the right to use computer software in the form of a CD, the end-user only receives a right to use the software and nothing more – The end- user does not get any of the rights that the owner continues to retain under s.14(b) of the Copyright Act read with sub-section (a)(i)-(vii) thereof – Thus, the conclusion that when computer software is licensed for use under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect – The licence for the use of a product under an EULA cannot be construed as the licence spoken of in s.30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in ss.14(a) and 14(b) of the Copyright Act. Copyright Act, 1957: ss.14, 16, 30, 52(1)(aa), 52(1)(b), 52(1)(ad) – Infringement of copyright – Held: No copyright exists in India outside the provisions of the Copyright Act or any other special law for the time being in force, vide s.16 of the Copyright Act – When the owner of copyright in a literary work assigns wholly or in part, all or any of the rights contained in s.14(a) and (b) of the Copyright Act, in the said work for a consideration, the assignee of such right becomes entitled to all such rights comprised in the copyright that is assigned, and shall be treated as the owner of the copyright of what is assigned to him – Also, under s.30 of the Copyright Act, the owner of the copyright in any literary work may grant any interest in any right mentioned in s.14(a) of the Copyright Act by licence in writing by him to the licensee, under which, for parting with such interest, royalty may become payable – When such licence is granted, copyright is infringed when any use, relatable to the said interest/right that is licensed, is contrary to the conditions of the licence so granted – Infringement of copyright takes place when a person “makes for sale or hire or sells or lets for hire” or“offers for sale or hire” or “distributes...so as to affect prejudicially the owner of the copyright”, vide s.51(b) of the Copyright Act – Importantly, the making of copies or adaptation of a computer programme in order to utilise the said computer programme for the purpose for which it was supplied, or to make up back-up copies as a temporary protection against loss, destruction or damage so as to be able to utilise the computer programme for the purpose for which it was supplied, does not constitute an act of infringement of copyright under s.52(1)(aa) of the Copyright Act – In short, what is referred to in s.52(1)(aa) of the Copyright Act would not amount to reproduction so as to amount to an infringement of copyright – s.52(1)(ad) is independent of s.52(1)(aa) of the Copyright Act, and states that the making of copies of a computer programme from a personally legally obtained copy for non-commercial personal use would not amount to an infringement of copyright – s.52(1)(ad) of the Copyright Act cannot be read to negate the effect of s.52(1)(aa), since it deals with a subject matter that is separate and distinct from that contained in s.52(1)(aa) of the Copyright Act. Copyright Act, 1957: Copyright owner’s distribution right and the right of the purchaser to further resale – Doctrine of first sale/ principle of exhaustion – Applicability of – Held: s.14(b)(ii) of the Copyright Act was amended twice, first in 1994 and then again in 1999, with effect from 15.01.2000 – After the 1999 Amendment, what is conspicuous by its absence is the phrase “regardless of whether such copy has been sold or given on hire on earlier occasions” – This is a statutory recognition of the doctrine of first sale/principle of exhaustion. Words and Phrases: Expression ‘in respect of ’ – Meaning of – Also in context of explanation 2(v) to s.9(1)(vi) of the Income Tax Act – Held: The expression “in respect of”, when used in a taxation statute, is only synonymous with the words “on” or “attributable to” – Such meaning accords with the meaning to be given to the expression “in respect of” contained in explanation 2(v) to s.9(1)(vi) of the Income Tax Act, and would not in any manner make the expression otiose. |
