All posts by nangia
AMENDMENT EXTENDING THE LIMITATION PERIOD UNDER SECTION 201 NOT RETROSPECTIVE
Oracle India Pvt. Ltd. [‘the assessee’] was held to be an assessee in default and was re-issued a notice u/s 201(1)/(1A) dated January 20, 2015 for TDS defaults for the AY 2008-09. Subsequently, an order dated March 17, 2015 was passed treating assessee in default.
The said notice was premised on the amendment introduced in Section 201(3) vide Finance (No. 2) Act, 2014, whereby the limitation to treat an assessee as one in default was increased to seven years from the end of relevant Financial Year. Earlier, for the same assessment year, a notice had been issued under the same provisions on February 17, 2014. The Delhi High Court vide order dated December 5, 2015 [WP(C) 2061/2014] had quashed the notice holding that the said notice was time barred in view of the provisions of Section 201(3) as it then existed.Aggrieved by the reissuance of notice u/s 201(1)/(1A), the assessee filed a writ petition before Delhi High Court.
Before the High Court, the assessee relied on the Supreme Court ruling in the case of S.S. Gadgil v. Lal & Co.[53 ITR 231(SC)] which has been subsequently followed in several other decisions of the Supreme Court including K.M. Sharma v. ITO [254 ITR 772 (SC)] and National Agricultural Cooperative Marketing Federation of India v. UOI [ 260 ITR 548 (SC)]. Based on these rulings, the assessee argued that the limitation prescribed by the Income Tax Act was not merely a period of limitation but that it imposed a fetter upon the power of the AO to take action under the said provisions.
In this context, it was submitted that since the power in respect of AY 2008-09 expired on March 31, 2011 in terms of Sec 201(3) as it then existed, it could not be revived unless the legislature specifically made a retrospective amendment to the same. The substitution of Section 201(3) by the Finance (No.2) Act, 2014 was with effect from October 1, 2014 and not with retrospective effect.
The High Court noted that Revenue had re-issued the notice in an attempt to take advantage of the amendment to Section 201(3) which was brought into effect from October, 2014. Taking note of the co-ordinate bench ruling in assessee’s own case quashing issuance of original notice u/s 201(1)/(1A), the High Court held that those proceedings which had ended and attained finality with the passing of the order dated December 5, 2014 of this Court in WP(C) 2061/2014 cannot now be sought to be revived through this methodology adopted by the Assessing Officer. Even otherwise, insofar as the Financial Year 2007-08 was concerned, the period for completing the assessment under Section 201(1)/201(1A) had expired on March 31, 2015. In light of above, the High Court quashed the notice reissued and order u/s 201 and allowed assessee’s writ petition.
[Source: TS-406-HC-2015(Del)]
Consideration for online e-courses and information resources taxable as Royalty
SkillSoft Ireland Limited [‘the applicant’], a company incorporated in Irelandis engaged in the business of providing on demand e-learning course offerings, online information resources, flexible learning technologies and performance support solutions [‘products’]. The applicant entered into a reseller agreement with SkillSoft Software Services India Private Limited [‘SkillSoft India’]. Under this agreement, SkillSoft India had the right to license, market, promote, demonstrate and distribute products by providing online access to such products.
SkillSoft India bought the products from the applicant on a principal-to-principal basis and sold the same to Indian end users/customers in its own name. According to the applicant, it haddeveloped copyrighted products by using software and techniques, on several topics which were electronically stored on its server outside India.These products were licensed to Indian end users/customers under the master licence agreement between SkillSoft India and Indian end users. SkillSoft India granted to the Indian end users a non-exclusive, non-transferable license to use and to allow the applicable authorized audience to access and use products.The products consists of two components namely the course content and the software through which the course content is delivered to the end customer. Its e-learning platforms are not instructor driven and have no element of human interaction in the learning programs. The interaction is restricted to software enabled virtual interaction through text, images and graphics that are utilized to enhance the learning experience.
The question before the Authority for Advance Ruling [‘AAR] was whether payments received by the applicant on account of e-learning course offerings, online information resources, etc. is taxable as ‘royalty’under Article 12(3)(a) of the tax treaty?.
The AAR observed and ruled as under –
- The taxpayer argued that the payment received by the applicant is only in respect of a copyrighted article and no rights in the copyright are granted to the Indian end-users. The AAR referred to its own ruling in the case of Citrix Systems Asia Pacific Private Limited [343 ITR 1] wherein itconcluded that such distinction was illusory. The payments received from the distributor for sale of the software product were in the nature of royalty both within the meaning of Section 9(1)(vi) of the Income-tax Act, 1961 (the Act) and within the meaning of Article 12 of the relevant tax treaty.
- As regards thetreatment of computer programme and computer database as ‘literary work’ in terms of Article 12(3)(a) of the tax treaty, the AAR in the case of FactSethad held that the computer database fell within the scope of literary work and observed that by an inclusive definition in Section 2(o) of Copyright Act, 1957 computer programmes and computer databases were included within the ambit of literary work. SkillSoft products consist of the software through which the course content was delivered to the end customers who gained access to specially designed software for understanding of the content. Also, the applicant was marketing several copyrighted software containing simulation exercises, specially designed by them and are not available in public domain. Accordingly, the software and computer databases created by the applicant were included within the ambit of ‘literary work’ and thereforecovered under Article 12(3)(a) of the tax treaty.
- With regards to the grant of non-exclusive, non-transferable rights in the license the Karnataka High Court in the case of Synopsis International Old Limited [212 Taxman 454]had observed that the taxpayer had granted a non-exclusive and non-transferable license, without providing a right to sub-license, for the use of software and design technologies. In the present case also, the reseller agreement grants to the customer a non-exclusive, nontransferablelicense (without the right to sublicense). The High Court observed that merely because the words non-exclusive and non-transferrable are used in the license, it didnot take away software out of the definition of ‘copyright’. Further, even if it was not a transfer of exclusive right in the copyright, the right to use the confidential information embedded in the software in terms of the aforesaid license indicated that there was a transfer of certain rights which the owner of the copyright possessed in the said computer software/programme in respect of the copyright owned. It was not necessary that there should be a transfer of exclusive right in the copyright.In the present case also similar words were been used in the reseller agreement as well as the master license agreement. Therefore, irrespective of the use of the words like non-exclusive and non-transferable in the two agreements, there wasdefinitely a transfer of certain rights of which the applicant is the owner.
- The Karnataka High Court in the case of Synopsis held that under the tax treaty, to constitute royalty there need not be any transfer or any rights in respect of any copyrights, and it was sufficient if the consideration was received for the use of or the use to any copyright. In terms of the tax treaty, the consideration paid for the use or a right to use the said confidential information in the form of computer software programme itself constitutes royalty. Accordingly, the payment received by the applicant are in the nature of royalty under Article 12(3)(a) of the tax treaty.
Nangia & Co Experts Take on Budget 2016
NANGIA & CO EXPERTS TAKE ON BUDGET 2016
FM Arun Jaitley in his Budget 2016 speech outlined the nine pillars on the basis of which he hopes to enhance India’s economic growth.Let’s see what Nangia & Co tax experts have to say about Union Budget 2016.Views by Rakesh Nangia, Managing Partner, Nangia & Co.
![Pic_2](https://nangia.com/storage/Pic_2-150x150.jpg)
Views by Rahul Jain, Partner, Nangia & Co
![rahul_small](https://nangia.com/storage/2012/04/rahul_small.jpg)
Views by Amit Agarwal, Partner, Nangia & Co
![](https://nangia.com/storage/2012/04/amitagarwal.jpg)
Views by Nitish Sharma, Executive Director, Nangia & Co
![nitish](https://nangia.com/storage/nitish-150x150.jpg)
Views by Suraj Nangia, Partner, Nangia & Co
![image003](https://nangia.com/storage/image003-150x150.jpg)
Views by Sandeep Nagpal, Senior Manager, Nangia & Co
![Sandeep](https://nangia.com/storage/Sandeep.png)