Receipts for Transfer of "Copyright" by a Non-Resident (not having a PE in India) to a Resident in India are taxable in India as 'royalty'. However, the Transfer of "License" is not. Hence the question comes as to what is a "Copyright" and what is a "License" in a copyrighted article. Let's analyse incase of software. For a transfer of license, the following are the criteria which may be proved-
(i) Non-exclusive use - The software can only be used by the transfee by installing it on a particular computer hardware.
(ii) Non-exclusive use - The software cannot in any manner be reproduced for sale, publication, disclosure, rent lease modify, loan, distribution, etc. It cannot be altered.
(iii) Nontransferable license - The software may be in the form of an End-User-Licence to the transferee.
(iv) The software cannot be modified other than customised for the user slightly.
(v) There is no right in the copyright of the end-user.
(vi) The software license though may be supplied for a lifetime.
On the other hand, For a transfer of 'copyright', the following are the criteria which may be proved -
(i) Software can be reproduced i.e. it can be used even on other computer hardware.
(ii) The software may be transferred with a copyrighted agreement.
(iii) The software can be modified by the transferee
(iv) The software can be supplied to someone else.
It was held in the case of QOGNIFY PTE LTD Vs DEPUTY COMMISSIONER OF INCOME TAX [2024-VIL-1547-ITAT-CHE] that the fact that 'no title or ownership' of the software or software documentation was transferred to the transferee by the transferor; the ownership of the software documentation, modification, enhancement, improvements, adaptions shall remain at all times with the transferor. Therefore, a conclusion cannot be drawn about treating the transfer as a sale of copyrights to consider taxable under the head 'royalty'.
The Hon'ble ITAT In support of the claim of the assessee, relied on the decision of Hon'ble Supreme Court in the case of Engineering Analysis and Centre of Excellence Pvt Ltd vs CIT [Civil Appeal No. 8733 to 8734 of 2018], wherein it has been held that payments made to the supplier of software would constitute royalty, only if the copyright or ownership of software part with any of the rights/interest as specified in section 14(a) and 14(b) of the Copyright Act, 1952. The Hon'ble Supreme Court has further held that the consideration for the mere use of software for the purpose for which it was supplied does not amount to royalty for the use of copyright in the software.
CAclubindia
