INCOME TAX ACT, 1961

Section 9(1)(vi) Section 90

Double taxation relief - Agreement between India and UK - Royalty -

Ernst & Young Global Services Ltd. (EYGSL), UK was a limited liability company engaged in providing technology and other support services and software licences to member firms of the Ernst & Young network in various countries all over the world. All member firms, including Ernst & Young Global Services Ltd. (UK), used the brand Ernst & Young (EY). The Petitioner -- Ernst & Young Global Services Ltd. (UK) entered into contracts with various third-party vendors for the procurement of various software. It also entered into a contract with Ernst & Young member firms to provide support services and/or deliverables. AO held that the payment received by Ernst and Young Global Services Ltd. (UK) for providing access to computer software to its memberfirms of Ernst and Young Network located in India, i.e., EYGBS (India), amounted to 'royalty' liable to be taxed in India under section 9(1)(vi) as well as Indo-UK DTAA. Held: For payment received by Ernst & Young Global Services Ltd. (UK) from EYGBS (India) to be taxed as 'royalty', it is essential to show a transfer of copyright in the software to do any of the acts mentioned in section 14 of the Copyright Act, 1957. A licence conferring no proprietary interest on the licence does not entail parting with the copyright. Where the core of a transaction is to authorize the end-user to have access to and make use of the licensed software over which the licensee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as 'royalty'. EYGBS (India), in terms of the Service Agreement and the Memorandum of Understanding, merely received right to use the software procured by the Ernst & Young Global Services Ltd. (UK) from third-party vendors. The consideration paid for use of the same, therefore, could not be termed as 'royalty'. In determining the same, the rights acquired by Ernst & Young Global Services Ltd. (UK) from the third-party software vendors were not relevant. What was relevant was the Agreement between the Ernst & Young Global Services Ltd. (UK) and the EYGBS (India). As the same did not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term 'royalty'.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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