No TDS on License Fee paid for mere use of Copyrighted Article: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai bench has held that the payment made for mere use of a copyrighted article would not constitute ‘royalty’ and the same is not subject to TDS under section 195 of the Income Tax Act and as per the Indo-US tax treaty.

Assessee paid licence fee of USD 100,000 to M/s Fair Isaac International Corporation for acquiring a copy of the copyrighted article i.e “Blaze advisor” software. The assessee claimed that no TDS was required to be remitted for such payment under the DTAA between India and USA as the copyright of the software was not transferred to the assessee and therefore, the payment cannot be treated as ‘royalty.’

The Tribunal noted that the assessee had entered into the aforesaid agreement with M/s Fair Isaac International Corpn. for acquiring a non-exclusive, non-transferable, non-assignable and a non-sublicensable license to use the Fair Isaac Software Product viz. “Blaze Advisor” software for its internal business purposes, subject to the host of additional terms and limitations contemplated in the body of the said agreement.

It was held that “there is a clear distinction between royalty paid on the transfer of copyright right and consideration for copyrighted articles. In our considered view the right to use of copyrighted article or product with the owner retaining his copyright is not the same thing as transferring or assigning rights in relation to the copyright. Rather, we are of a strong conviction that for the enjoyment of some or all the rights which the copyright owner has is necessary to invoke the royalty definition. In the backdrop of our aforesaid observations, we are of the considered view that a non-exclusive and non-transferable license enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of India-USA DTAA. Rather, where the purpose of the license or the transaction is only to restrict the use of the copyrighted product for internal business purpose of the licensee, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent.”