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2018 (5) TMI 238 - ITAT DELHIIncome accrued in India - PE In India - supply of equipment - functions of expatriate employees of the group companies seconded to Nortel India - Held that:- Income of the assessee wherein from was not chargeable to tax in India and the question relating to the attribution of any part of such income to activities in India does not arise. Income from installation, commissioning and testing activities as well as any function performed by expatriate employees of the group companies seconded to Nortel India would be subject to tax in the hands of Nortel India and the same cannot be considered as income of the assessee therein. In view of our finding, the question of attribution of any income to the alleged PE does not arise Transfer of copyrights - whether will tantamount to sale of a product and not covered within the scope of ‘Royalty’ - Held that:- It is not the case of the revenue that the software involved in this case is independent of the functioning of the hardware. Revenue does not dispute the fact that in this matter the hardware and software are interdependent in the sense that hardware is useless without this particular software and the software cannot be used in any hardware other than the one for which it is permitted to be used. Thus we hold that the payment for the embedded software is not royalty and the receipts on account of sale of embedded software cannot be separately brought to tax Taxing of income from providing training services as fees for technical services under the provisions of article 12 of the DTAA - Held that:- What is sold is the telecom equipment embedded with specific software to run that equipment; and for such purpose the assessee claims to have imparted some initial training because without which training the purchaser cannot operate the equipment and this training is only one time job for the use of equipment only. Admittedly, the contract between the assessee and the GAIL is not a service contract and the assessee is not entrusted with the job of any supervision or maintenance of the equipment so that for such continuous supervision or maintenance the requisite skills are made available to the employees of the GAIL. In terms of Article 12(5)(a) of the treaty, payment received by the assessee for the training required for the employees of the Gail at the time of delivery of the product to acquaint them with the operation of the equipment does not amount to FTS and cannot be brought to tax Deduction for R&D expenses - Held that:- R&D expenses appear in the same set of accounts of the assessee from which the sales figures of the equipment have been adopted and a GP rate has also been applied on the basis of the same accounts; and there are several cases of foreign, equipment manufacturers and suppliers including Nokia Corporation, being especially in the Department and in all such cases R&D expenses are being allowed and net profit ratio has been adopted from global accounts of the assessee for the purpose of attribution of profits which means R&D expenses have been allowed in that case on the basis of the global accounts. Income from the supply of equipment is not taxable in India. Assessee's income from supply of equipment was not chargeable to tax in India, the receipts on account of sale of embedded software cannot be separately brought to tax and that the income from providing training services cannot be treated as fees for technical services under the provisions of Article 12(5)(a) of the DTAA, the question relating to attribution of any part of such income to activities in India does not arise. Conclusion that the Assessee does not have a PE in India, the question of attribution of any income to the alleged PE also does not arise
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